Tuesday 25 April 2017

Get real and take losses, Elderfield tells banks

Financial Regulator Matthew Elderfield told the banks to take their losses on property loans now to
avoid dragging the economy into a lost decade like Japan.
Financial Regulator Matthew Elderfield told the banks to take their losses on property loans now to avoid dragging the economy into a lost decade like Japan.

Dara Doyle

THE new head of financial regulation has said the capital targets he has set for the country's lenders still stand even as turmoil reigns in global markets.

Matthew Elderfield, who took over in January, said the banks needed to "face up to reality" and take their losses on property loans now to avoid dragging the economy into a lost decade like Japan.

The watchdog has told Allied Irish Banks and Bank of Ireland to raise about €10bn by the end of the year to meet new capital requirements and create a buffer against losses as loans turn bad.

BoI is halfway through raising €3.54bn. Following expenses and an almost €500m payment to the State to cancel warrants that entitle it to 334 million shares in four years' time, the bank will have €2.9bn of additional capital -- in excess of Mr Elderfield's €2.66bn target for the bank.

"Face up to the pain rather than the Japanese model, where it's drawn out and it can inhibit growth," said Mr Elderfield. "You want to take decisive action."

Japan

Japanese lenders were forced to write off more than $1trn (€809bn) in a bad-loan crisis that spanned the 14 years to 2006.

In the 1980s, Japan's banks loaned billions of dollars to real estate and construction companies to buy and build rapidly appreciating properties in Japan and abroad. The property bubble burst in 1989.

Allied Irish plans to sell its stakes in M&T Bank in the US and Poland's Bank Zachodni WBK and its UK unit, consisting of a British business bank and its Northern Irish First Trust Bank, to help raise the €7.4bn capital requirement set by the Regulator. "My understanding is there's lots of interest in those assets irrespective of the current market situation," he said.

"Exactly what happens on asset sales, and other things may change the exact mix of ownership, but there is a very clear deadline to get to the targets."

Analysts largely estimate AIB will be able to generate in excess of €4.5bn from the sale of the three foreign assets.

Mr Elderfield's targets allow for potential future losses beyond those being taken on loans going to the National Asset Management Agency.

"Our job is to look at the glass half-empty," he said. "Banks haven't had a great track record of loan-loss forecasting. Maybe they end up with less losses than expected.

"If that's so, they'll have more in the tank." (Bloomberg)

Irish Independent

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