NAMA may only be part of the solution to main banks' huge loan book debts
A COMMON misconception about the National Asset Management Agency is that it is taking on all the bad loans from the country's banks. In fact, the taxpayer is assuming responsibility for less than a quarter of the banks' enormous debt burden.
NAMA is taking loans from 1,000 large and medium-sized developers which means that it will own a cornucopia of fields, half-built office blocks, fully-built hotels and blocks of flats.
NAMA won't be taking control of the much larger number of loans used by companies to invest in equipment and factories, or the money borrowed by individuals to buy houses, cars and other consumer durables.
NAMA plans to take ownership of loans with a total value of €80bn while the combined value of the five NAMA banks' loan book is €362bn.
This means the bank loans that will pass into NAMA are somewhere between a fifth and a quarter of all the money currently lent out by those five banks and building society.
Some analysts and outside organisations, such as the Organisation for Economic Co-operation and Development, are concerned about the debt that remains on the banks' books.
While Allied Irish Banks appears in a much worse situation this week than rival Bank of Ireland, the fact remains that both banks have loan books of roughly equal magnitude, or €131bn each.
AIB has certainly been more reckless than its long-time rival when it comes to developers but it remains to be seen how much businesses and home buyers will actually repay.
All the banks have a miserable record when it comes to assessing the real likelihood of getting their money back. Why should we believe them now?
Their present "extend and pretend" policy may give hope to mortgage holders but the policy also delays the inevitable flood of forced sales that will have to come at some stage if the market is to ever bottom out.
OECD economist Christophe André last month called for a targeted scheme for those unable to meet their mortgage payments.
Before Christmas, the financial regulator said 44,000 people were in arrears. Others say the figure is now bigger.
Many other people have received so-called payment holidays and the like which mask the real number of people unable to pay their debts right now.
Goodbody Stockbroker's Dermot O'Leary has also called for some version of NAMA for residential mortgage debt problem.
"It is akin to the cost of the banking crisis.
"In many cases it costs more to do nothing than to deal with it upfront," Mr O'Leary said recently.
Some economists and housing experts believe such a scheme could be arranged for around €4bn.
Others say it would be much more expensive.
One thing is for sure, the banks' loans books will be further dented in the years ahead.
NAMA is likely to be only part of the solution to the banks' loan book woes.