NAMA's €50bn bill may never arrive for taxpayers
THE taxpayer need not repay the €50bn in bonds NAMA will issue to take over bank property loans, because the banks will be happy to keep them for ever, the world's leading credit rating agency has said.
Moody's Investor Service gave a thumbs-up to the "ingenious mechanism" of the purchase of property loans by NAMA (National Treasury Management Agency).
It said Ireland's credit rating should soon stabilise and improved its view of one of the credit ratings it uses for AIB, Bank of Ireland and EBS.
"Ireland has put in place an ingenious mechanism -- with several successful historical precedents in other countries -- whereby a new agency swaps banks' troubled assets against government bonds," wrote Dietmar Hornung, vice-president and senior analyst in Moody's Sovereign Risk Group.
Rival agency Standard & Poors, said the plan marked a major step forward in the process of repairing and bolstering the balance sheets of the banks, but operating conditions for the banking industry remain weak.
"Our ratings on the Irish banks remain predicated to varying degrees on the willingness of the Government to provide support above and beyond that outlined, should this become necessary," S&P said.
The interest rate on 10-year Irish government debt fell five basis points (0.05pc) to 4.42pc yesterday -- the biggest fall among eurozone government bonds -- as IMF spokesman Gerry Rice said the Government's actions have been vital to maintain financial stability in Ireland.
Ross Abercromby, co-author of the Moody's report, pointed out that the banks can use NAMA bonds to borrow from the European Central Bank, they are not traded on financial markets and have no repayment date.
"This does not create re-financing risk for the Government -- it is unlikely that banks will ever force the Government to repay them," Mr Abercromby said.
There could still be some cost to the taxpayer, if NAMA's operations do not generate enough income to cover the payments to the banks and its own costs.
But their permanent status helps explain why Moody's think Ireland could remain in the 'double-A' rating category, even though total national debt will be 115pc of output (GDP) by the end of this year when the NAMA bonds are included (see chart).
"As the Government's debt trajectory has now become clearer, Moody's is closer to determining at what level in the Aa rating range Ireland's ratings are likely to settle," the agency said.
Moody's repeated its view that the big threat to Ireland's financial position is not the state of the banks but the future performance of the economy.
"Overall, we view this (NAMA) as a balancing act, the success of which -- including its impact on the Government's credit rating -- depends essentially on an early revival of the Irish economy," Mr Hornung said.