OECD admits figures for Irish bank assets were overestimated
Numbers helped inflate the costs of bank and NTMA bonds
Friday March 13 2009
THE Organisation for Economic Co-Operation and Development (OECD) has privately acknowledged to the Government that its widely-quoted figures on the size of Ireland's banking assets may not give an accurate picture.
The Irish Independent reported last week the Government had pointed out to the think-tank that its description in a recent economic outlook of Ireland's banking assets being 9.5 times the size of the economy was misleading and damaging.
The figure was much higher than the eurozone average, at 3.5 times, and nestled between Switzerland (6.8 times) and Iceland (10 times), where the banking system virtually collapsed last year. But when foreign-owned banks, mainly in the IFSC, are stripped out, the assets of Irish lenders -- at €575bn -- stand at three times gross domestic product (GDP).
OECD officials admitted to the Department of Finance that while the exclusion of foreign banks would lower the ratio, there are no comparable statistics available for other countries. They said that the Irish authorities were better placed to highlight what figures they considered relevant.
Market sources have said that the use of the higher, inaccurate figure by a number of international publications recently have affected banks' and the Government's dealings with international markets. This is at a time when international investors are already taking a very dim view of Ireland's finances, which has prompted the Government to pencil in April 7 for an emergency budget. The difference between the yields, or interest rates, on Irish and German 10-year government bonds yesterday reached 2.76pc yesterday -- the highest since February 1993. This could end up costing up to €500m in additional interest on the €20bn which the Government expects to borrow this year.
Traders
The widening spread has been blamed on bond traders betting that Ireland will default on its growing debt pile. A surge in the budget deficit has also undermined the bond markets confidence in the economy.
Goodbody economist Dermot O'Leary said the differential between Ireland and Germany had narrowed in the run-up to yesterday, with the bond spread falling by 0.1pc on Tuesday and Wednesday, possibly in recognition of the fact that decisions on spending and taxes are likely to be framed with a view to meeting a 9.5pc of GDP budget deficit target.
He said that the Government is correctly recognising that to restore international confidence in Ireland, it must at least attempt to meet the budget deficit target previously set.
Davy analyst Emer Lang said the impact of whatever measures are introduced will no doubt be scrutinised by the rating agencies. Standard & Poor's indicated last week that Ireland's 'AAA' rating is safe for the moment and Fitch has acknowledged that the chances of Ireland defaulting on its debt in the next 10 years are low -- no more than 1.5 in 100.
The National Treasury Management Agency has raised €10bn in two syndicated issues in January and February and aims to raise a further €15bn by the end of the year.
- Joe Brenna and Pat Boyle
