Why agency wants to become a lender
Q: What is NAMA doing now? Isn't it supposed to just buy property loans off the banks?
Yes, but after buying the loans, it will end up sitting on €37bn worth of assets. It wants to sell these assets in order to turn a profit. But the property market in Ireland remains at a standstill, and NAMA wants to look at new ways of freeing up the market in the short term. That means putting willing buyers and sellers together, but the buyers need finance. Virtually no property buyers fund their purchases based on cash alone.
Q: What kind of ideas is the agency looking at?
We don't really know yet, as the organisation has just floated the general idea that it may provide loans so that sales of apartments, houses, offices and industrial buildings can happen a lot faster. The government would have to sign off on the new arrangements, as NAMA is effectively a state-owned agency.
Q: But why does NAMA need to lend any money, don't we have the banks to do that?
The banks are committed to fresh lending, but want buyers to put up more of their own money. However, in a declining economy buyers rarely have enough cash to do this -- leaving the whole market paralysed.
Q: So instead of AIB and Bank of Ireland, we will have a new NAMA bank?
Yes and no. NAMA will not be lending any money on its own and it cannot be categorised as a bank -- but it will get involved in providing loan finance. The exact mechanism has not been decided yet and the agency will need government support.
Q: But where is NAMA going to get the money to lend out?
NAMA, while not a bank, does operate like a bank in some respects. For instance it collects interest from borrowers, rent from properties it owns, and can borrow up to €5bn in its own right. It also has been disposing of properties over the last year bringing in fresh cash. As a result it is estimated it has €1bn of working capital and some of this could be used for lending.
Q: But wasn't NAMA meant to get bank lending moving again when it was set up?
It was, but the banks are in a far worse condition than anyone thought so their ability to lend has become very limited.
Q: Why is NAMA so worried about getting the property market moving, is there a danger of creating a new bubble?
That is possible if too much credit is injected into the market over a short period of time, but there is little danger of that at present. NAMA is allowed to hoard all the assets it has over many years, but sooner or later it has to start selling assets or else the market will never return to normality. The international markets are waiting to see what kind of prices NAMA might get for its properties so that the true level of prices will be known.