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Sunday 4 December 2016

Banks stop lending as rescue gets green light

Now NAMA can start spending €54bn of taxpayers' money

Emmet Oliver, Joe Brennan and Brendan Keenan

Published 27/02/2010 | 05:00

THE NAMA rescue plan was given the green light yesterday -- just as it emerged banks have effectively stopped lending.

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The European Commission gave the go-ahead for €54bn of taxpayers' money to be used to buy risky property loans from the banks so they can start lending again.

But the new figures from the Central Bank underlined the urgency of tackling the credit squeeze. They show lending dropped by €3.2bn in January alone to the lowest level since the financial crisis began 18 months ago.

And consumers were dealt a blow as Postbank -- which operates in 1,000 post offices -- announced it will close its doors at the end of the year, meaning a further reduction in competition among lenders.

The Central Bank figures will revive fears that business loans will be even harder to come by in 2010 as banks further tighten credit lines.

Officials in Brussels approved the establishment of the National Asset Management Agency (NAMA), which they maintained was in line with EU state aid rules.

Under the bank rescue plan, the Government will pay €54bn for risky property loans that had been worth €80bn.

The first €17bn of loans will move to NAMA in March, Finance Minister Brian Lenihan said yesterday.

These loans are held by the 10 largest developers in the country -- including Liam Carroll, Bernard McNamara and Sean Mulryan.

But Brussels warned that it would closely monitor the loans as they are being transferred to NAMA.

And officials said the Government had underestimated the legal costs associated with running the agency -- which had already been predicted to top €240m a year.

Bubble

EU Economic and Monetary Affairs Commissioner Joaquin Almunia said NAMA was key to cleaning up Irish banks' balance sheets.

"Ireland's financial sector has been one of the most affected by the global financial crisis in Europe and the bursting of the Irish real estate bubble has only compounded the problems," he said.

"This impaired asset measure, which is specifically targeted at real estate assets, is therefore key to cleaning up Irish banks' balance sheets.

"This is an important step towards the overall restructuring of the sector and its return to a normal and responsible functioning of the market," he said.

The five institutions taking part in the scheme include Allied Irish Bank, Bank of Ireland, Irish Nationwide Building Society, EBS, and the nationalised Anglo Irish Bank.

But the commission's decision -- which came with few conditions -- failed to help rally shares in AIB or Bank of Ireland. AIB was down 0.5pc at just 98.6c, with Bank of Ireland sliding 1.48pc to €1.

Now all eyes will be on AIB which is expected to post a €2.5bn loss for 2009 next Tuesday.

While this will mark a record for an Irish bank -- it is set to be shortlived, as Anglo Irish Bank prepares to unveil figures later in the month.

And in a blow to consumers, yet another bank announced it was closing its doors.

Postbank, the joint venture between An Post and the French bank BNP Paribas which operates in 1,000 post offices, is to close by the end of the year.

The move will mean up to 150 staff will lose their jobs.

Mr Lenihan said the commission's approval for NAMA was an important milestone.

"The EU approval confirms that the NAMA valuation methodology is robust, and this will assist NAMA to achieve its objective of obtaining the best achievable financial return for the State," he said.

He added that the transfer of loans to NAMA should be complete in the last three months of the year. Labour's Joan Burton said the commission's approval of NAMA came as no surprise as it was the only proposal put on the table by the Government.

The party's finance spokeswoman also claimed Commissioner Almunia was personally supportive of the NAMA approach.

Robust

"It is now up to the public servants who are involved in the NAMA process to ensure a robust valuation process that doesn't leave taxpayers exposed to billions in losses," said Ms Burton.

"With the cost of resolving the banking crisis expected to escalate, it is essential that everything is done to keep this cost to an absolute minimum," she said.

"There have been worrying reports of late that loans being transferred from Anglo to NAMA could be up to €4bn more than expected, potentially pushing the NAMA total closer to €60bn."

Irish Independent

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