Saturday 10 December 2016

Noonan to seek EU agreement on restructuring of bank debts

Fionnan Sheahan and Maeve Dineen

Published 21/03/2011 | 05:00

Taoiseach Enda Kenny at the Ireland v England match on Saturday. He will be attending the EU summit this week. David Maher/SPORTSFILE

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FINANCE Minister Michael Noonan will today begin to seek European agreement on the restructuring of some of the debts on the books of the Irish banks.

Mr Noonan will also try to pave the way for a restructuring deal on the bailout when he attends a meeting of finance ministers from the 16 other countries in the eurozone.

"Ireland will be seeking a restructuring of the programme and the debt," a government source said.

In return, the coalition will offer to look at the criteria on which corporation tax is charged -- but will insist the country's 12.5pc rate cannot be touched.

Taoiseach Enda Kenny will attend an EU summit later this week where the bailout and banks will be top of the agenda.

But a final deal may not be put together by the weekend as the Government awaits the conclusion of the stress tests into the banking system to discover the size of the black hole in the banks.

"Next week will be a stepping stone to a final deal," the source said.

The Government will argue the banking debt is preventing credit from being given to businesses and hampering economic recovery.

Aside from a cut in the interest rate on the bailout, the Government also wants EU agreement on the banking debt.

"The stress tests are a lot worse than we ever thought was possible," a source said.

The four main banks finished providing the information for the stress tests to the Central Bank at the weekend.

Bank officials are expected to be called in to discuss the information.

The Central Bank advisory board will meet this week to analyse the data.

Due to the stock market sensitivities of the data provided, little detail will be released until March 31.

But fire-sales of bank assets, such as foreign loan books, appear to be off the table.

The Irish stress tests are being done in tandem with a detailed investigation from American Consultancy group BlackRock solutions into the expected loan losses at the banks.

Calculate

The results of both will be used to calculate how much additional money is needed to prop up our banking system.

The last stress tests on Irish banks were undermined by a bank bailout just months after they were released.

Last week the Central Bank revealed details of the various scenarios being used to test the four banks.

Under the best case scenario, house prices declined 55pc, but under the adverse scenario, house prices decline just over 60pc from their peak.

Many commentators felt the scenarios were overly optimistic. International evidence suggests cumulative peak-to-trough house price falls of 50-70pc.

The Central Bank revealed stress-case forecasts on a range of other measures including GDP, inflation, employment rates and property prices.

Stress tests are predictions of what would happen to banks' loan books if the economic health of the country was to get better or worse.

The tests look at the likely effects on the quality of banks' assets and liabilities when, for example, interest rates rise or unemployment rises.

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