| 19.7°C Dublin

AIB and BoI risk state ownership, warns Honohan

ONE or both of the big two banks -- AIB and Bank of Ireland -- could be in majority state ownership for a time, governor of the Central Bank Patrick Honohan said last night.

Dr Honohan told RTE's The Week in Politics programme that he was not prepared to put a figure on the size of state ownership once the banks have been recapitalised to cover their losses on the transfer of property loans to the National Asset Management Agency (NAMA).

The recently appointed governor believes private investors will be keen to buy back the the State's holdings in due course.

"In one or two years, I expect the Irish banks, not only to be strong, but to have recovered confidence. Then, outside investors will be keen to buy the state shares in the banks."

It was not yet possible to say what the final cost of the bank rescue to the taxpayer would be, Dr Honohan said, but it was clear it would be "a lot".

"It will take a couple of years before we have a clear picture on the overall cost," he added.

With the Nama loans currently being valued, even their purchase price "is still very much up in the air".

Dr Honohan said the banks would have "a few years" before they had to meet stricter international rules for the amount of capital they hold in reserve. There are calculations that this could amount to €5bn for the big two, on top of €4bn they will need in the short term to cover losses.


"We need to position the Irish banks so that they are not weak institutions by the time international requirements for extra capital come into force in a few years' time," he said.

He repeated his personal view, expressed to the Oireachtas Committee on Economic Regulatory Affairs, that the banks should have taken a bigger share of the Nama risk than the proposed 5pc.

"But it is a marginal question," he said. "Additional capital will have to be found, presumably from the Government. That will strengthen the banks financially . . . but then they require a recovery in confidence among their own managers in their ability to make sound loans.

"They are very cautious at the moment and are charging more for loans because they feel they under-priced risk in the boom. I don't know if they are charging too much, but rebuilding confidence takes time."

He added that his comments to the Oireachtas Committee on an inquiry into the causes of the banking crisis were based on a clear expectation that there would be an inquiry at some stage.

Business Newsletter

Read the leading stories from the world of business.

This field is required

"A witchhunt is no good. We have to go behind glib statements and try to put our finger on the processes and structures that contributed to this."

Yesterday, Fine Gael MEP Gay Mitchell said he supported the idea of an inquiry.

"As the only Irish MEP on the European Parliament's committee examining the causes of the economic crisis at EU level, and a former chair of the Dail Public Accounts Committee, I believe this is the committee to carry out such an examination," he said.

Most Watched