Central Bank Governor Patrick Honohan said the cost of recapitalising the country’s banks will be "manageable" for the Government.
Finance Minister Brian Lenihan has pledged to inject more capital into Bank of Ireland and Allied Irish Banks if needed after they sell loans to NAMA. The cost to the taxpayer will be “sizable,” though the banks may raise some money themselves, Honohan said.
“The recapitalisation will ensure that the banks are clearly seen as strong, financially self-reliant entities able to fund themselves in the market,” Honohan said in a speech in Dublin today.
It is “pretty clear” the Government will acquire further equity stakes in the banks, Honohan said, adding the cost will become “clearer over coming weeks.” The Government already controls a 25pc stake in the banks, after pumping €7bn into the lenders.
Bank of Ireland rose as much as 5.8pc in Dublin, and traded 2.5pc higher at €1.24 as of 12:12pm. AIB was unchanged at €1.12.
The difference in yield, or spread, between 10-year Irish securities and 10-year German bunds narrowed to 174 basis points today from 179 basis points yesterday.
“One of the factors keeping borrowing rates higher than they might be is the financial market’s concern about the future costs to the Government of recapitalising the banking system, Honohan said.
By resolving the lenders’ capital deficits, “the overhang of the banking situation will be removed.”