Monday 16 December 2019

Irish Nationwide and EBS to require larger cash injection

Watchdog factors in high unemployment and poor economic performance

Matthew Elderfield, the new
head of financial regulation, is
in intense discussions on the
capital needs of banks
Matthew Elderfield, the new head of financial regulation, is in intense discussions on the capital needs of banks

Joe Brennan

The State will have to inject hundreds of millions of euro more than previously estimated into Irish Nationwide and EBS Building Society, as the financial watchdog concludes a 'stress test' of their non-NAMA loans.

Irish Nationwide had previously estimated that a €2bn bailout would be enough to stomach discounts on loans it is sending to the 'bad bank'. EBS had told its members that it would require up to €400m from taxpayers to see it through the NAMA process.

However, well-informed sources say the Financial Regulator, who is overseeing a large 'stress test' of the domestic banks' and building societies' mortgage loans, is factoring in much higher unemployment and poorer economic and property price figures than expected by most commentators.

This will result in the two building societies requiring hundreds of millions of euro more, sources say.

Matthew Elderfield, the new head of financial regulation, is also in intense discussions with the institutions about the levels of capital they will be expected to hold on their balance sheets in future -- both under stress and base scenarios.

The growing consensus in the financial markets is that banks will have to hit an 8pc equity tier one capital ratio -- a key gauge of their ability to withstand a shock loss -- over the coming years.

While the country's lenders hope that they will be given until 2012, or even 2014, to hit this target, the fear is that Mr Elderfield will demand that they reach it sooner than that.

The result of the stress test and the capital targets are expected to be unveiled by Finance Minister Brian Lenihan when he gives a pivotal statement next week on the future of the Irish banking system.


Analysts estimate that Allied Irish Banks would need to raise about €4bn to meet an equity ratio of more than 6pc and that Bank of Ireland would require about €2.5bn to reach the same level.

In his first public address, Mr Elderfield said the banks would be set a "prudent target capital requirement that is informed by emerging best practice internationally."

It is understood that the financial watchdog is being assisted by the Government's own banking adviser -- investment bank NM Rothschild -- and accountancy firm PricewaterhouseCoopers in its sweeping probe of worst-case impairments.

It is possible that the regulator will take his lead from his UK counterpart in coming up with a minimum capital requirement under a stress-test scenario.

The Financial Services Authority told British lenders to test their businesses for two more years of recession and prove that their equity capital does not fall below 4pc as a result.

Irish Independent

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