Business Irish

Saturday 7 December 2019

Lending to banks won't come under debts, says EU agency

Losses on secretive Central Bank lending will be limited

Emmet Oliver, Deputy Business Editor

The Government has been given a boost as the European statistical agency Eurostat is not to categorise Ireland's secretive bank lending as national debt, while also saying the Government's exposure to any losses is "likely to be limited".

The Central Bank is providing Emergency Liquidity Assistance (ELA) to a range of banks, but has refused to reveal which banks receive the funding each month.

In May, it emerged that Finance Minister Michael Noonan had given "comfort" to the Central Bank that it would not suffer losses on this money, which amounted to almost €50bn at the end of 2010.

However, this has created a contingent liability for the State in its accounts, but Eurostat, the key agency dealing with national debt figures, said: "Guarantees are considered to be contingent liabilities and are not included in government debt statistics until they are called."

Eurostat figures reveal that Ireland has three key contingent liabilities, covering NAMA bonds, the ELA and liabilities covered on the bank guarantee scheme. The ELA liability in April stood at €51bn, Eurostat figures show.

In the section dealing with ELA, Eurostat said: "It should be noted that the exposure of Government is likely to be limited."

Eurostat also states that the Government has no reason to record the ELA funds in its accounts.

"In this case, there are no elements to be recorded in the government accounts. The Central Bank is classified as a financial corporation, not part of Government, for statistical purposes and therefore its operations are recorded in the statistics with those of other financial corporations," the agency said.

Balance sheet

Despite questions from some international economists, the Central Bank has played down any danger from the extent of the lending, using its own balance sheet, saying it has taken collateral for the lending it is doing and discounted this security to ensure the chance of losses is further reduced.

"As with procedures for ECB eligible collateral, appropriate haircuts/discounts are applied with a view to ensuring that the (Central) Bank would not suffer any loss in the event of default on the loan assistance," it said in May.

"The bank has received formal comfort from the Finance Minister such that any shortfall on the liquidation of the collateral is made good," it added.

Irish Independent

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