Tuesday 21 May 2019

Let banks recoup some losses, IMF top expert tells NAMA

Brendan Keenan

A top expert from the International Monetary Fund who helped manage the rescue of failed banks in the US and Indonesia has recommended that the Irish banks be given the chance to recover some of their losses as part of the plans to set up the National Assets Management Agency (NAMA).

Decisions on Nama are expected to become more urgent this week as Anglo Irish Bank prepares to unveil the worst ever losses in the Irish financial industry tomorrow.

The bank is set to announce that more than half its "worst- case scenario" of €6bn in bad debts had to be set aside in the six months to March, with the total likely to exceed €3.5bn.

The six guaranteed banks will today provide details of their massive loan books to the steering committee which is working on the details of the NAMA scheme. The agency will concentrate first on the couple of dozen developers with loans of over €100m who make up the bulk of the problem debts.

Steven A Seelig, who is adviser at the Monetary and Capital Markets Department at the IMF, has been giving "invaluable" input to the committee, sources say. He believes something like NAMA would be the IMF's preferred option for the Irish situation.

Mr Seelig has recommended a scheme whereby the banks could recover several billion euro from NAMA on loans whose value has been recovered. He said this system worked well in the Indonesian banking crisis of 1997 -- one of the worst ever recorded.

There is a widespread view that NAMA will estimate the long-term value of the banks' €90bn development loans at around €70bn. Under this scheme, NAMA would then pay €63bn for the loans, with the banks able to get back the €7bn if it turned out the loans did have value.

"There is no loss to the Exchequer, because the money has been recovered, but it is a good way to align the interest of the banks with those of NAMA," one source said.

Mr Seelig is also on record as saying that only viable banks should be rescued. Anglo's results will put the bank's viability in question and it may need immediate funding from the taxpayer to meet legal limits on capital, and/or reductions in those limits now that it is nationalised.

The Government is considering whether Anglo should postpone repayment of €750m in debt. In theory, it need not repay until 2014, but normally creditors are able to get their money earlier if they wish.

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