Tuesday 20 February 2018

State will not charge for guarantee

Laura Noonan

Laura Noonan

IRELAND's banks will pay no extra premium for a six-month extension to the bank guarantee scheme, the Department of Finance confirmed last night.

The news comes after the Government yesterday announced that the state guarantee for certain bank debts and deposits would stay in place until June.

There was a €147bn covered by the guarantee scheme at the end of September, according to the Department of Finance.

The guarantee covers six Irish financial institutions and can only be extended with approval from the European Commission, which yesterday signed off on the plan.

The move marks the latest in a series of stays of execution for the bank guarantee scheme, and the Government yesterday left the door open to apply for a further extension next year.

The last extension, granted in September, included a significant hike in the cost of the guarantee as the Government tried to wean banks off the support.

The Department of Finance last night confirmed there would be "no" additional costs for the December to June period. "We'd still like to see the banks get off the guarantee," one source said. "But realistically it's probably a while away now, given what's gone on with the market."

The sentiments were echoed by Central Bank Governor Patrick Honohan who said he had "no hesitation in endorsing the extension".

Setback

"We have had a big setback since the sovereign debt crisis has emerged and sentiment moved against Ireland," he added. "That has definitely put back the time at which one would want to terminate the guarantee."

The three-month extension to December was largely designed to help banks who wanted to roll over some of the massive tranche of debt that matured in September.

The project essentially failed, as debt markets have remained effectively closed to Ireland in recent months forcing banks to replace maturing debt with loans from the European Central Bank.

Sources last night said helping banks to raise money was not the motivation for the latest extension. Analysts pointed out that banks stood little chance of raising private money even with the guarantee.

Banking sources, meanwhile, said that institutions have very small levels of debt maturing between January and June, with some major banks having less than €100m.

In a statement, Finance Minister Brian Lenihan described the extension as a "most welcome development" which will "underpin the Government's efforts to restore the financial system and support the funding position of the participating institutions".

Stockbrokers described the news as "unsurprising", given the brutal climate Ireland's banks are operating in.

Irish Independent

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