Thursday 13 December 2018

State's bank stakes should be sold sooner rather than later - head of Ireland's debt management agency

The NTMA’s chief executive Conor O’Kelly. Photo: Tom Burke
The NTMA’s chief executive Conor O’Kelly. Photo: Tom Burke
Gavin McLoughlin

Gavin McLoughlin

The head of Ireland’s debt management agency has issued a stark warning about the country’s indebtedness, saying the bank stakes should be sold down sooner rather than later.

National Treasury Management Agency (NTMA) boss Conor O’Kelly said that we are reaching the peak of the investment cycle and the risk of a material fall in the shares’ value was greater at this point.

He said bond investors would have preferred the Government to have been running more budget surpluses. Despite the recent economic recovery, Ireland is still running a deficit.

“We have to recognise just how vulnerable we are in the medium- to long-term while our debt is still as elevated,” Mr O’Kelly said.

“Things can happen very quickly, the market can re-rate you very quickly. And that is very expensive and very material when you are as indebted a country as Ireland continues to be.”

He said the sooner the remaining bank stakes – 71pc of AIB, 14pc of Bank of Ireland and 75pc of Permanent TSB – begin to be sold, the better.

“Relying on the investment markets to be always there for you to provide you with liquidity can be difficult,” he said.

Mr O’Kelly was speaking as the NTMA published its annual report for 2017. The body expects Ireland’s annual interest bill to fall.

But even that smaller bill may prove harder to fund as the European Central Bank unwinds its quantitative easing programme – a massive bond-buying scheme designed to boost the European economy.

The scheme is set to be terminated at the end of the year – and will mean Ireland has a smaller pool of buyers for its debt.

Mr O’Kelly said this “is likely to have a fairly significant effect both on liquidity and pricing”.

He also warned about Ireland’s dependency on foreign borrowers to meet its funding needs.

“Ninety per cent of our borrowing essentially comes from international investors which makes us extraordinarily dependent on international funding for our debt,” Mr O’Kelly said.

“Many other countries have much stronger domestic savings markets and that changes the attitude that investors have towards a country. The more reliant you are on international markets the more volatile you can expect things to be.”

Mr O’Kelly said he recognised that policymakers had more things to consider than the opinions of international bond investors. But nevertheless, he said investors’ opinions are very important.

“They would prefer to see us running budget surpluses, earlier and more of them, and they would prefer to see us pay down debt at every opportunity.

“That’s a very reasonable position for them to take. We have to factor in how important their opinion is given the amount of debt that we have.

“It’s not the only thing that policymakers have to deal with, they’ve got a whole lot of different factors and we totally respect that. But from a borrower’s point of view I suppose we’re just reminding that investors do care about this.”

Mr O’Kelly said that while Irish debt ratios are improving, the country’s total nominal debt was still rising as Ireland continues to borrow to pay interest.

“This will limit our ability to absorb future shocks and therefore opportunities to pay down debt become even more important,” he said.

Separately, the NTMA announced yesterday that it would conduct a bond auction on Thursday in which it would seek to raise as much as €1.25bn.

Two bonds will be offered – one maturing in 10 years with a coupon (or interest rate) of 0.9pc, and another, maturing in 2045, with a coupon of 2pc.

The State Claims Agency (SCA) – the body which manages claims against the State for personal injury or property damage – comes under the NTMA umbrella.

It is managing almost 10,000 live cases – including 38 made to date as a result of the recent cervical cancer screening scandal.

“Managing these and other cases often requires exceptional levels of sensitivity,” the NTMA said.

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