Saturday 17 March 2018

Watchdog probes capital demands of three State lenders

Joe Brennan

THE Financial Regulator expects to have completed reviews of the capital requirements of Irish Life & Permanent, Anglo Irish Bank and Irish Nationwide by September.

The watchdog has also begun conversations with foreign-owned institutions about their capital reserves. Three State-guaranteed lenders -- Bank of Ireland, Allied Irish Banks and EBS -- were told to raise a combined €10.9bn after the watchdog assessed their capital requirements in March against expected and stress-test loan loss scenarios over three years.

The stress-test part of the so-called Prudential Capital Assessment Review (PCAR) saw the three lenders tested against 5pc mortgage losses -- more than double analysts' estimates -- and 60pc losses on non-NAMA property loans in Ireland.

The regulator insisted banks raise enough capital to hit a 7pc equity tier one ratio this year under the expected scenarios, but that reserves not fall below 4pc in a stress situation.

Assistant director general of financial supervision Jonathan McMahon said yesterday that Irish Life & Permanent's PCAR should be completed next month, but that this could be pushed out if the group were to become involved in a deal.

IL&P is currently running the rule over EBS, which has set a bid deadline for July 2 for potential suitors. It is expected that IL&P will propose a merger between its weak banking unit Permanent TSB and EBS.

He said assessing the capital needs of Anglo is more complicated, as the bank is in talks with Brussels on a restructuring plan. The new management is hoping to split the group into an internal 'good bank' and 'bad bank', with the bad element wound down over time.

As things stand, Anglo believes it will need €22bn of capital -- including €14.3bn already pumped into it. But the figure would rise substantially if the EU demanded the entire bank was wound down quickly -- or if the property downturn and NAMA discounts turned out to be worse than expected. When it comes to foreign-owned institutions, the watchdog will apply PCAR-like tests to those with a retail banking presence, but more tailored stress-testing for IFSC institutions with various business models and market exposures.

Mr McMahon said it would be "surprising" if some foreign-owned banks didn't require additional capital, but added: "We're not expecting big numbers."

Irish Independent

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