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Maeve Dineen: NAMA forces local bankers to get tough

Some of our wealthiest doctors, solicitors, teachers and gardai must have breathed a sigh of relief last week when, amidst all the furore over bank nationalisation and the billions more going into Anglo, Finance Minister Brian Lenihan announced that loans of under €20m would no longer be transferred to NAMA.

The Department of Finance is now leaving smaller loans of less than €20m with the individual banks and only handing over large-scale property loans to the National Asset Management Agency.

The threshold for loans going to NAMA had previously been set at loans of €5m or more.

While most of our biggest and best-known developers are included in the top 20 loans in the agency, a lot of the smaller loans are made up of property syndicates involving some of the country's wealthiest doctors, lawyers, small-town builders and several members of the judiciary.

Many of the highest-paid figures from the legal and medical professions took out multimillion-euro loans to build up property portfolios during the boom years, but these properties have since collapsed in value.

Increasing the threshold from €5m to €20m means that AIB and BoI will now have to deal directly with these 650 "small- scale" developers who have debts that total €6.6bn.

Mr Lenihan argues that loans of this size "can be efficiently managed by the banks themselves through their network of local representation and relationships". This will certainly make the life of NAMA easier, and make it more likely to succeed in turning a profit on the larger loans. But is it wise to leave the very bankers whose misjudgments created the need for the agency in the first place to clean up the mess at local level?

The success of NAMA always depended on its ability to face down the lenders and property developers whose ill-fated dealings have contaminated the Irish banking system.

In drawing up the NAMA plan, economist Peter Bacon said the agency was a better way of attempting to resolve Ireland's property lending crisis, rather than ''relying on existing bank management and banker-developer relations, which have brought about the problems in the first place".

It would also be interesting to know the geography of these €20m properties. One assumes that there is a lot of housing and land outside of the main cities. It is also reasonable to assume that it includes a large chunk of the marginal sites, ghost estates and owners who have less experience and weaker or no business plans.

It seems unthinkable that the bankers who have existing relationships with these small-time developers will now try to face them down. Remember just three years ago this very same banker was throwing money at them to buy some innocuous field at the edge of the town for a ludicrous price.

Bankers are either at your feet or at your throat and these 650 small-town developers will soon find out that the bank manger who greeted them so cheerily three years ago will have changed his tune significantly now. Having failed to manage these relationships before, how are they going to do it now -- especially if it results in bankrupting the local doctor, solicitor or guard in the process?

The sums of money involved here are large, the losses will be large and the fallout for so many "pillars of society", who came to the property game late, will be considerable.

Irish Independent