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Banks will need another bailout warns Honohan

Central Bank governor, Patrick Honohan has warned that the Government will have to pump additional money into the country's banks in the face of the deepening banking crisis.

The full cost of recapitalising the banks will not be clear for another few weeks as the National Asset Management Agency (NAMA) processes the purchase of loans from banks.

A recent report from Davy Research said that the banks would require a capital injection of €6.3bn, with AIB requiring the biggest portion of that figure at €4.1bn.


Yesterday the industry suffered an additional blow when Bank of Scotland (Ireland) announced a cost cutting plan with the closure of 44 Halifax retail branches in Ireland.

Mr Honohan said the cost to the taxpayer will be "sizeable", though the banks may raise some money themselves.

"It is pretty clear the Government will be acquiring additional equity stakes," he said.

Mr Honohan said that the Government will have to press ahead with reforming national debt in order to give a clear signal to the international markets.

Over the past two weeks, shares in the country's two biggest banks have tumbled as investors continue to fret about delays to NAMA, possible sanctions from the European Commission and the Government's likely move to increase its stake in the banks.

"One of the factors keeping the country's borrowing costs higher than they might be is the financial market's concern about the future costs of recapitalising the banking system," he said.

Speaking to a forum held for recent and unemployed graduates from Trinity College Dublin, Mr Honohan reiterated his belief that banks will urgently have to return to lending to businesses.


"This is something that they need to pay more attention to, not just for the sake of the economy, but for their own business performance in the years ahead when property-based lending will be on a much more limited scale," he said.

The Department of Finance have confirmed that the IMF has given its full backing to NAMA. The Department says the IMF agreed with Finance Minister Brian Lenihan that NAMA would not lead to a surge in lending to re-inflate the property boom.