THE €2 billion earmarked in the upfront bailout of the banks to help them sell off parts of their businesses should allow them to sell about €20 billion of assets.
A reduction in the size of the banks through so-called deleveraging is a central plank of the €85 billion EU-IMF rescue plan for the sector.
While banks must provide detailed plans by the end of April showing the assets to be sold, some assets may be sold off before then.
Under the EU-IMF programme agreed with the Government, the downsizing of the banks will be “actively managed” to avoid fire sales and market uncertainty.
The banking plan involves €35 billion being earmarked for lenders – some €10 billion of which will go to raising their capital levels to international standards, including the €2 billion to be used to help them sell assets, and the creation of a contingency fund of €25 billion to cover future bad loans beyond existing forecasts.
The €25 billion fund takes account of losses on buy-to-let property loans rising to 10 per cent – double the level projected by the Central Bank under previous stress tests last March – and residential mortgage losses rising from 5 per cent to 6.5 per cent.
Even under these higher stressed scenarios, the banks were estimated to require a maximum of €15 billion in further capital, but the international monetary authorities insisted on a further €10 billion being set aside as a contingency should bank losses exceed even these pessimistic forecasts.
Under the plan, the banks can draw on the contingency to pay for “credit enhancements” where lenders can offer guarantees or loss-sharing measures to cover first losses on any loans they sell off under the deleveraging plan.
Some €2 billion is being assigned initially to kick-start the process so that the banks can make their “non-core” assets attractive to potential buyers.
These measures are being applied to help the banks reduce the size of their businesses to bring their loans back in line with deposits so they can borrow in the debt markets again.
The Central Bank is poised to hire investment banking advisers over the coming weeks to work on the plans to shrink the banking sector.
As part of this plan, a further €16 billion in loans – about 10,000 loans – will be moved to the National Asset Management Agency from AIB and Bank of Ireland as the €20 billion threshold for eligible loans was dropped.
This will mean that thousands of small borrowers involved in development will now fall under Nama’s remit, though their loans will still be managed day-to-day by the banks for the State’s loans agency.
Under the bailout, the Government has agreed to sell down its stakes in the banks “within the shortest timeframe possible”.
