THE STATE'S biggest mortgage lender, Irish Life Permanent (ILP), has completed a re-insurance deal with Swiss Re that will release up to €250 million in capital over the next three years.

The lender, which is not included in the Government capital injection plan, had previously indicated it was planning to sell insurance risk to release capital and reduce future funding needs. It said the deal with Swiss Re was completed at the end of November.

ILP has also confirmed the appointment of Ray MacSharry and Margaret Hayes as non- executive directors.

The group's mortgage arm, Permanent TSB, says it will adhere to new mortgage arrears guidelines agreed with the three banks covered by the Government's capital programme. This requires lenders to wait for six months before considering repossession.

In a statement yesterday, ILP said it has a "strong and flexible capital position" and its capital requirements were based upon the retail nature of its loan book, of which residential mortgages account for 88 per cent. ILP said its impairment provisions reflect the low-risk nature of its lending.

In November, ILP said its bad-debt charge would be 11 basis points, or 0.11 per cent of loans this year.

The lender expects a similar end-of-year core tier one capital ratio to the 10.1 per cent reported in the middle of the year.

Under the Government's recapitalisation plan the core tier one capital ratio for AIB will rise "over time" to between 8 and 8.5 per cent; close to 9 per cent for Bank of Ireland and 7.7 per cent for Anglo Irish Bank.

Core tier one capital ratio is seen as the key measure of a bank's ability to absorb unforeseen losses on loans.

Minister for Finance Brian Lenihan said yesterday that the three other Irish banks not covered by the recapitalisation plan - Irish Life Permanent, EBS and Irish Nationwide - could apply to the scheme.

Brokers said ILP could seek up to €500 million under the scheme at some later date.

ILP has also confirmed it is reviewing its business plan for the next three years with the Financial Regulator and the Department of Finance. ILP remains in talks with EBS building society over a possible link-up more than four weeks after the discussions were confirmed.

The talks are seen as a defensive move by ILP against a possible merger with a larger bank or a private equity firm taking control.