The Fianna Fail TD for Sligo-Leitrim, Mr John Ellis, had total debts of around £500,000 arising from the disastrous meat business he established in the 1980s.
National Irish Bank settled a debt of £263,000 in return for a payment of just £20,000. Mr Ellis said in a statement yesterday that the then minister for finance, Mr Albert Reynolds, pleaded with the bank for leniency on his behalf.
The decision to settle Mr Ellis's debt was made by the then chief executive of NIB, Mr Jim Lacey. Mr Lacey was not available for comment last night.
NIB made a profit of £8 million before tax during the year in which it wrote off the debt owed by the Fianna Fail TD.
A spokesman for NIB said the bank could not comment on the affairs of an individual customer. However, he added that if it was being alleged that "the then management of NIB responded to political pressure to write off debts, we have no knowledge of any communications between the then CEO and any political party. The bank has no political affiliations."
Given the size of the debt, which had built up at NIB's branch at Ballinamore, Co Roscommon, the decision to write it off had to be approved by Mr Lacey. It may have needed board approval, although this could not be confirmed last night.
It is understood Mr Ellis had a number of accounts at Ballinamore NIB and had given personal guarantees for debts incurred by his company, Stanlow Trading Ltd. The company was set up in December 1985 and was dissolved in August 1993. "It was a total and complete mess," said one source.
Bankruptcy proceedings were initiated by NIB against Mr Ellis in October 1989. The settlement with the bank was finalised in January 1990.
The disclosure comes as another huge embarrassment for NIB, which is currently being investigated by two High Court-appointed inspectors.
The inspectors, Mr Justice John Blayney and Mr Tom Grace, are investigating overcharging of interest and fees at the bank, and the sale of unauthorised offshore bonds.
Mr Ellis's other creditors from the disastrous abattoir business he was involved with in Ballintra, Co Donegal, were farmers in Donegal and a number of marts.
Two marts which issued bankruptcy proceedings against Mr Ellis in 1989/1990 had their debts settled after Mr Ellis was given £26,000 in cash by Mr Charles Haughey, the then Taoiseach.
Mr William Armstrong, from Ballyshannon, Co Donegal, said he was owed around £21,000 for cattle he sold to Mr Ellis's company. He said Mr Ellis operated the Ballintra meat plant for only one summer, in 1986.
Mr Armstrong said he still had three cheques, for a total of £21,000. "There was no money to meet them. He [Mr Ellis] told me to hold on to them and I might get paid."
The cheques are from Stanlow Trading, the company which is now dissolved. Mr Armstrong had to sell off land to settle his debts.
A number of Donegal farmers wrote to the Taoiseach, Mr Ahern, a few years ago, but he did nothing, Mr Armstrong said.
Referring to Mr Ellis's settlement of his bank debt, Mr Armstrong said: "It's very funny that they let him off for a quarter of a million and they wouldn't let me off for £30."
