Dublin’s upbeat assessment of banks ‘at odds with ECB’, says FF finance spokesman

The European Central Bank's view on Ireland's bank sector was "a far more sober one" than the position the Government is putting forward, Fianna Fáil finance spokesman Michael McGrath said yesterday.

His comments came as shares in Bank of Ireland dropped up to 5 per cent at one point yesterday in the wake of the latest warning from ratings agency Moody's about the health of Irish banks.

Mr McGrath yesterday released the text of letters exchanged between ECB president Mario Draghi and himself on the recent balance-sheet assessments conducted by the Central Bank.

“It is clear from the content and the tenor of the letter from Mr Draghi that the ECB continues to have concerns about key issues affecting the Irish banking sector, including the amount of bad loans they are carrying and the ongoing need to restructure their operations,” said Mr McGrath.

Highlighting outstanding issues that required to be addressed – the completion of the banks’ restructuring and reforms; addressing the still very large stock of nonperforming loans; and ensuring the viability of all nationalised banks – Mr Draghi wrote: “Resolving these issues will be crucial in order to ensure the emergence of a sound banking sector that will support the domestic economy in the coming years.”

Deeply concerned
Mr McGrath said he was was deeply concerned that Mr Draghi had raised a question about the "viability of all nationalised banks", adding that he could only assume he was referring to the State-owned Permanent TSB.

"His comments should be interpreted alongside the fact that a restructuring plan for Permanent TSB was first submitted to the European Commission in June 2012 and still has not been approved," Mr McGrath added.

In its report issued after close of business at the end of last week, Moody’s said lenders’ balance sheets face credit and capital risks as they head into ECB stress tests this year.

Irish banks’ lending quality is among the worst in western Europe, the agency said.

The ECB may ask the banks to set aside further provisions after it carries out its review this year, Moody’s said.

“The regulator will require banks to cover capital shortfalls within a timeframe, but with the exception of Bank of Ireland, we believe banks may face challenges raising capital in the markets,” Moody’s said.