THE PARAMETERS under which the National Asset Management Agency will operate have become clearer with the publication by the Government of the price it will pay for the Irish banks’ bad property loans. The figures are eye-watering.
Taxpayers will pay €54 billion for loans valued on the bank books at €77 billion. The current market value of the loans, by the Government’s estimate, is €47 billion, meaning that taxpayers are deliberately overpaying by some €7 billion to cushion the impact on the banks’ battered balance sheets of absorbing their property-related losses.
The large financial risks being borne by the taxpayer as a result have also been spelled out. They turn on two assumptions. The first is that property prices will not fall significantly further than the 50 per cent decline seen to date. The other is that prices will recover by at least 1 per cent a year over the next 10 years. They could not be considered overly-optimistic assumptions, but neither is it a sure thing.
Over and above the financial risks is the possibility that Nama does not achieve what the Minister for Finance emphasised on several occasions is its ultimate objective: bringing about a resumption of normal lending by banks. The absence of any specific measures in yesterday’s Bill to ensure that the banks lend on the money they will receive from Nama seems a peculiar omission in this regard, particularly given the Government’s recent rhetoric on the subject.
The Minister, in a polished performance, acknowledged that Nama carries with it considerable risks but the risk to the economy of not acting to resolve the banking crisis is greater. His analysis is correct, if a little over-simplified.
Nama is just one of a number of possible solutions to the banking crisis. Credible alternatives have been put forward by the Opposition parties and other observers. It is a matter of debate as to whether they are more or less risky than Nama.
But Nama is the proposal with traction now. It is being debated on the floor of the Dáil. The point has been passed after which decisions must be taken and the Government’s chosen course is the Nama route. It has the qualified endorsement of both the International Monetary Fund and crucially the European Central Bank who will bankroll it.
The Opposition parties are to be commended for rigorously questioning the Government’s thinking on what is, after all, the biggest financial decision in the history of this State. and offering alternatives. The arguments will continue about the principle of the Bill for another few days but Fine Gael and Labour should then take up the Minister’s offer to accept constructive amendments at committee stage.
The Nama Bill is on the legislative table and the Opposition parties should not underestimate the major role they have to play in ensuring that this proposal to save our banking system is in the interest of the taxpayer.