New agency to manage banks' bad loans

Tuesday 07 April 2009 20.54
Brian Lenihan - Borrowers will have to meet obligations for repayment
Brian Lenihan - Borrowers will have to meet obligations for repayment

The Minister for Finance has said measures to address the issue of asset quality in the banking system are being brought forward.

Brian Lenihan said assets will be transferred from the banks to a National Management Agency to make sure that banks have a 'clean bill of health' and to ensure that their balance sheets are strengthened.

The measure will also reduce uncertainty over bad debts.

The Agency will be set up on a statutory basis.

Banks' land and development loans will be transferred to the new Agency.

Mr Lenihan said the potential maximum book value of loans that will be transferred to the Agency is estimated to be in the region of €80bn to €90bn.

He said these assets post the main systemic risk to the banking sector and that they are the main obstacle to the recovery and restoration of lending by the banking system.

The minister explained that the Agency will buy the assets through the issue to the banks of Government bonds.

This, he said, would result in a very significant increase in gross national debt to be offset by the assets taken in.

The cost of servicing this debt will be off-set, as much as is practical, from income accrued from the assets of the new Agency.

Mr Lenihan added that all borrowers will have to meet their full legal obligations for repayment.