Noonan confident banks will not require more capital

Tuesday 11 February 2014 18.10
Michael Noonan said rising property prices would help bolster banks' balance sheets
Michael Noonan said rising property prices would help bolster banks' balance sheets

The Minister for Finance has said he is confident Irish banks will pass European Union stress tests later this year and will not require any extra capital.

Michael Noonan was speaking at the Reuters Euro Zone Summit, a series of interviews with top policymakers across the region.

He said the balance sheet assessment of the country’s main banks, conducted last year as a condition of leaving the EU/IMF bailout, would count as part of Europe's banking industry check-up.

But the European Central Bank will put the banks through their paces in the same way as other lenders in 2014 and Noonan said a rebound in property prices should help their balance sheets.

"With the rising property prices, we don't envisage capital being required in the Irish banks," Mr Noonan said.

"But the bottom line I suppose on stress tests is if you knew the answer before the stress tests, you wouldn't have to do the stress test," he said. "All the evidence that we have is that we won't require extra core Tier 1 capital."

However Mr Noonan said Ireland was also still holding out for European help in recapitalising its banks, arguing that it took a hit on behalf of Europe when it rescued the lenders.

Ireland's debt is 120% of gross domestic product, one of the highest levels in the EU, and help with recapitalisation and selling stakes it took in the banks would help bring that figure down.

"We have the promise that was made in June 2012 that there would be retrospective recapitalisation of the Irish banks to compensate us for the fact that, by not burning bond holders, we ensured that the Irish taxpayer protected the European banking system from any possible contagion," Noonan said.

"The promise was made and the commitment was reinforced by (German) Chancellor (Angela) Merkel in a meeting with our prime minister and subsequently reinforced in a meeting with (French) President (Francois) Hollande and our prime minister.

"So while we have had various members of the European bureaucracy saying that they couldn't quite see how one would give effect to this, we're not taking it off the table because we see it as solemn commitment made."

Mr Noonan said Ireland can take its time in deciding when best to sell down its stakes in the banks and it could test the waters by selling a small tranche in AIB in the next two years to establish a market price.

Bank of Ireland was the only lender to escape nationalisation and repaid €1.9 billion to the State last year. 

Mr Noonan said he would prefer Permanent TSB to have a stronger balance sheet to help lending to support the economy, which is expected to grow by about 2% this year.