IMF: Bank losses and IBRC wind-down could cost taxpayer another €16bn

THE SALE OF assets from the former IBRC to the National Asset Management Agency, and the prospect of continuing loan losses at the state-owned banks, could leave the taxpayer with a new bill of up to €16 billion, the IMF has claimed.

The Washington-based fund has said a ‘downside scenario’ where banks are unable to return to profitability and have to keep writing off more and more loans, combined with looses NAMA could make in the winding-down of IBRC, could force Ireland to offer yet another bailout for its banks.

NAMA is heavily exposed to the fluctuations of the property markets in Ireland and the UK, meaning the Irish government in turn faces significant risks if those markets do not recover.

The liquidation of IBRC – the combined former Anglo Irish Bank and Irish Nationwide – will see NAMA buy whatever assets that IRBC’s special liquidators cannot find other takers for. This could result in NAMA paying more than the market value for some assets.

Those assets will then be independently assessed later, with the government covering any shortfall if it turns out that NAMA has paid more than a fair market value.

‘Potential for larger loan losses’

The IMF’s report, analysed in yesterday’s Sunday Business Post, also notes that the government is exposed “to the potential for larger loan losses in the financial system, including the domestic banks, if their current capital buffers were exhausted”.

While the blanket bank guarantee was removed last week, after four-and-a-half years, bonds issued by the banks during the guarantee period are still covered by the government – while its massive stakes in the banks also mean it would be the first port of call if the banks’ capital buffers run out.

“Drawing on the difference between loan loss projections between the base and stress scenario in [the 2011 stress tests], and taking into account the broad sensitivity of NAMA recoveries to property prices, allowing for an overall impact on the order of 10 per cent of GDP appears reasonable in a downsize scenario,” the report says.

Ireland’s GDP stood at almost exactly €160 billion last year – meaning 10 per cent of that could leave the taxpayer footing a further bill for €16 billion to rescue the banking system if more aid is needed.

Ireland has already invested €20.7 billion in AIB (including EBS, which is now a wholly-owned subsidiary of AIB), €4.7 billion in Bank of Ireland, and €2.7 billion in Irish Life & Permanent which includes the now-separate Permanent TSB.

In addition, it spent a total of €34.7 billion nationalising the former Anglo Irish Bank and Irish Nationwide Building Society, leaving a total bill of €64.1 billion so far. The final investments, following the 2011 stress tests, were billed as the final time that the taxpayer would have to pay to support an ailing bank.