The delicate state of Irish banking system has become the epicenter of the recent wave of sovereign crisis in Europe. No wonder. The sector’s capital needs have been a hole in the country’s public coffers and increase is still unknown how the final bill. The millionaire who has received injections banks account for about 26.5% of GDP and is expected to exceed even the final figure is 33%.
The years of excess are expensive. The excessive credit growth in Ireland between 2002 and 2007-increased at an annual rate of 25% – fueled a housing bubble whose risks came to light with the collapse of prices. Loans to non-residents amounted to 850.000 billion in September, about 5 times the country’s GDP, which gives an idea of the excessive size of the sector and the difficulty of finding a domestic solution to the problem.
The bursting housing and the sharp economic downturn caused a spiral harmful to the bench for his high credit exposure to the promoter. The huge losses incurred began to doubt the creditworthiness of the sector, prompting the government to guarantee deposits and senior debt in September 2008. It was the first step followed by other relief measures. The nationalization of Anglo Irish Bank in January 2009 and the creation in April 2009 NAMA (National Asset Management Agency), an agency designed to absorb the toxic assets of the sector, were key decisions for the restructuring of banking.
NAMA was established to acquire real estate assets of the five main banks (Bank of Ireland, Allied Irish Banks, Anglo Irish Bank, EBS Building Society and Society Buldin Nationawide) at a price lower than the books. To date they have transferred assets 51,000 million this vehicle and is expected later this year when the program ends with something like the figure 73,600. “The average discount has had to assume the sector is around 60%. This has forced to take losses to light. In return they have received vouchers that can be used as collateral to the ECB,” says Oliver Gilvany of Dolment Securities.
The problem is that the deterioration in the housing sector continues to rage. “The housing prices keep falling. This leads to drop the price of collateral and the borrowing is higher. That’s why a fork is shuffled when talking about the end of sector needs,” said Juan Ramon Charity CEO Swiss & Global AM. “Assuming that the loss rate of the mortgage portfolio increased by another 50% to stand at 7.5%, the system would suffer additional losses of 3,600 million,” says Unicredit.
The fear that the capital needs continue to increase at a time when the industry has completely closed access to market financing is a major concern, especially if the economic situation worsens and the losses continue to rise. In September the Irish banks asked the ECB 80,000 million, 50% of GDP.
Aid has received the sector has now reached 42,400 million and is expected to reach 53,000, 33% of GDP. “There may come to 60,000,” says John Cotter, director of the Financial Markets Center, University College Dublin. Anglo Irish, the third entity in the country, which is worse and needed 29,500 million is expected to increase to 34,500, Irish Nationwide has received funds amounting to 5,400 million, while Bank of Ireland (3,500) and Anglo Irish Bank (8,500), the two leading banks in the country have received transfers from the pension reserve fund.
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