Thursday

1st Dec 2022

Irish banks may need as much as €32 billion for losses

  • Bank of Ireland - it needs around €2.7 billion in new capital said the finance minister (Photo: EUobserver)

In what was billed as one of the most important speeches in the history of the state, Irish finance minister Brian Lenihan on Tuesday (30 March) revealed that the country's banks could face a capital shortfall of €32 billion.

The sum, far higher than expected, is the equivalent of about 20 percent of Ireland's GDP, with around €22 billion needed to cover losses from bad property loans and a possible further €10 billion, depending on the extent of sour loans at Anglo Irish Bank.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Speaking on "bail-out Tuesday" as some have dubbed the day, Mr Lenihan said the state of the banking sector was "truly shocking" and condemned the banks for playing "fast and loose" with the country's economy.

The figures mark the culmination of a heady period in Ireland's financial history that saw banks lend almost without question to property developers during the boom years.

When the extent of the toxic property loans became clear following the global financial crisis, the Irish government set about establishing a 'bad bank' - the National Asset Management Agency (Nama) - to absorb the losses of five of the state's lenders.

Since then it has been trying to establish the extent of the black hole in Irish banks' lending books.

Brendan McDonagh, head of Nama, said there had been "an explosion" in the size of loan books due to property lending between 2004 and 2008. "All the good banking and lending principles went out the window," he said.

Tuesday's figures reveal the extent of the black hole in the lending books, with Nama buying around €16 billion in loans for €8.5 billion. This represents a 'haircut' of 47 percent, much higher than the 30 percent first estimated last year, reports the Irish Times.

According to Mr Lenihan, AIB, Bank of Ireland, Irish Nationwide Building Society and the EBS would need €13.5 billion in new capital. Of this, he said AIB would need €7.4 billion, Bank of Ireland €2.7 billion, Irish Nationwide Building Society €2.6 billion and EBS building society €875 million.

The Irish government is set to hold a majority stake in AIB and a minority stake in Bank of Ireland while Anglo Irish Bank was nationalised at the beginning of 2009.

Reacting to accusations from opposition politicians that his policies created the property bubble, Prime Minister Brian Cowen refused to accept the blame, saying it was the result of the global financial crisis.

"The idea that Ireland would have been immune to what has happened in relation to the fall of Lehman and the total meltdown of the international financial system, it's time we actually recognised that this country couldn't be immune from those developments," he said, according to the Irish Independent.

Tuesday's announcement represented the first complete loans to Nama. The first tranche of loans from Bank of Ireland will be transferred at the end of the week, while AIB and Anglo Irish Bank transfers will follow in early April.

Nama said it expected to complete the transfer of the remaining loans from all five institutions by the end 2010 with the total amount of loans that will be acquired by the agency expected to be around €81 billion.

The government is hoping that by taking the toxic assets off the banks' balance sheets, it will restore confidence and banks will begin lending again.

Meanwhile, the physical effects of the burst property bubble are visible around the country, which is littered with empty homes - around a quarter of a million of them. This both due to fact that projects have been left unfinished because the money ran out as well as the fact that the banks are not lending to first-time property buyers.

EU Commission proposes suspending billions to Hungary

Prime minister Viktor Orbán's government has to implement 27 measures "fully and correctly" before any payment from the €5.8bn recovery fund can be made, or the suspended €7.5bn of cohesion funds can be unblocked.

Frontex leadership candidates grilled by MEPs

Terezija Gras from Croatia, Dutchman Hans Leijtens, and Frontex's current interim executive director Aija Kalnaja, are all competing for a job left vacant by the resignation of Fabrice Leggeri.

Portugal was poised to scrap 'Golden Visas' - why didn't it?

Over the last 10 years, Portugal has given 1,470 golden visas to people originating from countries whose tax-transparency practices the EU finds problematic. But unlike common practice in other EU states with similar programmes, Portugal has not implemented "due diligence".

Nato renews membership vow to Ukraine

Ukraine foreign minister Dmytro Kuleba on Tuesday asked for air defence systems and generators, as Russia has been pounding Ukraine's vital energy infrastructure.

Frontex leadership candidates grilled by MEPs

Terezija Gras from Croatia, Dutchman Hans Leijtens, and Frontex's current interim executive director Aija Kalnaja, are all competing for a job left vacant by the resignation of Fabrice Leggeri.

Portugal was poised to scrap 'Golden Visas' - why didn't it?

Over the last 10 years, Portugal has given 1,470 golden visas to people originating from countries whose tax-transparency practices the EU finds problematic. But unlike common practice in other EU states with similar programmes, Portugal has not implemented "due diligence".

News in Brief

  1. 'Pro-Kremlin group' in EU Parliament cyberattack
  2. Ukraine will decide on any peace talks, Borrell says
  3. Germany blocks sale of chip factory to Chinese subsidiary
  4. Strikes and protests over cost-of-living grip Greece, Belgium
  5. Liberal MEPs want Musk quizzed in parliament
  6. Bulgarian policeman shot dead at Turkish border
  7. 89 people allowed to disembark in Italy, aid group says
  8. UN chief tells world: Cooperate on climate or perish

Stakeholders' Highlights

  1. Nordic Council of MinistersCOP27: Food systems transformation for climate action
  2. Nordic Council of MinistersThe Nordic Region and the African Union urge the COP27 to talk about gender equality
  3. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  4. Friedrich Naumann Foundation European DialogueGender x Geopolitics: Shaping an Inclusive Foreign Security Policy for Europe
  5. Obama FoundationThe Obama Foundation Opens Applications for its Leaders Program in Europe
  6. EFBWW – EFBH – FETBBA lot more needs to be done to better protect construction workers from asbestos

Latest News

  1. EU Commission proposes suspending billions to Hungary
  2. EU: Russian assets to be returned in case of peace treaty
  3. Frontex leadership candidates grilled by MEPs
  4. Portugal was poised to scrap 'Golden Visas' - why didn't it?
  5. Why the EU asbestos directive revision ... needs revising
  6. Nato renews membership vow to Ukraine
  7. Catalan spyware victims demand justice
  8. Is the overwhelming critique of Qatar hypocritical?

Stakeholders' Highlights

  1. European Committee of the RegionsRe-Watch EURegions Week 2022
  2. UNESDA - Soft Drinks EuropeCall for EU action – SMEs in the beverage industry call for fairer access to recycled material
  3. Nordic Council of MinistersNordic prime ministers: “We will deepen co-operation on defence”
  4. EFBWW – EFBH – FETBBConstruction workers can check wages and working conditions in 36 countries
  5. Nordic Council of MinistersNordic and Canadian ministers join forces to combat harmful content online
  6. European Centre for Press and Media FreedomEuropean Anti-SLAPP Conference 2022

Join EUobserver

Support quality EU news

Join us