PARIS (MNI) – The package of banking measures announced this week
by Ireland is “an important milestone” in the recovery of the country’s
severely damaged banking system, Irish central bank governor Patrick
Hohohan said in an editorial published Thursday in the Financial Times.

By selling off their riskiest assets and strengthening their
balance sheets under new, stricter capitalization guidelines, Irish
banks will become leaner, healthier and more effective financial
institutions, Honohan said.

“The shadow that has hung over Ireland’s banks for the past 18
months is lifting,” he rejoiced. “Free of the most impaired part of
their portfolio, and under new management, the Irish banks will have the
ability and the incentive to refocus on providing financial services to
support the recovery of the country’s economy.”

Ireland’s National Asset Management Agency, established during the
crisis to help bank dispose of bad loans, said Tuesday that it will pay
E8.5 billion to acquire more than 1,200 loans with a nominal value of
E16 billion – an average discount of 47%.

Honohan said the deep discount reflected the sharp fall in property
prices since “the biggest and most problematic” of the loans were made
years ago at the height of the bubble. “The pricing has been designed
with the objective of enabling NAMA to recover its substantial outlays,”
expected to be between E40 billion and E50 billion over the next decade,
he said.

Under the new guidelines announced this week, the central bank will
require Irish banks to have core Tier 1 capital above 8 percent of
risk-weighted assets by the end of this year, of which the lion’s share
— 7% — must be in the form of equity. Banks cannot go below 4% tier 1
capital even under severe stress.

“Strongly capitalised to this extent, the banks will clearly stand
on their own two feet and no longer have to depend on state guarantees,
which will be phased out,” Honihan said.

Honihan, who sits on the Governing Council of the ECB, said “it is
clear that most of the damage in this crisis — reputational and
financial — has been done by just one institution, Anglo Irish Bank.”
Anglo Irish was taken over by the state in early 2009 amid revelations
of numerous questionable transactions.

Honohan noted that the bank has already cost the state E12 billion
and “is likely to cost about E10 billion more. This is a truly shocking
figure, albeit one that is affordable for the state.”

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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