London, Apr. 1 (MNI) – As the government’s debt trajectory has now
become clearer with the decisions on NAMA transfers, Moody’s is closer
to determining at what level within the Aa rating range the government
of Ireland’s ratings are likely to settle, the agency says today in a
new Special Comment.
“After the transfers, the banks will have much healthier balance
sheets, albeit at the cost of substantial government ownership,” says
Dietmar Hornung, Vice President/Senior Analyst in Moody’s Sovereign Risk
Group and one of the report’s authors.
According to an announcement from the Irish Minister of Finance
earlier this week, NAMA will purchase a total of EUR81 billion of loans
from the five participating banks and building societies by around the
end of 2010.
“In turn, the banks will trade their assets for government bonds
that pay interest and are repo-eligible at the European Central Bank
(ECB),” explains Ross Abercromby, Vice President/Senior Analyst in
Moody’s EMEA Financial Institutions Group and co-author of the report.
“The NAMA transfers and the resulting improvement in banks’ balance
sheets is generally positive for the Irish banks’ own credit profile.”
“The government bonds in question are a specific type of instrument
that is not raised or traded on the market and does not create
refinancing risk for the government — indeed, it is unlikely that banks
will ever force the government to repay them,” says Hornung.
“Moody’s has interpreted the NAMA idea rather favourably for the
government as well as the banks. It is a way for the government to
protect the asset side of its balance sheet (i.e. its power to tax,
which is predicated on the rebound of the economy) and to accelerate the
restoration of the credit channel, although at the price of greatly
increasing its gross liabilities.”
–London Bureau/Frankfurt Bureau; emails:
nshamim@marketnews.com/twailoo@marketnews.com/dthomas@marketnews.com;
Tel: +442078627492
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