EU green light for Ireland’s ‘bad bank’

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Europe's competition watchdog has given its approval to an Irish scheme to help banks clear bad assets from their balance sheets as they seek a return to normal lending.

The European Commission said Ireland's National Asset Management Agency (NAMA), which will buy devalued real estate from financial institutions, was in line with European Union state aid rules.

"This impaired asset measure, which is specifically targeted at real estate assets, is key to cleaning up Irish banks' balance sheets," European Competition Commissioner Joaquin Almunia said in a statement on Friday (26 February).

The Commission said Irish authorities expected the agency to buy land and loans with a nominal value of about €80 billion euros for an estimated purchase price of 54 billion euros.

Five institutions will participate: the Anglo-Irish Bank, the Allied Irish Bank, the Bank of Ireland, the Irish National Building Society and the Educational Building Society.

"This is an important step towards the overall restructuring of the sector and its return to a normal and responsible functioning of the market," Almunia said.

The scheme had been on hold pending the green light from Brussels which was considering a complaint by Irish Senator Eugene Regan, who had claimed that NAMA breaks state aid rules (EURACTIV 23/2/10).

Irish Finance Minister Brian Lenihan welcomed the decision, calling it an "important milestone". He said the process of transferring loans from banks to NAMA will begin at the end of March.

"The EU approval confirms that the NAMA valuation methodology is robust, and this will assist NAMA in achieving its objective of obtaining the best achievable financial return for the state," he said.

The minister explained that arising from the consultation, the valuation methodology set out in the valuation regulations will be amended to take account of the Commission's decision.

Opposition parties in Ireland have been sceptical of the NAMA scheme. Richard Bruton, finance spokesperson for the largest opposition party, Fine Gael, said the European Commission's decision to approve NAMA will not fix the deep-rooted problems in the banking sector.

"And even when NAMA starts purchasing toxic developer loans with taxpayers' money at inflated prices, both the IMF and the banks themselves have confirmed this is unlikely to have any material impact on credit conditions facing struggling businesses," he told the Irish Times.

The European Commission provides guidance on the treatment of asset relief measures by member states. It outlines ways of dealing with impaired assets and explains how state aid will be applied to such schemes.

Asset relief schemes should be fully transparent to avoid conflicts of interest. A coordinated approach should be taken to valuing assets based on "real economic value (rather than market value)," according to the Commission.

Ireland announced plans to introduce a bad bank scheme in 2009, but the proposals have proven to be controversial. A similar scheme was approved by the Commission in May 2009 but critics of the Irish plan remain sceptical as to its long-term viability.

The Irish government has already nationalised one bank – the Anglo-Irish Bank – and has injected capital into its two largest financial institutions: Allied Irish Bank and the Bank of Ireland.

  • End of March: First tranche of bad loans to be transferred from banks to the National Asset Management Agency (NAMA).

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