The financial regulator is examining the loan books of six Irish institutions that are expected to sign up to the Government's guarantee plan, a spokeswoman said today.
The spokeswoman said the audit, conducted by PricewaterhouseCoopers (PwC) on behalf of the regulator, was launched before the State scheme was announced on September 30th and could be completed later this month.
"We are drilling down into the figures to get detailed, comprehensive analysis of the individual loans," the spokeswoman said without giving further details.
The Government’s plan initially guaranteed €400 billion in liabilities of six Irish-owned institutions, but the European Commission earlier this week approved a revised €485 billion guarantee scheme that includes foreign-owned banks with significant operations in Ireland.
Banks will need to formally sign up to the scheme, which was approved by a majority of Dail deputies today in a vote.
"We assume that PwC's brief is to look at how vulnerable the six banks' loan books are to the deteriorating economic conditions," broker NCB said.
"It also seems a big focus will be on assessing how many loans to the property and construction industry are not generating any cash flow for the banks."
"We suspect the findings of PwC will confirm the fact that the banks will almost certainly require additional capital and that, in parallel to their UK neighbours, will need government help to support it," NCB said in a research note.
The six institutions are Allied Irish Banks, Bank of Ireland , Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.
The Government has far not ruled out taking equity stakes in Irish banks but has said it had no immediate plans to do so.
"The preferred policy of the state in relation to the banking sector in the first instance is that the banks should themselves raise the necessary capital," Minister for Finance Brian Lenihan told deputies today during a debate.
Mr Lenihan announced details of the plan on Wednesday which will see institutions paying a total amount of €1 billion over a two-year period to get cover.
"If the cost to the exchequer were to exceed 1 billion, the charge to the covered institutions will be adjusted accordingly," he said today.
The Government has demanded stricter dividend payout and credit control arrangements as well as curbs on executive pay among the conditions for banks committing to the scheme.
Mr Lenihan said it was entering into discussions with institutions over joining the scheme. "We envisage them completing within a period of days rather than weeks," he said.
Financial regulator chief Patrick Neary told a parliamentary committee this week speculative lending to the construction and property sectors in the country amounted to €39.1 billion. "There will be losses on property-related loans and increased provisions and write-offs will be necessary," Mr Neary said.