ACCOUNTANCY CONFERENCE:GOVERNOR OF the Central Bank Patrick Honohan has said that the Irish banks are effectively "up for sale" and that if the lenders had been owned by foreign banks they would have been able to cope with their "very significant" losses.
Speaking at an accountancy conference, Dr Honohan said that he expected “a slimmed-down” banking system to emerge from the plan by the European Union and International Monetary Fund aimed at bailing out the country.
A reduction in the size of the banks and the system would better serve the needs of the economy, he said.
While plans will take time to be worked through, the country can be assured the banks are being supported by the Central Bank and European institutions, he said.
Dr Honohan said he expected a lot of conditions to be attached to the bailout deal and that the lack of confidence shown by the financial markets in Ireland and the banking system was not justified.
He said he was “relaxed” about foreign buyers taking control of the country’s largest banks as they can help increase credit.
“They are for sale as far as I am concerned. I’ve been an advocate for a number of years for small countries to have foreign owners for their banks,” he said.
Dr Honohan said that the Government’s plan to remove bad loans from the banks through the National Asset Management Agency had not worked as planned and had moved too slowly.
“It has not had the result we had hoped for,” he said.
“Well, we have to have another go. I am not hearing too many people saying ‘change course, you got it completely wrong’ – they are saying this is pretty big and it is not surprising we have not got through it yet.”
Dr Honohan said that further capital was required at the banks.
“We know that large international banks have made bad mistakes as well,” said Dr Honohan.
“Overall presence of foreign banks is a plus for the economy.”
Further cash injections into Allied Irish Banks beyond the sum already pledged by the Government will lead to the effective nationalisation of what was once the country’s largest bank.
Bank of Ireland dropped 25 per cent on the market, while Allied Irish Banks fell 19 per cent, as shareholders fear that their investments will be reduced by further State capital injections.
Bank analyst Ciarán Callaghan, at NCB Stockbrokers, said each bank required at least €2.5 billion to raise capital levels to the higher international norms.
Among the proposals under consideration as part of the European Union-International Monetary Fund bailout is the sale of some of the banks’ loans to foreign buyers at deep discounts that would be backed by EU or State indemnities against losses.
While a sale of Allied Irish Banks is being explored in discussions with the EU and IMF, this is not expected to materialise in the short term.
