The National Asset Management Agency (Nama) is to take on further land and loans under the memorandum of understanding on the conditions for the €85 billion aid package agreed with the EU and IMF.
The Government today published the document that sets out the key conditions for the EU element of the loan, which is being provided under the the European Financial Stability Facility.
Discussing financial sector reforms, the document says further deleveraging of the banks will by achieved by extending the remit of Nama to include some €16 billion of land and development loans in AIB and Bank of Ireland. These were previously excluded on the basis they were below a value threshold of €20 million.
Nama is to categorise the sub-€20 million land and loans - of which there are some 10,000 - by asset type and region, and the agency will then apply different discounts to each category based on Nama's loan valuation experience "up to the point of valuation".
The memorandum says it is expected all loans will be moved by the end of March 2011, and Nama will issue bonds for the assets transferred. Nama legislation will be amended to underpin the valuation and acquisition of these assets on a portfolio basis.
Elsewhere, the minimum capital requirement for the Irish banks (AIB, Bank of Ireland, EBS, and Irish Life & Permanent) is to be set at 10.5 per cent core tier 1.
In addition, the Irish authorities are to ensure that AIB, BoI, and EBS are initially recapitalised to a level of 12 per cent core tier 1 capital, "which will take account of haircuts on the additional loans to be transferred to Nama and will fund early deleveraging by making available €10 billion in the system".
In terms of reorganising the bank sector, further restructuring and viability plans for institutions are to be made available to the IMF and ECB and submitted in accordance with EU competition rules.
A "specific plan for the resolution" of Anglo Irish Bank and Irish Nationwide Building Society is to be established and submitted to the European Commission. Legislation for improved procedures for earlier intervention in distressed banks and a special bank resolution regime (SRR) are to be introduced.
"The SSR should include a robust set of powers and tools to ensure the competent authorities can promptly and effectively resolve distressed banks," the memorandum says.
"Burden sharing will be achieved with holders of subordinated debt in relevant credit institutions over the period of the programme," the document says, adding that legislation to address the issue of burden sharing by subordinated bondholders will be submitted to the Oireachtas by the end of this year.
According to the memorandum, the Government is "committed to divest the participations in the banks acquired during the crisis within the shortest timeframe possible which is compatible with financial and public finance considerations".
The aid package, which was unveiled last weekend, includes €45 billion from the European Union, €22.5 billion from the IMF and bilateral loans from the UK, Sweden and Denmark. The estimated average interest rate of the loans is 5.83 per cent per year.
The Government will also contribute €17.5 billion, €12.5 billion from the National Pension Reserve Fund and €5 billion from cash reserves.
