Plans for Irish Bad Bank Draw Near
The Irish mortgage market is experiencing its own crisis as the global recession continues to unwind. Ireland's government, in response to the financial fallout, published a second draft bill that would create a national bad bank to take on toxic loans. Performance of Irish residential mortgage-backed securities (RMBS) worsens, with the rate of 90 plus-day delinquencies rising to 2.3% of the current balance in Q209 from 1% in the year-ago quarter. The weak Irish RMBS market for weeks pressured Ireland's two major banks -- Allied Irish Banks and Bank of Ireland -- which market observers say may require outside support in the future. The Irish government may be stepping up efforts soon to help the banks unload bad loans. The new draft bill on the proposed bad bank, which would be called the National Asset Management Agency (NAMA), was published late last week. “The Bill contains a number of important changes that will allow NAMA to achieve its goal of stabilising the banking sector and restoring the flow of credit to business and consumers while minimizing the risk to the taxpayer," said finance minister Brian Lenihan in a statement. The bill calls for banks to share a portion of the risk associated with NAMA by receiving part of the payment for loans in the form of subordinated debt, according to the Irish Department of Finance. This structure allows NAMA to suspend certain payments in the event of a loss, and will give incentives to firms that participate in the NAMA process. “I want to stress that under the Bill, each individual loan will require a separate valuation once the Act has commenced," Lenihan said. "Only after the valuation of each loan will an exact price be determined." The bill's proposals have been endorsed by the European Central Bank (ECB), the International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD), according to Lenihan. The Finance Department is consulting with the European Commission about the legislation and European Union (EU) approval will be necessary before the legislation can be finalized. Lenihan is expected this week to outline details on how the bad bank will operate. Write to Diana Golobay.