Bank of Ireland shares closed down 3.1 per cent in Dublin yesterday after it announced that the Central Bank wants it to take an additional €1.3 billion in bad loan provisions following a recent balance sheet assessment exercise.
On a more positive note, Bank of Ireland, which is 15 per cent State-owned, said the Central Bank does not require it to raise any additional capital as a result of the examination.
AIB and Permanent TSB also said their capital levels were deemed to be adequate by the regulator while making no comment on provisioning.
The Central Bank has decided not to publish the results of the assessments and declined to comment on the outcomes. These evaluations are a precursor to deeper, pan-European capital stress tests next year.
Divergence of views
Bank of Ireland and the regulator are at odds over the need for additional provisioning
. It is understood the bank was given preliminary results of the tests in October and received written confirmation on Friday.
In a statement issued to the stock market yesterday morning, Bank of Ireland said the results were “subject to ongoing engagement” with the Central Bank. It is understood that no instruction has been issued yet by the regulator to the bank.
Bank of Ireland said it “remains confident of its own methodologies, calculations and impairment provisions”; it does “not believe” that the approach used in the assessments reflected its “risk profile or its expectations for work out approach, related costs, collateral realisation and timing”.
Neither side would comment on the possible length of this engagement, nor what action the regulator might take if Bank of Ireland refuses to yield on its position. In spite of the announcement, it is understood that Bank of Ireland plans to press on this week with plans to raise up to €600 million to help finance the purchase of the Government’s €1.8 billion in preference shares. These need to be acquired by Bank of Ireland by March next or they step up in value.
Muted market reaction
Eamonn Hughes, banking analyst with Goodbody Stockbrokers, suggested that the market reaction to
the announcement was “muted” and noted that the bank’s share price had risen by 5 per cent last Friday.
He said investors might draw “some comfort” from all the issues now being on the table and suggested that some “horse trading” and “haggling” with the Central Bank could result in the additional provision being reduced to about €500 million.
Minister for Finance Michael Noonan said the results of the assessments contained "no great surprises". Speaking before a conference on the future of banking in Europe, hosted by the Institute of International and European Affairs in Dublin, Mr Noonan said: "We always expected that some of the capital buffers that we put in place two years ago would be eaten away. Debt was crystallised and that has happened."
The Minister said the tests were “technical” in nature and it was a matter between Bank of Ireland and the Central Bank to resolve the issue.
