UP TO €25 billion worth of loans will be removed from the banks through repayments over the next three years, the Department of Finance official in charge of restructuring the banking sector has said.
Addressing an international banking conference, John Moran said this would form part of the €72 billion deleveraging of the banks. The lenders would still be able to lend €10 billion a year into the economy and still shrink the size of their businesses, he said.
Government officials would work with the banks to readjust lending to areas such as manufacturing and agriculture which required fresh credit. This would break from past heavy lending in property, said Mr Moran.
Banks had tried to engage in some of “European domination” in property, he added.
Mr Moran is overseeing the restructuring of Irish banking into two “pillar” banks, Bank of Ireland and a merged entity of AIB and EBS. The banks will split into core divisions, lending into Ireland, and a non-core divisions, which will be sold off or run down over time.
Mr Moran said it did not make sense to remove non-core assets out of the banks as it would create “too much operational risk” and lead to further capital losses.
The Government would know the composition of the non-core assets over the coming month after Bank of Ireland and AIB report results for 2010 next week.
There was no appreciation around Europe that the Central Bank stress tests were more severe than the EU stress tests, he said.
The Irish tests were based over three years and on capital ratios falling to 6 per cent after a stress scenario, compared with two years and a ratio of 5 per cent in the EU.
EU stress tests would assess how 88 banks would cope with euro zone growth being 4 percentage points off expectations, the alternate chairman of the European Banking Authority, Thomas Huertas, told the conference.
“We are very comfortable that the EU stress test is a rigorous scenario,” said Mr Huertas, adding that the EBA was planning for the possibility of banks failing the tests.
