Bank of Ireland's lengthy statement on Monday about the findings from the balance sheet assessments (BSA) carried out recently by the Central Bank of Ireland gave a rare view into the engagement between the regulator and financial institutions on provisioning for bad loans, and capital adequacy.

It also left a lot of people, including some experienced sector analysts, scratching their heads as they tried to work out the import of the information provided.

The reviews of AIB, Bank of Ireland and Permanent TSB included an assessment of asset quality, risk-weighted assets and point in time capital as of June 30th, 2013.

The Government agreed to carry out these exercises before Ireland exited its bailout programme. Our EU counterparts will undergo the same assessments when the pan-European stress tests are carried out next year.

The findings were given to the troika on November 29th.

Disagreement
Bank of Ireland's stock market filing revealed the regulator believes it should take an additional provision of €1.3 billion in relation to its Republic of Ireland mortgage book, its commercial property and commercial loans, and defaulted assets.

The bank disagrees with these findings, saying it is happy with its own modelling. It also reiterated its view from a November 1st trading statement that the macro-economic outlook in the UK and Ireland remained “broadly stable to slightly improved” and that its Irish mortgage loan arrears had “stabilised in the third quarter of the year” (the period just outside the scope of the BSA).

In other words, the picture has improved since these assessments were carried out. It added that there was "ongoing engagement" with the Central Bank on this matter.

This is interesting because the Central Bank has given its findings to the troika. Unless a significant error is identified , the regulator won’t be changing its view on this issue. The findings are the findings.

That’s not to say that its view on provisioning will be forced on the bank. Provisioning is a matter for the board of the bank to decide and both sides have been keen to stress, privately, that no instruction has been given to Bank of Ireland on the issue.

Additional capital
But if the bank chooses to ignore the findings on provisioning, the regulator could insist on it setting aside additional capital.

This would affect Bank of Ireland’s capital ratios but it won’t have to raise additional funding, as its buffers are in excess of regulatory requirements . . . currently that is.

The statements issued by AIB and Permanent TSB were more succinct.

“Based on an initial assessment of the findings of the BSA, the bank believes it continues to be well capitalised and in excess of minimum regulatory requirements,” AIB said, while also noting the Central Bank’s findings would be considered in the “preparation of the bank’s year-end December 2013 provisions and financial statements”.

PTSB was even more vague. “Based on the communicated results, the outcome confirms that the capital position of Permanent TSB is above minimum regulatory requirements,” it said.

You can bet your bottom dollar that the Central Bank has made findings to AIB and PTSB on their provisioning. But neither felt obliged to disclose the details, unlike Bank of Ireland which opted for full disclosure because it was in the final throes of a fundraising to help meet the cost of acquiring the Government’s preference shares.

Given that the State owns more than 99 per cent of both AIB and PTSB, taxpayers might wonder why they haven’t been as forthcoming about the findings.

There’s a feel-good factor in capital markets towards Ireland right now and the Central Bank appears to have decided to say nothing about the assessments to minimise the noise around the outcomes.

Unfortunately, the statements this week have generated more questions than they’ve answered.