THE INTERNATIONAL Monetary Fund will recommend that the Government retain flexibility on the State’s “bad bank” plan to include other types of soured loans such as residential mortgages, should unemployment and bad loans continue to rise.
The IMF, which is the global financial watchdog, will suggest in its imminent annual report on the Irish economy that the Government not restrict the scope of the National Asset Management Agency (Nama) to buy just bad development and associated loans.
The Washington-based fund will suggest that the Government keep its options open due to economic uncertainty over the rising level of bad debts on other classes of loans so they can be included, if necessary, in the bad bank plan.
The Government is drafting legislation creating Nama which will buy €80–€90 billion in development loans and associated assets provided as collateral at a discount from the banks, in an effort to cleanse them so they can lend again as normal.
The IMF met Government officials and executives from the country’s largest banks last month on its annual field trip, as part of fact-finding for its yearly report.
While the IMF does not state in its report that Nama should acquire problem mortgages and business loans, the fund suggests that the Government’s draft legislation should leave this option open.
The Department of Finance declined to comment on the forthcoming IMF report, which is expected to be published either today or on Monday. The board of the IMF discussed the report at a meeting this week.
The organisation is understood to support the Government’s measures to prop up the banking sector, including the Nama proposals to buy the toxic development loans.
The banks are understood to have told the IMF during meetings last month that arrears on residential mortgages, including buy-to-let investment loans, were rising, but that Irish borrowers have a strong track record of making mortgage repayments. However, the IMF has noted that the State has not before experienced such a severe recession following a prolonged property and credit boom, and that the Government should take account of this.
The Government may include an option within the Nama legislation to acquire other classes of loans on the banks’ books, but it will expect the banks to assume any losses arising from other assets, such as residential mortgages and business loans.
Bad debts on mortgages are projected to amount to a fraction of the losses on speculative development loans over the course of the recession, and are expected to be manageable within the banks.
It is understood that the IMF will recommend that the Government operate Nama as transparently as possible, in line with other successful asset recovery plans overseas.
Under the legislation, a draft outline of which is expected to be available next week, the Government will signal that the agency will publish annual accounts.
The chief executive and chairman will be accountable, and be compelled to appear before Oireachtas committees to discuss its work.
