Posted on Friday 16 October 2009 byUlster Business
The National Asset Management Agency, or NAMA, will remove the burden of toxic loans and help the Irish economy get back on its feet.
That was the message from "Banking on NAMA" - the future of the Irish property market north and south," a seminar run by law firms Tughans' and William Fry in Belfast in early October.
"People have lost sight of what NAMA can do for the Irish economy," said Rossa White, Chief Economist at Davy Stockbrokers and a guest speaker at the event. "It's about getting the economy back into shape and stopping dangerous deleveraging."
To do this intelligently, he said the volume of construction-related credit needs to be reduced while the rest of the economy should still be supported, a move the NAMA process will allow.
"Have taken out the core of the problem, the economy should look much better than two or three months ago."
The total potential book value for transfer to NAMA is estimated at €77 billion but with a likely €30 billion 'haircut‚' that would reduce to €47 billion in terms of the price the agency would pay for the loans. In terms of geography, 66% of the assets are based in the Republic, 6% in Northern Ireland, 21% in Great Britain, 3% in the US and 4% in Europe.
But while NAMA will help the Irish economy, it will still struggle, particularly in view of the high loan-to-deposit ratio of all banks there. Total loan-to-deposit ratios of the five participating banks - AIB, Bank of Ireland, Anglo Irish, INBS and EBS ‚Äì falls to 135% from 171% following the intervention of NAMA but remains too high, Mr White said.
"That could be a constraint for Irish economy," he said. "We need to get to a system that's closer to 120% to100%."
Anglo accounts for the greatest likely share of the scheme at 37%, AIB at 31%, Bank of Ireland at 21%, INBS at 10% and EBS at 1%.
Paul Murray, a partner in Banking and Finance at William Fry and another speaker, said NAMA is "the single most important piece of legislation in Ireland's history".
He explained the mechanics behind the implementation of NAMA for the participating banks.
In terms of valuation, NAMA will look at the long-term economic value of the assets, within boundaries of 25% above market value for an individual parcel of land and 20% for a portfolio. He said the agency, once it acquires the loan, will step into the shoes of the bank and has the power to pursue the original borrower. Also, it will prepare the acquisition schedule so that the banks will have no say in what assets are acquired.
Andrew Muckian, head of Commercial Property at William Fry, explained the impact of NAMA on property developers.
Of note is the ability of NAMA to compulsorily purchase any other land it considers necessary to benefit its asset, such as ransom strips.
"This could affect co-owners and joint ventures, Mr Muckian said. "NAMA could compulsorily acquire both parties."
And in terms of valuation, the borrowers have no right to challenge values attributed to loans. But it has the power to contract with any parties for the development of land to secure the best return from orderly development.
Once completed, Mr White said this should ease the current lending squeeze and leave banks with cleaner balance sheets. It should also offer some help to developers given the likely €10 billion NAMA will have to lend to complete property development.
But he advised caution where the property market is concerned.
"It's been demonstrated today that this isn't a bail out for developers. There seems to be a lot of fears out there as we can only lay down what the scheme entails and don't have a sense of what NAMA's strategy is going to be."