Irish central bank Governor Patrick Honohan said it’s “quite possible” the government may end up with a 50 percent stake in one or both of the country’s biggest banks.
Ireland’s lenders may need significant new capital after the country’s so-called bad bank buys loans from them at a discount, Honohan told a parliamentary committee in Dublin today. Private investors aren’t “scrambling” to back the banks at the moment, though they may be able to attract investment after a further recapitalization, he said.
The Irish government is setting up the bad bank, known as the National Asset Management Agency, to cleanse lenders of souring assets. Honohan, who is also a member of the European Central Bank Governing Council, pledged earlier this month to strengthen regulation in the wake of a crisis that pushed Ireland’s financial system to the brink of collapse.
The governor also said he expects Ireland’s parliament to start an inquiry to understand the causes of the country’s financial crisis.
“Now that we have the prospect of the banks emerging, in the coming months, with a strong financial underpinning and renewed management, an imminent recurrence does not seem to be on the cards,” Honohan said.
Ireland plans to buy 77 billion euros ($112 billion) of loans through NAMA. The purchases will be made at an average discount of 30 percent to reflect declines in property values after a decade-long real-estate boom ended.