RISING INTEREST rates over the coming decade could create a “massive black hole” in the Government’s projections for the National Asset Management Agency (Nama), the finance spokesman for Fine Gael, Richard Bruton, said yesterday.

He said that, as well as increasing the agency’s costs, the expected increase in interest rates would affect the level of default in the Nama portfolio. “Minister Lenihan has claimed that Nama can break even if the value of assets transferred to Nama rise by a modest 10 per cent over the next 10 years. Even ignoring his untested, undocumented and dubious ‘guesstimates’ about the current and long-term economic values of these assets, this ignores Nama’s running costs, and particularly its debt-servicing costs.”

Mr Bruton said rising European Central Bank (ECB) interest costs alone are expected to add €1.5 billion per year to Nama’s operating costs.

“The Minister claims Nama can cover its own costs at current interest rates, as income from performing assets will cover the introductory 1.5 per cent interest rate on the bonds issued to the banks and the big fees to be paid to bankers, lawyers and valuers.”

Taking the market forecast for the average ECB base rate over the next 10 years (3.8 per cent), this leaves a “potentially massive black hole in the Government’s figures that could run well over €15 billion over the decade”, he said.

Under the Nama scheme, bonds it will issue to banks in return for loan assets will carry a variable interest rate set at close to the ECB’s euribor rate. The banks will use the bonds to raise cash in the international markets or from the ECB and the interest to be paid by Nama on the bonds will go to the cash provider (likely to be the ECB). The interest will be paid by Nama and not by the banks, a spokesman for the Department of Finance confirmed.

Sources close to the department said that if the ECB interest rate increases, it would mean payments to Nama from borrowers would also rise.