THE RECENTLY stress-tested banks will have a chance to raise cash privately to meet the new capital bill of €24 billion but the opportunity would be limited, according to Central Bank governor Patrick Honohan.
Bank of Ireland and Irish Life & Permanent – the only banks not in Government control – were directed to raise €5.2 billion and €4 billion respectively following the Central Bank’s stress tests.
“They have a chance, but it is not very flexible,” Prof Honohan said in an interview with The Irish Times.
He did not want to “second guess” Bank of Ireland’s ability to raise private capital, he said.
“They are closer to the market than I am. If they have potential purchasers, then that is great,” he said.
Richie Boucher, chief executive, Bank of Ireland, said at its 2010 results that it was not “a foregone conclusion” that the bank would end up in Government control.
The bank will publish a plan to raise capital “within the next few weeks” and try to raise cash before “the early summer”, he said.
The bank, which is 36 per cent owned by the State, faces an uphill battle to avoid effective nationalisation given that it has a limited ability to raise sufficient capital with a market value of €1.5 billion.
The Central Bank will issue a statement shortly on how long the banks will get to raise the additional capital. “I don’t want to anticipate that but it will come very soon,” said Prof Honohan.
He said he did not raise objections to the ECB raising interest rates, despite the pressure it would put on mortgage holders.
“I would regard it as very important that I not wear an Irish hat going into a discussion on monetary policy,” he said.
He said it would be better to restructure the banking sector around more than two “pillar banks” in Bank of Ireland and a combination of AIB and EBS.
However, the door was open to newcomers in Irish banking and that international banks in Ireland “may become more active”.
“Two is not a magic number but two is a good number to focus our resources on,” he said.
“We have a lot of problems with the current banking system and trying to handle a larger number of Government-controlled banks as we rebuild the system from day one would probably be a mistake.”
He said a longer-term funding facility for the Irish banks from the ECB, which has lent more than €140 billion to them, would “free the banks from any concern that it might not continue”.
“It is that sort of marginal change that would make a lot of difference to the banks to feel that they have squared off those liquidity needs for a longer period,” he said.
However, it was “understandable” that the ECB was reluctant to change from its standard lending facilities and is “taking every month as it comes”, he said.
