Draghi expresses concern about health of Irish banks

European Central Bank president Mario Draghi has raised concerns about the health of Irish banks, urging "decisive" action on issues revealed by a recent balance-sheet assessments before European stress tests next year.

Addressing the European Parliament, Mr Draghi said while the balance-sheet assessments of the Irish banks had identified no capital shortfall, there were needs for adjustments for provisions and risk-weighted assets.

"This should be addressed before the SSM assessment," he said in a response to a question from Irish MEP Gay Mitchell.

Under the original terms of Ireland's EU-IMF rescue, Ireland was obliged to undergo a full health check of its banks before the end of the programme.

Stress tests
However, this was downgraded to a "balance-sheet assessment" after Dublin argued it should not be treated differently from other countries in next year's Europe-wide stress tests.

Mr Draghi emphasised yesterday that the balance-sheet assessments by the Irish Central Bank were “not forward-looking” and fall short of the “stringent” stress tests that would be required next year.

Ireland's three main banks – Bank of Ireland, AIB and Permanent TSB – informed the market last month the Central Bank tests had been completed and that no capital requirements had been required.

However, the full results of the tests were not published.

Commercial loans
Bank of Ireland revealed that the Central Bank had concluded that it should take an additional €1.3 billion in provisioning against its mortgage and commercial loans, while Permanent TSB chief executive Jeremy Masding told The Irish Times that the bank would be taking extra provisions for bad loans following the reviews. AIB has yet to comment on whether provisions are needed.

Mr Draghi also said the ECB had “a more cautious assessment” of Ireland’s budget for 2014 even if targets were likely to be met. However, he noted that the deficit-to-GDP ratio, which has been credibly set at 4.8 per cent, overperforms relative to the requirement of 5.1 per cent set out in the European Commission’s excessive deficit procedure.