Dublin’s upbeat assessment of banks ‘at odds with ECB’

Fianna Fáil finance spokesman Michael McGrath has said the message from the European Central Bank (ECB) on Ireland's bank sector was "a far more sober one'' than what the Government is putting forward.

Mr McGrath today released the text of an exchange of letters between ECB president Mario Draghi and himself on the recent balance sheet assessment conducted by the Central Bank.

“It is clear from the content and the tenor of the letter from Mr Draghi that the ECB continues to have concerns about key issues affecting the Irish banking sector, including the amount of bad loans they are carrying and the ongoing need to restructure their operations,’’ Mr McGrath said.

His comments come on the back of a report by rating agency Moody’s which said the outlook for Irish banking sector remained negative because of the high level of bad loans.

They also feed into economist Morgan Kelly’s warning that upcoming ECB stress-tests could further erode lending conditions here , potentially wiping out many SMEs who are burdened with debts from the property boom.

Today, Bank of Ireland shares fell by over 5 per cent today to 0.29 cent, one of their biggest one-day falls since the country's exit from the bailout.

Mr McGrath said he was deeply concerned that Mr Draghi had raised a question about the "viability of all nationalised banks'', adding that he could only assume that Mr Draghi was referring to the State-owned Permanent TSB.

"His comments should be interpreted alongside the fact that a restructuring plan for Permanent TSB was first submitted to the European Commission in June 2012 and still has not been approved,'' Mr McGrath added.

He said it was well past time for Minister for Finance Michael Noonan to redouble his efforts to secure agreement with the commission on the plan.

“It is a vitally important retail bank in Ireland and I believe it can play a significant role on the banking landscape for a long time to come,’’ he added.