THERE IS a possibility of the Government using funds from the National Pension Reserve Fund (NPRF) to recapitalise Allied Irish Bank if necessary, Minister for Finance Brian Lenihan has said.

Mr Lenihan said that “finality” would be brought to AIB’s capital position over the next few weeks and this would not require additional borrowing if the State was involved.

“If the State has to increase an investment, we have sufficient cash available in the pension reserve fund to do that and make a long-term investment,” he said.

“It’s a possibility but if it has to be done it will be done and it will be done promptly, but can I say that it will not require any fresh borrowing.”

AIB must raise €7.4 billion to meet the Financial Regulator’s new capital rules, covering expected losses on loans moving to the National Asset Management Agency and other loans remaining at the bank. AIB is selling its Polish bank, Bank Zachodni WBK; a 22 per cent stake in US bank MT; and its UK business to raise more capital.

Mr Lenihan said the bank had received “substantial” bids for the Polish bank and offers for the bank had closed. Poland’s largest bank, PKO Bank Polski; Spain’s Banco Santander; and France’s BNP Paribas have all submitted bids.

AIB expects to sell the three assets by the end of this month.

The Government has committed to making up any shortfall in the bank’s capital-raising drive by converting more of its preference shares to ordinary shares.

Goodbody Stockbrokers (which AIB is also selling) has estimated the bank would raise €4.4 billion from the sale of foreign assets.

The State holds 18 per cent of the ordinary shares in the bank.

Labour finance spokeswoman Joan Burton expressed concern about Mr Lenihan’s comments about the use of the NPRF for AIB.

“I don’t think Mr Lenihan can feel he can freely raid the National Pension Reserve Fund at will in relation to other banks,” she said.

Fine Gael finance spokesman Michael Noonan said: “I hope now AIB will be fully capitalised by Christmas.”

Mr Lenihan said Bank of Ireland had successfully raised private capital and noted it had not requested an extension of the guarantee scheme. “It’s clearly a bank that can fund itself and is working in the ordinary way,” he said.

He said the plan announced on Wednesday to split Anglo into a funding bank and an asset-recovery bank was not a “silver bullet”. He would prefer to call the Anglo plan an “orderly workout” rather than a wind-down, adding that the process would take a number of years.