Any profit by agency will be fraction of massive cost to State

Analysis:Nama is playing a part in trying to kick-start the property market

The National Asset Management Agency is the biggest property player in the State and one of the largest in Europe, and was formed as part of the strategy for dealing with the disaster that is the Irish banking system.

By removing toxic loans for land and development from the balance sheets of the banks, the agency was supposed to help restore those institutions to health.

Two of the institutions, Anglo Irish Bank and Irish Nationwide, now form part of the Irish Bank Resolution Corporation, which is in the process of being wound down.

The other institutions are AIB, Bank of Ireland, and the Educational Building Society (now merged with AIB).

According to the Nama website, the agency had paid these institutions €31.8 billion by the end of 2011, for loans that had a nominal value on the banks' books of €74 billion.

Debtors on hook

In order to get its money back, Nama has to recover enough money from the banks' debtors, or from the sale of the assets that secured the loans.

However, its aim is to do more than this. Although the agency paid a much lower price for the loans than their value on the banks' books (the average discount was 57 per cent), the debtors are still on the hook for the total amount they borrowed.

Nama wants to recover as much of the €74 billion as it can from these original borrowers, or from the properties it seizes from borrowers who cannot repay their debts.

Anything over and above the amount Nama paid for the loans will constitute a profit.

'On target'

The agency says it is operating according to a plan that will see it clear all the loans off its books by 2020 and return a profit. While it states it is on target to achieve its objective, it will not say what sort of profit it expects to achieve.

The properties behind the loans owned by the agency are mostly in the Republic (54 per cent), but also in Northern Ireland (4 per cent), Britain (34 per cent) and elsewhere (8 per cent).

The figures as regards sales and other activity released by Nama yesterday refer to all jurisdictions.

Of course, what profit, if any, the agency can make from the loans it owns is hugely dependent on the fortunes of the Irish and UK property markets.

How they will perform over the coming six years is a great unknown.

By way of its schemes such as the vendor finance scheme - where it lends money to buyers of commercial property owned by people or companies owing money to Nama - and its deferred mortgage initiative - where it takes on some of the risk associated with some residential property sales - the agency hopes to play its part in kick-starting the Irish property scene.

But even if Nama does turn in a profit by 2020, it will be a small number in comparison to the inestimable but obviously staggering cost to the Irish economy attributable to the incompetence of its banking sector.