Just one-third of loans being acquired by the National Asset Management Agency (Nama) are generating interest payments – less than the 40 per cent first estimated – reducing the income to be earned by the toxic loans agency.
Brendan McDonagh, chief executive of Nama, told an Oireachtas committee that this would mean borrowers are paying interest on €27 billion of the €81 billion in loans to be purchased and not €32 billion as previously estimated.
This would be "a shock" to many people, said Fianna Fáil TD Michael McGrath, who chaired the hearing.
Mr McDonagh disclosed that 12.5-15 per cent of the first €16 billion in loans to be transferred involved rolled-up interest, where the borrowers had not made any loan repayments. This was also higher than Nama's first estimate. The agency has said that it will stop interest roll-up once their contracts expire.
Mr McDonagh told the Oireachtas Joint Committee on Finance and the Public Service that Nama would submit a revised business plan by the end of June, showing how the changes would affect the projections facing the agency.
Labour finance spokeswoman Joan Burton said she found it "very strange" that Nama could not submit a revised business plan earlier given that it had now heard "the bulk of the horror stories".
Mr McDonagh warned that Nama may be forced to knock down unfinished property developments outside Dublin. "This will incur costs, but unfortunately there is no avoiding this," he said. The agency may consider paying for the completion of some housing estates if it brought a higher return, he said, or if it addressed health and safety issues.
"We can all see land and half-built developments which should never have been contemplated as it is hard for anyone with an objective view to see how they made sense even at the top of an over-heated market," he said.
Mr McDonagh warned that Nama would not provide loans to complete half-built developments just for the sake of it but would take "a strictly commercial view".
Nama has also discovered that some institutions had provided loans of up to 100 per cent in value to buy agricultural land for speculative purposes and that such loans had been "approved at all levels within the banks".
Mr McDonagh said Nama would start foreclosing on bankrupt developers by September after assessing how they intended to deal with their debts. However, he warned that Nama may move against unco-operative borrowers before then.
The agency would sue borrowers if it discovered properties had been transferred to spouses to avoid them being seized where personal guarantees had been given, he said.
"We are going to take a very strong view," Mr McDonagh said.
Nama had applied zero value to developers' personal guarantees when considering loans, he said.
Speaking earlier yesterday, Mr McDonagh said the discount on the first loans linked to the 10 biggest borrowers may rise above the 47 per cent average disclosed last month to about 50 per cent. This was due to a higher than expected discount on the first loans from Anglo Irish Bank.
The State-owned bank is transferring €10 billion of loans to Nama in the next 10 days, accounting for 600 of the first 1,200 loans. It has been "a very long and difficult process" with the bank, he said.
Mr McDonagh said Nama had discovered "a troubling picture" of lending practices – "all born of a mindless scramble to funnel lending into one sector at considerable pace and of a reckless abandonment of basic principles of credit risk and prudent lending".
Lenders had failed to secure loans properly and inadequately stress-tested borrowers, he said. He outlined poor lending practices, including the failure to write correct names, loans or properties on records. Ms Burton described this as "a litany of horrors".
Mr McDonagh said he wasn't sure whether this was "fraud or incompetence" on the part of the institutions but advised that the Financial Regulator should assess internal controls.
Nama has issued €3.5 billion in bonds to the institutions as payment for €6 billion in loans acquired from AIB, Bank of Ireland, Irish Nationwide and EBS. Nama would pay €43 billion for all €81 million in loans to be acquired if the first haircut was applied across all of the assets.
