Ireland Seeks to Battle Toxic Loans with NAMA
The National Asset Management Agency (NAMA) has been set up by the Irish government in an effort to battle what have been called ‘toxic loans’ that are bogging down the Irish Republic’s banking system. For some, however, the acronym has become something of a four letter word, causing great concern as to its mission and actual effects on the economy of Ireland. A conference in Belfast is being held to make sure that the agency’s purpose and directive is fully understood.
According to some experts, Irish banks are already changing from a soft approach to a more aggressive stance towards debtors and this is likely to increase with the coming of NAMA, but for the majority the agency’s arrival will simply mean that their loans have shifted to a different lender.
The change is not expected to be immediate due to the political and legislative process involved in the transfer of those jeopardized loans. NAMA’s role is to cleanse the banking system by handling certain troubled debt and therefore encourage the banking system to resume lending to consumers once again.
In the seven year period stretching from 2001 to 2008, Ireland went on massive borrowing spree that saw debt soar from 10 billion to 110 billion euros within that brief period largely due to loans taken out by companies in the property and construction sectors of the market. In 2010, a full 77 billion euros worth of that debt will be transferred to NAMA with 23 billion euros worth of the debt written off prior to the transfer.
Financial experts have commented that recently Irish banks have been more frugal in their lending, even in regards to credit worthy companies. The hope is that with NAMA’s intervention, the banks will once again find lending to businesses with a sound financial outlook to be a smart move due to increased liquidity in the banks themselves.
While the majority of the debt, 66 percent, is located in the Republic of Ireland, another 6% is from Northern Ireland. This has raised some alarm for that region since critics of NAMA worry that its actions may trigger a fire sale of Northern Irish assets that, in turn, wreak economic havoc in that state. The remainder of the debt lies in Great Britain (21 percent), Europe (4 percent) and finally, the United States (3%).
Certain investors in the private sector have expressed trepidation that NAMA’s involvement could mean discounting of assets before they are purchased and thus major losses for those involved, but at this time that remains speculation.
Another potential contribution NAMA may make is the release of 10 billion euro’s worth of capital to help kick start stalled construction efforts that remain stalled due to lack of funding. The effects of NAMA remain to be seen, but the impact is expected to be felt primarily within the borders of the Republic.
Irish citizens do have certain rights when it comes to challenging valuations of foreign based debt, but not such debt within the Republic’s borders.
If you would like more information on debt in Ireland, there is a website that focuses on these issues, Irish Debt Solutions.
