Four letter word for banking debt

Lending to the Irish construction and property sectors jumped by 100bn euro in under a decade

By Arthur Strain
BBC News

Nama, a four letter word which has been striking fear into the hearts of property investors.

It stands for National Asset Management Agency and a conference in Belfast on Wednesday aimed to explain how the body will work.

It is being set up by the Irish state as the repository for the so-called "toxic loans" dragging down the Republic's banking system.

Rossa White, chief economist with Irish financial advisers Davy, said that Irish banks were no longer taking a "softly, softly" approach to struggling debtors and that this would probably increase under Nama, but for most it would simply mean their loans were moving.

But not immediately - it is likely to be next year before it has all the political and legislative approval for the troubled loans to be moved.

What are known are the general figures. Irish borrowing binged over the last decade with the amount on lending in the construction and property sectors rising from 10bn euros in 2001 to 110bn euros by 2008.

Nama is the purge to clean the system, a mechanism to deal with some of the bad debts to encourage banks to start lending to consumers again.

Theoretically, if liquidity is no longer a problem for them and they are happier with their funding, they should at least see some easing towards those credit-worthy businesses that may have head five credit lines cut down to three or their overdrafts trimmed Rossa White

Next year in the region of 77bn euros of those loans will be transferred, with a writedown of about 23bn euros on them before they go to Nama.

The Irish government has said a 10% rise in property prices over the next decade will allow Nama to break even.

Mr White said that removing these loans from the banking system will make Irish banks much more attractive, and likely to start lending again.

"I do think banks have come down heavier on creditworthy businesses than they should have," he said.

"And theoretically if liquidity is no longer a problem for them they are happier with their funding they should at least see some easing towards those credit-worthy businesses that may have head five credit lines cut down to three or their overdrafts trimmed."

The location of the debts makes interesting reading, the vast majority are in the Republic, 66%, then Great Britain, 21%, then Northern Ireland, 6%, Europe, 4% and the United States of America, 3%.

This has caused concern in the Northern Ireland property market that there could be a "fire sale" of assets that would have a heavy impact on the local market.

Discounts

Belfast commercial law firm, Tughans, organised what they thought would be a seminar with about 50 people on the potential effects of the legislation, in the end they put on a day-long conference with 350 people across a diverse financial and private investment spectrum.

Those attending heard that Nama wanted to get the best from the loans they will end up taking, so maybe massive discounts on assets will not materialise.

There is also the prospect of 10bn euro being released to help finish developments stalled by a lack of capital.

In the Republic, borrowers will have no right to challenge values attributed to loans, but values placed on foreign based assets, including those in Northern Ireland, may be liable to greater challenge.

The writ of Nama will end at the Irish border and any outworkings from the bill in other jurisdictions will need to be in accordance with local laws.

There were some worried faces in the audience, but also the acceptance that something had to be done.

David Gray of FGS McClure Watters attended the conference.

"From what I heard today, the vast majority of it will be relating to the Irish market," he said.

"Nama should help the banking services, but as for Northern Ireland, whether or not it will make any difference, that is still a way off."