* NAMA says McKillen loans no longer deemed material
* Agency had argued they were of systemic importance (Adds comments from NAMA, more detail)
DUBLIN, July 15 (Reuters) - Ireland's National Asset Management Agency (NAMA) has decided not to acquire some 1.4 billion euros ($1.98 billion) in loans secured on the assets of property developer Paddy McKillen, a spokesman for the state-run agency said on Friday.
Earlier this year, McKillen won a legal challenge stopping NAMA from taking over the assets. The Supreme Court on Friday awarded him all the costs of his legal action.
In a statement, NAMA said it had decided not to acquire the loans because they were no longer deemed material.
"The decision of the board not to acquire reflects the fact that the composition of the loans under consideration changed substantially," the agency said in a statement.
"The land and development exposure declined significantly since December 2009 and the loans were no longer deemed material in the way they had been in December 2009."
In October 2010, NAMA had argued in court that it needed to acquire McKillen's loans because they posed a systemic risk to the banking system. The loan-to-value levels on some of the loans had been breached, the agency said at the time.
Publicity-shy McKillen, who co-owns Dublin's Clarence Hotel with rock group U2 band members Bono and The Edge, had said his loans were being repaid and had no place in NAMA, which was established to take over Irish banks' risky commercial property portfolios.
Earlier this year, the Supreme Court said NAMA could not acquire McKillen's loans because its decision to do so had been made before NAMA was legally established.
NAMA, which has spent 30.5 billion euros acquiring loans once valued at 72 billion euros, needs performing loans to generate income.
It has only sold 3.3 billion euros of properties and recently took a 1 billion impairment charge to cover potential losses from the loans it has acquired, despite already discounting the assets by on average 60 percent. ($1=0.706 Euros) (Reporting by Carmel Crimmins; Editing by Jon Loades-Carter)