Irish regulator says examining bank loan books

By Jonathan Saul

DUBLIN, Oct 17 (Reuters) - Ireland's financial regulator is examining the loan books of six Irish institutions that are expected to sign up to the government's guarantee plan, a spokeswoman said on Friday.

The spokeswoman said the audit, conducted by PricewaterhouseCoopers (PwC) on behalf of the regulator, was launched before the state scheme was announced on September 30 and could be completed later this month.

"We are drilling down into the figures to get detailed, comprehensive analysis of the individual loans," the spokeswoman said without giving further details.

The Irish plan initially guaranteed 400 billion euros ($546.4 billion) in liabilities of six Irish-owned institutions, but the European Commission earlier this week approved a revised 485 billion euro guarantee scheme that includes foreign-owned banks with significant operations in the country.

Banks will need to formally sign up to the scheme.

"We assume that PwC's brief is to look at how vulnerable the six banks' loan books are to the deteriorating economic conditions," broker NCB said.

"It also seems a big focus will be on assessing how many loans to the property and construction industry are not generating any cash flow for the banks."

The collapse of Ireland's property boom had already battered Irish bank shares before global financial turmoil compounded falls.

"We suspect the findings of PwC will confirm the fact that the banks will almost certainly require additional capital and that in parallel to their UK neighbours, will need government help to support it," NCB said in a research note.

The six institutions are Allied Irish Banks (ALBK.I), Bank of Ireland (BKIR.I), Anglo Irish Bank ANGL.I, Irish Life and Permanent (IPM.I), Irish Nationwide Building Society and the Educational Building Society.

Finance Minister Brian Lenihan has said the government had not ruled out taking equity stakes in Irish banks but had no immediate plans to do so.

Ireland's financial regulator chief Patrick Neary told a parliamentary committee this week speculative lending to the construction and property sectors in the country amounted to 39.1 billion euros ($52.66 billion). "There will be losses on property-related loans and increased provisions and write-offs will be necessary," Neary said. "The potential difficulties in this regard are linked to how the economy unfolds."

Lenihan announced details of the guarantee scheme on Wednesday which will see institutions paying a total amount of 1 billion euros over a two-year period to get cover.

The government has demanded stricter dividend payout and credit control arrangements as well as curbs on executive pay among the conditions for banks committing to the scheme.