* Govt bids to keep 30 bln euros of NAMA debt of its books
* ECB's Asmussen says will look at govt 'tracker mortgage'
* Says strict criteria on replacing bank IOUs with EFSF loan
By Padraic Halpin and Conor Humphries
DUBLIN, April 12 Ireland said on Thursday it is
in talks with EU officials to keep 30 billion euros of
bank-related debt off its balance sheet while the European
Central Bank said it was ready to help Dublin work on proposals
to limit the damage from its bank bailout.
As a fragile economy is making it harder for Dublin to
contain its debt spiral, the government has been lobbying to
ease the burden of its bank-related debt, brought on by reckless
lending during a property boom.
Dublin had to pump 64 billion euros worth of capital into
the banking sector after the property bubble burst and it took
74 billion euros of risky land and development loans off banks'
To recover the 31 billion euros it paid for the loans, the
government created the National Asset Management Agency (NAMA),
which conducted much of its business via a special purpose
vehicle, allowing its debt to fall outside the government's
balance sheet for EU accounting purposes.
A shift in the agency's ownership structure means more debt
could appear on the state balance sheet. But Dublin's finance
ministry said on Thursday it was in "ongoing engagement" with
Eurostat and was satisfied that NAMA's debts would not be
brought on to the government balance sheet.
Even providing the NAMA debt stays off the government's
accounts, Dublin expects its debt burden - driven sharply higher
by its bank bailout - to peak at 119 percent of GDP next year,
taking it into the same sort of territory occupied by Italy and
Greece before Europe's debt crisis began.
With the economic growth needed to keep that forecast on
track far from certain, the government has been pursuing a
months-long campaign to ease the burden of its bank-related debt
by trying to reschedule payments on 27 billion euros worth of
high-interest IOUs issued to prop up two failed banks.
European Central Bank Executive Board member Joerg Asmussen
said the ECB would work with Dublin on these proposals as well
as others focused on shifting loss-making mortgages from the
country's banks. [ I D :nL6E8FC3GZ]
"We are ready to work with the authorities pretty soon on
this issue," Asmussen told Irish national broadcaster RTE,
referring to the burden loss-making "tracker" mortgages are
placing on the balance sheets of Irish banks.
"We will look very carefully if a plan is presented to us.
It is an issue that has to be dealt with for the future
viability of the banking sector," he said, adding that no
concrete proposal had been made.
Tracker mortgages make up more than 50 percent of Irish
banks' residential property loans and although performing, they
are not earning due to a mismatch between high funding costs and
the low ECB rate which the products track.
The government has said it wants to shift trackers from
Allied Irish Banks and Irish Life and Permanent
unit permanent tsb, in which it holds majority stakes. However,
it is not clear whether a deal would also affect Bank of Ireland
, in which the government owns a minority stake.
Irish Bank Resolution Corporation (IBRC), a vehicle winding
down the two failed Irish lenders being propped up by the
related IOUs, has said it is in talks with the government on the
possibility of it buying the tracker loans.
However Dublin has yet to say how it would move the trackers
without forcing further losses on its viable banks or pushing
the losses onto the state-owned IBRC, or whether it is willing
to pump further capital into the banks to complete the cleanup.
Asmussen gave a mixed view on the efforts to reschedule the
IOU debt, saying that while the ECB would work with the
government, the loans and the interest rate paid on them are
part of Ireland's bailout programme and should be honoured.
He said Irish hopes of replacing the so-called 'promissory
notes' for loans backed by Europe's temporary bailout fund, the
European Financial Stability Facility (EFSF), would have to meet
"To replace the promissory notes with support from the EFSF
must meet important criteria, including that it should improve
the chances of both the state and the banks returning to
market-based funding, and of the banks reducing their
extraordinary reliance on the Eurosystem," he said.
While Dublin faces a challenge convincing reluctant creditor
countries to allow it use the EFSF, analysts said the government
would likely be able to keep the NAMA-related debt off its
books, even it has to come up with a new solution to do so.
"The implications of an accounting reclassification are so
severe, one can assume that a solution will be found,"
Dublin-based Glas Securities wrote in a note.