Another €8bn needed, according to the Central Bank of Ireland to get core Tier One capital up to at least 12 per cent — with the possibility of more to come post the March 2011 stress test.
From the Prudential Capital Assessment Review (PCAR) released on Sunday evening (emphasis ours):
1 Loans eligible to transfer to NAMA with value less than €5m and between €5m and €20m.
2 This includes the original PCAR requirement that has yet to be raised and the additional requirement as a result of this update.
3 Based on the latest information available and the bank’s own estimates, the Core Tier 1 ratios of the banks at yearend 2010 are estimated assuming capital required is injected immediately, and where relevant, the completion of NAMA transfers and proceeds of divestments agreed and announced. The buffer in terms of the estimated Core Tier 1 ratio above the PCAR base case benchmark of 12% reflects the capital required for loss absorption on an individual bank by bank basis.
And in further detail:
1. The Central Bank has set a new minimum capital requirement for Allied Irish Bank, Bank of Ireland, ILP and EBS of 10.5% Core Tier 1. In addition, the Central Bank is requiring these banks to raise sufficient capital to achieve a capital ratio of at least 12% core tier 1 by 28 February, 2011 in the case of AIB, BOI and EBS and by 31 May 2011 in the case of ILP.
2. The Central Bank will require this additional capital to be in the form of equity (or equivalent instruments for EBS).
3. The total capital injection will be €8bn. This figure takes account of the capital impact of further NAMA transfers (see below). This action, along with early measures to support deleveraging, will result in an injection of €10bn of fresh capital into the banking system, above and beyond that already committed.
4. Bank of Ireland, Allied Irish Banks, ILP and EBS will be subject, as previously announced, to a stress test in March 2011 under the Central Bank’s PCAR methodology. If, as a result of the PCAR, banks are assessed to be at risk of falling below the 10.5% core tier 1 target then further capital injections will occur.
5. The PCAR will be enhanced by the inclusion of a detailed review, to be conducted by an independent third party, of asset quality in the participating banks. In addition, an independent third party will review the quality of the data banks submit for the PCAR.
6. The Central Bank will conduct a review of the adequacy of provisions in Irish domestic banks. Where required, banks will be required to increase provisions to take account of asset performance.
Ireland’s banks will also be required to prepare detailed asset disposal plans in order to meet tough new liquidity and funding requirements:
8. To meet PLAR targets, and also to maximise the efficient utilisation of capital through Risk Weighted Asset (“RWA”) reductions, the Central Bank will require Bank of Ireland, Allied Irish Banks, ILP and EBS to put in place detailed asset disposal plans by end-April 2011. These plans will identify measures banks will take to dispose of non-core assets and/or securitize other assets. If required, credit enhancement will be provided by the State.
9. In addition to work the banks undertake, the Central Bank will retain specialist advisors to identify further disposal or securitization measures.
10. The remaining land and development loans of <€20mn will transfer from Bank of Ireland and Allied Irish Bank to NAMA by end-Q1 2011.
Further detail on the bank recap plan from the government statement on the EU/IMF bailout.
Bank Recapitalisation and Restructuring Measures
The main elements of the programme are as follows:-
Building on the results of the Central Bank of Ireland’s Prudential Capital Assessment Review (PCAR) carried out earlier this year additional capital requirements have been set.
The domestic banking system will benefit from a substantial and immediate recapitalisation raising Core Tier 1 capital ratios to at least 12%.
This action, along with early measures to support deleveraging set out below will result in an immediate injection of €10bn of fresh capital into the banking system, above and beyond that already committed.
Further recapitalisations will take place in the first half of 2011 as necessary based on the results of a detailed review and updating of the banks’ capital needs following a revised PCAR exercise undertaken by the Central Bank of Ireland and involving stringent stress testing.
A Prudential Liquidity Assessment Review (PLAR) will be implemented by the Central Bank of Ireland for the domestic banks to identify deleveraging actions necessary to significantly reduce their reliance on short term funding.
A substantial downsizing of the banking system will be achieved through early and decisive actions including:-
Banks will be required to run down non-core assets, securitize and or sell portfolios or divisions with credit enhancement provided by the State, if needed.
The NAMA Scheme will be extended to remove remaining vulnerable land and development loans from Bank of Ireland and Allied Irish Bank by end-Q1 2011
This process will be carried out in a carefully balanced and controlled manner with the benefit of the substantial resources available to the banks for their funding and capital needs.
Banks will be required to promptly and fully provide for all nonperforming assets.
The restructuring of Anglo Irish Bank and Irish Nationwide Building Society will be swiftly completed and submitted for EU State aid approval.
A significant strengthening of the regulation and stability of the credit union sector will be carried out by end-2011
A special legislative regime to resolve distressed credit institutions will be introduced early in 2011.
Specific legislation to support immediate restructuring actions is in preparation.
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