Mr. Seamus McCarthy:

As members are aware, NAMA was established in December 2009 to deal with a crisis in Irish banking due to poor property-related lending. The core idea was for NAMA to acquire property-related loans from the commercial banks, to hold and manage the loans and related collateral and, ultimately, to dispose of those assets in a manner that protected the State’s interests. NAMA would then cease to exist. At the outset, it was envisaged that NAMA would have a life of around ten years and would, therefore, be winding up in 2020. However, a Department of Finance review published in July 2019 recommended that NAMA continue to work out its residual loans for a limited period beyond 2021. It further recommended that, before the end of 2021, NAMA would submit to the Minister proposals and a plan for the dissolution of the agency.

The 2020 financial statements indicate that NAMA had operating income of €274 million in the year. This was down from €363 million earned in 2019, reflecting in the main the continuing decline in the value of NAMA debtor loans, which stood at €850 million at the year end, compared with €1.23 billion at end 2019. Administration expenses incurred by NAMA in 2020 amounted to €63 million, down from €67 million in 2019. The profit for the year was €192 million. The last of NAMA’s debt, amounting to €1.1 billion, was repaid in March 2020 and the interest of private investors was redeemed at a cost of €56 million. Finally, a cash transfer of €2 billion to the Exchequer in 2020 was funded from NAMA’s accumulated retained earnings. NAMA’s retained earnings at 31 December 2020 amounted to €2.6 billion.

Under section 226 of the NAMA Act 2009, I am required to carry out reviews every three years of the extent to which NAMA has made progress towards achieving its overall objectives. Because NAMA has a specific purpose to be achieved over a finite life, it is more meaningful to look at its lifetime performance than at its performance in an individual year. The report before the committee today is the third progress report, up to end 2018. Where additional financial information is available in the audited 2020 financial statements, I will refer to the most up-to-date position in the following comments.

NAMA paid €31.8 billion to the banks for the loans it acquired in 2010 and 2011. At that time, the par value of the loans on the banks' books was €74.4 billion, so the sale to NAMA resulted in very large losses for the banks.

NAMA funded the purchase by issuing debt.

In the following years, NAMA implemented a significant programme of disposals of property assets and of loan portfolios, as well as additional lending to certain NAMA debtors where this was likely to generate best returns. As I mentioned previously, NAMA held a much reduced portfolio of loan assets at end-2020 valued at €850 million.

A key objective set by NAMA was to have redeemed all the debt it had issued by 2020. NAMA was significantly ahead of the planned debt repayment profile from 2014 onwards and had repaid 95% of its borrowing by the end of October 2017. All the remaining debt was repaid by March 2020. NAMA covered all of its operating costs and additional lending to NAMA debtors without recourse to any additional borrowing. At the end of 2020, NAMA was projecting it will generate a surplus of €4.25 billion by the time it completes its work. This includes the €2 billion transferred to the Exchequer in 2020.

NAMA has a statutory objective to obtain "the best achievable financial return for the State" but how that return is to be measured is not defined in the NAMA Act. The internal rate of return, IRR, is a standard performance measure for commercial property and other investments. This measure takes account of the amount and timing of receipt of financial returns as compared to the initial investment and other outlays. NAMA's results up to the end of 2018 and its projected future cash flows indicate that its expected overall internal rate of return over the full life of the agency would be around 6.6%. NAMA has not set a target for the internal rate of return on its investment. However, in fixing the prices it paid for the loans it bought, NAMA effectively anticipated an internal rate of return of around 5%. By reference to that benchmark, NAMA is likely to achieve a modestly better return for the State.

In 2014, NAMA adopted a secondary objective relating to the delivery of office accommodation in Dublin. At that stage, NAMA still had an interest in a substantial proportion of the undeveloped land in the Dublin Docklands strategic development zone, SDZ. The NAMA board approved a strategic business plan for the sites in September 2014 but this did not include formal targets in respect of the stated objectives. While it was envisaged in the plan that construction on the docklands sites could potentially commence in 2016, no timescale was set for the completion of development. By May 2020, construction was under way, and in some cases had already been completed, on sites accounting for 86% of the land in which NAMA had an interest.

Although NAMA acquired an interest in a substantial number of residential property developments at various stages of completion when it acquired its loans from the banks, the NAMA Act does not explicitly require the agency to engage in the development or delivery of residential units. However, early on, the board adopted the facilitation of the delivery of housing, subject to commercial viability, as a secondary objective. NAMA has sought to deliver residential units for both the social housing and commercial housing markets.

NAMA set a target of delivering 2,000 social housing units by the end of 2015 and this was achieved. By the end of 2018, NAMA had provided a total of 2,445 residential housing units to approved housing bodies or local authorities and an additional 36 units were at contract stage. Of these, 1,352 social housing units had been acquired from NAMA debtors by a NAMA subsidiary, which was leasing the units to approved housing bodies.

In November 2015, NAMA set a target to deliver 20,000 commercial residential units on sites where NAMA had a direct involvement by 2020. By the end of 2018, a total of 7,521 residential units had been delivered on such sites. At that stage, NAMA was forecasting a further 5,750 units would be delivered through similar NAMA-supported commercial developments by 2021, that is, around 13,000 units in total. This would represent delivery of around 65% of the target number of units albeit a year later than originally projected. Between 2011 and 2018, NAMA debtors and receivers had sold sites with the potential to deliver an estimated 63,300 residential units. NAMA reported at the end of 2018 that just 3,525 residential units had been built on those sites. The annual report provides an update on this. The report indicates that sites sold up to the end of March 2021 by NAMA debtors and receivers have the potential to accommodate around 81,000 residential units but that only 6,800 units, or around 8.4% of the estimated capacity, had been delivered to the market by March 2021.