Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

As the Deputy will be aware, the Irish authorities have taken a wide range of restructuring measures to tackle the banking crisis over the past three years. The deleveraging programme set out in the financial measures programme in 2011 was an integral part of this process. By reducing the size of the banking system, deleveraging was intended to reduce bank reliance on wholesale and central bank funding and so help to create a clean, appropriately sized banking system able to provide new lending necessary to support economic activity in Ireland.

Specifically, the deleveraging plans agreed under the financial measures programme aimed to put in place credible, workable plans for the disposal and run-off of non-core assets to enable each bank to achieve a target loan to deposit ratio of 122.5% by the end of 2013. In order to protect the domestic economy, deleveraging was to focus on non-core assets consisting largely of international loan assets across a number of portfolios in the UK, the US and Europe and not required to service the retail, SME and corporate banking requirements of the Irish economy. The deleveraging plans also sought to pace asset disposals appropriately, in order to avoid excessive capital losses.

To date significant progress has been made. As outlined in the recently published Department of Finance annual review, both Bank of Ireland and AIB are currently on track to achieve their year-end 2013 deleveraging targets. PTSB’s programme has been largely postponed pending the EC’s decision on its restructuring plan. Total deleveraging achieved across AIB, Bank of Ireland and PTSB was €57 billion as at 31 December 2012. Deleveraging to date has been achieved within assumed discounts avoiding fire sales as planned. Remaining deleveraging is anticipated to be achieved through run-down and work-out of non-core loan books over time. I should stress that the asset disposal programmes at AIB and Bank of Ireland have largely completed.

Additional information not given on the floor of the House

Given the progress made to date by AIB and Bank of Ireland, the fact that the majority of non-core assets are not Irish assets and the fact that their asset disposal programmes have largely completed, I am comfortable that the completion of these plans is not constraining the amount of new lending available in the market.

In order to further minimise risks to domestic lending arising from the bank’s deleveraging programmes, further refinements to the deleveraging framework were agreed with the troika towards the end of last year. It was considered that the loan to deposit ratio metric had served its purpose in terms of driving non-core deleveraging and remaining deleveraging would be best achieved by a specific quantum of non-core deleverage requirement. This resulted in the banks’ deleveraging being assessed based on the existing nominal targets for disposal and run-off of non-core assets in line with the 2011 financial measures programme. This ensures excessive deleveraging of core portfolios is avoided so as not to impair the flow of credit to the domestic economy and also removed any unintended distortion to the deposit market.

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