Paul Coghlan (Fine Gael)

I welcome the Minister of State, Deputy Calleary, to the House and wish him well in his Ministry. I welcome the opportunity to discuss the National Asset Management Agency, NAMA, and to hear the progress the Government has made on it. I did not hear the contribution of the Minister of State, Deputy Mansergh, but, like Senator MacSharry, I attended part of the informative meeting of the Oireachtas Joint Committee on Finance and the Public Service today. I regret I could not attend the full meeting.

We are greatly concerned that our banking system is not functioning properly because it is clogged with impaired property loans. Until this is resolved, we will not have a functioning banking system to ensure a proper flow of credit to the economy, the lack of which is impeding our recovery. The banks urgently need a clean bill of health. Their balance sheets must be strengthened and uncertainty about bad debts must be removed. While Fine Gael's approach differs from that of Government, we are equally concerned that whatever model is provided for in legislation succeeds in the national interest. It is intended that the NAMA model will allow the agency to buy from the banks at a significant discount through the issue of Government bonds. Our primary concern is that the transfer of these development related loans to NAMA will protect taxpayers' interests. All decisions on development projects and lands for which these loans were made available must be made not in the interests of developers or bankers but in the best interests of taxpayers.

It was good to hear at the committee meeting that the National Treasury Management Agency has moved to acquire professional advice in all the fields in which it will be required. It is hoped once bank balance sheets have been cleaned, banks will be able to refocus their efforts and operations on lending to small and medium sized businesses and home owners.

Many commentators are fond of attaching the word "toxic" to bank debt. Our problem relates to impaired property loans, not sub-prime financial products and other mortgage-like securities and so on. It is hoped the NAMA legislation will be ready quickly to provide for a speedy restoration of normal banking activity. I understand the guaranteed banks will be asked to establish subsidiary companies to administer the transfer of their property loans to NAMA and that NAMA will have a staff of between 20 and 40 people.

It was disturbing that Dr. Michael Somers, when he was before the Committee of Public Accounts last week, had occasion to express negative sentiments about NAMA, which comments were discussed previously in the House. Presumably, these difficulties have been or are being worked through. The National Treasury Management Agency will house the National Asset Management Agency. It is important these two agencies speak with one voice.

I am informed that approximately 5,000 bank staff across the various institutions are dealing with the management of these loans. It is hoped they will continue to be available to engage in this work, perhaps on rotation, subject to direction by NAMA. As mentioned by another speaker, rotation of staff will be important given the intimate knowledge of some officials of the individuals to whom the loans were given. It is understood the Bank of Ireland has assigned staff to a separate company to manage its development loan book and associated borrowings in readiness for transfer to NAMA, which will deal first with Allied Irish Banks followed by Bank of Ireland and the Educational Building Society.

A major issue is the charge banks will be able to levy on NAMA by way of administration fee for the daily management of these loans. We need to hear more of the range of discounts provided for in the European Commission guidelines on impaired assets. The land and development loans of the guaranteed institutions is estimated to be of the order of €60 billion with inter-linked land and development loans estimated to be an estimated additional €20 billion to €30 billion. We are told these include performing and non-performing loans. Government bonds will be issued for these which the banks may use as collateral to avail of European Central Bank funding.

NAMA, rather than a bank, will be a company managing property assets for best return to the taxpayer and Exchequer. NAMA's advantage in managing this asset portfolio will be that it can take a ten to 15-year view to ensure optimal return in terms of realised value of the assets. Many questions arise in this regard, one of which is, if NAMA is to rely on existing bank staff, which makes sense, is it necessary to transfer such a sizeable loan book when NAMA will have the safety net of being able to recoup by way of levy on the financial institutions?

We are led to believe the development of NAMA is proceeding well in parallel with the preparation of the necessary legislation and that the covered institutions are co-operating fully. The steering group is meeting on a regular basis to address the various legislative issues and we learned this morning the draft heads of a Bill will be ready in two to three weeks, with publication planned for July. We welcome the Government's decision to recall the Houses to deal with the legislation expeditiously.

One of the difficulties with the borrowers whose loans are to be transferred is that many are involved with several institutions, some of which are outside the scope of NAMA. Again, however, we are assured everything will be done on a properly commercial basis to protect the interest of taxpayers. NAMA will liaise with the uncovered financial institutions in regard to these borrowers.

The valuation method and discounts applied to the loans will be difficult to calculate. The level of discount to be applied is not known at present. The European Commission requires that each loan is assessed and valued individually. Our property market has undergone a substantial readjustment and may yet fall further. The Commission requires that valuations are conducted on the basis of current market value where possible but in our present circumstances it is not possible to arrive at a meaningful market value. The Commission has indicated it is prepared to accept a transfer value which reflects the longer term economic value of assets as an acceptable benchmark. This is one of the most basic issues to be decided by the steering group and I understood it is in discussions with the Commission on this and other important matters. We are told the steering group must ensure its proposals are totally consistent with EU rules on state aid and the treatment of impaired assets.

Regardless of our differences over methods and models, I welcome that NAMA will be able to choose among the options of proceeding by early disposal, holding for market improvements or developing projects to enhance returns. If necessary, it will be able to enter into joint ventures, partnerships and special purpose vehicles. This flexibility will be important to achieving the objectives of optimising returns to taxpayers and securing the interests of the Exchequer. While banks will administer the loans, all key decisions will be made centrally by NAMA. It is vitally important it maintains control at all times because we can no longer afford - I hesitate to use the word - cronyism. I wish the new body well if it is the way to proceed.