Michael Noonan (Limerick City, Fine Gael)

I thank Senator Byrne for raising this issue. Section 10(2) of the National Asset Management Agency Act provides that NAMA shall obtain the best achievable financial return for the State with regard to its operations. NAMA assures me that it is fully focused on doing just that. The chairman of NAMA recently informed the Joint Committee on Finance, Public Expenditure and Reform that it remains the policy of NAMA to pursue developers for the full amount they owe. A misconception seems to have arisen because the agency's minimum target is to recover what it has paid for the loans, as well as any other moneys advanced as working capital or for development, plus interest on these moneys. This does not mean, however, that NAMA will stop at that threshold. NAMA remains as focused as ever on pursuing each developer for the full amount owed.

Nevertheless, this goal must be rooted in reality and the reality is that a large proportion of the nominal value of the loans purchased will not be recovered. If one looks back at the NAMA business plan published on 30 June 2010, it is clear that full recovery of the nominal value of the total loan book was not envisaged. That is why the loans were purchased at a discount.

Within that reality, NAMA assures me that it is determined to recover everything that can be recovered, in order to generate the best achievable financial return for the State. Where a debtor cannot demonstrate viability or is not co-operating with NAMA, the agency takes enforcement action against the debtor concerned. By end-August 2011, NAMA had approved the appointment of receivers in 84 cases.

The alternative to enforcement is to work with the developer, which may seem unpalatable in many cases. Indeed, the chairman of NAMA recently said that he would love to be able to tell us that the agency could throw out all 850 developers and get someone else to run the businesses. However, he had to point out that while that could be a very popular decision, it would not make commercial sense because, regardless of what they have done, they are the people who know the business. Unfortunately, when NAMA decides to work with developers, developers have to be given some incentive to work with NAMA. Otherwise, they could decide to let NAMA foreclose, with the result of a diminished return for the taxpayer.

The following is an example of how NAMA incentivises a debtor to repay more than the minimum target. Where NAMA has paid €50 million for a debtor's loans which aggregate to €100 million nominal value, NAMA might set a minimum repayment target of €55 million for the debtor. If, by year seven, the debtor reaches that minimum repayment target, an incentive arrangement will apply whereby thereafter, the debtor will be allowed to retain 10% of any excess sum realised. If a total of €60 million is realised, therefore, this is an excess of €5 million over the minimum target and the debtor retains €500,000. In such a case NAMA's profit will be €9.5 million over the amount paid for the debtor's loans. This is an example and different repayment targets will apply to different borrowers depending on the particular circumstances of each case. The key factor in determining what NAMA pays for any debtor's aggregate debt is the current market value of the underlying property securing that debt. Therefore, if NAMA pays €50 million for the loans, as in the example, it is likely that the value of the underlying property is of the same order.

Some may see the incentive scheme as being a cash reward for paying back loans. Unfortunately, if a debtor is not incentivised to exceed a minimum target set by NAMA, the agency believes it will get very little over and above that target. The objective of the incentive is to get the debtor working not so much for himself or herself but for the taxpayer and NAMA. NAMA's overarching objective is to maximise the return to the Irish taxpayer. It assures me that it is determined to achieve that objective as provided for in the NAMA legislation. Introducing amending legislation to deal with this issue would not generate any additional benefit because legislation cannot force payment from a debtor who cannot pay. I conclude by reminding the Senator that if all NAMA debtors were capable of repaying the full amount of their loans, there would be no need for NAMA in the first place.