Pearse Doherty (Donegal South West, Sinn Fein)
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Question 86: To ask the Minister for Finance with respect to the National Asset Management Agency Q3 2011 accounts, the total amount of interest actually received by NAMA for that quarter and for Q1 and Q2 in the same year; and if he will make a statement on the matter. [8800/12]

Pearse Doherty (Donegal South West, Sinn Fein)
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Question 87: To ask the Minister for Finance if he will confirm that a method known as effective interest rate method is used by the National Asset Management Agency when calculating its interest income for the purposes of the compilation of its quarterly accounts; the difference between this method and the actual amount of interest received by NAMA in any given quarter; and if he will make a statement on the matter. [8801/12]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 86 and 87 together.

NAMA advises me that interest income is recognised in its quarterly accounts, based on the Effective Interest Rate (EIR) methodology. The EIR methodology is an accounting technique which NAMA is required to adopt for the recognition of interest income on its loan portfolio in accordance with International Financial Reporting Standards (IFRS). The EIR method allocates interest income proportionately over the life of a loan regardless of the timing of cash receipts. The income recognised in NAMA's accounts reflects the expected rate of return on NAMA's acquired loans based on their expected future cash receipts over the life of the loans.

While the NAMA borrower continues to be liable for interest accruing on the original par value of the loan, IFRS accounting standards do not allow NAMA to use this as a basis to recognise interest income on its loan portfolio for the purpose of financial reporting. As a result NAMA does not recognise in its financial statements interest income based on the contractual interest being accrued or being received on the nominal or original par value of the loan.

NAMA has informed me that the contractual interest payments actually received in cash from NAMA borrowers in respect of NAMA Loans during each quarter of 2011 are as set out in the table. The table also shows that quarterly income based on the EIR method.

The higher interest income reflected under the EIR method reflects the expected rate of return based on its expected future cash flows from the realisation of property collateral underlying the loans.