Pearse Doherty (Donegal South West, Sinn Fein)
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Question 85: To ask the Minister for Finance if he will confirm that the National Asset Management Agency accounting methodology for interest receivable, the so called effective interest rule requires NAMA to forecast a terminal value for property securing its loans; and if he will explain the way NAMA arrives at such forecasts of property prices in the future. [16071/12]

Michael Noonan (Limerick City, Fine Gael)
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NAMA presents its financial statements in accordance with International Financial Reporting Standards ("IFRS"). It is required to do so under EU legislation due to the fact it has listed debt securities. In accordance with IFRS NAMA uses the effective interest rate methodology ("EIR") for the recognition of interest income on its loan portfolio from the date due diligence is completed. For non-due diligence loans, income is recognised in accordance with the contractual interest received to the date due diligence on the loans is completed. The acquisition value of the loans was determined in accordance with the NAMA Act and related valuation regulations. As part of the valuation process the loans acquired were independently valued in accordance with a collateral based valuation model and there was an independent valuation of the property or collateral securing the loan. The valuation date for the value of all property assets in this collateral based model was 30 November 2009.

NAMA determined the effective interest rate for the loans it acquired using this collateral based valuation model which projects the property related cash flows and the realisation of the property collateral. The model assumes the realisation of the property using its value at the end of November 2009, as adjusted to reflect its long-term economic value where appropriate.

In accordance with International Financial Reporting Standards ("IFRS"), NAMA has set the effective interest rate for the loans it has acquired based on the expected cash flows over the life of those loans determined at the acquisition of those loans.

NAMA has informed me that the effective interest rate methodology does not require NAMA to forecast a terminal value for property securing its loans.

The ongoing recoverability of income recognised in accordance with the effective interest rate methodology, is reviewed as part of NAMA's detailed annual impairment review. To the extent that following the acquisition of the loans, there is a change in the timing or amount of NAMA's expected cash flows, whether it is favourable or unfavourable, IFRS requires that NAMA adjust the carrying value of the loan and recognise an impairment charge or gain in its accounts. NAMA is currently carrying out its detailed annual impairment review for the 2011 year-end.

NAMA intends to introduce a semi-annual calendar accounting impairment review of its loan portfolio commencing 30 June 2012.