ECB stress tests represent a key moment for future of Irish banks– McGrath

The ECB stress tests to be completed in October this year will reveal whether or not the main banks in Ireland have adequately provided for the losses they are carrying on household and SME debt and should provide a full and frank assessment of the health of Irish banks, according to Fianna Fáil Finance Spokesperson Michael McGrath.

Deputy McGrath was speaking following the publication today by the ECB of the tests banks would face, which include the ability to cope with a cumulative loss of 2.1% in economic output, a 21% fall in property prices and a simultaneous rise in unemployment.

“We know from comments made by President Mario Draghi that the ECB continues to have concerns about key issues affecting the Irish banking sector including the amount of bad loans they are carrying and the ongoing need to restructure their operations. The message coming from the ECB in recent times has been a far more sober one than what we hear from our own government and the banks themselves which would have us believe that we now have a perfectly healthy, functioning system. It is clear that the ECB stress tests will be a different animal from the Balance Sheet assessment carried out by the Central Bank last year. This is to be welcomed.

“There are serious issues which remain to be addressed in relation to the Irish banks, not least of which is the future of Permanent TSB. The restructuring plan for Permanent TSB was first submitted to the European Commission in June 2012 and still has not been approved. We need a definitive decision on the future of Permanent TSB and the role it can play in ensuring a competitive landscape in Irish banking. It is a vitally important bank and I believe it can play a significant role on the banking landscape in Ireland for a long time to come.

“The bank is potentially a very good asset for the State. It has brand recognition, a branch network, a customer base and can provide badly needed competition in a sector that is rapidly losing market players. Completion of the stress tests must represent the last remaining hurdle for ensuring the future success of Permanent TSB.

“The comments of UCD Professor Morgan Kelly will undoubtedly be the subject of debate in the run-up up to the completion of the stress tests. It would be illogical if the exercise was to be completed in a manner that undermined the viability of the SME sector as Professor Kelly suggested may be the case. SMEs are the lifeblood of the Irish economy and a strong and vibrant SME sector is an essential ingredient in Ireland’s planned economy recovery. A successful stress test programme will be one that forces the banks to identify the true state of their loan book and take action to put in place sustainable solution for viable companies burdened by property related debt,” concluded Deputy McGrath.