GREEN PARTY Minister Eamon Ryan yesterday said Nama's [euro]54 billion purchase of loans with a face value of [euro]77 billion will lead to further Government capital injections into the banks and increased State ownership.

Mr Ryan, Minister for Communications, Energy and Natural Resources, said the Government was paying [euro]7 billion more than the market value of the loans, but added that there may be a steeper discount once every loan is valued by Nama by the middle of next year.

"If there is any downside risk, it will be to the banks in terms of the State paying less rather than the State paying more," he said.

He said the interest of the taxpayer was protected by the withholding of [euro]2.7 billion of the [euro]54 billion through the issuing of subordinated bonds as a deferred part of the payment for the loans.

The State would also be further protected on the overpayment by increased Government ownership of the banks and by the introduction of a levy across the sector once Nama winds down if it is left with a loss. "I think there will be a capital requirement and that will lead to increased State ownership," he said.

Even without greater State ownership, he felt the Government's 25 per cent stakes in Allied Irish Banks (AIB) and Bank of Ireland, and its full ownership of Anglo Irish Bank would be sufficient to meet any shortfall incurred by Nama. He said a levy was the least effective means of protecting the taxpayer and would only be used as a last resort.

If Nama made a loss, it would be borne first by the banks as the Government would withhold part or all of the deferred [euro]2.7 billion payment. For example, if Nama loses [euro]2.7 billion, the banks would take 100 per cent of the losses through the subordinated debt issued.

Credit ratings agency Fitch said that Nama was a positive development in the medium to longer term as it removes a burden and allows the lenders to concentrate on providing more resilient and traditional banking services.

It affirmed the ratings of AIB, Bank of Ireland, Anglo and Irish Nationwide and downgraded the long-term issuer default rating of EBS.

"The introduction of Nama should allow the institutions to return to profitability faster, to support more readily the local economy and to improve their liquidity," said Fitch analyst Matthew Taylor. "In addition, the restructuring should encourage the institutions' rehabilitation in the money and capital markets."

Nama will "place pressure" on AIB's capital, Fitch said, and Anglo was likely to require further capital reflecting the serious credit problems at the bank.

Bank of Ireland has "emerged in better condition" than AIB or Anglo, the agency said. If the bank were to raise capital it would be to strengthen its position "and not as external support to address serious problems".

Fitch said Irish Nationwide has "serious problems and was likely to require external support" due to Nama-related loan losses eroding the building society's equity and allowances for bad loans. Ratings agency Moody's said that Nama would not immediately lead to rating changes for the five participating institutions.

Originally published by SIMON CARSWELL Finance Correspondent.

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