The European Commission has approved the establishment of the National Asset Management Agency (NAMA) under State aid rules. The Commission noted that the proposed scheme is in line with its guidelines on impaired asset relief for banks.
European Commission guidelines outline methods of dealing with impaired assets, notably through asset purchase (including bad bank scenarios) or asset insurance schemes. They explain the budgetary and regulatory implications of asset relief measures, detailing the application of the State aid rules to such measures. They also provide methodologies concerning the valuation of impaired assets, the necessary remuneration of the State for the asset relief and the procedural steps to be followed. Criteria to evaluate the State aid given to the banks as a result are also set out.
The Commission found that the establishment of NAMA constituted State aid to the participating institutions, but deemed that this aid was compatible with the guidelines. The Commission praised the scheme’s burden sharing mechanism through the payment of a transfer price no greater than the assets’ long-term economic value, and the inclusion of adequate remuneration for the State in the rate used to discount the assets’ long-term economic cash flows. The Commission will separately assess the compatibility and actual transfer price of the transferred assets when they are notified by the Irish authorities.
Shortly after the Commission Decision, Ireland implemented regulations on the determination by NAMA of long-term economic value of property and bank assets, revoking previous regulations on the same point. A notable difference between the old and new regulations is the new higher standard discount rate of 5.25 per cent to be applied in the calculation of the long-term economic value of all bank assets, an increase from the rate of 2.75 per cent contained in the 2009 regulations.
On 29 March NAMA transferred the initial tranche of loans from Irish Nationwide Building Society and EBS Building Society. Transfers of the initial tranches of loans from the remaining participating institutions will follow in early April. The discount being applied by NAMA to the assets it is buying from the participating institutions is substantially higher than the 30% figure envisaged on the establishment of the agency. NAMA has indicated that it will acquire over 1,200 individual loans with a nominal value of €16 billion for a consideration of €8.5 billion, representing an average discount of 47%.
