Nama sales ‘no longer’ benefit State’s funding cost

The rapid sell-off by Nama of its property loans and redemption of its debt is providing a huge profitability kick for Irish banks, but is probably no longer benefiting the State’s funding costs, a leading economist has said.

Philip O’Sullivan, chief economist at Investec Ireland, said the redemption by Nama of the debt held by banks is proving a significant uplift to the lenders.

On Tuesday, Nama said it was sticking with its programme to dispose of assets and pay down debt. It aims to have redeemed all of its senior debt it provided banks for their heavily discounted loans by 2018, and close its doors completely by 2020.

Mr O’Sullivan said the amount of Nama senior bonds had fallen to €10.8bn since the start of this year, and the agency will likely redeem €4.8bn in bonds over the next 18 months.

“These redemptions are welcome news for Ireland’s commercial banks in particular. The Nama senior bonds yield 6 month Euribor, reset semi-annually with the last reset at 11bps on March 1, so they are a drag on the banks’ margins,” he said.

Investec is sceptical the benefits of a rapid sale of Nama bonds will benefit the Government’s borrowing cost.

Mr O’Sullivan said few people outside ratings agencies now see Nama’s finances as a threat to the State.

“It could be argued that Nama’s accelerated run-down relative to its original business plan is a negative for the sovereign. This is because its ultra-low funding costs — Nama’s net interest margin of 390 basis points far outstrips all of Ireland’s commercial banks — mean that a longer work out could arguably have delivered higher upside to the State.”

Nama is marketing six loan portfolios, with the bulk of the assets they contain located in Ireland.

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