THE GOVERNMENT may be forced to take a large stake in Irish Life & Permanent (IL&P), the only lender to have so far avoided taking State capital, as a result of the severity of this week’s bank stress tests.
The move would give the Government part or majority ownership of a sixth and last privately owned Irish bank, and may lead to the effective nationalisation of the domestic banking sector.
The intense scrutiny of residential and buy-to-let mortgages in the latest round of Central Bank stress tests is likely to force IL&P, the biggest mortgage lender during the property boom, to cede significant ownership to the State.
IL&P’s profitable investment and pensions business and the decision of Permanent TSB to avoid lending to developers meant it has not had to resort to Government cash since the banking crisis began in 2008.
However, IL&P borrowed more heavily than any other Irish lender to fuel mortgage lending.
As a result, IL&P faces the greatest challenge under the Central Bank’s new liquidity stress test this week, to bring its €38 billion loan book closer in line with deposits of about €19 billion.
Expected losses arising from the capital stress test and from the planned disposal of excess loans under the liquidity stress test are expected to make some form of Government ownership inevitable.
IL&P’s market value of €205 million makes the company’s ability to raise cash to cover the losses almost impossible, forcing it to seek Government capital. “It’s a question of whether the Government will take over or under 50 per cent [majority control],” said a source familiar with the company’s situation.
A spokesman for the company had no comment, while a spokeswoman for the Central Bank would not comment ahead of the stress test results on Thursday. IL&P is scheduled to hold a meeting of its board today.
