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IRELAND: PACE OF RECOVERY QUICKENS
Set for fourth straight year of fiscal outperformance September 1st, 2014
Index
Page 3: Summary
Page 7: Macro
Page 29: Fiscal & NTMA Funding
Page 43: Rebalancing
Page 52: Property
Page 59: NAMA
Page 70: Banking
2
3
SUMMARY
Market pricing reflecting macro-fiscal recovery of the last three years
Ireland has emerged from its crisis
• Ireland on track to beat full year 2014 target with plenty to spare July 2014 Exchequer (loosely Central Government) data show revenue ahead of target by
about 0.6pp of GDP on an underlying basis and primary expenditure roughly in line Ratios helped in 2014 by near 7% boost to GDP from introduction of ESA-2010 rulebook Set for fourth year of outperformance 2011-14; EDP exit (-3% of GDP) slated for 2015
• Ireland’s GDP growth expected to rank among highest in euro area in 2014 Strong first quarter (real GDP +2.7% qoq) of 2014, following revised -0.1% qoq in Q4 2013;
high frequency indicators point to further gains in second quarter Oddities in the national accounts related to the pharma sector meant that employment
growth (+2.4% y-on-y in 2013) was not reflected in real GDP growth (0.2% in 2013) Services PMI and consumer confidence up to early 2007 levels, “core” retail sales are
growing at 3-4% year-on-year, industrial production has rebounded, the construction sector is recovering and unemployment rate is down to 11.3% - lowest since March 2009
Trading partner growth has improved: UK and US stronger although EA lagging badly
• Contingent liabilities for the State dwindling and net debt c. 92% of GDP Ireland's main contingent liability being steadily eliminated: NAMA has now repaid almost
45 per cent of its original Government-guaranteed senior bonds. There was potential for a second book of loans on the back of the IBRC liquidation: this has now been ruled out.
IBRC liquidation may actually generate surplus for the State versus written-down value Net Government debt was 91.4% of GDP at end-Q1 2014, as Ireland husbands large
financial resources to offset a large chunk of its gross debt
4
State has already tapped the market in 2014
• More than 85% of 2014 funding completed, after first bond auctions in 3.5 years Ireland issued €3.25bn across four auctions, each at a new record low 10-year
yield: 2.97% in March; 2.92% in April; 2.73% in May and 2.31% in July
• Investor base has been broadening Sold €3.75bn of same 10-year bond via syndication in January 3.54% Even broader investor interest than for previous benchmark issue (Mar. 2013):
some 400 investors submitted bids, including fund managers, pension funds, banks and insurance cos. More than 83 per cent of demand was from overseas investors; including the UK (26% of total), the Nordic region (15%), Germany, Austria and Switzerland (14%), US and Canada (14%), Middle East & Asia (4%)
This followed the initial return to the T-Bill and bond market in 2012 and two forays in early 2013: sales of €7.5bn in total in 10-year and 5-year bonds
Ireland continues to engage with investors on a regular basis: the NTMA conducted two non-deal roadshows each year during 2011, 2012 and 2013
• State exited Financial Assistance Programme at end-2013 Last Troika mission of the Programme took place in early November 2013 Government did not apply for any support in the form of a credit line Budget 2014 implemented on October 15th (brought forward under “2-pack”)
5
Irish bond market continues its strong performance
Bank losses on NAMA haircuts,
rising ELA & Deauville Agreement
EU/IMF Programme
PCAR results
Moody's downgrade to sub-inv.
EU/IMF loan
rate reduction LTRO announced
by ECB
EU summit commitment
& NTMA issuance recommences
NTMA returns with syndicated bond deals
EU/IMF Programme exit
1.9
0
5
10
15
20
25
Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14
10 Year 2 Year
OMT announced
6
Source: Bloomberg (weekly data)
2013: Third consecutive year of being best investment-grade euro area performer (yld: %)
7
SECTION 1: MACRO
Recovery commenced in 2013 and has gained momentum in 2014; Unemployment has dropped sharply from a peak of 15.1% to 11.3%
Y-o-Y GDP growth for 2013 revised upwards to 0.2%; net exports was the driver despite patent cliff
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
2007 2008 2009 2010 2011 2012 2013 2014f 2015f 2016f
Domestic demand (ex-inventories) Net exports Change in inventories GDP change
8
Source: CSO; Department of Finance(2014-16 forecast from SPU 2014); NTMA workings
Domestic demand fell -0.6% in 2013 but expected to grow in 2014-16
Q1 2014 GDP figures point to faster recovery, as also suggested by employment and soft data
-10.0
-5.0
0.0
5.0
10.0
15.0
Q2 2013 Q3 2013 Q4 2013 Q1 2014
GDP and Main Components Q-o-Q growth rates
Private Consumption Investment
Government Net Exports
GDP
• Q-Q growth for Q1 2014 was 2.7% and Q4 2013 growth was revised upwards to -0.1%; flat Q-Q change from here = ~4% full year real growth
• Net Exports was the main driver in Q1, increasing 5.8% Q-Q.
• The Q1 GDP release implemented the ESA 2010 standards for the first time; This resulted in an increase in the level of GDP to €174.8bn in 2013; and primarily reflects a new statistical treatment of R&D (as investment)
• These changes do not really affect GDP growth rates but lower Ireland’s deficit and debt ratios
9
Source: CSO; NTMA workings
Ireland’s economy is expected to outperform the euro area in 2014 and to accelerate in 2015
0
0.5
1
1.5
2
2.5
3
3.5
4
Department ofFinance (Apr-14)
IMF (Apr-14) EU Commission(May-14)
OECD (May-14) ESRI (July-14) Central Bank(July-14)
Euro Area(May-14)
2014 2015
Ireland set to be one of the top performers in the euro area in 2014
10
Note: Real GDP y-o-y growth rates forecast by various institutions Sources: Various publications; Euro area calculated as average of IMF, OECD and EU Commission forecasts
Ireland continuing to outperform EA in short-term and broad-based recovery is in train
Ireland growing faster than euro area (PMI composite difference)
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
2006 2007 2008 2009 2010 2011 2012 2013 2014
All sectors now growing (PMI change as cumulative index level, June 2000 = 100)
11
Source: Bloomberg; Markit; Investec
0
50
100
150
200
250
2000 2002 2004 2006 2008 2010 2012 2014Services PMI as index (June 2000 =100)Manufacturing PMI indexConstruction PMI index
Business surveys point to sustainable recovery
20
25
30
35
40
45
50
55
60
65
70
2000 2002 2004 2006 2008 2010 2012 2014
Services PMI Services PMI: Backlogs of work
12
-50
-40
-30
-20
-10
0
10
20
30
40
-15.0
-12.5
-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
7.5
Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014
Domestic Demand (% Y-Y)
IBEC Domestic Sales Component of Business Confidence Index - 2Q MA(RHS)
Source: Markit; Investec
Best since early 2007
Domestic activity also expected to strengthen further in 2014 from low base
Sources: IBEC; CSO
Strength of services PMI likely to continue as backlogs build (50 is no change level)
Industrial production especially volatile due to pharma; sustained growth from traditional manufacturing
70
80
90
100
110
120
130
140
2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014
INDUSTRIAL PRODUCTION TRADITIONAL SECTOR MODERN SECTOR
Large spike in pharma will fall out in months to come
13
Source: CSO
3 month moving averages (2000 = 100)
Labour market has recovered since 2012, though employment growth rate slowed in H1 2014
Employment up 4% from cyclical low
1400
1500
1600
1700
1800
1900
2000
2100
2200
Q2 1998 Q2 2001 Q2 2004 Q2 2007 Q2 2010 Q2 2013
Unemployment rate down to 11.5%; Long term unemployment at 6.8%
15.1
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2000 2002 2004 2006 2008 2010 2012 2014
14
Source: CSO
11.5% in Q2 QNHS – est. at 11.3% in July
Although total employment has increased labour participation at lowest level for five quarters
Participation rate hovering around 60%
58
59
60
61
62
63
64
65
Q1 1999 Q1 2002 Q1 2005 Q1 2008 Q1 2011 Q1 2014
Private sector employment offsetting public sector declines; forward indicators encouraging
-70
-60
-50
-40
-30
-20
-10
0
10
20
-14
-12
-10
-8
-6
-4
-2
0
2
4
Q1 2009 Q3 2010 Q1 2012 Q3 2013
Inde
x (Im
prov
emen
t > 0
)
% c
hang
e Y-
Y
Private sector employees (ex self-employed)Public sector employeesIBEC Employment Expectation Index (RHS)
15
Sources: CSO; IBEC
Wage growth negative while hours worked flat, highlighting that excess capacity is still large
35,500
35,750
36,000
36,250
36,500
36,750
37,000
31.0
31.2
31.4
31.6
31.8
32.0
32.2
32.4
32.6
Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014
Hours Worked Average Earnings (Annualised, €, RHS)
16
Source: CSO
National accounts data showed economy-wide
wage per worker increased 0.6% in 2013
Net emigration slowed over the last year as immigration increased and emigration decreased
-2%
-1%
0%
1%
2%
3%
4%
-100
-50
0
50
100
150
200
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Pers
ons T
hous
ands
Immigration Emigration Net migration Net migration % population (RHS)
17
Source: CSO
Employment and house price rises underpin retail sales
Consumer confidence recovers
20
40
60
80
100
120
140
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
“Core”* retail sales rise steadily
90
95
100
105
110
115
120
125
Volume Index (2005 = 100) Value Index (2005 = 100)
18
Sources: KBC, ESRI, CSO *Excluding motor trade
Inflation remains low, underpinning real incomes
-4
-3
-2
-1
0
1
2
3
4
5
6
7
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
HICP Ireland HICP Euro Area
19
Ireland’s inflation below euro area’s for almost all of
the last five years
Source: CSO
Private debt levels are high, apart from “core” domestic companies
Irish Non-Financial Corporate (NFC) debt is distorted by multinationals
Household debt ratio (% DI) declining (see slide 21) but still among highest in Europe
20
0
50
100
150
200
250
300
350
400
450
Q12006
Q12007
Q12008
Q12009
Q12010
Q12011
Q12012
Q12013
€ Bi
llion
s
resident banks OFIS ROW NFCs and other
Source: Eurostat Source: Cussen, M. “Deciphering Ireland’s Macroeconomic Imbalance Indicators”, CBI * OFI = Other Fin. Intermediaries
Green bars account for true “Irish” NFC debt
0
50
100
150
200
250
300
Household deleveraging continues, but at slow pace; disposable income has bottomed at H1 2006 level
50
70
90
110
130
150
170
190
210
230
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Household Debt (€bn) Household Disposable Income (€bn, annualised)
21
Debt-to-income ratio in Q4 2013 (latest data) at 197%, the lowest since Q3 2006
Source: Central Bank of Ireland (CBI); CSO
Interest burden on households high despite help from tracker mortgages
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
% o
f Dis
posa
ble
Inco
me
Euro Area Benchmark Germany Ireland SpainItaly Netherlands Sweden United Kingdom
22
Sources: Eurostat; CSO Note: Interest burden is ‘actual’ (i.e. excludes FISIM adjustment) and is calculated as a share of actual gross disposable income. FISIM estimates for Ireland in 2013 based on unchanged 2012 figures
Property prices lift household net worth, while savings rate at euro area average
Household net worth improving and will underpin consumer spending
-250
0
250
500
750
1,000
2002 2004 2006 2008 2010 2012
€ bi
llion
Financial Assets Liabilities
Housing Assets Net Worth
Gross household saving rate* increasing even as disposable income increases
23
Source: CBI * Measured on ESA-95 basis Source: Eurostat, CSO
0
2
4
6
8
10
12
14
16
18
Q12002
Q32003
Q12005
Q32006
Q12008
Q32009
Q12011
Q32012
Q12014
% o
f Dis
posa
ble
Inco
me
(4Q
MA)
EA-17 Ireland UK EU-27
Core net lending volumes back at 2008 levels as pace of deleveraging is sustained
24
Sources: CBI; ECB; NTMA workings Note: ‘Core Private Sector Credit’ covers credit advanced to Irish resident private-sector enterprises excl. fin. intermediation & property-related sectors. Data are non-consolidated and cover all credit institutions operating in Ireland. March 2003 outstanding credit is used as base and updated using cumulative transactions data. Both the latter and underlying growth rates are fully adjusted for non-transaction related effects (e.g. change in reporting population, revaluations, exchange rate movements) so as to reflect activity levels through time.
-20%
-10%
0%
10%
20%
30%
40%
Q3 2004 Q3 2005 Q3 2006 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013
Core Private Sector Credit (% of GDP) % Change Y-Y Loans to Households (% Change Y-Y)
Exports led by services as patent cliff weighs on goods exports
2.1% 3.2%
4.2% 4.4% 4.4%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f
Y-on-Y growth Rates
Goods Services Total Exports
25
Source: CSO, forecasts via Department of Finance SPU April 2014
Ireland’s tradable sectors perform best in long run (gross output) but domestic sectors now picking up
60
80
100
120
140
160
180
200
Q1 1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013
Non-tradeable Sectors* Tradeable Sectors
26
Source: CSO *Non-tradeable sectors = Agriculture and Construction
Investment rising but well below long run average
-5.7%
-3.8%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Building Investment % GDP Machinery, Software & Equipment % GDP (ex-aircraft)
Building investment 5.7% of GDP below long run average
27
Horizontal axis = long run average investment as % of GDP* (1970-2013)
Source: CSO * Long run average for Buildings is 12.0% of GDP; Mach. Soft & Eq. = 8.1% of GDP
Economic and fiscal forecasts: SPU 2014
2012 2013 2014f 2015f 2016f
GDP (% change, volume) -0.3 0.2 2.1 2.7 3.0
GNP (% change, volume) 1.9 3.2 2.7 2.3 2.5
Domestic Demand (Contribution to GDP, p.p.)* -0.2 -0.6 2.6 2.2 1.6
Net Exports (Contribution to GDP, p.p.) -0.8 0.6 -0.5 0.5 1.4
Current Account (% GDP) 1.6^ 4.4^ 5.8 5.2 5.3
General Government Debt (% GDP)^ 121.7 123.3 n/a n/a n/a
Underlying General Government Balance (% GDP^)† -8.1 -5.7 -4.8 -2.9 -2.2
Inflation (HICP) 2.0 0.5 0.5 0.9 1.4
Unemployment rate (%) 14.7 13.1 11.5 10.5 9.7
28
Sources: CSO; Department of Finance (Stability Programme Update (SPU) 2014) and NTMA updates * Includes stock changes ^ Calculated using ESA 2010 compliant GDP † Underlying: ex-banking recapitalisation under EDP rules
29
SECTION 3: FISCAL & NTMA FUNDING
Fiscal overhaul: debt ratio peaked in 2013 and all targets beaten
0.6% 5.9% 2.7% 3.4% 2.4% 2.1% 1.8%
0% 2% 4% 6% 8% 10% 11% 13% 15% 17% 19%
2008 2009 2010 2011 2012 2013 2014
Fiscal Consolidation thus far...
Breakdown of adjustment measures (€bn unless stated) 2008 2009 2010 2011 2012 2013 2014
Revenue 0.0 5.6 0.0 1.4 1.6 1.4 0.9
Expenditure 1.0 3.9 4.3 3.9 2.2 1.9 1.6
Total 1.0 9.4 4.3 5.3 3.8 3.5 2.5
Total (% of GDP) 0.6% 5.9% 2.7% 3.4% 2.4% 2.1% 1.8%
Progress to Date (% of Total) 3% 32% 45% 62% 74% 84% 94%
Progress to Date 1.0 10.4 14.7 20.0 23.8 27.3 29.8
Progress to Date (% of GDP) 0.6% 6.5% 9.2% 12.6% 15.0% 17.1% 18.9%
30
Sources: Department of Finance: Budgets 2011-2014 and Stability Programme Update, April 2014
% of GDP
Three straight years of fiscal outperformance – very likely to be four
-8.5 -8.1
-5.7 -4.8
-2.9
-10.6
-8.6
-7.5
-5.1
-2.9
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2011 2012 2013 2014f 2015f
GGB DoF forecasts* GGB EU target under EDP December 2010
31
Source: Department of Finance (as per SPU 2014); CSO; Eurostat; NTMA working * 2011 – 2013 outturn calculated by NTMA using ESA 2010 compliant figures
Ireland deficit likely closer to 4.0% than 4.8% - well below
EU-prescribed ceiling again
General Government Balance (% of GDP)
Much of gains from 2001-07 bubble lost, but living standards equivalent to 2003 levels
0
20
40
60
80
100
120
140
160
180
200
Successful fiscal consolidation in
late 1980s
"Celtic Tiger" 1994-2001
Credit/Property Bubble
Bubble Burst
Recovery Lower interest rates/
recovery in major export
markets
Delayed Convergence
(Real GNI per capita) 1995 = 100
32
Sources: CSO
Ireland’s mammoth fiscal turnaround
Deficit to be fully closed by 2018 (€bn)
0
10
20
30
40
50
60
70
80
90
1995 1998 2001 2004 2007 2010 2013 2016f
General Government expenditure
General Government revenue
20% reduction in primary expenditure (€bn)
0
10
20
30
40
50
60
70
80
1996 1999 2002 2005 2008 2011 2014f 2017f
Nominal Real (1995 Base)
33
Not easy to do in zero inflation
environment
Source: CSO; Department of Finance
Ireland not far from confirming debt sustainability: primary surplus (% of GDP) to be achieved this year
-15
-12
-9
-6
-3
0
3
6
9
Primary Balance Interest General Government Balance Structural Balance (% of potential GDP)
34
Source: Department of Finance; Eurostat; IMF
Likelihood of small primary surplus, whereas April forecasts suggested
slight primary deficit for 2014
Ireland’s adjustment easier on GDP because of relatively lower fiscal multiplier – thanks to openness
35
17.8
7.4 6.9
3.6
7.6 6.2
4.3
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
% C
hang
e
Change in Cyclically Adjusted Primary Balance, 2009-2013
Change in Real GDP, 2009-2013
...while adjustment continues to deliver
Greece
Portugal Spain
Italy
Ireland
UK
US
R² = 0.8088
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
0.0 5.0 10.0 15.0 20.0 25.0
% C
hang
e in
Rea
l GDP
, 200
9-20
13
Change in Cyclically Adj. Primary Balance (p.p.), 2009-2013
Growth has been possible with consolidation, unlike elsewhere in EA . . .
Source: IMF; NTMA
Cost to State of domestic bank recapitalisation; supports have yielded significant income return
36
Outgoing: €bn
Recapitalisation total (including the now liquidated IBRC) 64.1
Other direct flows (Insurance Compensation Fund and Credit Unions) 1.2
Total 65.3
Incoming: €bn
Sales of Securities 5.3
Other Income (cumulative):
• CoCo investment 0.6
• CBI income 3.9
• Bank Guarantee Income 4.2
• Net Interest (Interest receivable – interest payable*) -3.6
Total 10.4
Source: DoF; NPRF end-year accounts; CSO; NTMA analysis
Valuation of Remaining Assets (€bn) BOI AIB* PTSB Total
Equity (Government Stake) 1.4 6.5 N/A 7.9
Other (incl. preference shares) - 3.5 N/A 3.5
Overall 11.4
The third round of domestic bank recap by the State in 2011 (following earlier efforts in 2009 and 2010) was credible and fully transparent The gross cost of explicit bank support in 2009-2011 amounted to c.41% of 2011 GDP * Interest payable is estimated by the CSO as the bond risk premium paid by the Government for its banking support
Gross Government debt stabilised at 123% of GDP in 2013
37.2
63.6
79.0 87.8
92.0
62.2
87.4
111.1
121.7 123.3
0
20
40
60
80
100
120
140
2009 2010 2011 2012 2013 2014F 2015F 2016F
Net Debt Cash balances/other liquid assets GG Debt
37
Source: Department of Finance (as per SPU 2014), CSO, NTMA workings
Net debt of 92%
Peak
Net Government debt ratio (% GDP) now similar to that of Belgium
92.0 93.9
156.0
119.8
108.2
79.9
0
20
40
60
80
100
120
140
160
180
Ireland Belgium Greece Italy Portugal Spain
38
Net General Government Debt = Gross General Government Debt - EDP Debt Instruments EDP Debt Instruments = Currency and Deposits + Securities other than Shares (excluding financial derivatives) + Loans
Source: CSO; Datastream; NTMA analysis
Greater geographic balance in holdings of Irish Government Bonds (IGBs)
€ million
End quarter Dec 2013 March 2014 June 2014
1. Resident 52,495 53,773 53,959
(as % of total) (47.3%) (47.6%) (47.7%)
– Credit Institutions and Central Bank* 50,057 49,004 49,346
– General Government 2,153
1,642 1,490
– Non-bank financial 2,758 2,758
– Households (and NFCs) 284 368 364
2. Rest of world 58,512 59,124 59,247
(as % of total) (52.7%) (52.4%) (52.3%)
Total MLT debt 111,007 112,898 113,207
39
Source: Central Bank of Ireland * Since March 2013 resident holdings have increased significantly thanks to the IBRC Promissory Note repayment (non-cash settlement) which resulted in €25.034bn of long-dated Government bonds being issued to the Central Bank of Ireland on liquidation of IBRC. The CBI also took €3bn of 2025 IGBs formerly held by IBRC. The CBI sold €0.35bn of its 2025s by end-2013.
Breakdown of General Government debt
€ million 2009 2010 2011 2012 2013
Currency and deposits (mainly retail debt) 10,307 13,708 58,386 62,092 31,344
Securities other than shares, exc. financial derivatives 91,391 96,317 94,001 87,285 112,660
- Short-term (T-Bills, CP etc) 20,443 7,203 3,777 2,535 2,389
- Long-term (MLT bonds) 70,948 89,114 90,224 84,750 110,270
Loans 2,842 34,138 37,723 60,849 71,534
- Short-term 707 735 569 1,907 1,466
- Long-term (official funding and prom notes 2009-12)
2,135 33,403 37,154 58,942 70,069
General Government Debt 104,540 144,163 190,111 210,226 215,538
EDP debt instrument assets 41,981 32,883 54,943 58,494 54,787
Net Government debt 62,559 111,280 135,168 151,732 160,751
40
Source: CSO (July 2014)
Improved maturity profile following post-programme operations
41
2
8 6
9
15
21
6 7
1
2 3
4
6
6
4 1 0
5
10
15
20
25
30
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Billi
ons €
Bond IMF and Other
Source: NTMA Note: EFSF loans have already been extended. EFSM loans are subject to a 7-year extension that will bring their weighted-average maturity from 12.5 years to 19.5 years. It is not expected that Ireland will have to refinance any of its EFSM loans before 2027. However, the revised maturity dates of individual EFSM loans will only be determined as they approach their original maturity dates.
Further improvement to profile in coming
years could arise from possible re-financing of
IMF loans
0
2
4
6
8
10
12
14
16
2014 2015 2016
Exchequer Borrowing Requirement (SPU, April 2014) Rollovers
Total funding requirements are steadily declining (€bn)
42
Source: NTMA; Department of Finance
• Funding requirement improved following sale of BOI CoCos and Irish Life. Restructuring of IBRC Promissory Note and extension of EFSF/EFSM maturities also benefited significantly.
• NTMA pre-funded well into 2015 after 85 per cent of 2014 funding plan complete by August.
• End-December Exchequer cash and deposits of €18.5bn already had provided a considerable funding buffer
1. Rollovers include maturing Government bonds and EU/IMF Programme loans. 2. EFSF loans have been extended by a weighted average 7 years . EFSM loans are also subject to a 7 year extension. It is not expected that Ireland will have to refinance any of its EFSM loans before 2027. A €5bn EFSM loan originally due to mature in 2015 is therefore no longer part of the “Latest Est. Funding Requirement” in 2015.
When this year’s €8bn funding plan is complete all of the 2015 requirement will be more than covered (85% done)
2014 & 2015 funding need achieved
43
SECTION 4: REBALANCING
Ireland has accomplished the bulk of its “internal devaluation”: current account is in large surplus and price level is converging with EA average
Ireland’s BoP current account surplus reflects large-scale rebalancing of economy (% GDP)
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Published
44
Source: CSO * Adjusted for estimates of the undistributed profits of redomiciled PLCs (for more information, see Fitzgerald, J. (2013), ‘The Effect of Redomiciled PLCs on GNP and the Irish Balance of Payments’)
Historically-high current account surplus somewhat flattered by
record net factor inflows
Ireland benefits from export diversification by destination and openness relative to other non-cores
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1992 1995 1998 2001 2004 2007 2010 2013
% o
f tot
al g
oods
exp
orts
US Euro area UK Other
45
Source: CSO
US & ROW (ex-EA and UK) account for 46%
of Irish goods exports
Exports (%GDP)
1999
Exports (%GDP)
2013
Ireland 87 105
Spain 27 34
Italy 24 30
Portugal 27 41
Belgium 70 86
Source: Datastream (value of exports)
Ireland’s competitive position is different to the other non-core countries
Relative Real Effective Exchange Rates have corrected sharply (Base:2002=100
80
90
100
110
120
130
140
2002 2004 2006 2008 2010 2012 2014f
Ireland Italy Portugal Spain Greece
Back to 2002-03 levels by this metric
Current Account Balance (% GDP)
-20
-15
-10
-5
0
5
10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ireland Portugal Spain Greece Italy
46
Source: Eurostat; NTMA Workings Note Ireland’s CA Balance re-calculated using ESA 2010 compliant GDP series
Note: REERs are deflated by unit labour costs and measure performance relative to 36 industrial countries - double export weights
Source: AMECO
‘Internal devaluation’ enabled recovery of lost price competitiveness, but low EA inflation slows progress
47
Prices have fallen across most consumer goods and services, yet some remain high
Ireland closed the gap quickly between 2008 and 2010 (index: euro area=100)
Sources: Eurostat; NTMA workings Note: % price variations labelled are for Ireland compared to euro area in 2012
Sources: Eurostat; NTMA workings Note: Price levels are based on household final consumption expenditure including indirect taxes
100
105
110
115
120
125
130
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
17.9 16.9
-4.4
7.4 0.8
55.6
5.7 13.9 7.0
27.7
-20.2
77.5
-40
-20
0
20
40
60
80
100
% a
bove
/bel
ow E
U27
ave
rage
2003 2008 2013
Ireland’s price competitiveness recovery since 2008 outperforms other periphery countries
95
97
99
101
103
105
107
109
111
113
2008 2009 2010 2011 2012 2013 2014
HICP Price Indices for Selected Euro Area Countries 100 = January 2008
Euro Area Germany Ireland Other Periphery*
48
Sources: Eurostat; NTMA workings; Non Seasonally Adjusted Data *Other Periphery is a weighted average of Spain, Italy, Greece, Portugal indices where the weights used are the individual countries weighting in the standard euro area HICP inflation calculation
Competitiveness recovery still exceptional even when compositional effects are corrected for
49
Source: Bruegel, 2014. ‘Real effective exchange rates for 178 countries: a new database’ Note: REERs cover business sector excluding agriculture, construction and real estate activities and are calculated against 30 trading partners using fixed weights from Q1 2008. Data available to Q1 2014. See Darvas, Z (2012) for more details.
-0.9 -1.0
-3.0 -3.2 -3.3 -3.5 -3.7 -3.7 -3.8 -4.0 -4.8 -4.8 -4.9 -5.3
-6.1 -6.3 -7.6 -7.9
-12.8 -13.1
-14.8
-17.9 -19.0 -20.0
-16.0
-12.0
-8.0
-4.0
0.0
% d
eclin
e si
nce
peak
Competitiveness gains not explained away by shift to highly productive/
less labour-intensive sectors
Favourable population characteristics underpin debt sustainability over longer term
50
1.01.21.41.61.82.02.2
Hung
ary
Rom
ania
Pola
ndLa
tvia
Port
ugal
Germ
any
Spai
nM
alta
Italy
Aust
riaCz
ech
Rep.
Gree
ceSl
ovak
iaCr
oatia
Cypr
usBu
lgar
iaEs
toni
aLu
xem
bour
gSw
itzer
land
Euro
are
aSl
oven
iaEU
-27
Denm
ark
Lith
uani
aN
ethe
rland
sFi
nlan
dBe
lgiu
mN
orw
aySw
eden U
KIc
elan
dFr
ance
Irela
ndTu
rkey
354045505560
Slov
akia
Pola
ndCy
prus
Rom
ania
Czec
h Re
p.Lu
xem
bour
gSl
oven
iaM
alta
Hung
ary
Switz
erla
ndBu
lgar
iaAu
stria
Croa
tiaSp
ain
Turk
eyEs
toni
aLa
tvia
Lith
uani
aIc
elan
dEU
-27
Irela
ndN
ethe
rland
sGe
rman
yN
orw
ayEu
ro a
rea
Gree
cePo
rtug
alBe
lgiu
m UK
Finl
and
Italy
Denm
ark
Swed
enFr
ance
Sources: World Bank WDI; Eurostat
Fertility rates in Ireland are above typical international replacement rates
Dependency ratios (age <15 & 65+ : ages 15-64) also compare well against euro area
Ireland continues to attract foreign investment (average FDI inflows per annum as a share of GDP, 2009 – 2013)
0
5
10
15
20
25
30
35
40
45
Ireland with the second largest average annual FDI inflows as a % of
GDP in the EU
51
Sources: UNCTADStat
52
SECTION 5: PROPERTY
House prices have begun to rise, thanks to lack of supply and increased demand; prime commercial property surge continues
Mortgage demand rises for six consecutive quarters; credit standards stable in 2014
1.5
2
2.5
3
3.5
4
4.5
2003 2005 2007 2009 2011 2013
Supply Demand
0
20
40
60
80
100
120
140
Q42005
Q12007
Q22008
Q32009
Q42010
Q12012
Q22013
Residential Investment Letting Mover purchaser FTB
Modest pick-up from
low base driven by FTBs
53
Supply tightening and demand lower below 3.0 and vice-versa
Source: ECB (Bank lending survey)
Demand conditions improving; credit standards tight but stable
Mortgage drawdowns for house purchases have bottomed (‘000s)
Source: Irish Banking Federation FTBs = First Time Buyers
Residential market continues to be boosted by non-mortgage purchasers
54
Sources: IBF; DoECLG; Property Services Regulatory Authority; NTMA Note: Non-mortgage transactions are implied by difference between total transactions on property price register and IBF mortgage data
0%
10%
20%
30%
40%
50%
60%
70%
0
2,000
4,000
6,000
8,000
10,000
12,000
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Num
ber o
f tra
nsac
tions
Mortgage drawdowns for house purchase Non-mortgage transactions
Prices rise for first time in over five years, but risks remain (Base: Q3 2007 = 100)
-50
-40
-30
-20
-10
0
10
20
30
Q1 2006 Q1 2008 Q1 2010 Q1 2012 Q1 2014
Residential - Dublin Office All Commercial Property
55
Sources: CSO; IPD
Pick up in property prices; in particular residential property in Dublin
Market led by offices; Dublin residences (% change Y-Y)
0
20
40
60
80
100
120Property Prices (Base: Q3 2007 = 100)
Residential - National Residential - DublinRetail OfficeIndustrial All Commercial Property
Housing valuations are attractive (rental yields)
Valuations as attractive as 1980s: prices /disposable income per capita
6
7
8
9
10
11
12
13
14
15
1976 1982 1988 1994 2000 2006 2012
% o
f Dis
posa
ble
Inco
me
per C
apita
Rental yields near 6% in world of near zero real interest rates
56
Sources: CSO; NTMA
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Q11996
Q11998
Q12000
Q12002
Q12004
Q12006
Q12008
Q12010
Q12012
Q12014
Rental yields should be lower than before in
world of low real rates
Real commercial property prices as of Q4 2013 were down 63 per cent from their peak (index 1983 = 100)
210.0
76.8
0
25
50
75
100
125
150
175
200
225
1983 1988 1993 1998 2003 2008 2013
57
Real office prices have fallen below long-run levels when
bubble is excluded
Source: IPD; NTMA
Foreign buyers interested on valuation grounds
3
4
5
6
7
8
9
10
Q1 1999 Q2 2000 Q3 2001 Q4 2002 Q1 2004 Q2 2005 Q3 2006 Q4 2007 Q1 2009 Q2 2010 Q3 2011 Q4 2012 Q1 2014
5yr Euro swap rate + 300bp margin Ireland average commercial property equivalent yields
58
Source: IPD; NTMA
Large positive carry
Made no sense for foreign buyer
59
SECTION 6: NAMA
NAMA is profitable, generating healthy cash flow and repaying its debt
• NAMA’s operating performance is strong Successfully acquired 12,000 loans (over 60,000 saleable property units) related to
€74bn par of loans of 758 debtors for €32bn There was potential for a second book on the back of the IBRC liquidation, however, this
has been definitively ruled out after liquidator asset sales went well. Since inception, over 39,600 credit decisions made; completed Property and Loan Sales
of €12.3 bn; over €2bn active disposal pipeline; currently 70% disposal income generated in UK; market in Ireland showing strong signs of recovery.
NAMA has, in aggregate, over €3.5bn in loan and property assets for sale in ROI.
• Repaid €13bn (43%) of €30.2bn of original senior debt Repaid €2.5bn in July 2014, having met initial Troika target of €7.5bn by end-2013
• Financing Strategy Approved advances of over €2.5bn in working/development capital to date, providing
equity capital and credit facilities only where appropriate, to preserve and enhance value of assets securing Agency’s loans
Over €1 billion in new advances have been drawn down, including €292m in 2013
60
NAMA: one third of its original debt repaid
NAMA: Financial summary 2011 - 2013 financial results (€m)
• NAMA continues to generate net profits after impairment charges, despite unfavourable market movements
• 2013 Operating Profits of €1,198m (before an impairment charge of €914m)
61
2011 2012 2013
Net interest income 771 894 960
Operating profit before impairment
1,278 826 1,198
Impairment charges (1,267) (518) (914)
Profit before tax and dividends 11 308 284
Tax (charge)/credit and dividends
230 (80) (73)
Profit for the year 241 228 211
Source: NAMA
0
0.5
1
1.5
2
2.5
3
Mar-11 May-11 Sep-11 May-12 Dec-12 Jun-13 Oct-13 Dec-13 Mar-14 Jun-14
0.25 0.5 0.5
2
1.5 1.5
0.75 0.5
3
2.5 NAMA senior bond Repayments (€bn)
• July 2014: €2.5bn of NAMA senior bonds redeemed bringing total amount redeemed to €13bn (43% of Agency’s senior debt liabilities)
• All of €30.2bn in NAMA senior bonds expected to be redeemed by 2020
NAMA: Summary of cash flows from inception
62
• Total cash generated of €21.3bn from inception to date Disposal proceeds €16.4bn to date NAMA senior debt redemptions of €13bn by end-July 2014 Lending disbursement (new advances) of €2.5bn Latest cash and equivalent balances of €2.8bn
Source: NAMA
-
5
10
15
20
25
Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014
€ Bi
llion
s
Total Cash Generated Cash after Funding & Operating CostsCash after Lending Cash after Redemption
63
Source: NAMA
NAMA: disposal v. non-disposal income, to date 2014
• Note the high level of non-disposal income Cash generation is very important to NAMA’s future strategy €4.5bn in non-disposal cash generated (mainly rental income, despite the sale of €16.4bn
of assets and loans)
-
2
4
6
8
10
12
14
16
18
20
22
0.0
0.4
0.8
1.2
1.6
2.0
2.4
2.8
3.2
3.6
4.0
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42014
Q12014
Q22014
Q32014
€ bi
llion
s
Disposal Receipts
Non Disposal Income (mainly rentals)
Cumulative Cash Generation (RHS Axis)
Disposal transaction analysis – inception to May 2014
64
< €10m >10m - <50m > €50m Total Total Disposals (€m) 3,666 3,821 6,895.06 14,383 No. of Transactions 6,637 183 46 6,866 Average Disposal Value (€000s) 552 20,882 149,893 2,095
<10m 25%
>10m - <50m 27%
>50m 48%
Disposal Proceeds by Value Range
<10m 97%
2>10m - <50m 3%
>50m 1%
Disposal Transaction Volume by Range
20% 7%
13% 12%
24% 5%
9% 3% 3%
3% 0%
>50…>25…>10…
>50m>10m
>5m>1m
>500k>250k>100k<100k
Disposal Proceeds Value by Range
0% 0% 0% 0%
3% 2%
9% 10%
20% 35%
20%
>50…>25…>10…
>50m>10m
>5m>1m
>500k>250k>100k<100k
Disposal Transaction Volume by Range
Source: NAMA
Disposal trend by location (to May 2014)
65
LONDON 7.0 43%
NI 0.9 6%
ROI 3.8 23%
ROW 1.4 8%
UK 3.1 19%
Disposals by Location since inception (€16.3bn)
LONDON 0.6 12%
NI 0.8 15%
ROI 2.0 37%
ROW 0.5 10%
UK 1.3 24%
Disposals by location 2014 YTD (€5.2bn) • Disposals of €14.4bn to
end-May 2014.
• Deliberate NAMA focus on UK disposals during 2010 – 2013 period.
• ROI transactions have increased significantly since Q4 2013.
30 3 19 45 41 140
42
222
64 148 119 90
189 126
347
177
691
1,110
151
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
-
200
400
600
800
1,000
1,200
Q1-10 Q4-10 Q3-11 Q2-12 Q1-13 Q4-13 Q3-14
€m
ROI Disposal Trend since Inception
ROI Quarterly Trend (LHSAxis)
Cumulative ROI Disposals(RHS Axis)
Source: NAMA
Breakdown of NAMA property portfolio, June 2014
66
Source: NAMA
Geographic Breakdown Sector Breakdown
Dublin 8.7 44%
Rest of ROI 4.1 21%
London 3.6 18%
Rest of UK 1.6 8%
Rest of World
1.4 7%
Non real estate
0.3 2%
Office 3.4 17%
Retail 3.5 18%
Hotel & Leisure
1.3 6%
Industrial 0.6 3%
Developme
nt 3.8 19%
Land 3.3 17%
Residential 3.1 16%
Other 0.4 2%
Non real estate
0.3 2%
• Qualifying Investor Fund & REITs: NAMA welcomes establishment of Ireland’s first REITs (Green, Hibernia, Irish
Residential Properties) as means of adding liquidity to market NAMA partnering with Oaktree in respect of a new QIF authorised by Central Bank of
Ireland in July 2013 that combines the parties’ respective ownership of land with a development potential of up to 50,000 sq. m in Dublin’s south Docklands.
Joint Ventures:
NAMA will participate in JV projects with leading private investment firms to attract investment to Ireland. Two completed, more to follow.
Publicly seeking expressions of interest from credible counterparties to invest with NAMA
Portfolio sales:
Recently announced additional packaged portfolios of properties with minimum value of €250m will be offered for sale each quarter to help sustain positive momentum and provide investors with deal-flow certainty.
67
NAMA: Strategic initiatives
NAMA: favourable property market measures in Budgets 2013 and 2014
• Budgets 2013 and 2014 contained a number of significant measures aimed at boosting the property market Helped to boost NAMA’s book of loan assets, underpin collateral in the banking
system and brought forward mortgage demand
• Stamp duty on commercial property cut from 6% to 2% Now lower than the current UK rate. Has boosted demand from overseas
• NAMA can directly approve rent reductions with tenants of commercial properties under its control Changes to upward-only rent legislation shelved
• Tax incentive Scheme Property bought before the end of 2014 will be exempt from Capital Gains Tax
(currently 33%) on sale as long as it is held for at least seven years • REITs Introduction of REIT legislation and proposal to include REITs in the Immigrant
Investor Programme. Has stimulated interest from international investors.
68
69
NAMA meeting senior debt redemption targets ahead of schedule. €2.5bn repaid in July 2014 bringing total redemptions to €13bn or 43% of senior debt.
Vendor finance, deferred payments and social initiatives are building momentum and have been supplemented by other measures in 2013 and 2014
Floatation of a number of REITs and consideration of QIF options have favourably publicised Irish property
€2bn of vendor finance available between 2013 and 2016 to support disposal activities. The majority of new equity was to be made available in 2013-14. The initiative widens the potential investor base, even if finance is not ultimately used, and can help overcome weak credit availability
NAMA to provide €2bn of development capital to projects in Ireland between 2013 and 2016 to support income generation
Strong recurring cash position, reflecting both location and quality of assets and NAMA’s asset management approach
Focus on maximising income and managing debtors, receivers and assets to enhance value
NAMA: on track to achieve long-term objectives
More NAMA information available on www.nama.ie
70
SECTION 7: BANKING*
Banks overhauled since late 2010; AIB and BOI returned to profit in H1 2014; next target is euro area-wide stress tests in Q4 2014 * Some information in this section is provided by the banking unit of the Department of Finance
Asset quality reflects huge losses already recognised
71
Impaired loans and provisions at PCAR banks (group and 3 banks)
Source: Published bank accounts and Department of Finance (DoF)
Impaired Loans % (Coverage %)1 by Bank and Asset Dec-12 Dec-13 Jun-14 Book (€bn)2
BOI Irish Residential Mortgages 13.1 (40) 14.2(49) 14.1(51) 26.3 UK Residential Mortgages 2.3 (22) 2.4(24) 2.3(22) 25.0 Irish SMEs 26.5 (43) 26.7(50) 26.7(51) 10.0 UK SMEs 17.9 (37) 17.1(50) 15.7(44) 2.7 Corporate 10.1 (44) 7.5(41) 8.8(38) 8.2 CRE - Investment 35.9 (35) 42.3(38) 41.9(41) 13.6 CRE - Land/Development 89.5 (60) 89.3(68) 89.9(73) 3.1 Consumer Loans 9.4 (85) 8.4(90) 7.6(91) 2.9
17.7 (43) 18.5(48) 18.2(50) 91.8
PCAR Banks (€bn) Dec-12 Dec-13 Jun-14 Total Loans 224.9 208.9 205 Impaired 53.3 53.9 50.8 (Impaired as % of Total) 24.5% 25.8% 24.8% Provisions 27.2 29.4 27.8 (Provisions as % of book) 12.1% 14.1% 13.6% (Provisions as % of Impaired) 49.5% 54.5% 54.7%
AIB Irish Residential Mortgages 19.9 (38) 23.0(43) 23.8(41) 37.3 UK Residential Mortgages 9.2 (67) 11.3(53) 11.5(56) 2.6 SMEs 34.4 (67) 34.6(68) 31.7(69) 13.7 Corporate 15.6 (73) 11.1(65) 9.4(62) 4.4 CRE 62.0 (59) 66.7(64) 59.7(67) 18.0 Consumer Loans 30.5 (80) 33.2(81) 33.0(81) 4.1
32.7 (56) 34.9(59) 32.5(59) 80.1
PTSB Irish Residential Mortgages 19.6 (45) 26.0(47) 27.6(46) 23.7 UK Residential Mortgages 1.7 (57) 1.3(85) 1.0(129) 7.0 Commercial 49.7 (66) 68.7(63) 69.2(65) 2.1 Consumer Loans 32.1 (105) 26.0(105) 23.2(103) 0.3
17.9 (51) 23.6(51) 24.5(51) 33.1
1 Total impairment provisions are used for coverage ratios (in parentheses) 2 Book value before impairment provisions as at June 2014
Loan Asset Mix (PCAR banks end ‘13)
AIB and BOI have returned to profit in H1 2014 (€bn)
-6
-4.5
-3
-1.5
0
1.5
3
4.5
2011 2012 2013 2014 H1-2
-1.5
-1
-0.5
0
0.5
1
1.5
2011 2012 2013 2014 H1
Pre-Provisions Post-Provisions
72
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2011 2012 2013 2014 H1
Allied Irish Bank Bank of Ireland Permanent TSB
Source: Interim & annual reports of banks
AIB and BOI returned to profit in H1 2014; net interest margins on new lending are favourable
73
Source: Central Bank of Ireland Note: Margins are derived from weighted average interest rates on loans and deposits to and from households and non-financial corporations.
More favourable margins on new business are slowly feeding into overall book (%)
Source: Annual reports of Irish domestic banks
Cost income ratios beginning to improve
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Outstanding Business New Business
74%
63%
85%
96%
78%
111%
123%
88%
144%
77%
60%
119%
55% 55%
114%
0%
15%
30%
45%
60%
75%
90%
105%
120%
135%
150%
AIB BOI PTSB
2010 2011 2012 2013 2014 H1
Bank deposits have stabilised; Drawings on ECB facilities reduced
74
Covered banks’ deposit base (€bn) Covered banks’ funding structure (€bn)
0
50
100
150
200
250
300
350
Jan
Feb
Mar Ap
rM
ay Jun Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun
2011 2012 2013 2014
Other Domestic Deposits Private Sector Deposits
Foreign Deposits Total Deposits
Source : CBI *including ELA until Feb. 2013 Source: CBI & DoF (excludes (i) NTMA pre-recapitalisation deposits, (ii) AIB Poland)
• ELG scheme ended for new liabilities Mar 2013 with no significant impact on deposit retention
• All three Covered Banks returned to market funding: since Nov 2012 >€3bn raised in term repo markets via private placements; €4bn in secured covered bond market transactions; €1.75bn in unsecured bonds; €0.25bn in LT2 debt; €0.5bn in first RMBS since 2007
• Irish-Headquartered banks’ usage of Central Bank facilities has fallen significantly following the end of ELA funding in 2013 and reduced recourse to the ECB repo facility.
• Deposits (both resident and non-resident) account for 65% of Irish-Headquartered banks’ funding in Jun 2014 versus 51% in Dec 2011.
-
100
200
300
400
500
600
Dec 11 Dec 12 Dec 13 Jun 14
Deposits Debt Securities
Capital and Reserves Borrowing from Eurosystem
Remaining liabilities*
Capital and loan-to-deposit ratios strengthened
75
Loan-to-Deposit Ratios (Dec-10 to Jun-14)
96% Jun-14
112% Jun - 14
166% Dec-10
176% Dec-10
AIB
BOI
122.5% Former PCAR Target (AggregatePillar Banks easily passed
original 122.5% PCAR targets for end-2013
• Core Tier 1 capital ratios at the PLAR banks remain well above minimum requirements.
• Pillar bank LDRs easily beat former PCAR targets for end 2013.
Core Tier 1 Capital Ratios (Jun-14)
Source: Published bank accounts Source: Published bank accounts
Note: “Transitional” refers to the transitional Basel III required for CT1 ratios which came into effect 1 January 2014. “Fully loaded” refers to the actual Basel III basis for CT1 ratios. * Dec-13 Figure
15.2%
10.8%
13.2%
10.0%
12.7%
10.9%*
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
CET1 % (Transitional) CET1 % (Fully Loaded)
AIB BOI PTSB
Irish residential mortgage arrears – still challenging
76
• PDH mortgage arrears have fallen in Q4 2013 and Q1 2014. The smaller BTL market (c. 25% of total) shows relatively higher arrears but also saw declines in the same period.
• Forbearance strategies were initially short-term in nature, though some restructurings straddle several categories and interest only restructurings are now down to 25% of total from over 37% at end-2012.
Mortgage Arrears (90+ days) Total Restructured/Rescheduled Cases
Source: CBI
* Only includes accounts with these restructurings and no other forbearance arrangement. ** ‘Other’ comprises accounts offered long-term solutions pending 6 months completion of payments. Figures are updated accordingly when these transition into permanent arrangements.
Interest Only 25%
Reduced Payment
(> interest only) 15%
Term Extension
* 17%
Arrears Capitalisat
-ion* 25%
Reduced Payment
(< interest only) 4%
Payment moratoriu-
m 2%
Other** 12%
0
2
4
6
8
10
12
14
16
18
Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2009 2010 2011 2012 2013 14
PDH (by number) BTL (by number)
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0
2
4
6
8
10
12
14
16
18
Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2009 2010 2011 2012 2013 14
PDH (by balance)
PDH Arrears Formation (p.p. Q-Q by number, RHS)
%
Small and Medium-sized business (SME) credit trends and lending policy supports
• In 2013, the NPRF introduced three new SME funds to provide equity, credit and restructuring/recovery investment worth up to €850m: the NPRF (ISIF) acts as a cornerstone investor alongside third-party investors.
• Range of additional funding supports include: MicroFinance Fund - €40m available over 5 years Loan Guarantee Scheme - €150m per annum over 3 years Enterprise Ireland – upwards of €200m in 2013 European Investment Bank , European Investment Fund (€80m through AIB) and Silicon Valley Bank
partnership with the NPRF ($100m over 5 years)
77
Source: CBI
0 20 40 60
Real Estate Activities
Wholesale and Retail
Hotels and Restaurants
Primary Industries
Business and Admin
Manufacturing
Community and Social
Construction
Other
Health and Social
Sector share of SME Non-financial Credit
New Lending (€2.2 billion, yr to end-2013) Oustanding Credit (€56 billion, end-2013)
Source: CBI gross new lending excl. fin intermediation
0%
20%
40%
60%
80%
100%
Active Enterprises Private SectorEmployment
All Enterprises GVA
SME Share of the Irish Economy
SMEs Other Enterprises
SME deleveraging continuing as new lending remains steady
-3,500
-3,000
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Gross New Lending and Repayments of Non-Financial SMEs
New Lending Repayments Net Transactions
• Necessary SME deleveraging is continuing with on average €1.6bn repaid per quarter
• Repayments are persistent and wide-spread across sectors
• Gross new lending (excluding financial intermediation) to SMEs has averaged €674m per quarter since Q2 2010
• It is notable that new lending advanced to property-related sectors is substantially lower than repayments (approx. 1/3) – highlighting the particular need to deleverage in this area
78
Source: CBI
0
0.5
1
1.5
2
2.5
0
1
2
3
4
5
6
7
8
9
2008 2009 2010 2011 2012 2013 2014
Stan
dard
Dev
iatio
n
%
Standard Deviation Austria Germany Spain
Finland France Greece Ireland
Italy Netherlands Portugal Euro Area
Latest ECB data show dispersion in SME interest rates persisting across EA (new NFC loans <1yr, <€1m)
79
Source: ECB
Rates on loans (<€1m) to Irish NFCs c.170bps over German
competitors
Note: Annualised Agreed Rate is defined by the ECB as ‘the interest rate that is individually agreed between the reporting agent and the NFC for a loan, converted to an annual basis and quoted in percentages per annum. The rate shall cover all interest payments on loans, but no other charges that may apply.’
Main provisions of Personal Insolvency Act
• Personal Insolvency legislation enacted and in use, but take-up has been slow • 442 applications for PIAs were received in H1 2014 but only 32 arrangements were
approved by Irish courts by end-June (note that there are approximately 121,000 mortgages in arrears > 90 days)
• The number of bankruptcies adjudicated on in H1 2014 - 164 - compares with 58 in the whole of 2013. The aggregate amount of debt involved in these adjudications totalled €278m of which €187m was secured (67%).
80
Personal Insolvency Arrangement (PIA)
Insolvent Debtor
€20,000 -€3,000,000 Secured/
Unsecured (>6yrs)
Insolvency Service of
Ireland
Debt settlement/restructuring mechanism provided. Family
home protected, protected from action by all “bound” creditors &
covered unsecured debts discharged after supervision
period if conditions met
Exposed to creditor action and possible bankruptcy with discharge period of 3yrs
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