Cast your mind back to Autumn 2009 when NAMA was being set up. Its then-interim managing director, later CEO, Brendan McDonagh oversaw the preparation of the draft NAMA business plan and you might recall that it estimated that 40% of the loans being acquired by NAMA would be performing – repaying principal and interest.
Fast forward to March 2012 and the actual figure is just 17% of NAMA’s loans are performing by reference to the original loan agreement and the original loan value. Some acquired loans were “restructured” and by reference to all loans including “restructured” loans, 19% are performing.
The 19% figure has been in the public domain since NAMA published its Q1,2012 accounts in July, but the 17% figure is new and was revealed in a parliamentary question this week, from the Sinn Fein finance spokesperson Pearse Doherty to the Minister for Finance Michael Noonan. The full exchange is below at the bottom of this blogpost.
The 17% figure is significant because with such a low level of performing loans, NAMA is now severely at risk of not being able to cover its costs. Because NAMA is selling “low lying fruit”, this worrying state of affairs may take some time to become obvious because NAMA’s trouble with non performing loans is being masked by profits from the sale of better quality loans and properties.
Remember if NAMA is generating interest of about 3% per annum on 17% of €74bn book value of loans and it is paying close to 1.5% including hedging costs on €32bn acquisition cost plus it has operating costs of €200m, then the only thing that will keep NAMA in the black is profit from the sale of loans/property and when those profits are exhausted, NAMA’s problems will be fully exposed. It should be said that NAMA has already had quite a number of disposals so the €74bn and €32bn figures above will have reduced but the principle stands. It should also be said that NAMA generates some income on some non-performing loans but this appears not to be significant.
The non performing loan rate at NAMA has steadily increased with the continuing deterioration of the Irish economy and with NAMA’s disposal of the better quality loans. At the end of 2011, 18% of loans were performing by reference to the original agreement, so there was a 1% deterioration in Q1,2012.
Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question 213 of 12 June, 2012 and following the publication on 25 July 2012 of the National Asset Management Agency report and accounts for the three months ending 31 March 2012, the proportion of loans that are now performing by reference to the original loan agreement..
Minister for Finance, Michael Noonan: I would like to direct the Deputy to page 9 of the NAMA Section 55 Report for the first quarter of 2012 which states that, as at 31 March 2012, 19% of the loans acquired by NAMA were classified as performing by reference to the nominal loan amount (i.e the original loan agreement). These include restructured loans. NAMA estimates that the loan restructures enhance the proportion of loans classified as performing loans by 2%. It should be noted that this classification of performance is primarily by reference to legacy loan facility obligations. It should be noted that the 19% cited above, translates to 29% by reference to acquired loan value.
NAMA advises that one of its key objectives is to manage its debtors and receivers so as to capture, for debt servicing purposes, income (principally rental income) from their property assets. Such income capture was not widespread prior to NAMA’s acquisition of the loans and NAMA has launched a major drive to achieve this objective. NAMA measures its performance, in part, by the extent to which it captures such income on an on-going basis and not wholly on the extent to which a debtor is in compliance with the terms of legacy loan facility arrangements which predate NAMA loan acquisition.
Please also refer to Section 22.5 of the Annual Report for further information regarding the credit quality of loans and receivables.