Irish banks await stress test results

DUBLIN: Ireland will on Thursday publish the outcome of stress tests on its stricken banking sector, which sank the public finances and pushed the country into a huge 85-billion-euro international bailout deal. Ireland, rescued late last year by the European Union and the International Monetary Fund, remains plagued by worries on the health of its banking sector amid simmering tensions over the eurozone debt crisis. The Irish Central Bank has carried out capital and liquidity assessments on four lenders, Allied Irish Banks, Bank of Ireland, the Educational Building Society and Irish Life & Permanent, whose shares were suspended Wednesday. IL&P's decision to halt trading of its stock came a day after its share price tumbled on speculation the government may on Thursday announce it is taking a major stake in the troubled lender.

Ireland's biggest provider of pensions and home loans said it had requested the temporary suspension of its shares in Dublin and London, pending the outcome of the capital and liquidity tests. At the height of the financial crisis, Ireland nationalised four lenders, Anglo Irish Bank, the Educational Building Society, Irish Nationwide Building Society and Allied Irish Banks, and took a large stake in Bank of Ireland. Results of the stress tests are set for publication at 1630 GMT on Thursday against a backdrop of mounting concern that Ireland's fellow eurozone struggler Portugal could be next in line for an EU-IMF bailout.

"The upcoming bank stress tests are crucial for Irish banks. We expect these tests to highlight the need for further financial support," said analyst Nick Stamenkovic at RIA Capital Markets. The government was bailed out with a humiliating 85-billion-euro ($115-billion) debt rescue package from the EU and IMF in late November. Under the deal, 10 billion euros was earmarked as immediate support for the banks, with another provided 25 billion euros as a contingency fund for the troubled sector. Analysts predict that the total needed could be somewhere between 18-25 billion euros.

"The key issue is how much of this will be required, with speculation ranging from some of it to all of it," said analyst Emer Lang at Dublin-based Davy stockbrokers. Ireland, slammed by the global financial crisis, became the second eurozone member after indebted Greece to seek an international bailout last year. The stress tests, which are a requirement of the rescue deal, will assess capital and liquidity levels to determine whether the four banks can withstand unexpected macro-economic shocks over the next three years. The assessments are separate to Europe-wide stress tests being conducted by the European Banking Authority whose results are due in June.

"The results of the Irish stress and liquidity tests are difficult to estimate due to the significant uncertainties about the way the tests are being calculated," Dolmen analysts said in a research note.

"Based on our analysis, we are expecting a capital injection figure between 20-25 billion euros, thus drawing down the majority of the contingency fund." Ireland's economy, formerly known as the Celtic Tiger for its roaring growth spanning most of a decade from the late-1990s, has contracted for the last three years. It was rocked by the costly bank bailouts and a domestic property market meltdown, while tax revenues were ravaged by a deep recession. Earlier this year, Brian Cowen's centrist Fianna Fail administration was ousted from power as voters vented their anger over the bailout. Enda Kenny became Ireland's prime minister after a dramatic general election and now heads a coalition government of his centre-right Fine Gael party and centre-left Labour, with one of its aims being to renegotiate the tough terms of the EU-IMF bailout.