Honohan welcomes foreign owners for Irish banks

Explaining his remarks, he said it is evident that the involvement of new foreign owners could put the banking system on a “firm footing”. He said they can bring capital, risk control and other management skills.

Speaking at the Institute of International and European Affairs, Honohan said that the Irish banks need to be downsized, therefore reducing risks and helping the Irish economy demonstrate the tail risk is lower than investors currently believe.

“An effective bank restructuring requires that the fortunes of the banks and the budget be convincingly disentangled. Uncertainty about each damages the other,” he said. He said this has not happened thus far because of a string of late, bad news.

He added that the information on the quality of the banks’ loan books and adequacy of its capital needs to be improved in a convincing way.

Other actions – including shrinking bank balance sheets, replenishing risk capital to a demanding standard, seeking new private equity and where necessary taking state ownership – are also recommended by the Governor.

Once tail-risk reduction is achieved, Honohan said he looks forward to welcoming new owners of Ireland’s downsized and cleaned-up banks.

“With their due diligence complementing the tail-risk reduction envisaged from PCAR2011, it is not unreasonable to suppose that investors will see sufficient franchise value in the continuing banks to convince them that attractive investment opportunities exist.”

Meanwhile, during his speech, Honohan claimed that he would be “surprised and disappointed” if the full €34bn earmarked for the banks is used in the end.