DUBLIN: A large chunk of Ireland's multi-billion-euro bailout will prop up the nation's biggest banks just a few months after they passed key European stress tests on their financial health, analysts said Monday. As much as 30 billion euros ($41 billion) may be handed to a group of struggling Irish lenders, including Bank of Ireland, under an EU-IMF bailout package worth up to 90 billion euros, while they will undergo new stress tests. Ireland's economy has been hammered by the international financial crisis and its banking sector has been badly hit by years of reckless lending that has now been exposed by the collapse of a domestic property bubble. Analysts at Dublin-based NCB stockbrokers and the Capital Economics consultancy in London estimated that between 20 and 30 billion euros of the bailout could be used to recapitalize the banks. “At least some of the support will be via a contingent capital fund, implying that if things go well, Ireland will not have to draw on this support,” said Capital Economics analyst Ben May. “As part of the deal, banks will be forced to reduce the size of their balance sheets. There is no indication yet as to whether any restructuring of the banks would involve the holders of banks' bonds having to accept write-downs,” he added in a note to clients. Credit ratings agency Moody's forecast a lower recapitalization, of between 8.0 and 12 billion euros. “The capital injections would come on top of the 31.5 billion euros already injected by the government in 2010 and will further increase the government's debt,” it said. Back in July, the Bank of Ireland and another major lender, Allied Irish Banks (AIB), passed European stress tests designed to see if they would cope with another financial crisis. However, Ireland's economic climate has worsened since then and Friday, AIB revealed that its customer deposits had plunged 13 billion euros since January. AIB, which is partly state-owned after a series of bailouts, said in a trading update that customer accounts had been “affected by current adverse international sentiment towards the Irish sovereign and banking sector.” Customer deposits accounted for 50 percent of the bank's overall funding at the end of September and comprised its largest source of income. Ireland's government on Sunday confirmed that the eurozone nation's banks would face fresh stress tests under the EU/IMF bailout. “The program will address the potential future capital needs of the banking sector,” said a government statement. “By building on the measures already taken by Ireland to address stress in its banking sector, a comprehensive range of measures ... will contribute to ensuring that the banking system performs its role in the functioning of the economy.” Finance Minister Brian Lenihan added that Ireland was left with no choice but to accept external help because it faced a “very difficult market position” and “an extraordinarily difficult banking crisis” which had “deepened our difficulties immeasurably.” He said one of the key conditions of the deal was that “structural change” was required for Ireland's banking system but claimed the job had already begun and the new measures required would be “an intensification” of those already adopted.
