Ireland’s government may seek to extend its banking guarantee beyond the end of the year to ease lenders’ access to funding, two people with knowledge of the situation said.
The Eligible Liabilities Guarantee
plan, covering deposits and new senior bonds with maturities of up to five years, is set to expire on Dec. 31. Unlike the country’s original two-year guarantee, which expired last month, the ELG does not cover subordinated bonds. The plan is subject to a review every six months and the European Commission must approve an extension.
Ireland was the first country to introduce a bank guarantee in September 2008 as the country’s financial system came close to collapse. Still, banks are struggling to raise funds and Irish lenders’ borrowings from the European Central Bank rose 25 percent last month to 119.1 billion euros ($165.7 billion), the Irish Central Bank said on Oct 8. The figures include international and domestic institutions.
“The government will continue to support the banks through a guarantee scheme as appropriate,” Ireland’s Finance Ministry in Dublin said in an e-mail today.
Bank of Ireland Plc
last week paid a new issue premium to sell 300 million pounds of government-backed bonds that’s more than double similarly rated securities. It priced the three-year notes to yield 440 basis points more than the benchmark mid-swap rate. The Irish guarantee carries an AA- rating from Standard & Poor’s and financial notes with a similar grade have an average spread of 184 basis points, according to Bank of America Merrill Lynch data.
No government-guaranteed lender has sold a benchmark bond since April, when Irish Life & Permanent Plc
found buyers for 1.25 billion euros of bonds.