Irish government funds new bailout with NPRF funds

IRELAND - Ireland's National Pension Reserve Fund (NPRF) will provide €10bn toward a new €24bn recapitalisation of banks announced this week.

The €24bn forms part of last year's €85bn bailout package agreed with the International Monetary Fund and the European Union.

Ireland has so far not used up any of its own €17.5bn in assets contributed, to which the NPRF's contribution belongs.

The move had been widely expected, after former finance minister Brian Lenihan directed the reserve fund in February to hold €5.5bn in cash as the first phase of planned de-risking of the NPRF's €10bn contribution.

Of the scheme's €24.4bn in assets under management, €9.5bn is held in a directed portfolio previously used to recapitalise Bank of Ireland and Allied Irish Bank, with the remaining €14.9bn held in a discretionary portfolio from which the bailout will be financed.

In an address to Dáil (the Irish parliament), finance minister Michael Noonan said yesterday that tapping the pension scheme would minimise the additional debt service costs to the state because there no interest is charged on NPRF funds.

The rest of the capital needed to support the banking system would be met from "existing resources", he said. 

The government has targeted the public pension scheme in a bid to avoid drawing down IMF funds.

The Irish central bank and the National Management Treasury Agency, which manages the NPRF, claimed subordinated bond holders could contribute €5bn after the European Central Bank vetoed moves to target overseas bondholders.

However, the government has also indicated this month that it sees a "significant role" for the depleted NPRF in funding its National Development Plan. 

Noonan told the Dail earlier this month that the government planned to construct a €100m start-up equity scheme with funding from the NPRF and institutional investors.

The public pension scheme had previously agreed to fund a €550m water-metering investment programme and to invest 5% of its discretionary portfolio in domestic infrastructure investments.

It has also committed €125m to an innovation fund and smaller amounts to domestic venture capital projects.

A spokeswoman for the NTMA declined to speculate on whether the pension scheme would be asked to contribute further.