IRELAND - The Irish government has confirmed rescue of the banking sector will be financed through both existing National Pension Reserve Fund (NPRF) assets and contributions which would have been paid to the State pension fund over the next two years.

A statement issued by the ministry and finance reveals the recapitalisation of Allied Irish Bank and Bank of Ireland will be paid for by taking €4bn from the NPRF's current assets and €3bn from the "frontloading of the Exchequer's contributions for 2009 and 2010".

Legislation has yet to be amended to allow NPRF-designated assets to be used for other purposes though the necessary amendments will be introduced shortly, according to a statement from the ministry.

In return for the payments, the ministry of finance will, among other things, receive a fixed dividend of 8% on the preference shares issued to the government, payable in cash or ordinary shares of the two banks.

NPRF officials have now confirmed the dividends will go into the NPRF, in return for the loan of assets, as previously suggested. (See earlier IPE story: NPRF to pay for €5.5bn bank bailout)

Pay has been curtailed as part of the arrangement, as senior executives at the two banks have agreed to take a 33% pay cut and no bonuses will be paid for 2008 and 2009, while non-executive directors will have their fees cut by 25%.

While the details terms of the AIB and BoI rescues packages have now been finalised, there could yet be further developments as the ministry said it is also in discussions with Irish Life and Permanent, EBS and INBS about their capital positions and the Irish government's recent introduction of the guarantee scheme - to repay consumer deposits should any of the banks collapse.

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