DUBLIN (MNI) – The following is a verbatim statement of the Irish
Central Bank’s statement on implementation of the requirements stemming
from its Prudential Capital Assessment Review of Irish banks.

The Central Bank is announcing today (30 September 2010) that it
has advised the Irish banks that have been subject to PCAR[1]
assessments that the year-end deadline for meeting the PCAR standards
remains in place despite recent developments in international capital
standards. The Central Bank has also advised the banks as to the
capital treatment of any adverse development in NAMA haircuts since the
PCAR calculations were conducted on 30 March.

PCAR Timing

On March 30, the Central Bank published the results of the first
round of its Prudential Capital Assessment Review of AIB, Bank of
Ireland and EBS. The results of a PCAR for IL&P were published on 11
September. The PCAR standard required the banks to meet a requirement
of 8% core tier 1 and 7% equity by the end of 2010, taking account of
both NAMA losses and of projected expected losses on non-NAMA portfolios
through 2012. A stress capital requirement of 4% of core tier 1 was
also established.

The Central Bank is today confirming that this deadline remains in
place. Since the publication of the PCAR standards the Basle Committee
has announced its intention to increase international regulatory
standards. This includes a target level of 7% equity plus capital
conservation buffer and an 8.5% core tier 1 plus capital conservation
buffer, both by 2019. These are very close to the PCAR standard
established by the Central Bank. Despite the long transitional period
agreed by Basel, the Central Bank has decided to retain the PCAR
deadline to ensure the Irish banks move to a stronger capital position
on an accelerated timeline. This will also allow the Irish banks the
full transitional time to meet any additional changes necessitated by
other elements of the Basel proposals.

Impact of Higher NAMA Haircuts

The 30 March announcement by the Central Bank included specific
required capital increases for each of the banks. This was based on the
Central Bank’s own assessment of non-NAMA expected losses, including a
buffer. The calculation also applied the haircuts on the first tranche
of loans transferring to NAMA, based on information available from NAMA
at the time. In the period following 30 March, a subsequent NAMA tranche
has transferred and NAMA at the request of the Minister for Finance has
now provided an estimate of the NAMA haircuts on all remaining tranches
for the two principal Irish banks, AIB and BOI.

In light of the publication of the estimated remaining NAMA
haircuts, the Central Bank has advised the banks as follows:

AIB

In the case of AIB, the NAMA haircut for Tranche 2 and the
estimated haircuts for all remaining Tranches are higher than the first
tranche used for the PCAR exercise. The Central Bank has therefore
advised AIB that it will be required to raise an additional E3 billion
by 31 December, 2010. The Government is today announcing its plans to
recapitalise AIB to the PCAR requirements, including this adjustment for
higher NAMA haircuts, after taking account of disposals of AIB’s Polish
and US assets.

Bank of Ireland

In the case of Bank of Ireland, the bank already has sufficient
capital to meet the PCAR standard (including the buffer set by the
Central Bank for the non-NAMA portfolio) recognising the change in
threshold and estimated NAMA haircuts announced today.

EBS

NAMA has not indicated haircut estimates today for EBS. Given the
small size of the portfolio of loans transferring into NAMA, the impact
of higher haircuts is unlikely to be significant for EBSs PCAR
requirement. However, following advice from NAMA the Central Bank has
informed EBS that it will need to take account of higher haircut levels
of up to 60% in its capital planning and that it should advised
potential acquirers accordingly.

IL&P

IL&P does not have loans in NAMA and its PCAR is unaffected.

INBS

A PCAR exercise has not yet been conducted for INBS in light of the
continuing discussion on its restructuring plans.

Non-NAMA Loss Estimates

The Central Bank’s loan loss estimates for the non-NAMA portfolios
of AIB, BOI, EBS and ILP remain unchanged from the 30 March PCAR
process. These estimates included a buffer for uncertainty in base
expected loss estimates, as well as a stress assessment.

Below E20 Million Land and Development Loans

The Minister for Finance will shortly outline that the Government
has decided that eligible loans below a E20 million threshold in AIB and
Bank of Ireland will not now be transferred to NAMA. This is an increase
on the threshold of E5 million which had previously applied to NAMA
loans in these institutions. This means that land and development loans
of between E5 and E20 million will now remain on the banks’ balance
sheets. The Central Bank has advised AIB and Bank of Ireland that the
impairment provisions requirement for this portfolio of loans should be
the higher of the PCAR base loss rates used for below E5 million loans
and the average haircut used for loans exceeding E20 million
transferring to NAMA.

Future PCAR Exercises

The Central Bank will conduct its next PCAR exercise in 2011. Any
differences between the estimates provided by NAMA, which are used for
the end 2010 capital requirement, and the final haircuts on transfer
will be included in that exercise. The Central Bank will at that time
also give an indication of the timeline towards full compliance with
Basel 3.

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