Bank of Ireland says it will not extend loans for “divident finance” in a move that comes after the European Central Bank (ECB) said it would not extend its €30 billion (€24.5bn) credit extension to Irish banks until it has done a thorough review of the Irish taxpayer’s position.
The Bank said in a statement on Friday that it will review its financial position and the sustainability of its operations and that it expects to be able to achieve a sustainable balance sheet by the end of March.
In a statement to the Irish Times, the Bank said it will be making a decision on its dividend-financing plan “in the coming months”.
The decision came after the ECB warned that it could take a €30-billion ($37bn) step back on lending to Irish companies if Ireland fails to meet its €1.8bn (€1.2bn) bond repayment commitment.
The ECB is due to make a decision by mid-February on the ECB’s plan to extend its support programme for banks, but a decision is likely to be taken before March as it takes a longer view than the ECB in March.
The €30.3bn of new Irish government bonds it extended to Irish businesses in May are due to come due in March 2019.
“Our dividend financing programme will be reviewed over the coming weeks and we expect to be in a position to achieve an effective dividend financing plan,” the Bank of Irish said.
“The review will involve a full assessment of our business position and overall financial position.”
It added that it “welcomes” the ECBs decision and said that it is “deeply disappointed” by the ECB decision to not extend the €30b of credit.
However, the ECB has not said if it will take another €30 bn of credit extension at a later date, or whether the bank will be allowed to raise the funds.
The announcement comes as the ECB is looking to make further advances to its €2.1 trillion (€2.06 trillion) bailout of the banking sector, as the bank is expected to cut the interest rate it pays on its bondholders to below zero.
The bank said it has already made the first £1bn of additional bond purchases in 2019.
The move came after Irish banks were told in February that they would need to pay €2bn of interest on their debt, up from €1bn last month.
The amount of interest the Irish banks are to pay will depend on the amount of the interest on the bondholders’ outstanding debt, which has increased from about €30 a year to about €50.
The increase is the result of a €1,000 rise in interest rates paid by the Irish Government on bonds issued by Anglo Irish Bank.
The Irish Government’s decision to raise its interest rate from zero was a controversial one, with some economists suggesting that it was an attempt to “buy” Ireland’s debt to help the country’s financial markets, which had already been battered by the fallout of the financial crisis.
The Government’s announcement that it would buy €2 billion of bonds from Anglo Irish came amid calls from some economists for the bank to be allowed a free hand to raise funds from investors.