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Republic's 'bad bank' could lose up to €800m

The Irish government's NAMA scheme could lose €800m in a worst case scenario, new forecasts by the agency show.

NAMA has published a revised business plan that also indicates only 25% of the property loans it has taken on from five debt-laden Irish banks are producing income.

The Republic's so-called "bad bank" had assumed in its first business plan last October that 40% of the acquired loans would produce income.

NAMA was set up to take more than €80bn of problem loans - mostly linked to property investments - off the balance sheets of Anglo Irish Bank, AIB, Bank of Ireland, EBS and Irish Nationwide in order to free them up to begin lending again. Around €5bn of the loans relate to assets in Northern Ireland.

In its new projections the agency said that if it recovers all the money paid out it will return a profit to the Irish taxpayer of €1bn at the end of 10 years.

It forecasts that if assets under its control rise in value by 10% then NAMA will make a profit of €3.9bn - down from the €4.8bn forecast given in the original plan.

But if the money recovered is 10% less than the expected economic value the agency will lose €800m, it said.

The revised projections are based on information gathered from the €16bn first tranche of NAMA loans. The plan anticipates that the average discount applied to the full portfolio of loans will be 50%, much higher than first envisaged.

Frank Daly, chairman of NAMA, said: "We have enormous challenges in the months and years ahead but this Plan gives us a realistic expectation that we can manage this extraordinary project effectively and return a profit to the taxpayer. That - together with the rigorous pursuit of all outstanding loans - is our key objective."

Mr Daly added that the participating banks had not disclosed or had been unaware of the extent of the financial crisis afflicting their borrowers.

"To say the least we are extremely disappointed and disturbed to find that, only months after being led to believe that 40% of loans were income producing, the real figure is actually 25%. We are equally taken aback to learn that the banks were not even using the full range of legal options available to them in order to secure income in respect of troubled loans," he said.

"The banks displayed a remarkable generosity towards their borrowers. NAMA has no intention of maintaining that approach. We will pursue all avenues to ensure the fullest possible repayment of all outstanding monies from relevant borrowers and we will work towards increasing the income stream for NAMA as soon as possible as part of the Debtor Business Plan review process."