I thank the Chairman. On behalf of NAMA I thank the joint committee for this invitation to attend this morning and to give evidence to the committee. We welcome the opportunity to engage with members on our work. I am joined by Mr. Ronnie Hanna and Mr. Jonathan Milligan whom the Chairman has introduced but I will add that both of them have considerable financial experience and both are very familiar with Northern Ireland. Mr. Hanna is a member of NAMA's Northern Ireland advisory committee and Mr. Milligan also works with that committee.
I will focus primarily on NAMA's work in Northern Ireland and its contribution to the economy there but I will also deal briefly with our wider operations.
We believe NAMA has established in Northern Ireland a very good working relationship with the Northern Ireland Executive and Assembly. Meetings take place at regular intervals to allow for an open exchange of views. We have met with various Ministers, namely, the Minister for Finance and Personnel and with the First and Deputy First Ministers. I note in a speech to the Leinster Society of Chartered Accountants on 2 November 2011, First Minister, Peter Robinson, characterised the NAMA relationship as positive to date and this has been underpinned by similar comments from the Minister, Sammy Wilson. We also have established very constructive communications with the Northern Ireland Chamber of Commerce, the Northern Ireland Assembly and the Northern Ireland Assembly Business Trust. We are also increasingly engaged with councils in Northern Ireland. Our approach in Northern Ireland is also informed by the expertise of local professional advisers.
One extremely valuable structure within NAMA and on which the Chairman asked me to comment is the NAMA Northern Ireland advisory committee. The committee's contribution to our understanding of the issues and the market is very important and I refer in particular to the contribution of two external members of that committee from Northern Ireland, Frank Cushnahan and Brian Rowntree, two highly respected business leaders in Northern Ireland and they are very generous with their time and with their advice to us.
As part of its objective for working for solutions in Northern Ireland, this committee is leveraging local input and experience through its members and in partnership with public sector bodies. We are also encouraging research initiatives which will help us with future solutions. A good example is the work with the University of Ulster on very innovative research initiatives to enable us to better understand the dynamics of Northern Ireland housing, such as housing affordability and the demand and supply of land throughout Northern Ireland. We are providing ongoing support for the University of Ulster land development model and we are facilitating exchanges between the Department of the Environment, Community and Local Government and the university, for an all-island land development model.
Before dealing specifically with Northern Ireland, I hope the committee will indulge me if I make a few brief comments to help put into context the size, the challenge and the importance of the agency's work and the significant number of milestones which have been reached already since NAMA was established. I deliberately make these comments against a background of some recent inaccurate, misleading and potentially damaging reports relating to the agency. There are three different types of debtors which NAMA deals with. I refer to those who may have the will but who are simply incapable, for whatever reason, of contributing meaningfully to the working out of their loans. There are those who want to co-operate and have something to contribute and thankfully these are in the majority and are the ones who will work with us in the future to help achieve the objectives set for NAMA.
There are also those who pretend to want to co-operate but who are unwilling do so, whether in terms of reducing overheads, mandating rent, reversing asset transfers or providing charges over unencumbered assets. Invariably it is from among this category of debtor that we hear the most noise either directly or indirectly, particularly when we have no option but to take enforcement proceedings. We have put on record recently our concern that the number of baseless, critical stories about the agency has increased as the level of enforcement activity by it has increased and as it applies pressure on some debtors. NAMA did not lend the money that created the problem in which we find ourselves. NAMA is part of the clean up necessitated by the property market collapse - some people do not like what this means for them and they use whatever source they can to try to damage the agency. We are not influenced by this commentary but we are sometimes surprised at the readiness of some commentators to accept baseless and sceptical stories about NAMA without themselves showing any semblance of scepticism about the vested interests peddling the stories in the first place.
Members know the context in which NAMA was established and the fact that in just two years we have built up an entire infrastructure from scratch and completed the enormous task of carrying out legal due diligence on valuing, purchasing and transferring 11,500 loans from more than 800 individuals with a face value of €74 billion, or sterling £61 billion. In the process, NAMA has successfully injected €31.6 billion, or sterling £26 billion, into the banking system. NAMA cannot control what the banks are doing with that liquidity nor can it be held accountable for the fact that the banks needed a multiple of this amount to replace their lost funding since 2008. NAMA was and is only ever to be part of the overall solution.
We are now in the next logical stage in its development, which is focused on maximising value by working closely with debtors and, through the implementation of broader strategies, managing our portfolio of loans and underlying securities. Our objective is to achieve the best financial return we can over our lifespan - that is what the legislation requires us to do.
We have already assessed the business plans covering 97% of the loans on our balance sheet, representing more than 700 of our debtors. While some of these 700 debtors may not like what they are hearing, at least they all now know where they stand with us. In the majority of cases we are working with debtors to maximise the value that can be realised from their loans and associated assets. They see the path ahead, however difficult that may be, and it is difficult because for many it means, in practice, the sale of properties to support phased debt repayments, the granting to us of charges over unencumbered assets, and the reversal of asset transfers to relatives and others. To date, we have been granted charges over assets with an aggregate value of €221 million and have succeeded in reversing asset transfers totalling €160 million and when completed, we believe the aggregate value of these unpledged assets transferred back to us may prove to be in the region of €500 million.
I have one final point to make about debtors, namely, that the enforcement approach is adopted only after all other options have been considered and that principle applies regardless of where the debtor is located. In Northern Ireland, 15 cases have been subject to enforcement, one of which relates to a Republic of Ireland debtor. This is proportionate to the scale of the NAMA loan portfolio in Northern Ireland. Enforcement, as I have repeated, is always a last resort for NAMA.
One of the regular unfounded criticisms thrown at NAMA is that we are slow in making decisions on credit applications and offers to purchase assets but when we ask people to back up these statements with factual instances we invariably get no response. I would like to put some facts on the table. We have made more than 6,000 individual credit decisions since the end of March 2010. The average turnaround time for those credit decisions is six days and we operate to a target decision time of seven days. These decisions are the ones that underpin close to €1 billion approved in advances of working and development capital to debtors and asset sales valued in excess of €7 billion. Therefore, the process is not slow but what some people have difficulty with is the fact that NAMA is applying good practice - rigorous examination of credit proposals and realistic assessment of purchase offers - in dealing with applications for credit and offers to purchase. This is not what many were used to in the banking and property development practices that got us to where we are today and led to the establishment of NAMA. We are, of necessity, rigorous in our dealings with all parties. We are not, as these figures illustrate, slow or lumbering.
Specifically in regard to Northern Ireland, NAMA's mandate is to recover maximum amounts from all loans irrespective of where the underlying loans are located. Towards this objective, NAMA adopts a traditional commercial approach in each of the jurisdictions in which we operate, while recognising the distinctive differentials applying in these areas. We are particularly cognisant of the challenges specific to Northern Ireland and, as I pointed out, our approach here is informed by extensive engagement, local knowledge and expertise. NAMA carries out its work with reference to a set of guiding principles, including taking a longer-term approach and avoiding firesales, and I ask people to recognise that our record over the past two years in Northern Ireland testifies to this approach.
In Northern Ireland we initially planned to acquire loans that had a nominal or par value of €4 billion, the equivalent of €3.35 billion, spread across 180 individual borrowers, some of them in common borrower groups. In the intervening period, reductions have been achieved via disposals, repayments and some loans which were not ultimately acquired. NAMA's remit was to acquire land and property, and associated loans. In some circumstances it made sense not to acquire associated loans, particularly where trading businesses featured and, reinforcing this approach, in September 2011 the NAMA board decided not to acquire a further three eligible Northern Ireland debtors for this business reason.
I am in a position to advise the Committee today that the likely final figure for loans in Northern Ireland is of the order of €3.5 billion, or sterling £3 billion, nominal and an acquisition value of €1.5 billion, or sterling £1.26 billion. This represents less than 5% of our portfolio in terms of the par and loan acquisition value of loans acquired and this is somewhat less than the original figure that was envisaged for Northern Ireland.
We have provided the committee with two slides showing the breakdown of NAMA's Northern Ireland loan portfolio by asset class. This breakdown is extremely relevant in terms of the types of strategies that will be applied over the life of NAMA to maximise value and support the Northern Ireland economy. This is a tailored strategy based on our portfolio mix. With reference to the par or nominal value of the loans, 60% of the portfolio is secured by land not under development, a further 10% is secured by land under development, 29% of the portfolio is secured by commercial investments and just 1% relates to residential investment. We do not have in Northern Ireland the high concentrations of large unoccupied residential developments. The same also applies to hotels with just three of these assets having been identified to date in Northern Ireland. However, if one looks beyond the par value and measures this by reference to book or LAV value, the acquisition value of the loan portfolio, the breakdown of the portfolio changes, reflecting the respective quality of the asset classes underlying the loans rather than the loans themselves, and one gets 22% of the portfolio secured by land not under development, a further 5% secured by land under development, 62% secured by commercial and 11% relates to residential investment. In reality then, much of the portfolio is good quality investment grade. The big problem was over leveraging - debtors paid too much for the assets in the first instance, even for the good quality assets. In this regard, in Northern Ireland and the other jurisdictions in which we operate, resolution is a matter of time.
We have already advanced €35 million, or sterling £29 million, in new working and development capital for projects in Northern Ireland but this is not the full picture. We have also advanced significant additional advances to Northern Ireland debtors in regard to projects elsewhere, mainly in Britain, which also helps to support operations in Northern Ireland and, by extension, employment. When one accounts for all working and development capital advanced to northern debtors, the figure is €90 million, or sterling £75 million. It is important to note that the high proportion of land not under development, or ‘dry land' as it is sometimes referred to, limits the opportunities at this time to advance new working and development capital but again opportunities will come around in respect of much of this class. The splits outlined are subject to change because in many respects ours is a moving portfolio.
NAMA can be a force for good in Northern Ireland. NAMA's actions in Northern Ireland are informed by an understanding of the workings of the Northern Irish economy and cognisance of the ongoing plans and strategies of the Northern Ireland Assembly, which has signalled a sizeable asset disposal programme over coming years, and the management by major non-NAMA financial institutions of substantial property portfolios in Northern Ireland. Some of the latter are much larger than NAMA. NAMA's strategy will see the realisation of its portfolio on a phased basis linked to where there is liquidity. We do not accept low-ball offers. We do not, nor do we intend to, resort to fire sales or the dumping of assets. We have the time and the capacity to take a longer-term view. NAMA's workings in Northern Ireland to date confirm that this is the approach we have been taking.
In both Northern Ireland and the Republic of Ireland, the residential assets underlying the loan portfolios managed by NAMA tend to be located in strong rental markets. The challenge in both markets is to try to move potential clients from rental to purchase. There is evidence to suggest that there is pent up demand in key growth areas in the Republic and in Northern Ireland. The challenge is to move clients from what might be termed "purchase consideration" to the point of purchasing. In this context, NAMA is very close to launching a pilot mortgage initiative in the Republic, which, in simple terms, will provide potential purchasers with a level of protection against housing values falling from current levels during the next five years. We have received approval for this from both the Department of Finance and Central Bank and we are awaiting final approval from the European Commission. We expect that approval imminently. If this mortgage initiative works on the basis of the pilot scheme in the Republic, we are very open to seeing if we can introduce a similar initiative in Northern Ireland with our partner banks.
Lack of finance and unfavourable terms are also issues in the commercial property markets. NAMA will continue to make vendor finance available in this market. The latter will help bring international capital into both the Republic of Ireland and Northern Ireland marketplaces and will add price tension. NAMA is not a bank. We sees vendor finance as an aid to market participation. However, we perceive it as an aid which, applied to the right product and right client, can be a significant positive for investment and employment in Northern Ireland. The agency is also examining a number of other options, including establishing a qualifying investment fund. I mention all of these points in order to emphasise that any initiative available in the Republic of Ireland market will, where possible, be made available and tailored to suit the economic circumstances in Northern Ireland.
In the time available I have tried to provide an overview of NAMA's general progress and of its activities in Northern Ireland. I also tried to emphasise impacts relative to the wider economy. It is important to stress that NAMA is part of the solution and is not part of the problem. We are dealing with the decisions of banks and with borrowings of debtors that were at the root of the property market's problems. Further bad decisions now on the part of NAMA would simply exacerbate the problem.
We are not a debt collection agency but let us not be naive enough to think that we do not have debts to collect on behalf of our people. We are obliged to collect such debts and we are working constructively with debtors in every case possible because that is the only way to deliver a successful outcome. I have outlined our initiatives in terms of residential and commercial property markets. A stable, normally functioning property market will be positive not just for NAMA, but for the wider Northern Ireland economy. We want to see transactions, buyer confidence and liquidity restored and employment and economic activity growing. I again thank the Chairman for the opportunity to address the committee.