On behalf of myself and my colleagues, Paul Carty, NPRF chairman, and Brian Murphy, the accountable person for the NDFA, I am pleased to have the opportunity to meet the committee. We have forwarded a briefing note updating the committee on recent developments at the NTMA, the NPRF and the NDFA. I propose to make a few short opening remarks highlighting some of the main issues dealt with in the brief.
The NTMA was asked to take on two additional functions - NAMA and banking -as part of the State's response to the financial crisis. In particular, the establishment of NAMA from a standing start in December 2009 to become fully operational with a €30 billion balance sheet by end 2010 was a major logistical challenge. Given the size of NAMA, the NTMA has seen a major expansion in staff numbers since end 2009, rising from 169 to 411 currently, of which 180 are assigned to NAMA. Management of NAMA's operations is a matter for the NAMA board and its chief executive officer who is NAMA's accountable person. I understand he will meet the committee later this month. The NTMA's role is to provide NAMA with staff and business and support services, including HR, IT, market risk, communications and the execution and processing of treasury and hedging transactions.
In March 2010 the Government delegated to the NTMA certain banking system functions of the Minister for Finance related to the oversight and management of the State's interest and holdings in those financial institutions covered by the 2008 Government guarantee. In April 2011, the Minister for Finance announced the creation of a stand-alone unit accountable to him through the Department of Finance to provide State oversight of the banking system and drawing on the resources of the NTMA to carry out its work. The delegation of banking system functions to the NTMA was formally revoked with effect from 5 August 2011 and the NTMA banking team has been seconded to the Department of Finance.
The NTMA banking unit managed the State's capital injections into the banks and engaged with the banks to drive an agenda of burden sharing with subordinated bondholders. Since 2009, burden-sharing measures have delivered €15 billion which would otherwise have had to be provided by the taxpayer. This includes €5.2 billion in burden sharing since 31 March 2011 following the Central Bank's prudential capital assessment review, PCAR. The bank recapitalisation and burden-sharing programme was substantially completed by the end of July. I am pleased that the staff recruited by the NTMA form the cornerstone of the new banking unit in the Department of Finance and that their valuable commercial and specialist skills continue to be utilised by the State.
The EU-IMF programme was designed to meet the cost of running the State on a day-to-day basis and the cost of recapitalising the banks. Of the €85 billion provided under the programme, it was envisaged that €50 billion would be available for sovereign purposes and up to €35 billion for bank recapitalisation. The banking stress tests carried out by the Central Bank in the first quarter of 2011 quantified the additional capital support required by the banking sector at €24 billion. Through initiatives like burden sharing with the subordinated bondholders and the sourcing of private capital for Bank of Ireland, the net amount of this capital provided by the State is now expected to be approximately €16.5 billion. This means that €68.5 billion of the total €85 billion funding under the programme is available to the Exchequer, an amount sufficient to meet our funding needs through to late 2013.
Recent developments in the secondary debt markets have been positive for Ireland. Despite the more general difficulties throughout the euro area, Irish bonds have rallied with yields on ten year bonds falling from approximately 14% in mid-July in the wake of Moody's downgrade to approximately 7.6% at present. The lower interest rates, the longer maturities and the promise of continued support from the proposed changes to the EFSF and the EFSM are also very significant for Ireland.
In the sovereign debt markets, Ireland is a small player with a strong dependence on international investors. Therefore, even though we are out of the longer term markets, we continue to work hard to maintain strong, supportive relationships with key international investors in Irish Government debt and to identify and develop relationships with prospective new investors. Indeed, with the recent downgrading of Ireland's credit rating, the part of Ireland's existing investor base which has credit rating constraints on the bonds in which it can invest is no longer open to it, and a key challenge for the NTMA is to further broaden the prospective investor base.
Since the publication of the results of the bank stress tests under the Central Bank's PCAR, prudential liquidity assessment review, PLAR process on 31 March last, the NTMA has met more than 200 investment institutions in Dublin and in North America, Europe and Asia as part of an intensified investor relations programme. Investors we have met are mostly of the view that Ireland is the best positioned of the euro area periphery countries to deal successfully with the crisis as it has a more flexible open economy and is recognising and taking action to deal with its problems on the basis of the measures set out in the EU-IMF programme.
The clear messages coming out of these meetings are that the key criteria investors will consider in deciding to invest in Irish bonds are continuing progress in meeting fiscal targets agreed with the troika; successful and adequate recapitalisation of the Irish banks; progress on bank deleveraging; further sale of NAMA assets; and action at EU level on the wider euro area sovereign debt and banking crisis.
The NTMA has maintained a low-level presence in the very short-term bond markets throughout recent months. Subject to broader circumstances we hope to expand this programme through the latter part of 2012 by slowly extending the maturity of the debt we raise before beginning our efforts to raise long-term debt. Ultimately, the timing of these decisions will depend on many different circumstances, national and international, and our continued success in implementing the EU-IMF programme. We envisage a phased re-engagement with the markets before we fully resume normal debt raising operations.
The past year has been one of considerable challenge for the National Pensions Reserve Fund as on the direction of the Minister for Finance more of its assets were deployed for bank recapitalisation, including €10 billion made available as part of Ireland's contribution to the EU-IMF programme. Notwithstanding the changing and uncertain environment, the element of the fund managed by the NTMA on behalf of the National Pensions Reserve Fund Commission, namely, the discretionary portfolio, continues to perform well. From the fund's inception in 2001 to 30 September 2011, the annualised performance of the discretionary portfolio was 3.2% per annum compared with a performance of 0.4% by the average Irish-managed pension fund over the same period.
In respect of the National Development Finance Agency, NDFA, education has been the most active sector over the past year. In the period from 2010 to October this year, the NDFA has delivered ten large schools providing accommodation for more than 7,500 students on budget and ahead of schedule via the public private partnership, PPP, model. More recently, the Department of Education and Skills has requested that the NDFA consider acting as its agent for the procurement of a significant number of smaller school extensions on a traditional contract basis, that is to say not public private partnerships.
Funding for PPPs has generally become more difficult, particularly given the absence of international project finance banks from the Irish market. This has reduced the quantum of private debt available for projects and, as a result of weakened credit-worthiness of Irish banks, has created some structural problems which the NDFA is working to resolve for bilateral funders such as the European Investment Bank and the Council of Europe Bank. However, although these factors have contributed to an overall more challenging environment for PPPs, deals can still be done and private equity continues to look for opportunities in the Irish market.
Last week the Government announced that NewERA will be established, initially on a non-statutory basis, in the NTMA. NewERA will carry out the corporate governance function, including the review of capital investment plans, in respect of a number of specified State companies from a shareholder perspective. It will work with Departments to develop and implement proposals for investment in energy, water and next generation telecommunications. Where requested by Government, it will advise on, and if appropriate oversee, any restructuring of State companies and it will work with the Minister for Public Expenditure and Reform on the disposal of State assets.
