LOANS transferred from the main banks to the new National Asset Management Agency (NAMA) could be written down by up to 30%, senior government figures believe.

The level of write-downs will only be determined when NAMA becomes operational and starts sifting through the toxic loans. But political sources believe the write-down on the estimated €80bn-€90bn in loans will be higher than the 15% figure put forward by Davy Stockbrokers.

A report last week by consultant Dr Peter Bacon, who devised the NAMA proposal, said the six guaranteed banks face impairments on their loans "of around €Xbn". However the figure was deleted because it was deemed market sensitive.

In Sweden, which transferred loans to a state-owned bad bank during its banking crisis, loans were written down by 25% before transfer. A 15% write-down as suggested by Davy would mean banks having about €13bn of their capital wiped out. A 25% 'haircut' on the loans would result in bank capital being depleted by around €22bn, while the figure for 30% would be a €27bn.

The government intends to give the banks government bonds to replace the value of the loans and then recapitalise them to strengthen their capital positions because of the write-downs.

This could involve the government effectively nationalising some of the banks, because it would be taking ordinary shares in the various lenders.

The level of write-down is seen as crucial. If the write-down is too conservative, the exchequer would end up paying too much for the loans, damaging its ability to recoup the taxpayers' investment. However, the higher the write-down, the more the state will have to spend on re-capitalising the banks.

If the write-downs were to end up in the region of 30% then the government will have little option but to nationalise most of the banking sector, although Bacon last week said he preferred to use the term "majority control" rather than nationalisation".

See business, pages 4 & 5