DUBLIN (Reuters) - Ireland will remove a state guarantee on bank deposits next month to help ease pressure on loss-making lenders and move the country further towards exiting its EU/IMF bailout, finance minister Michael Noonan said.
Ireland's almost fully state-owned banks, whose rescue cost the equivalent of 40 percent of annual economic output, have had widening losses partly because of fees they had to pay for the guarantee, and they have been clamouring for its removal for months.
Ireland tied its fate to its financial sector in September 2008 when the then government issued a blanket guarantee for all bank liabilities, at the time worth some 400 billion euros (345 billion pounds), one of the first developments in a crisis that eventually led to the need for a bailout.
"The guarantee was a decision made in an emergency and we have moved out of the emergency ward. We're back to stable banking and normal conditions," Noonan told a news conference on Tuesday.
"We feel the time is right and that the banking system in Ireland is normal enough to proceed now without a guarantee... It's another step towards exiting (the bailout) and it's all part of our plan for exiting at the back end of the year."
The removal of the guarantee will not impact the vast majority of bank customers because deposits over 100,000 euros are covered by a separate guarantee which has been in operation in Ireland since 1995.
The Eligible Liabilities Guarantee (ELG) scheme guaranteed deposits over 100,000 euros in case banks got into trouble. Lenders had to pay a fee to the government for the guarantee, which cost the country's three remaining domestic banks 1.1 billion euros last year.
Noonan said the halting from March 28 of those fees would have no negative effect on Ireland's fiscal position as the government's budgetary projections assumed that the guarantee scheme would end in February.
State-owned Allied Irish Banks
(Reporting by Padraic Halpin.; Editing by Jane Merriman and Hans-Juergen Peters)