Ireland is lobbying its international creditors to allow it to shift the burden of loss-making mortgages from some of its banks, Finance Minister Michael Noonan said on Sunday.
The discussions are part of a wider effort to convince the European Union, European Central Bank and International Monetary Fund to reduce the cost of Ireland's bank rescue by refinancing around 30 billion euros (25.11 billion pounds) worth of promissory notes.
Asked in an interview with state broadcaster RTE whether during the promissory note talks the government had raised the possibility of shifting loss-making tracker mortgages from the balance sheets of Irish banks, Noonan replied: Yes.
Tracker mortgages make up more than 50 percent of Irish banks' residential property loans and although performing, they are not earning due to a mismatch between high funding costs and the low ECB rate which the products track.
The European authorities, in line with our talks on the promissory note, have opened a discussion on how best, if we get this deal, the Irish banking system and state will benefit, Noonan said.
He did not say, however, which banks were involved or what mechanism might be used to shift the loss-making mortgages.
Of the three main domestic lenders, the government holds majority stakes in Allied Irish Banks
A deal on tracker mortgages would boost the value of the country's banks, allowing the state to sell its stakes and use the money to reduce its national debt, Noonan said.
(The deal) would give you banks that would have value, and, further down the line it would be possible to sell the state's shareholdings in those banks at considerable amounts of money, which would reduce the debt, Noonan said.
Analysts are divided as to whether Ireland's national debt, which is forecast to peak at 119 percent of GDP in 2013, is sustainable.
A policy paper by Ireland's European partners and the IMF is being drawn up on a possible deal to refinance the promissory notes, IOUs used to recapitalise failed lenders Irish Nationwide Building Society and Anglo Irish Bank
I would like to see a situation where the repayment schedule on the Anglo Irish debt was more affordable and that would mean, in very simple terms, re-engineering the repayment schedule so we would have a longer time to repay at lower interest rates, Noonan said.
There was no prospect of a write-down of part of the principle, Noonan said.
It will have to be repaid, he said, while warning that the talks on refinancing the promissory notes were unlikely to reach a conclusion soon.
It is a project where, if we're successful, it will be in the medium term rather than immediately.
(Reporting by Conor Humphries; Editing by Gary Crosse and Edmund Klamann)