RTTNews - Ireland's banking system loses are likely to be sizeable in the near term, the International Monetary Fund said in a report late Wednesday. The Washington-based global lender noted that the banking system is under considerable stress as asset quality has deteriorated and the credit crisis has tightened access to wholesale funding.

The Irish economy is in the midst of an unprecedented economic correction, the IMF said.

The lender estimates that Irish banks would face around $35 billion loses through the end of 2010, which is about 20% of gross domestic product. The report pointed out that property-development loans are at the heart of stress faced by banks and these need to be restructured.

Cumulatively, GDP is projected to contract by 131/2 percent through 2010, the largest among advanced economies. Thereafter, as the present dislocations gradually correct themselves, only a modestly-paced recovery is foreseen, the IMF report said. In 2009, the Irish GDP is expected to shrink 8.5%, to be followed by a further 3% contraction in 2010. Unemployment is expected to exceed 12% by the end of this year and touch 15.5% in 2010.

The lender said rapid progress on bank restructuring is crucial to re-establishing a healthy financial sector, adding that the government's proposed National Asset Management Agency or NAMA is the right mechanism to separate the good from the bad assets.

Regarding the fiscal front, the IMF report said the 2009 budget deficit could be as much as 12% of GDP.

The harmonized inflation is expected to be 1.5% this year and decline further by 0.25 percent next year.

Earlier in the month, the S&P lowered Ireland's rating to AA from AA+ citing fears that the government is set to incur a higher-than-expected cost for supporting banks. The agency set the rating outlook for Ireland as negative, indicating that it is likely to lower the rating again. In April, Fitch Ratings had downgraded Ireland's ratings and assigned a negative outlook.

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