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UPDATE 1-Ireland econmin: stress test to show capital need

Published 03/30/2011, 04:51 AM
Updated 03/30/2011, 04:52 AM

* Ireland minister says stress tests to clean table

* New tests will show capital need

* Government to stick to fiscal obligations

(Adds quotes)

FRANKFURT, March 30 (Reuters) - Ireland's banking stress tests on Thursday must reveal the true extent of the sector's capital needs, the country's economy minister was quoted as saying on Wednesday.

Concerns that the 35 billion euros set aside in Ireland's EU and IMF bailout would not be enough to secure the banks' immediate future drove Irish bonds and the euro lower last week.

Signals of a new European Central Bank plan to provide liquidity have eased some of those concerns, however, and a Reuters survey showed analysts expect the tests to show they need an injection of around 25 billion euros. [ID:nLDE72O0UE]

Economy minister Richard Bruton said this round of stress tests have to be so tough and fair that they remove any doubts of the state of the country's beleaguered banking sector.

"We need finally an honest assessment, one that is based on best international practices," he told German newspaper Handelsblatt.

"Afterwards there can be no feeling that people are looking at Irish banks through rose-tinted glasses ... Our ambition is to clean the table and we will do that."

Bruton said it was hard to ease Irish banks' dependence on central bank liquidity as long as they were undercapitalised.

"It is very difficult to improve banks' liquidity need, when there is a feeling that banks do not have enough capital," Bruton told the daily.

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He also said Ireland was committed to meeting all its fiscal obligations under the EU/IMF rescue package. He also warned against raising the corporate tax rate, saying it would have hit investor confidence. (Reporting by Sakari Suoninen and Marc Jones; editing by Patrick Graham)

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