Ireland overestimating bank credit losses -Goldman

DUBLIN Nov 19 (Reuters) - Ireland's National Asset Management Agency (NAMA) may have overestimated the scale of the country's banking problem and the government may end up overcapitalising the sector, investment bank Goldman Sachs said.

Goldman's baseline case for estimated gross credit losses over the entire loan portfolio of domestic banks stands at 34.7 billion euros over the five-year cycle, or 21.7 percent of Ireland's gross domestic product.

Ireland's price tag for cleaning up its banks, based on NAMA estimates and announced in September, is 46.3 billion euros. The worst case scenario points to a cost above 50 billion euros, equating to over 11,000 euros per head.

NAMA -- the country's 'bad bank' -- is paying 30 billion euros for 73 billion euros of high-risk loans from Irish lenders, at a discount of around 58 percent.

"If our estimates suggest anything, it is that ultimate loses, and the ultimate burden on the Irish ultimate losses, will be quite a bit lower than estimated by NAMA, which is likely to make money on its investment," Goldman Sachs analyst Nick Kojucharov said in a client note dated November 18.

"Correspondingly, the government will significantly have overcapitalised the banks, perhaps by tens of billions of euros."

Under the worst case scenario, which Goldman says is a more aggressive assumption, the estimated losses rise to 58.6 billion euros, or 25.2 percent of GDP.

But Goldman said the worst-case estimate still only gave LPC (land/property development and construction) loan losses of 24 billion euros, well below the 42 billion euros that will be written off as a result of an asset transfer to NAMA.

It added that the only way to match NAMA's estimate is to assume that 75 percent of the land and development loan portfolio of domestic Irish banks is lost.

"We think this is an extremely aggressive assumption by any standards, especially given that only two-thirds of the land development loans are secured on Irish property," Kojucharov said.

"In this sense, when it comes to potential further financial burdens to the government from the banking system, our numbers imply that there is more upside than downside... As far as the collateral damage to the government from bank credit losses goes, our estimates suggest that concerns at this stage are considerably overblown."

(Reporting by Natsuko Waki; Editing by John Stonestreet)