The Oireachtas banking inquiry has heard that the National Asset Management Agency (Nama) may realise a surplus up to €1 billion by the time it completes its work.

Giving evidence at the first hearing of the new "Nexus Phase" of proceedings, Nama chairman Frank Daly said it has already exceeded the 50 per cent senior debt redemption target set for the end of 2016 two years ahead of schedule.

Nama chief executive Brendan McDonagh, also giving evidence, said the agency plans to pay the surplus to the State in 2020.

This would be after all of its senior and subordinated debt has been repaid and its various costs have been met. Nama paid €31.8 billion to acquire €74 billion of face value property loans from domestic banks.

Mr McDonagh said it has just more than 600 debtors left on its books from an original figure of 772 who transferred to the agency.

It expects this number to fall to about 140 by the end of this year as it is currently selling off the loans associated with a large number of small borrowers who have loans of less than €75 million each.

He told the committee that some €47 billion of face value loans acquired in 2009/10 remains to be sold by Nama, which would have paid about €16 billion to the banks for the loans at the time of transfer. Most of these assets are in Ireland.

Nama expects to repay its €30.2 billion of senior debt by early 2018 or late 2017 “if we have a good wind behind us”. Nama was due to wind up in 2020 but this will happen sooner, Mr McDonagh added.

Mr McDonagh also told the committee that its debtors had transferred some €300 million worth of other assets to third parties following the financial crash in 2008, effectively to keep them out of reach of the banks. This was out of a total of €800 million in other assets held by the debtors following the crash.

Mr McDonagh said Nama has sought to reverse these transfers to family and friends and the “majority” of its debtors had agreed to this.

The committee heard that of the €40 billion in par value land and development loans acquired by Nama, some €9 billion related to interest that had not been paid

Mr Daly earlier said Ireland could have faced a second bailout if Nama had not reduced its debt as quickly as it did.

Mr Daly said: “ I would contend that if Nama had not reduced its debt as expeditiously as it has, Ireland could have been in a second bail out as market concerns about the contingent liability would have been very real.

“The troika closely monitored the progress that we were making in meeting our first major senior debt redemption target - €7.5 billion by the end of 2013.

Shock

Mr Daly and Mr McDonagh, who is also giving evidence, described the shock when Nama officials learned the scale on the debt in 2010.

Mr Daly said it was obvious that there was a massive amount of lending to a small number of people at the top.

He said there was no doubt that relationship lending existed between the banks and debtors.

Mr Daly said there was a comfort zone where the institutions had a “view of the standing of the debtor” which should have been more effectively, rigorously and indeed telly analysed.

He also said many decisions in the lead up to the collapse were based on a view shared by bankers and developers that property prices would defy the law of the market that “when prices rise unsustainably, there is always going to be a day of reckoning and the steeper the rise, the more painful the reckoning”.

He said: “The attitude appears to have been that the only way was up - that somehow the forces of gravity were suspended as far as the Irish market was concerned and that the long-established pattern of property market cycles was no longer relevant.”

Mr Daly said banks were lending to companies of all sizes regardless of their poor governance and inadequate financial controls.

Mr McDonagh said there was a number of developers who kept the income they were getting from their rental properties.

There was no effort on the part of the banks or the debtors to give it to the institutions to pay their debt, he said.

Mr McDonagh said he found this “pretty extraordinary” and claimed some were using the money to “maintain the lifestyle” they had before the crash.

When Nama took over the debts, the debtor soon ordered them to re-direct the money to the agency.

Chairman of the inquiry Ciaran Lynch asked Mr Daly and Mr McDonagh if the banks were giving deferential treatment to certain debtors.

Mr McDonagh said: “Relationship leaning was a big part of it, it is almost like a race where you’re backing the jockey rather than the horse. It is the horse that has to win the race.”

Socialist Party TD Joe Higgins said “an ordinary citizen, a taxpayer paying the price for this” will portray the comments made by the two men as a damning indictment of some if not all of the banks.

He questioned whether the bank had acted reckless in their dealings with certain debtors. The two witnesses refused to label the behaviour of the banks.

Mr McDonagh said he often asked himself how was the crisis was not picked up on this and how the Financial Regulator did not see the crash coming.

He said: “It was highly speculative lending.”

Debt collection

Mr McDonagh earlier told the inquiry that Nama is not a debt collection agency and it did not acquire loans at “rock bottom prices”.

Mr McDonagh took issue with some of the evidence given previously at the inquiry.

He said: “I understand that one of the earlier contributors to this Inquiry made a comment to the effect that Nama acquired loans at ‘rock bottom prices’. This suggestion, frankly, does not bear much scrutiny.”

The chief executive said the contribution by Dr Peter Bacon that the agency was becoming a debt collector was wrong.

He said: “ I think this reflects a poorly informed view of Nama, although I understand that the contributor indicated that it was only an impression that he had.

“Of course Nama collects debts - as would any similar entity, we collect on the loans due to us (indeed due to taxpayers) but, our role has been much broader and much more positive than that.”

The inquiry was told Nama acquired the loans of 772 debtors who had borrowed €74 billion from banks.

Mr McDonagh said that does not include the institutions that are not covered by the agency but suggested a conservative estimate of €10 billion.

He said 12 of the debtors they encountered had debts of €1 billion each and another 133 had between €110 million and €999 million.

The chief executive said Nama dealt with 627 borrowers who had aggregate debts of less than €100 million each.