The Department of Finance has insisted that poor stress-test results for AIB will not make it any harder for State to sell its stake in the bank.

The European Banking Authority results released late last Friday revealed AIB and Bank of Ireland were among the worst performing banks across Europe.

The State owns 99.9 per cent of AIB. It had originally intended to sell a 25 per cent stake by the autumn of this year, though that has recently been pushed out to 2017.

A spokesman for the Department of Finance said the tests did not paint a full or accurate picture of AIB’s situation. The results did not reflect the bank’s ability to pay €1.8 billion back to the State last week, the spokesman said.

He insisted the payback would not have been allowed to proceed if the Financial Regulator did not believe in the strength of the bank.

The department said stress tests were important tools but the situation was not as bad as the tests portrayed.

Mortgage lending

The spokesman said: “We have time to fully assess the meaning of the stress tests. Just because the stress tests have come out does not mean we will find it hard or any harder to sell the stake.

“We do not believe the tests will have a significant bearing on when the bank will be sold because they do not include increased mortgage lending, the profits the bank has made since the 2015 balance sheet was locked in place, they do not even include the fact that the bank was able to give money back to the State.”

The department said the stress tests were an important tool in ensuring politicians and banks did not have a “false sense of security” about the state of the institutions.

However, the spokesman said it highlighted concerns surrounding legislation passed through the Dáil recently.

Fianna Fáil had proposed a Bill to give new powers to the Central Bank to lower monthly repayments for families paying variable interest rates on their mortgages. It passed through the House and will be discussed at committee stage when the Dáil resumes.

The department said AIB was now back in profit but this could not be “jeopardised” by such a Bill.

“You cannot cap how much the bank could earn. The stress tests show there may be situations where the banks need to earn beyond what it is doing already,” he said.

“The Department of Finance has never been in favour of such legislation. Setting price rates is not a good idea.”