DUBLIN (AFP) ― Ireland’s central bank on Thursday ordered a drastic overhaul of the eurozone nation’s stricken banking sector as the cost of bailing out its lenders was set to top 70 billion euros ($99 billion).

The Central Bank of Ireland said in a statement that four lenders needed to raise an extra 24 billion euros after it carried out vital stress tests on their ability to withstand another financial crisis.

The additional capital would be covered by the 35 billion euros provided for the banks as part of Ireland’s huge 85-billion-euro debt rescue agreed in November with the European Union and the International Monetary Fund.

The shake-up of the banking sector comes at a key stage in the eurozone debt crisis as fears mount that fellow eurozone member Portugal could be next for an international bailout, following Greece and Ireland last year.

The central bank also decided to merge two recently nationalized lenders ― Allied Irish Banks and the Educational Building Society, and indicated it would likely have to take a majority stake in Irish Life & Permanent.

IL&P has also been ordered to sell its lucrative pensions division Irish Life while Bank of Ireland will be forced to sell assets worth 30 billion euros by 2013.

“Collectively the four banks will be required to raise 24 billion euros in capital,” the central bank said in a statement.

Ireland has already pumped 46.3 billion euros into its battered banking sector and nationalized four financial institutions since the global financial crisis erupted in 2008.

Irish Finance Minister Michael Noonan said the new coalition government would seek to radically overhaul the nation’s banking landscape ― leaving just two main “pillar” banks, the BoI and the merged AIB/EBS.

“Both government parties have consistently stated that the Irish banking system needs to be reduced to a size appropriate to our economy,” Noonan told parliament on Thursday.

The central bank added in its Financial Measures Program report covering the stress tests that the four lenders would be required to run down and dispose of certain non-core assets.

“The Financial Measures Program aims to create a sustainable Irish banking system through a process of recapitalization, deleveraging and reorganization,” central bank Governor Patrick Honohan said.

“Banks will be capitalized as the additional capital requirements announced today provide for future loan losses over the course of the (next) three years on a scale that is unlikely to occur and an additional buffer for subsequent events.”

The tests assessed capital and liquidity levels to determine whether the four lenders can withstand severe macro-economic shocks over the next three years.

“This work by the central bank was a key element of the Ireland’s agreement with the EU-IMF Program,” Honohan said.

The European Commission, the European Central Bank and the IMF welcomed Ireland’s overhaul of its stricken banking system Thursday as a major step towards restoring the sector back to health.

“Today’s comprehensive announcements by the Irish authorities are a major step toward restoring the Irish banking system to health which is crucial for sustained revival of growth and employment,” the three institutions said in a joint statement.

The ECB later said it had suspended the minimum credit rating for debt instruments issued or guaranteed by the Irish government to be accepted as collateral for central bank loans.

Irish banks have become highly dependent on short-term loans from the ECB, but the country’s credit rating has been hit over the bailout and continued concerns the extent of the banking sector’s problems.

The previous government of Brian Cowen was ousted in a dramatic general election earlier this year as furious voters gave their verdict to the humiliating bailout deal.

New Prime Minister Enda Kenny said the stress tests had revealed the “scale of the legacy that we have now inherited after 21 days.

“I only hope that this is the final scale of it,” he told a press conference.

Ireland’s banks were particularly hard hit by loan losses on toxic or high-risk property investments in the wake of the global financial crisis which sent markets into meltdown in late 2008.

Formerly known as the Celtic Tiger for roaring growth spanning almost a decade from the late-1990s, the Irish economy has contracted for the last three years.

Anglo Irish Bank and Irish Nationwide Building Society, two other nationalized lenders whose loan books are currently being wound down, will face separate national stress tests, with their results due in May.

Anglo Irish on Thursday posted a loss of 17.7 billion euros for 2010, a record annual loss for an Irish company.

The central bank assessments are separate from Europe-wide stress tests being conducted by the European Banking Authority whose results are due in June.