(CNN) -- Ireland's government-backed "bad bank" is taking on 16 billion euros ($21.5 billion) in debt from five troubled Irish banks -- a first step toward buying 81 billion euros ($109 billion) in bad loans, the government announced.
The National Asset Management Agency, as the "bad bank" is officially known, will pay 8.5 billion euros ($11.4 billion) for the first 16 billion euros in debt, it said Tuesday.
The move takes 1,200 loans off the books of Irish Nationwide Building Society, EBS Building Society, Bank of Ireland, Allied Irish Banks and Anglo Irish Bank. The first two banks' debts were taken over on Monday and the other three institutions' bad loans should be transferred by early April, NAMA said.
Irish Finance Minister Brian Lenihan gave a sobering assessment of the banks' health Tuesday.
"I understand why many want us to close" Anglo Irish Bank, which lost huge sums in property lending, he told lawmakers. "I understand the impulse to obliterate it from the system."
But, he said, "the sums required to rescue the bank are enormous but the costs of winding it down are even greater."
The government has already replaced the management of the bank.
Lenihan hinted broadly that the government will take over Allied Irish Bank, which he said must raise "additional equity capital of at least 7.4 billion euros ($9.9B) by the end of the year."
"If sufficient private capital is not available, it is probable that the state will have a majority shareholding in Allied Irish Bank as a listed entity, but this is much more preferable than an under-capitalized or only adequately-capitalized entity," he said.
The government is seeking to sell Irish Nationwide or merge it with another entity as soon as possible, after having taken it over earlier, he said.
The Bank of Ireland "expects to be able to raise private capital and is well advanced in its actions to address its capital needs," and EBS is in talks with "a private party" about raising market capital, he added.
The move is part of an Irish government response to the global financial crisis, which hit Ireland particularly hard.
The government expects to complete the purchase of the 81 billion euros in debt by February of next year, a deadline set by the European Union, NAMA said.
Borrowers whose loans have been acquired by NAMA will be required to submit a comprehensive business plan in accordance with NAMA's template within one month outlining how they propose to honor their loan commitments, NAMA chief executive Brendan McDonagh said in a statement.
If the plans are not submitted or not approved, "NAMA will take whatever actions it considers necessary to protect the interests of the taxpayer," he said.
CNN's Jim Boulden and Eve Parish contributed to this report.