The Minister of Culture and Commerce has called on the banks to “lighten the load” of households faced with rising interest rates. The net profit of Iceland’s three largest commercial banks amounted to approximately 80 billion ISK ($643 million / €564 million) last year, Vísir reports.
“Super profits” and civic duty
In an interview published in Morgunblaðið yesterday, Lilja Dögg Alfreðsdóttir, Minister of Culture and Commerce, called on Iceland’s three largest commercial banks to “lighten the load” of families faced with rising interest rates.
The Central Bank raised key interest rates by 0.75% on Wednesday, which may strain the finances of households who have signed non-indexed mortgages.
The inflation rate in January was 5.7% – the highest since April of 2012 – and the Central Bank predicts an inflation rate of +5% in 2022 (+5.8% in the first quarter), which is double the Bank’s target.
According to Lilja, the three commercial banks have recently reaped “super profits” – a total of ISK 80 billion ($643 million / €564 million) last year – which puts them in a prime position to assist young people and low-income families.
Íslandsbanki announced 2021 profits amounting to ISK 23.7 billion ($190 million / €116 million) this week. Landsbanki, 95% owned by the government, had previously declared profits of ISK 28.9 billion ($232 million / €204 million) for 2021, and Arion Bank announced a profit of ISK 28.6 billion ($230 million / €202 million) for 2021.
Speaking to Morgunblaðið, Lilja invoked the banks’ “civic duty.”
“I think it’s imperative that certain households, especially that of young people and low-income families, are not left holding the bag. It would be better for the banks to intervene immediately and tend to these households. If the banks don’t find a solution, I believe that we should reinstate a levy on banks.”
Lilja followed up her comments by referring to a levy imposed by former British PM Margaret Thatcher, which sought to harvest around £400m from the banks, for they were seen to be “escaping the pain of that recession”: “In 1981, Thatcher instated windfall taxes to deal with precisely such conditions, to level the playing field among the citizenry,” Lilja remarked.
Intervention lowers the selling price
In an article published on Innherji this morning, Guðrún Hafsteinsdóttir, Chair of the Economic and Finance Committee, stated that forcing the banks to spend a portion of their profits to subsidize interest payments would serve to devalue Íslandsbanki shares (the government has yet to sell 65% of its share in the bank).
Asked to respond to Lilja’s comments, Guðrún remarked that they had taken her by surprise. “If the government intends to alter the banks’ operational conditions, such a thing must, one way or another, influence the price of the remaining shares in Íslandsbanki. It’s obvious that if the government, as a shareholder, intervenes in such an encumbering manner, the selling price will be affected.”
As noted by Innherji, the government expects to sell its remaining 65% of shares this year and the next. The treasury received ISK 55 billion ($442 million / €388 million) when it sold its 35% share in a stock offering of Íslandsbanki last year. Since then, stocks have risen considerably. Innherji estimates that, according to the current market valuation, the government stands to receive up to ISK 160 billion ($1.3 billion / €1.1 billion) for its remaining shares.