Icelandic Broadcasting Service, RÚV, reports that the Financial Supervisory Authority (FSA) has expressed concerns over the increased lending of the Icelandic banks to international clients. The foreign debts of the Icelandic banks have more than quadrupled in four years.
The FSA also emphasized that the banks retain their current strong debt vs equity ratios; at the moment, the FSA believes the ratio is “overall satisfactory”.
The report states that the revenues of the largest banks have increased considerably because of increased activities abroad. This year, an estimated 50% of the revenues will come from overseas. The FSA calls this a positive development since it makes the banks less vulnerable to local economic cycles, but the FSA also believes that the rapid expansion of the banks through acquisition of foreign financial companies poses new risks.
The assets of the banks have increased considerably in value lately. This growth in the economy has been financed first and foremost with more debt and new equity. The gross foreign debts of the banks have quadrupled over four years from ISK 400 billion to ISK 1800 billion. This development calls for careful risk management.
In spite of these warnings, the main conclusion concerning the financial markets is that the banks have made good money over the past few years, although a considerable part of the profits can be attributed to non-core operations, primarily through the appreciation of securities.