At the end of October households in Iceland owed ISK 75 billion in overdrafts, reports Morgunbladid. The Analyst Department at Íslandsbanki said that this was a historical record and on average each Icelander owned ISK 250,000 in overdrafts.
Household overdrafts have risen 40% (ISK 21 billion ) since the beginning of the year. These loans are subject to 20% interest.
Private consumption has grown at a considerably faster rate than consumer’s purchasing power and the gap has been bridged by various loans, including overdrafts.
Icelandic households owe financial institutions overall ISK 531 billion mostly in inflation indexed obligations which amount to ISK 399 billion. Inflation indexed liabilities of households vis a vis financial institutions have increased over ISK 200 billion this year, or 100%. The Analyst Department at Íslandsbanki says that this tremendous growth is explained by the expanding mortgage business of banks and savings and loans institutions.
According to Íslandsbanki households have not used the increased mortgage credit to pay down overdrafts. But the bank says that perhaps the overdrafts would have been even greater if the credit through mortgages had not been available.