Moody’s Downgrades Iceland’s Commercial Banks Skip to content

Moody’s Downgrades Iceland’s Commercial Banks

Moody’s Investors Service downgraded the credit ratings for Iceland’s three largest commercial banks yesterday from its fourth best rating Aa3 to A1 for Kaupthing Bank and A2 for Glitnir Bank and Landsbanki Bank. The rating for financial strength also dropped.

CEO of Kaupthing Bank Hreidar Már Sigurdsson said he believed Moody’s downgrading would not have much influence since the market had already been anticipating such changes, Morgunbladid reports.

CEO of Glitnir Bank Lárus Welding said it is good that the uncertainty regarding a possible downgrade is behind them so now they can base their work on this credit rating.

Welding added that uncertainty is always bad for business and said he is dissatisfied with the rapid changes of Moody’s ratings; this is the third change in its ratings for the Icelandic banks in 12 months.

Landsbanki Bank Director Halldór Kristjánsson said the credit rating for the bank is solid and good. It is the same as at the beginning of last year. Kristjánsson said he is surprised in Moody’s work methods in terms of changing the ratings so often.

In Moody’s report it says that the assets of the Icelandic banks have grown considerably beyond other Nordic banks. Turbulences in markets are, however, likely to reduce their growth and the quality of their assets.

Despite good net earnings in 2007, the credit ratings for the banks were lowered as their assets are considered too dependent on certain parties and industries. Loans to related parties are too high a portion of the total economy.

According to Moody’s, all three banks are capable of withstanding major setbacks and their liquid asset position is good. Kaupthing Bank strengthened its position by cancelling the acquisition of Dutch bank NIBC.

However, the banks’ credit default swaps (CDS) are too high and reached an all-time high yesterday. At Kaupthing Bank the CDS rose by 35 points and now measures 660 points.

At Glitnir Bank and Landsbanki Bank the CDS increased by 45 points and is now set at 620 and 395 points, respectively.

Click here to read more about Iceland’s economy.

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