Moody’s: ISK Too Small for Iceland’s Banks Skip to content

Moody’s: ISK Too Small for Iceland’s Banks

By Iceland Review

The analysis department of Kaupthing Bank interprets the new report from international investor service Moody’s thus: that the Icelandic banks have outgrown the local currency. The credit rating for Iceland’s state treasury remains at Aaa, for now.

Moody’s said the state treasury may not hold the highest quality rating for much longer, which would result in more expensive foreign loans, Fréttabladid reports.

The report’s main author, Joan Feldbaum-Vidra, points out that the Icelandic economy has suffered from the situation on international financial markets. Continuous growth of the bank system internationally has resulted in unforeseeable financial obligations of the state treasury increasing to excess.

On the bright side, Icelandic authorities are capable of handling liquid asset violations, protecting individuals’ bank accounts and avoiding payment difficulties, even in a particularly murky situation, Moody’s said.

The growth of foreign obligations of the Icelandic bank system could, however, become challenging for authorities who may face a depression in the long run. The authorities should therefore have more space to tackle a potential depression with more extensive regulations on the liquid assets of banks or other changes which would ease the authorities’ roles as a loan granter in a foreign currency.

“In the end every development would result in reduced foreign operations of the banks or that they would move their headquarters away from Iceland to reduce the financial risk of the state,” Moody’s concluded.

“They do not consider the possibility that financial companies could have their stocktaking in euros which would to a certain extent ease the pressure on the state. It is clear that this currency area has become too small for the banks,” said Ásgeir Jónsson, director of the analysis department of Kaupthing Bank, in response to the report.

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