The Icelandic economy is boiling – people are borrowing more, purchasing more and paying more with overdrafts.
Radio Station Bylgjan reports that the total amount of outstanding loans in the Icelandic banking system increased by ISK 1000 billion in one year. Loans to households in Iceland increased by ISK 240 billion in one year.
At the same time Statistics Iceland reported a trade deficit of ISK 5.92 billion compared with a trade deficit of ISK 2.48 billion in January-August 2004, at fixed rates of exchange. The total value of imports of goods in January-August of this year is 29.3% higher than in the same period last year.
Increased debt of households and the trade deficit are partly caused by greatly increased auto sales. Radio station Bylgjan reports that the Toyota dealership in Iceland is unable to meet demand for new cars – buyers are put on a waiting list. 20,000 new cars have been registered in Iceland so far this year while at the same time last year 16,000 new cars were registered.
While Icelanders are buying more, and purchasing more, they are also spending more on overdrafts. Overdrafts are becoming more prevalent in Iceland due to greater increased private consumption over consumer purchasing power. According to analysts at Íslandsbanki overdrafts increased considerably during the height of the last boom and that it caused many considerable worries at the time. At the end of last August home overdrafts amounted to ISK 63.5 billion, a 5% increase from last year. This means that each home in Iceland owed ISK600,000 in overdrafts a the end of August. The average interest rate for overdrafts is 20%. According to these figures each family pays on average 120,000 in interest each year due to overdrafts.