New Finance Minister Þórdís Kolbrún Moves Forward with Íslandsbanki Sale

Minister of Tourism, Industry, and Innovation Þórdís Kolbrún Reykfjörð Gylfadóttir

Minister of Finance Þórdís Kolbrún Reykfjörð Gylfadóttir has recently expressed support for the continued sale of state-owned Íslandsbanki shares. RÚV reports.

Formerly Minister of Foreign Affairs, Þórdís recently switched places with Bjarni Benediktsson in the wake of his resignation from office.

Þórdís stated to RÚV that although it would be a good move for the state to divest itself of ownership in Íslandsbanki, it may be necessary to change some regulations and guidelines in light of the recent controversy.

Preparatory work underway

It has now been some nine days since Þórdís assumed her new position as Minister of Finance. She discussed the recent government changes and her priorities in the coming weeks and months on the current events talk show Silfurinn last night.

On Silfurinn, she stated that her ministry is currently working to prepare for finalising the Íslandsbanki sale and that nothing has changed regarding the goal of state divestiture in Íslandsbanki.

Þórdís stated that the state-owned shares in Íslandsbanki account for several billion ISK and that the sale is of great importance to the treasury. While not divulging details, she stated that a good price had been obtained for the sale and that the recent opinion of the Parliamentary Ombudsman would be taken into account.

“I am of the opinion that it is simply right to divest the state of its ownership in Íslandsbanki. I know there are voices out there that are concerned that it is done properly and that all the rules are followed,” she said. “Some rules need to be changed or the methodology of selling needs to change as well. It should be a completely public auction, as broad and general as possible, so the public can easily participate.”

Þórdís further stated that she hopes the work will begin as soon as possible.

 

 

Minister of Finance, Bjarni Benediktsson, Resigns from Office

bjarni benediktsson

Now-former Minister of Finance, Bjarni Benediktsson, has resigned from office following critique of his role in the March 2022 sale of Íslandsbanki shares.

Report on Íslandsbanki Sale Highlights Lack of Transparency

The Ministry of Finance issued a notice this morning of a press briefing at 10:30. Earlier this morning, the opinion of the parliamentary ombudsman had been published on the government website where it is stated that the Minister of Finance’s preparation for the privatization process of Íslandsbanki did not conform to government guidelines.

Following the 2008 banking collapse, several major banks were taken into state ownership, to later be sold off in a privatization process. The sale of shares in Íslandsbanki was criticized for a lack of transparency at the time, with special attention given to Hafsilfur ehf., a company owned by Benedikt Sveinsson, the father of the Minister of Finance. Hafsilfur was among those who purchased shares in Íslandsbanki when a 22.5 per cent stake in the bank was sold in an auction. Bjarni, now-former Minister of Finance, has stated in the past that he first learned about the company’s purchases when the ministry received a list of buyers from the State Financial Supervisory Authority after the auction had concluded.

FME Believes Íslandsbanki Broke the Law During March Sale

Skúli Magnússon, the parliamentary ombudsman has indicated that there was a lack of clarity in the preparatory documents regarding conflicts of interest. In his official opinion, the parliamentary ombudsman concluded that the Minister of Finance was not qualified to approve the sale. According to the ombudsman, it must be assumed that he had “significant and real interests in the sale.” The ombudsman also stressed that nothing has come to light that would cast doubt on the Minister’s claim of ignorance regarding Hafsilfur’s participation in the auction.

In his response to the ombudsman’s findings, Bjarni expressed his disagreement with some of the conclusions but emphasized the importance of respecting the opinion. He mentioned that the next steps would be determined in consultation with fellow Independence Party members.

Bjarni also reiterated that he had not been aware of his father’s involvement in the auction and defended his actions throughout the auction process. The sale of Íslandsbanki’s stake has had several important consequences, including one of the largest-ever fines levied on an Icelandic financial institution,  and the resignation of Íslandsbanki CEO, Birna Einarsdóttir.

Agreement Reached Between Central Bank and Íslandsbanki

During his press briefing, Bjarni stated that, given the recent opinion given by the ombudsman, he found it impossible to continue working in the Ministry of Finance. He stated that he wanted to bring peace to the ministry and that he would step down as the Minister of Finance and Economic Affairs. Bjarni stated further that he wanted to demonstrate that “responsibility came with positions of power.”

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Changes to Payment Processing Over the Weekend Led to Overcharges

digital payment iceland online banking

Updates to digital payment systems caused confusion over the weekend, when some consumers in Iceland were charged excessive amounts for some everyday purchases.

On Saturday, April 15, Íslandsbanki sent out a message to its customers in advance of the change, stating: “This weekend, there will be a global standard change implemented by payment processors that involves the removal of decimal points from Icelandic Króna currency. As a result, Mastercard will be removing decimal points from its transactions starting tomorrow, Saturday, April 15th at 7:05 PM.  Customers of our bank may be alerted to incorrect amounts when making purchases in Icelandic currency during that time, if payment processors do not update their settlements in a timely manner.”

Íslandsbanki warned customer to refrain from making certain purchases if they were uncertain of the charge. However, some Icelanders were unpleasantly surprised on their banking statements, as Morgunblaðið notes.

Among some of the charges include one Icelander who reportedly was charged 176,000 ISK [$1,290, €1,175] at Bæjarins Beztu, a popular hotdog stand, and an Icelander who was charged 642,600 ISK [$4,715, €4,293] for a grocery trip.

Regarding such charges, Íslandsbank stated: “If customers continue with their purchase and are charged the wrong amount, they should wait until the transaction has been settled and then contact the seller for a correction, or submit a refund request to Íslandsbanki.”

Online payment service Paypal likewise suspended ISK transactions between April 14 and 18.

Those experiencing problems with their banking are advised to contact their bank directly.

Central Bank Working on Domestic Payment System

currency iceland

The Central Bank of Iceland is working to develop a domestic payment system for Iceland.

As more and more transactions become electronic, interest has grown in an independent payment system for Icelandic commerce. Cyberattacks or other disruptions to service in the several foreign payment systems on which so many Icelandic businesses currently rely could cause serious disruption to economic life in Iceland. By working towards a secure and independent solution, the Central Bank of Iceland hopes to make the Icelandic economy more resilient to risk in the future.

The Central Bank of Iceland has begun taking initial steps at the request of Iceland’s National Security Council, in line with steps taken recently by other European nations. The Central Bank plans to publish a report on the matter in the coming months, in which possible ways forward will be considered.

The Central Bank’s recent report on financial cybersecurity indicated the real possibility of long-term disruption to the payment system following a cyberattack on a foreign payment system. According to the Central Bank, other means of payment need to be provided to ensure that necessities can still be purchased in the event of such an attack. In addition to a domestic payment system, the Central Bank has also called for the creation of preparedness plans in the event of such a disruption.

The need for a secure, domestic payment system is especially pressing in Iceland, where fewer and fewer transactions take place with cash. In the past two years, the use of cash in purchases has declined by some 25%, although it is still used by some 40% of the population, especially for gifts and personal payments. In the event of an electronic payment disruption, the Central Bank has stated, there are still enough cash reserves to address such an event.

 

 

 

In Focus: Íslandsbanki Private Stock Offering

Íslandsbanki headquarters in Reykjavík

The Icelandic government’s sale of 22.5% of Íslandsbanki bank in a private stock offering last March has resulted in allegations of corruption, investigations by two state institutions, weekly public protests, and calls for Finance Minister Bjarni Benediktsson to resign. What went wrong?BackgroundAfter the 2008 banking collapse, a restructuring of Iceland’s financial system took place. From […]

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Central Bank Raises Key Interest Rate to 2%

Central Bank Ásgeir Jónsson seðlabankastjóri

The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to raise the Bank’s interest rates by 0.5 percentage points. The Bank’s key interest rate will therefore be 2%. This is the Bank’s fourth interest rate hike since May, indicating a change in direction as the economic forecast has improved.

The Central Bank’s key interest rate reached a historic low of 0.75% in November 2020. In comparison, rates in January 2020 stood at 3% and in January 2019 at 4.5%.

According to the Bank’s new macroeconomic forecast, GDP growth is expected to measure about 4% in 2021. Better prospects for exports result in an improved outlook for GDP growth compared to projections from last August. GDP growth next year is expected to measure just over 5%. The Central Bank nevertheless states that “significant uncertainty remains, and as before, economic developments will depend on the path the pandemic takes.”

Inflation rose to 4.5% in October, according to the Central Bank’s statement, and is expected to continue rising in the coming months but then start to ease. Global price increases, a more rapid rebound in domestic economic activity, and rising wage costs are some of the factors behind the rise.

24,000 Shareholders in Íslandsbanki Following Successful Stock Offering

Íslandsbanki bank’s shareholders now number around 24,000 following a share offering that ended yesterday, more than any other company listed on Nasdaq Iceland. The bank remains 65% in state ownership, with 24% now in the hands of domestic investors and 11% held by foreign investors. Finance Minister Bjarni Benediktsson celebrated the campaign’s success, stating that it reduced state risk and provided funds for upcoming development projects.

“It’s gratifying to see the results of Íslandsbanki’s successful offering,” Bjarni stated. “High demand and participation from the public is particularly gratifying, and Íslandsbanki will have more shareholders than any companies registered on the Icelandic market. This is not least due to the decision to allow subscriptions for as little as ISK 50,000 [$512/€340] and leave individual subscriptions of up to one million krónur [$8,250/€6,800] intact. The sale is profitable for the treasury and will be useful in the development that lies ahead in the coming months. Most importantly, however, we are taking the first step here in reducing the state’s risk in banking and moving closer to a healthier environment as is the case in the Nordic countries and our other neighbouring countries.”

Read More: Sale of State-Owned Banks

One of Iceland’s three largest banks, Íslandsbanki was 100% in state ownership before the share offering. Of the other two, Arion Bank is privately owned and Landsbankinn is 98.2% state-owned. Iceland’s current governing coalition prioritised reducing state ownership of financial institutions in the government agreement made at the beginning of its term.