Oct. 7 (Bloomberg) -- Iceland's central bank Governor David Oddsson said an announcement that the government had agreed on a 4 billion-euro ($5.43 billion) loan from Russia was ``overstated'' and that talks were still ``ongoing.''

``Negotiations are starting,'' Oddsson told Bloomberg Television today. ``We are optimistic'' they will be successful and ``we are to blame for the overstatement.'' Any aid from Russia would be ``very much welcomed.''

The global liquidity squeeze has sent Iceland's currency into a tailspin on concern the rapid expansion of the country's commercial banks had left the financial system with unsustainable debts. The current account deficit was equal to 34 percent of gross domestic product at the end of June, mainly exacerbated by growing payments on foreign loans.

The country's oversized bank industry means it's ``probably in the worst position in the developed world to cope with the ongoing credit crisis,'' Deutsche Bank AB economist Henrik Gullberg said before today's announcements.

``The banks have grown too fast,'' Oddsson said.

To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;

Last Updated: October 7, 2008 07:21 EDT