Iceland Says Financial Risks Decreased Alongside Recovery

Iceland’s central bank said risks in its financial industry have decreased alongside an economic recovery on the north Atlantic island.

Until Iceland starts removing its currency controls, they will protect the country’s markets from the global economic crisis, the Reykjavik-based bank said in its Financial Stability report today. Still, foreign loan repayments, which could rise significantly in 2015, may weigh on the island’s currency, according to the report.

Iceland’s economy collapsed in 2008 when its three major lenders crumbled under $85 billion in debt. The banks’ failure forced the country to seek a $4.6 billion bailout from the International Monetary Fund and impose capital controls after the krona sunk 80 percent in the offshore market against the euro. The island completed a 33-month long economic program with the Washington-based lender in August last year.

“The financial stability risk related to the unwinding of the capital controls will not be revealed until” the bank begins removing capital controls, Governor Mar Gudmundsson said in the preface to the report. “It’s unlikely that any such steps will be taken until at first in the coming year.”

To contact the reporter on this story: Omar Valdimarsson in Reykjavik at valdimarsson@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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