Iceland’s lenders have forgiven household debt equal to about 12.4 percent of gross domestic product since the island’s 2008 financial collapse.
Lenders had written off 212.2 billion kronur ($1.7 billion) in household debt through the end of 2012, the Icelandic Financial Services Association said in a letter to parliament. The group estimated a further 35.3 billion kronur will be forgiven this year after they recalculate loan agreements to meet a Supreme Court ruling.
About 141.2 billion kronur of that follows a ruling from the island’s top court stating that mortgage loans indexed to foreign exchange rates were illegal, it said.
The island’s biggest banks failed in October 2008, after defaulting on about $85 billion in debt. The collapse plunged the island’s economy into a crisis that sent unemployment surging nine-fold and triggered a recession.
The association said that of the total, 45.8 billion kronur in private debt was forgiven as part of an agreement that stipulated that debts exceeding 110 percent of a property’s value must be written off.