Too early to predict Iceland foreign currency loans impact on banks

The head of Iceland’s FME financial regulator says it is still too early to tell if the government will need to provide financial assistance to the banks following the Supreme Court ruling that foreign currency indexed loans are illegal.

32 of Iceland’s 63 MPs have come out against any future bank bailout. Bloomberg reported that a majority of Icelandic parliamentarians do not want to see the State refinancing the banks for a second time. All opposition MPs and three from the government are against any such move and would vote against it in order to block it.

FME head Gunnar Andersen says it will become clear in November at the latest exactly how much money the banks need once the Supreme Court rules on what payment rules and interest rates should apply to foreign currency indexed loans. He says now is not the right time to predict which way it will go, RUV reports.

If the Supreme Court reinforces a recent Reykjavik District Court ruling that the loans should follow the basic central bank interest rate, then the blow to the banks will be much lighter. The alternative is to peg the rates to foreign contract rates which are much lower.