Iceland bank wants loan extension

Iceland’s state-run Landsbanki bank wants to renegotiate the conditions of a £1.5bn bond in an effort to slow payments to other countries’ governments. The North Atlantic nation remains in debt following the banking sector collapse in 2008.

Prior to the 2008 failure of Iceland’s banks in the market crash, they were growing rapidly in foreign markets. The government of Iceland split Landsbanki into a bank that continued operating but which focused on the domestic market, housing non-performing loans – a so-called ‘bad’ bank.

The existing Landsbanki owes £1.5bn to the bad bank which, in turn, owes considerable amounts to the UK and Dutch governments who reimbursed depositors from Britain and the Netherlands for losses suffered following the collapse of Iceland’s banks.

Last week, Landsbanki representatives met with officials in a bid to wind up its affairs, requesting the beginning of talks regards extending the maturity date of the £1.5bn bond, revealed the head of investor relations at Landsbanki, Kolbrún Guðlaugsdóttir. At present, the bond is due to be fully paid by 2018.

The Dutch and UK governments are the two biggest claimants. Both paid over $5bn to foreign depositors in the Icelandic bank’s failed savings programme, after being unsuccessful in their attempts to force Iceland’s government to hand out compensation. Funds belonging to foreign investors were shifted into the bad bank despite Icelandic depositors’ funds being held by the surviving lender.

According to Kolbrún Guðlaugsdóttir, paying into the bad bank would mean Landsbanki would have to buy large sums of foreign currency within a short time period because the debt is in pounds sterling. She explained that this process could lower the value of the Icelandic króna and pressure the country’s economy as it continues its recovery.