Iceland’s Banking Sector Sees Major Overhaul Following 2008 Collapse

In the aftermath of the 2008 financial collapse, Iceland’s banking industry underwent significant changes aimed at ensuring stability and security. The Central Bank of Iceland played a crucial role in implementing stringent measures to promote price stability, financial stability, and sound financial activities.

Current State of the Banking Sector

The Icelandic banking sector is now considered healthy overall. There are three commercial banks operating in the country: Landsbankinn, Islandsbanki, and Arion Banki. Landsbankinn, formerly known as Landsbanki Islands, is government-owned and is currently undergoing privatization. Islandsbanki, previously Glitnir, is also being privatized, while Arion Banki has been fully privatized and listed on the Nasdaq Iceland stock exchange.

New Developments

A new savings bank, Indo, was launched in June 2023, while Kvika, an investment bank, is also listed on Nasdaq Iceland. Icelandic pension funds offer loans and mortgages and are active investors in local companies. Notably, there are no foreign banks operating in Iceland, with the country’s commercial banks providing all necessary banking services to businesses.

Establishing a Bank Account

To establish a bank account in Iceland, you need a local personal identification number known as a “kennitala,” which can be obtained through Registers Iceland for foreign nationals. Businesses have access to financing from the commercial banks and can take advantage of regular commercial banking services.

Role of the Central Bank

The Central Bank of Iceland is responsible for maintaining international reserves and promoting a safe, effective financial system, including domestic and cross-border payment intermediation. The bank publishes the official exchange rate on its website and fixes it once daily against foreign currencies.

Capital Controls Lifted

In 2017, the capital controls imposed following the financial collapse were largely lifted, allowing non-residents to convert dividends and profits into any currency at a regular exchange rate. The Act on Investment by Non-Residents in Business Enterprises no. 34/1991 and no. 46/1996 ensures that investors have the right to convert their earnings.

Conclusion

Despite the challenges faced by Iceland’s banking sector, the country’s financial system is now considered stable and secure, with the Central Bank of Iceland playing a vital role in maintaining price stability and promoting sound financial activities.