The Second Meeting of the Financial Stability Council in 2019

The Financial Stability Council held its second meeting of the year 2019 on Monday 24 June.

A part of the risk that has built up in the past few years has now realised. It is assumed that GDP will contract in 2019 but it is unclear by how much and for how long a recession will last. The contraction will inevitably strain the private sectors and chances are that non-performing loans will increase with their associated impact on the financial system. It is however unclear how private sector credit growth will develop. Price increases in both private and commercial real estate have slowed down, in part due to a significant increase in supply.

The banks’ resilience is considerable. The capital ratios of all banks are somewhat above the Financial Supervisory Authority’s requirements, but their liquidity position, particularly in Icelandic króna, has deteriorated in the last months. The economy is well prepared to face shocks after last years’ upswing. The external position is positive and both private and public debt are low in contrast to what they have been, historically. Both monetary and fiscal policy have room to respond to adverse developments and the Central bank’s reserves are ample.

The Council approved recommendations to the Financial Supervisory Authority on maintaining the countercyclical buffer at previously recommended levels.

A part of the risk that has built up in the past few years has now realised. It is assumed that GDP will contract in 2019 but it is unclear by how much and for how long a recession will last. The contraction will inevitably strain the private sectors and chances are that non-performing loans will increase with their associated impact on the financial system. It is however unclear how private sector credit growth will develop. Price increases in both private and commercial real estate have slowed down, in part due to a significant increase in supply. 

The banks’ resilience is considerable. The capital ratios of all banks are somewhat above the Financial Supervisory Authority’s requirements, but their liquidity position, particularly in Icelandic króna, has deteriorated in the last months. The economy is well prepared to face shocks after last years’ upswing. The external position is positive and both private and public debt are low in contrast to what they have been, historically. Both monetary and fiscal policy have room to respond to adverse developments and the Central bank’s reserves are ample.

The Council approved recommendations to the Financial Supervisory Authority on maintaining the countercyclical buffer at previously recommended levels.