The Icelandic financial system is resilient. The systemically important banks’ capital and liquidity are strong, and they have ready access to market-based funding. There is significant geopolitical uncertainty, however, and in many economies long-term interest rates have risen due to growing doubts about fiscal sustainability. Prices are high in global asset markets, and a sudden correction could affect Icelandic firms’ market access and the terms on their foreign financing. Global uncertainty highlights the importance of ample international reserves and a solid international investment position.
The systemically important banks are well positioned and currently have access to foreign funding on favourable terms. The Central Bank of Iceland’s stress test indicates that they would be resilient enough to maintain the supply of credit and support the economy in a severe shock. It is vital that the banks maintain a strong capital position and have enough liquidity to withstand potential shocks.
Households and businesses have generally retained their resilience despite persistent inflation and high real interest rates. Modest credit growth and sound equity position – due partly to a tight macroprudential policy stance – have contributed to arrears remaining low.
House price growth has lost pace, and pressures in the market have eased. There is ample supply, and homes take longer to sell than before, particularly newly built properties. Housing market turnover is still considerable, though, and first-time buyers have increased in number.
Growing threats to the cyber- and operational security of financial market infrastructure are a by-product of elevated geopolitical uncertainty and technological innovation in financial markets. Efforts to bolster emergency preparedness of critical infrastructure and enhance resilience in payment intermediation must continue.
The FSN has decided to hold the countercyclical buffer unchanged at 2.5%, in accordance with its policy on the application of the buffer. As before, the Committee will apply the policy instruments at its disposal so as to preserve financial stability, thereby enabling the financial system to mediate credit and payments and redistribute risks appropriately.
No. 13/2025
24 September 2025