09 October 2008

R&I RATING:(BBB-); Downgraded from (A+) Remains on the Rating Monitor with a view to downgrading

On October 9, Iceland government has decided to place Kaupthing Bank hf., the country's largest bank under its control after placing under administration the third-largest Glitnir banki hf and the second-largest Landsbanki Islands hf. Iceland's financial system has been severely damaged. Volatile market has pushed down Iceland Krona further and the real economy continues to deteriorate. R&I downgraded Iceland's Foreign Currency Issuer Rating to A+ on October 7, pointing out that the repayment risk of private debt could be transferred to the government once all commercial banks are nationalized. Now the concern has become a reality. Total assets of 3 largest banks exceeded more than 9 times of GDP at the end of 2007 and Iceland government has no other choice but to seek financial assistance from the third party to manage its massive current account deficit and stabilize exchange rates. Considering these factors, R&I has downgraded the rating to BBB-. Since the rating could be changed further depending on the future financial assistance from the third party and the restructuring of financial sector, R&I has retained the rating on the Rating Monitor with a view to downgrading

R&I press release can be approached here