Statement of the Financial Stability Committee September 2024
The Icelandic financial system is resilient. The systemically important banks’ capital and liquidity positions are strong, they have ample access to funding, and the cost of foreign funding has declined. Persistent inflation and weaker economic growth can create challenges for the financial system.
Real estate prices are high. The repercussions of the seismic activity on Reykjanes peninsula and immigration to Iceland have played a role in price hikes in the recent past. Activity in the construction industry remains robust, as can be seen clearly in the labour market and growth in lending to firms in the construction sector. The strong equity position of many borrowers affords the scope to refinance if necessary.
There are few indications of general financial distress among households and businesses, even though high inflation and interest rates are challenging for many. Borrower-based measures, together with rising wages and a high employment level, play an important role in households’ resilience. Households’ and businesses’ demand for indexed instead of non-indexed loans has caused the banks’ indexation imbalances to grow, as the majority of their funding is non-indexed. This could become challenging for the financial system.
In its quarterly review of the countercyclical capital buffer, the Financial Stability Committee (FSN) decided to hold the buffer unchanged at 2.5%. The Central Bank’s stress test of the systemically important banks indicates that the banks can withstand considerable adverse shocks. Risk in the financial system has not abated, and the FSN therefore considers it important that financial institutions maintain a strong equity position.
The Committee underscores the importance of enhancing operational security in payment intermediation and will promote measures aimed at reducing underlying operational risk. Progress has already been made, but the Committee considers it important to complete the coordination plan providing for prompt, coordinated, and efficient responses to operational incidents in the financial market.
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.
Press release no. 15/2024
25 September 2024