Balance sheet of the Central Bank

Trade credit is a claim generated when a provider of goods or services grants a customer an extension of time to pay or receive advance payment for goods or services. The trade-credit and advances derive from the fact that payment for the goods or services is not remitted at the time the goods are delivered or the service provided.

Bonds are transferable financial instruments that are valid proof of a debt and are offered for sale in an offering in which all the main features of the bonds in each class are the same, including the name of the issuer (debtor), first interest date and provisions on repayment, interest rate and calling as appropriate. Marketable bonds are made to be bought and sold in the market, either on a stock exchange or directly over the counter between parties.

Types of bonds in Central Bank statistics:

Indexed market bonds
The principal changes in accordance with a certain index and is usually issued in Icelandic krónur. This includes, for example, housing bonds, housing fund bonds, HFF bonds, indexed Treasury bonds (RIKS) and indexed bonds issued by commercial enterprises, financial undertakings and municipalities.

Other marketable bonds and bills
The principal is not linked to any index - is non-indexed. These bonds can be issued in Icelandic krónur or foreign currencies. These include, for example, non-indexed Treasury bonds (RIKB), Treasury bills (RIKV) and bonds issued by commercial enterprises, financial undertakings, municipalities and foreign entities.

Equity
A shareholder’s claim on a given shareholding in a company. A public limited company issues special documents (shares) to prove that the owner of the equities (shareholder) holds a share in the company’s assets and annual profits. Shares are usually commercial papers, i.e. they can be bought and sold as specified in the company’s articles of association, either on a stock exchange or directly over the counter between parties. Upon dissolution of a company, shares become payable after all other debts of the company in question have been paid.

When an investor owns less than 10% of a company, it is considered a securities holding. If the share is larger, it is considered a direct investment and is classified as a share in an associated undertaking or affiliated undertaking.

Associated undertaking
An undertaking where direct and indirect ownership amounts to between 10-50% of the equity or voting rights.

Affiliated undertaking
A subsidiary of an undertaking, its parent company, or a sister company (i.e. a company under the same parent company). The condition is that the ownership stake amounts to > 50%.

Investment fund shares
Financial instruments confirming the claim of all owners of units in an undertaking for collective investment in transferable securities (UCITS) or in its separate divisions, to that fund’s securities holding. All holders of units have an equal claim on the income and assets of the undertaking or of its respective divisions, in proportion to their holdings in the total number of issued unit shares.

Equity liabilites
Equity is the entire shareholdings of the owners of an undertaking. Equity corresponds to the difference between assets and liabilities.

Financial derivatives are financial instruments whose value is dependent on the price of another, the underlying asset. Financial derivatives are distinguishable from other asset classes because they generally involve the transfer of risk (such as interest rate risk, exchange rate risk, equity, and commodity price risks, etc.) rather than the provision of capital or other financial assets. The value of financial derivatives is separate from the value of the underlying assets. Financial derivatives fall into the following subcategories: options, forward contracts, and employee stock options.

Options
Options give the purchaser the right to buy or sell the underlying asset at a specified price (the strike price) by a specified date.

Forward contracts
Forward contracts are unconditional contracts wherein two counterparties agree to exchange a specified quantity of an underlying asset at an agreed strike price on a specified date.

Employee Stock Options
Also included in financial derivatives are employee stock options, which give employees of a company the right to buy its stock as part of their remuneration package. If an employee stock option can be traded on financial markets without restriction, it is classified as a financial derivative.

Gold
Owned or in the custody of monetary authorities as part of foreign exchange reserves. To qualify as reserve assets, gold deposits must be readily available on demand.

Special drawing rights
Rights allocated by the International Monetary Fund to strengthen the foreign exchange reserves of its member states. Special Drawing Rights (SDRs) are allocated in proportion to the countries’ respective quotas in the fund. Each member state’s quota is assigned on the basis of its relative share size in the world economy. The drawing rights represent a full and unconditional right of their holders to a foreign currency loan or other foreign currency assets from the International Monetary Fund. Member states can sell their quota to each other. A liability called the counterpart to the International Monetary Fund is recorded against the capitalised quota.

Currency and deposits consist of banknotes and coins in circulation, plus deposits. Deposits
Currency and deposits consist of banknotes and coins in circulation, plus deposits. Deposits are standardised, non-negotiable agreements offered by deposit-taking corporations. The term of deposits can vary, depending on the agreement. Deposits generally imply that the debtor is obliged to return the principal to the investor. They can be held in central banks or in deposit-taking corporations.

Notes and coin
Banknotes and coins that have a fixed nominal value and are issued by central banks or governments.  Notes and coin are cash in hand held by financial undertakings.

Banknotes and coins in circulation
Banknotes and coins that the Central Bank has issued to credit institutions, net of the banknotes and coins that are held by the deposit-taking corporations themselves.

Deposits are non-transferable agreements between a deposit-taking corporation and another party where funds are deposited in an account in a deposit-taking corporation for a long or short term return. Deposits can be retail deposits or wholesale deposits. Wholesale deposits are deposits for which the terms and duration of the relevant deposits have been specifically agreed upon either directly with the relevant deposit-taking corporation or through a money market broker. Such deposits are generally not available to regular savers and their terms are not standardised. Retail deposits are deposits in standard accounts with advertised terms and duration.

Demand deposits:
All deposits that can be converted into cash without any restrictions and used for payment by debit cards or other payment devices. Electronic money that can be used as a direct payment to a third party meets the criteria to be classified as a demand deposit. Current accounts at the Central Bank are considered demand deposits.

Easy access deposits:
Savings accounts without restrictions or deposit accounts where each deposit is restricted for a short period of time but the account is otherwise unrestricted.

Indexed deposits
Deposits that are restricted according to Rules No. 218/2023 on Price Indexation of Savings and Loans.

Holiday pay accounts
Indexed deposit accounts for employees’ holiday payments. Vacation payments are made no later than the beginning of the vacation period of each year.

Supplementary pension deposits
Indexed and non-indexed deposit accounts with additional pension savings for employees. Payment of pension savings and interest may not commence until the beneficiary has reached 60 years of age.

Other term deposits
Deposits that are either required to be held for an agreed fixed term, or can only be withdrawn by giving advance notice, i.e. do not have an agreed fixed term and can be converted into cash after notification.  This includes money-market deposits where interest rates and deposit terms are specifically agreed upon and the entire deposit amount is tied up for the entire deposit term.

Certificate of deposit
An electronic certificate for a deposit in the Central Bank of Iceland, issued to a financial undertaking. Certificates of deposit may be transferable.

Loans are non-transferable financial instruments where a lender lends money directly to a borrower and have fixed, predictable payments. Loans are generally non-transferable, but if loans become transferable from one owner to another, their classification is changed to marketable bonds. For loans to be reclassified, market transactions must take place.

Redeemed liabilities
Loans which a financial undertaking has reclaimed but has not yet demanded payment for from guarantors.

Overdraft facilities
Overdraft on a current account. This also includes debts due to payment cards.

Bills of exchange  
Written orders in a specific format from an issuer to a drawee to pay a certain amount to a third party. Bills of exchange can be bills of exchange against another person or an own promissory note. A bill can also be an own promissory note whereby the issuer undertakes to pay the stated amount on the date of maturity. Most bills are non-indexed and generally used for short-term financing (4 months or less). Bills are generally not issued for a longer term than one year.

Indexed loans
A bond whose principal changes in accordance with a certain index that ensures that the bond maintains its value. Bonds are written undertakings by an issuer (borrower) to pay another party (the lender) a specified amount including interest for a certain period of time and to repay the loan on its date of maturity. Indexed bonds according to the Central Bank of Iceland's rules No. 218/2023 on Price Indexation of Savings and Loans are based on the Consumer Price Index.

Other loans and receivables
Non-indexed bonds and receivables other than accounts receivable. A receivable is a legally protected authorisation by one party to demand payment from another party, i.e. the debtor. This also includes non-indexed interbank loans and claims against subsidiaries.

Purchase lease agreements
Synonym for financing lease and hire-purchase agreements. They differ from direct loans in that they involve the lender buying the liquidity or asset requested by the customer and subsequently renting it to the customer for a pre-negotiated term. Ownership is therefore the main collateral for the lender.

Collateral loan
The Central Bank can grant loans for both short and long terms, but all loans granted by the Central Bank are secured loans, as the bank may only lend against collateral that the bank deems eligible. The rates on 7-day collateralised loans form the centre of the interest rate range.

Securities lending
Securities lending with cash collateral

Provisions
Provisions are precautionary entries made by lenders in connection with recoveries on loans. Provisions are made based on the assessment of expected loan losses due to specific customers.

Unused credit lines are not classified as loans as they are not debts but obligations.

Overnight loans
Loans that counterparties in transactions with the Central Bank can apply for on their own initiative, if they can put up collateral that the Central Bank deems eligible. Overnight loans are loans until the next business day.

Collateral loans
Loans against collateral in securities. The Central Bank lends against collateral in securities and the agreement is reversed after 14 days. Counterparties submit eligible securities, according to the bank's list of securities eligible as collateral.

Other accounts receivable/payable include accounts receivable or payable other than those specified above. They can include tax liabilities, securities transactions, wages, or dividends.

These include real estate, property, plant and equipment and intangible assets.

Reserve assets are foreign assets that are always available to monetary authorities and under their control. Reserve assets must be foreign-denominated assets, claims against nonresidents, and assets that actually exist. Potential assets are excluded.

Net foreign exchange position, short-term
Short-term foreign assets net of short-term foreign liabilities.

Monetary base
Banknotes and coins and deposits of credit institutions in the Central Bank.

Net deposits of Treasury and government institutions
The Central Bank Act states that the Central Bank is the commercial bank of the Treasury. The Treasury and various government institutions may have current accounts in the Central Bank. Interest rates on the current accounts of government institutions are the same as those on the current accounts of financial undertakings in the Central Bank. The Treasury is not permitted to have an overdraft at the Central Bank.

A resident is any individual and legal entity permanently residing in Iceland, irrespective of nationality. Students and embassy employees are exempt from the residency requirement. Therefore, Icelandic students and their families who reside abroad are considered residents, and foreign embassy employees are considered non-residents. Non-residents shall mean all parties except residents.

Remaining maturity is based on the original maturity. Long-term loans and receivables therefore remain long-term loans/receivables even if the effective remaining term is one year or less. The duration of original maturities are either:

Short-term: ≤ 1 year
longer-term: > 1 year

Foreign currency position, net, short-term
Foreign short-term assets less foreign short-term liabilities.

Base money
Banknotes and coin and deposit institutions’ deposits with the Central Bank.

Treasury and Government institutions’ deposits, net
According to the Act on the Central Bank of Iceland, the Bank serves as the commercial bank for the Treasury. Both the Treasury and various Government institutions are authorised to hold current accounts with the Central Bank. Interest rates on Government institutions’ current accounts are the same as those on financial institutions’ current accounts with the Central Bank. The Treasury is prohibited from overdrawing its accounts with the Central Bank.