I find it very strange that everyone seems to think that Iceland is out of the water in terms of all its problems… I hate to be the bringer of bad news, look at the Government debt as a % of GDP figure below it stands at around 92%, if you combine this with the household debt (94% of GDP) which is again an interesting measure which usually gets ignored the world does not look that great. I don’t care what the rating agencies are saying.

I am quoting the research report from Islandsbanki

Household loans written down by ISK 173 bn.

The restructuring of household debt continues. In September the write-downs of financial undertakings, the Housing Financing Fund and pension funds amounted to over ISK 9 bn.  ISK 4.5 bn. of this amount was in write-downs under the 110% solution scheme, ISK 4 bn. were written down as a result of recalculated loans and ISK 0.5 bn. were written down under special debt adjustments. This is according to information, which the Icelandic Financial Services Association (SFF) has collected from financial undertakings, the Housing Financing Fund and pension funds, and which was published yesterday. Total write-downs on individual loans since the financial crash amount to ISK 172.6 bn., which corresponds to around 11% of the estimated GDP for this year.  

Most write-downs due to recalculations 

The lion’s share of the write-downs there have been in the Icelandic financial system since the collapse of the banks are due to the recalculation of illegal loans, since a total of ISK 96 bn. has been written off in this manner, i.e. 55% of the whole. A total of 13 thousand housing mortgages have been recalculated and subsequently written down by ISK 57.5 bn. Some 57 thousand car loans have also been written down by ISK 38.5 bn. Write-downs under the 110% solution scheme amount to ISK 31.7 bn. and write-downs through special debt adjustments amount to ISK 6 bn.Even though a lot of progress has been made in the restructuring of debt, the process is still far from over. The length of time this process has taken has a negative impact, since uncertainty with regard to the debt position and slow restructuring have delayed the recovery of the economy. According to the figures published by the Icelandic Financial Services Association, one quarter of the applications for the 110% solution are still being processed, i.e. 4,300 applications. The processing of special adjustment applications has also gone slowly, since 40% of the applications for debt mitigation, i.e. 552 applications, are still being processed. Finally, over 3 thousand households still had frozen loans at the end of September. All this demonstrates that the financial restructuring of households is still in progress, more than three years after the financial collapse. Despite these write-downs of Icelandic household debt, debt levels are still very high by international standards. At the end of June, household debt amounted to around 94% of the estimated GDP for this year, although it has decreased since its peak in 2008 when it was almost 130% of GDP. It is clear that this high level of Icelandic household debt will significantly limit the prospects for growth in private consumption and household investment, and restrict economic growth in Iceland in the years ahead.

How can one expect economic growth when there is an over-hang of debt at the Governmental level (the biggest spender) and all the households (the second biggest spender) the total investments or capital expenses that have been made in Iceland account for a very small portion of the overall current account. The only saving grace has been the tourism industry and in my opinion that is going to slow as well as there is a global slow down as predicted by many nodal bodies.