The move by Fitch was part of a wider decision to place Iceland’s three main banks, Glitnir Banki, Kaupthing Bank and Landsbanki Islands, and their subsidiaries, on Ratings Watch Negative due to heightened concerns that the country’s economy was about to stall.
Fitch believed that while all three banks were fundamentally strong, ‘diminishing confidence in the sector has increased the risk of unanticipated calls on liquidity’, thereby forcing a re-evaluation of ratings.
Fitch said it would be conducting a review over the next few weeks and that a number of factors would be taken into account, including the state of Iceland’s currency, the krona, and the moves taken by the three banks to diversify their businesses.
However, Mark Sismey-Durrant, chief executive of Heritable Bank, insisted that the banks were in a strong position and its lending operation would be unaffected.
“There has been quite a lot of commentary but, fundamentally, Icelandic banks are very strong, are very liquid and have virtually no exposure to non-conforming mortgages.
"They have been put on watch as a consequence of the media coverage and the fact that the Icelandic Central Bank has had to raise interest rates. But this has happened to other players in the market too and Landsbanki still is a very good bank with a bright future.
“As a lender, we are not highly leveraged and Heritable’s lending is fully funded by deposits, such as those through Icesave. We believe we have put ourselves into a good place in a difficult market.”
