The sharp decline in the Icelandic krona in late February following Fitch’s lowering of Iceland’s country rating from “stable” to “negative”, due to its current account deficit and rising external debt, may have taken the gloss off the expanding local banks. But strong capital bases and significant geographic diversification helped to affirm Fitch’s ratings of the four Icelandic banks led by the biggest, Kaupthing Bank.
Unperturbed by widening macro imbalances at home or the long-expected currency correction, Iceland’s banks, and Kaupthing in particular, are expanding abroad fast. As Kaupthing chairman Sigurdur Einarsson recently explained to The Banker, the bank has doubled in size every year for the past eight years, with assets at the end of 2005 reaching €34bn following the acquisition last year of the UK merchant bank Singer & Friedlander in a £547m (u794m) deal. In fact, Mr Einarsson notes, UK activities accounted for 34% of total operating income in 2005 of €1357m, the biggest sector in the bank.
