Economy and Banking Sector of Iceland

Location Northern Europe
Population (2016)332 529 ↑ (+0.01%)
EU Status not a member, candidate since 2009
Economy
National Currency ISK (Icelandic króna)
GDP 
    Nominal GDP (2015)15.1 bln EUR ↑ (+0.15%)
    Nominal GDP per Capita (2015)45 500 EUR ↑ (+0.13%)
    Real GDP Growth (2015)4.0 % ↑ (2014: 1.9 %)
Inflation Rate 
    CPI, MoM (Sep 2016)-1.5 % ↓ (Aug 2016: 0.0 %)
    CPI, YoY (Sep 2016)1.1 % ↑ (Aug 2016: 0.7 %)
    CPI, Year Average (2015)0.3 % ↓ (2014: 1.0 %)
Unemployment Rate (2015)4.0 % ↓ (2014: 5.0 %)
Credit Ratings (as of Sep 2016)
    FitchBBB+ good credit quality, outlook stable
    Moody'sA3 upper medium grade, outlook stable
    S&PBBB+ lower medium grade
Taxation
Double Taxation Agreements 36 signed agreements
Information Exchange 
    Exchange on Request 48 signed agreements
    Automatic Exchange starts in September 2017
FATCA IGA in effect since 26 May 2015, Model 1
Banking Sector
Financial Market Development 4.2 (max 7.0) rank: 53rd out of 138 countries
    Banks' Soundness 4.7 (max 7.0) rank: 74th out of 138 countries
Banking Industry Country Risk 7(1 - lowest risk, 10 - highest risk)
    Economy Risk 7
    Industry Risk 7
Deposit Guarantee Scheme 
    Maximum Protected Amount 1 700 000 ISK
Country Ceiling for Deposits 
    Local Currency (Icelandic króna)A1 upper medium grade
    Foreign CurrencyA3 upper medium grade
Banking Sector Structure 
    Number of Banks9
    Recent Changes (2015) new banks: 1, closed banks: 4
Major Banks
 Arion Bank  Landsbankinn
 Íslandsbanki  Kivka Bank
 List of Banks in Iceland

Icelandic Economy

GDP

According to Eurostat, nominal GDP of Iceland in 2015 was 15.1 bln EUR.

Iceland outperforms the European Union in terms of real GDP growth with the average annual differential coming to 1.3% over the past 10 years (2005 - 2015). In 2015 real GDP growth was 4.0% which was above the Euro Area average (1.6%) and above the European Union average (1.9%). Real GDP growth in 2016 - 2021 are IMF's estimates.

Real GDP Growth in Iceland.
Chart 1. Real GDP Growth in Iceland. Source: Eurostat, International Monetary Fund.

In 2015, nominal GDP per capita in Iceland was 45 500 EUR.

Iceland has an above-average level of wealth in terms of per-capita GDP at purchasing power parity (PPP); this economic welfare indicator has, on average, exceeded that of the European Union by 20.3% over the past 10 years (2005 - 2015). GDP per capita at PPP in 2016 - 2021 are IMF's estimates.

GDP Per Capita at Purchasing Power Parity in  Iceland; European Union = 100.
Chart 2. GDP Per Capita at Purchasing Power Parity in Iceland; European Union = 100.
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Inflation Rate

According to Eurostat, inflation rate in Iceland in 2015 expressed as annual percentages of average consumer prices was 0.3% which was above the Euro Area average (0.0%) and above the European Union average (0.0%). Inflation rates in 2016 - 2021 are IMF's estimates.

Inflation Rate in Iceland.
Chart 3. Inflation Rate in Iceland. Source: Eurostat, International Monetary Fund.
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Taxation in Iceland

Double Taxation Agreements

Double Taxation Agreement (DTA) is an agreement between two or more countries for the avoidance of double taxation.

Iceland signed DTAs which already came info force with the following jurisdictions (for agreements which came into force after 01 January 2013 the date of coming into force is given in brackets):

 Barbados
 Belgium
 Canada
 China
 Croatia
 Czech Republic
 Estonia
 France
 Germany
 Greece
 Hungary
 India
 Ireland
 Italy
 Korea, Republic of
 Latvia
 Lithuania
 Luxembourg
 Malta
 Mexico
 Netherlands
 Norway
 Poland
 Portugal
 Romania
 Russian Federation
 Slovakia
 Slovenia
 Spain
 Switzerland
 Ukraine
 United Kingdom
 United States
 Vietnam

There are also several agreements between Iceland and other jurisdictions which were signed but haven't yet come into force (for agreements signed after after 01 January 2013 of signing the agreement is given in brackets):

 Malta (Apr 2013)
 United Kingdom (Dec 2013)
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Information Exchange

There are 3 ways for jusrisdictions to exchange information on tax matters:

  • spontaneously;
  • on request;
  • automatically.

Tax Information Exchange Agreements (TIEAs) enable exchange of information on request relating to a specific tax investigation, either criminal or civil.

Iceland signed TIEAs which already came info force with the following jurisdictions (for agreements which came into force after 01 January 2013 the date of coming into force is given in brackets):

 Andorra
 Aruba
 Bahamas
 Bahrain
 Belize
 Bermuda
 British Virgin Islands
 Cayman Islands
 Cook Islands
 Curacao
 Denmark
 Dominica
 Faroe Islands
 Finland
 Gibraltar
 Greenland
 Guernsey
 Isle of Man
 Jersey
 Liberia
 Liechtenstein
 Macau
 Monaco
 Montserrat
 Panama (Dec 2013)
 Saint Lucia
 Samoa
 San Marino
 Sint Maarten (Dutch part)
 Sweden
 Turks and Caicos Islands
 Uruguay

There are also several agreements between Iceland and other jurisdictions which was signed but haven't yet come into force (for agreements signed after 01 January 2013 of signing the agreement is given in brackets):

 Anguilla
 Antigua and Barbuda
 Botswana (Feb 2013)
 Brunei Darussalam
 Costa Rica
 Grenada
 Guatemala
 Jamaica
 Marshall Islands
 Mauritius
 Niue (Oct 2013)
 Qatar (Sep 2013)
 Saint Kitts and Nevis
 Saint Vincent and The Grenadines
 Seychelles
 Vanuatu

Automatic information exchange allows jurisdictions to exchange information automatically, without having a specific tax investigation.

Iceland signed the automatic information exchange agreement on 29 October 2014 and committed to start the automatic information exchange in September 2017.

Further Information:
Automatic Exchange of Information on Financial Accounts
Countries Which Will Not Automatically Exchange Account Information

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FATCA

Foreign Account Tax Compliance Act (FATCA) which became law in the United States in March 2010, focuses on reporting made by foreign financial institutions about financial accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. The FATCA-reporting is facilitated by Intergovernmental Agreements (IGAs).

Iceland has FATCA agreement with the U.S. in effect since 26 May 2015 (Intergovernmental Agreement Model 1). Financial institutions operating in Iceland are required to identify U.S. taxpayers by January 1, 2017 and to report the information for 2017 and the subsequent years. The agreement is reciprocal: Icelandic financial accounts hold in U.S. financial institutions will be reported to Icelandic authorities.

Further Information:
FATCA and European countries

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Icelandic Banking Sector

Financial Market Development

According to World Economic Forum's Global Competitiveness Report 2016-2017, financial market development in Iceland is scored 4.2 out of maximum 7.0 and ranked 53rd out of 138 analysed economies. Soundness of banks is scored 4.7 bringing Iceland into the 74th place, trustworthiness and confidence of financial market is scored 4.3 (68th place).

Financial Market Development in Iceland.
Chart 4. Financial Market Development in Iceland. Source: WEF.
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Banking Industry Country Risk

Banking Industry Country Risk Assessment (BICRA) is a methodology designed by Standard&Poor's "to evaluate and compare global banking systems". A BICRA is scored on a scale from 1 to 10, ranging from the lowest-risk banking systems (group 1) to the highest-risk (group 10). The BICRA methodology has two main analytical components: "economic risk" and "industry risk". Each of the components is then further divided into 3 "factors" that result in an economic and industry risk score for each country.

Iceland is included into group '7' with economic risk scored '7' and industry risk scored '7'.

BICRA Group 7
Economic risk 7
    Economic resilience high
     Economic imbalances very high
    Credit risk in economy high
Industry risk 7
    Institutional framework high
    Competitive dynamics intermediate
    Systemwide funding very high
Government support assessment uncertain

Table 1. BICRA for Iceland. Source: S&P's.

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Deposit Guarantee Scheme

Deposit Guarantee Schemes compensate certain deposits held by depositors of a bank that becomes unable to meet its obligations.

From a depositor's point of view it is important to know:

  • if the depositor is eligible within the terms of the deposit guarantee scheme;
  • if the depositor's bank is a participant in the deposit guarantee scheme;
  • if the depositor's type of deposit is covered by the deposit guarantee scheme.

All these details about deposit guarantee scheme in Iceland are summarised in Table 2.

Scheme Participantsall credit institutions operating in Iceland, branches of non-EEA banks, branches of Icelandic banks abroad
Scheme Exemptionsbranches of EEA-banks (covered by their home countries)
Covered Accountsany credit balance resulting from financial deposits or transfers in normal banking transactions
Maximum Protected Amount1 700 000 ISK
Paid In CurrencyISK

Table 2. Deposit guarantee scheme in Iceland.

EEA stands for European Economic Area and consists of all EU member states plus Liechtenstein, Norway and Iceland.

Further Information:
Deposit Guarantee Schemes in Europe

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Country Ceiling for Deposits

Moody's country ceilings for deposits specify the highest rating that can be assigned to local- or foreign- currency denominated deposit obligations of a bank or other deposit taking institution domiciled within that country.

Local currency (Icelandic króna) deposit ceiling for Iceland is set to A1 (upper medium grade), foreign currency deposit ceiling is A3 (upper medium grade).

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Banking Sector Structure

Currently there are 9 credit institutions operating in Iceland.

Recent structural changes (2013 - 2015) of the banking sector of Iceland are summarised in Table 3.

201320142015
Number of Opened Banks001
Number of Closed Banks114

Table 3. Recent structural changes in the banking sector of Iceland.

All the credit institutions operating in Iceland can be classified into several categories. Table 4 summarises the number of banks in each category.

CategoryNumber of Banks
Central banks1
Commercial banks4
Savings banks4

Table 4. Number of banks by category in Iceland.

The list of the most recently opened banks in Iceland is provided in Table 5.

NameStart Date
 Sparisjóður Austurlands hf (new)January 2015

Table 5. The most recently opened banks in Iceland.

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