The Icelandic financial system is resilient. The systemically important banks’ capital and liquidity are strong, and they have ready access to market-based funding. The geopolitical situation is highly uncertain, however, and global financial market volatility has increased. The domestic economic outlook could be affected by these factors. Under such circumstances, it is important to safeguard financial system resilience.
Persistent inflation and high interest rates have created challenges for households and businesses in the recent term. Arrears are limited, however, and private sector balance sheets are strong overall. Credit growth has been moderate, and households’ and businesses’ debt ratios are low in historical and international context. A tight macroprudential stance has supported the resilience of the financial system.
Real estate prices are still high by most measures, but price increases have tapered off and the housing market has cooled. Activity in the construction sector is strong, and the outlook is for the supply of new homes to be broadly the same as in recent years. Although sales of residential property have slowed, the construction industry’s position is strong, enabling it to face headwinds.
Operational risk to financial market infrastructure is an ongoing challenge. The Financial Stability Committee (FSN) stresses that financial market infrastructure must be secure, effective, efficient, and accessible. It is vital to continuously monitor systemically important financial market infrastructure and core infrastructure, and to have emergency plans in place to address operational shocks. Targeted work to bolster the resilience of payment intermediation must continue, including the establishment of an independent domestic retail payment intermediation solution and offline payment card solution.
In its quarterly review of the countercyclical capital buffer (CCyB), the FSN has decided to hold the buffer unchanged at 2.5%, in accordance with its policy on the application of the CCyB. As before, the Committee will apply the policy instruments at its disposal so as to preserve financial stability, thereby enabling the financial system to mediate credit and payments and redistribute risks appropriately.
No. 8/2025
4 June 2025