Iceland Gets Ready for Post-Crisis Closure With Bank Sale Plans

(Bloomberg) -- Iceland has submitted plans to strengthen its financial industry and privatize two of the country’s leading lenders, 10 years after the disintegration of its banking sector.

According to a white paper published on Monday, the government should consider the partial or complete sale of Islandsbanki to an unspecified “foreign bank” and “the listing and sale of a part of the state’s share in Landsbankinn.”

The state currently owns all of Islandsbanki and 98.2 percent of Landsbankinn. Experts value those stakes at around 300 billion kronur ($2.4 billion), equivalent to 16.6 percent of the country’s gross domestic product.

Preparations for a public listing of both banks should start “as soon as possible” following the successful initial public offering in June of Arion Bank, another incarnation of the three lenders that collapsed during the 2008 global financial crisis.

However, the paper warns of “considerable uncertainty about the price development of banks in light of increased competition and technological developments.”

To facilitate the sale, the government should speed up plans to reduce a special tax on the banking sector, from the current level of 0.376 percent to 0.145 percent, according to a working group appointed by the Finance Ministry.

“The dream has always been to get a Scandinavian bank to own a majority stake in the Icelandic banks,” Asgeir Jonsson, an associate professor at the University of Iceland, said ahead of Monday’s release. However, this is currently not on the horizon, he said.

Monday’s white paper follows two major steps taken toward the final exit from a decade of emergency measures: The reduction by the central bank to 20 percent (from 40 percent) of a special reserve requirement for foreign investors interested in purchasing Icelandic bonds; and a bill submitted to parliament by Prime Minister Katrin Jakobsdottir’s coalition that would allow the remaining owners of offshore kronur still trapped in Iceland to close their positions in full by exchanging them for foreign currency in the onshore market.

Other notable proposals from the white paper include improved defense lines for investment banking activity and no reserve requirement for foreign long-term investors.

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