The Central Bank of Iceland has published minutes of the Financial Stability Committee's 23-24 March meeting showing that the countercyclical capital buffer was left unchanged at 2.5% of domestic exposures, the upper end of the Committee's 2-2.5% neutral range. The Committee judged the financial system to be on a strong footing, but said geopolitical risk had increased, with the Persian Gulf war disrupting oil supply chains, lifting energy and commodity prices and bond yields, and potentially worsening inflation, interest rate and foreign funding conditions. Domestic vulnerabilities were seen mainly in housing and construction. Many newly built properties remain unsold, financing costs are high, and construction sector loans now account for nearly one-fifth of the systemically important banks' corporate loan books, although arrears are limited and the sector was still assessed as broadly resilient. Following the late-2025 easing of borrower-based measures, nearly a fifth of new loans to first-time buyers in early 2026 had loan-to-value ratios above the previous 85% ceiling, while use of the debt service-to-income exemption was broadly unchanged. The minutes also note that banks' capital and liquidity positions remain strong, that CRR III implementation reduced banks' risk exposure amounts and raised capital ratios by 1-2 percentage points, and that the Central Bank aims to conclude arrangements for offline card-based payments by the end of H1 2026 to strengthen financial infrastructure resilience.
Central Bank of Iceland 2026-04-29
Central Bank of Iceland Financial Stability Committee keeps countercyclical capital buffer at 2.5% and flags higher geopolitical and construction risks
The Central Bank of Iceland’s Financial Stability Committee kept the countercyclical capital buffer at 2.5% of domestic exposures, citing a strong financial system but heightened geopolitical risks from the Persian Gulf war and potential pressures on inflation, interest rates and foreign funding. It flagged housing and construction vulnerabilities, including high financing costs, rising construction loan shares and increased high loan-to-value lending to first-time buyers. Banks’ capital and liquidity were deemed strong, supported by CRR III, and the Bank plans to finalise offline card payment arrangements by end-H1 2026 to bolster financial infrastructure resilience.