Central Bank of Iceland minutes detail 2.5% buffer decision and rising construction risks

The Central Bank of Iceland has published minutes of its Financial Stability Committee’s Sept. 21-22, 2026, meeting, providing the assessment behind the previously announced decision to retain the countercyclical capital buffer at 2.5% of domestic exposures. The unanimous decision kept the buffer at the upper end of its 2%-2.5% neutral range, applicable when financial system risk is neither unusually high nor unusually low. Overall risks were broadly unchanged from the previous meeting, but construction sector vulnerabilities remained a concern alongside geopolitical uncertainty, higher international interest rates and growing cyberthreats. The minutes reinforce earlier warnings that unsold properties, longer selling times and high financing costs are increasing construction sector systemic risk. Construction companies’ debt to credit institutions rose 17% in real terms over the year to August, adjusted for company reclassifications. Accrued interest and slower loan repayments contributed to that growth. Arrears had increased among a limited group of firms rather than across the sector, and lenders were urged to watch for accumulating property and construction risks. Banks’ capital ratios were 2-5 percentage points above their individual overall requirements, and liquid assets covered maturities through the end of 2027. Household arrears remained low, with few signs of widespread financial distress among households or businesses. The committee also reviewed a draft financial stability and macroprudential policy strategy, with final approval expected at its December meeting. Decisions on the systemic importance of financial institutions and associated capital buffers are also scheduled for December.