Countries of the World/COUNTRYS.BIN/dp/0165/01650.txt

Text File | 1991-06-25 | 37KB | 618 lines

$Unique_ID{COW01650}
$Pretitle{422}
$Title{Iceland
Banking and Credit}
$Subtitle{}
$Author{Maryanne B. Lyons and Maria H. Rauhala}
$Affiliation{U.S. Department of Commerce}
$Subject{iceland
percent
icelandic
bank
goods
investment
foreign
tax
united
commercial}
$Date{1990}
$Log{}
Country:     Iceland
Book:        Marketing in Iceland
Author:      Maryanne B. Lyons and Maria H. Rauhala
Affiliation: U.S. Department of Commerce
Date:        1990

Banking and Credit

     Banking System: Up to 1989, Iceland's banking system consisted of seven
commercial banks, a large number of savings banks, and some deposit
departments run by cooperatives. Three of the seven commercial banks were
wholly State-owned until 1988. These were The National Bank (Landsbanki
Islands), the Agricultural Bank (Bunadarbanki Islands), and the Fisheries Bank
(Utvegsbanki Islands). After the bankruptcy of one of its major creditors, the
Fisheries Bank ran into difficulties and was made into a private shareholder's
bank in May 1988, with its majority holdings temporarily assumed by the
National Bank.

     On January 1, 1990, the Fisheries Bank, the Industrial Bank, the
Commercial Bank, and the Peoples Bank merged to from the Bank of Island
(Islandsbanki). It is second in size only to the National Bank, which has
acquired a majority share of the Cooperative Bank. The three commercial banks
in Iceland are now the National Bank, with 49 percent of the country's banking
business, the Bank of Island, with 29 percent, and the Agricultural Bank with
22 percent. There are also a small number of Savings banks, whose combined
size is small than the Agricultural Bank.

     A new law on banking was enacted in 1986. Its major provisions, which
expanded the range of banking services and made the Icelandic system more
compatible with developments in the international financial market are as
follows:

     Deregulation of interest rates, allowing banks to set their own rates
for deposits and loans.

     Minimum capital-ratio requirement of 5 percent

     Maximum fixed-asset ratio of 65 percent of capital and reserves.

     Right to establish new branches without official approval.

     Right to own shares in other financial companies.

     Permission for foreign banks to set up representative offices in
Iceland.

     Notes are issued by Iceland's Central Bank, which has all the traditional
central banking functions. The principal monetary authority in the country, it
also serves as the bank of the Treasury and other banks. The Central Bank was
established in 1961. Before that its functions were handled by the National
Bank, currently the largest commercial bank in Iceland. The Board of Directors
is elected by the Althing for a term of 4 years. The Governors of the Bank are
appointed by the Minister of Commerce and Banking.

     Sources of Financing: Public investment funds play an important role in
supplying long-term financing for the Icelandic economy, and are the most
important source of financing of private fixed investment. The three main
funds are the Fisheries Loan Fund, the Agricultural Loan Fund, and the
Industrial Loan Fund. Their capital is mainly from government grants,
earmarked taxes, the unemployment fund, compulsory savings by young people, a
proportion of incremental bank deposits, and domestic borrowing. Other
important funds are the Development Fund of Iceland, which channels long-term
financing to the various investment credit funds and to major public
investment projects, and the Export Loan Fund and Export Credit Guarantee
Fund, which help to finance exports. The Icelandic Investment Corporation was
founded under joint, private, and government sponsorship. Its functions
include equity participation in businesses (including joint ventures with
foreign partners), as well as financial support for innovative Icelandic
firms.

     Other Financial Institutions: Iceland also has an insurance system that
includes private insurance companies, private pension funds, and a
comprehensive system of social insurance. The pension funds and social
insurance system are operated privately by labor unions, but come under the
financial regime of the Government.

     The major Icelandic banking and financial institutions, including public
agencies as well as private commercial and savings banks, are listed under
Financial Institutions in the Addresses Section.

     Currency and Foreign Exchange: The Icelandic currency is the krona. On
January 1, 1981, the currency unit of Iceland was changed. One new krona
equals 100 old kroner, and one new eyrir equals one one-hundredth of a new
krona or 1 old krona. At the time this change was implemented, the new krona
was roughly equivalent to 16 U.S. cents. The krona is now worth about 1.6 U.S.
cents; $1 is equivalent to approximately 60 kroner.

     The Central Bank determines the exchange rate of the krona, subject to
government approval, and quotes buying and selling rates of foreign exchange.
For goods dutiable on value, foreign exchange is converted into Icelandic
currency. The krona was devalued 3 times in 1988, resulting in a 21.85 percent
rise in the trade weighted average exchange rate of foreign currencies.

Trade Regulations

     Trade Policy: Iceland is heavily dependent on foreign trade and
maintains an open policy aimed at the long-term liberalization and
expansion of international commerce. Iceland's effort to reduce tariff
barriers and trade restrictions took on added momentum at the time of its
accession to the GATT in 1968. Import liberalization since then has reached
over 90 percent of total imports. Licenses now are required for relatively few
commodities and about 90 percent of imports enter duty free.

     Iceland actively supports organizations working for free trade, as seen
by its membership in GATT, the Organization for Economic Cooperation and
Development (OECD), the International Monetary Fund (IMF), the International
Bank for Reconstruction and Development (IBRD), and the European Free Trade
Association (EFTA). Iceland participated in the Tokyo Round of Multilateral
Trade Negotiations held under the GATT in the 1970s, but only joined the
industrial tariff agreement. It was implemented without any staging on
January 1, 1980.

     Tariff Structure: Iceland adopted the Customs Cooperation Council
Nomenclature (CCCN) in 1963, simplifying its own tariff structure, and
eliminating certain very high duties. In January 1988 Iceland's tariff system
was entirely reformed, lowering or abolishing many duties. The present tariff
schedule has two columns. The first lists the general duty rates. The second
lists preferential rates applied to imports from other EFTA countries and
from EC countries. Where no figure appears in the second column, the rate in
the first applies to all countries.

     Current duty rates range from 0 to 30 percent ad valorem. Products with
high rates of 30 percent include telecommunications equipment, military
equipment, motor vehicles, electrical equipment, automatic goods vending
machines, potatoes and vegetables, plants, and miscellaneous consumer goods.
Some goods which now have no duties are meat products, fish, cereal, fruits,
nuts, dairy products, coffee, tea, ores, minerals, chemical and pharmaceutical
products, plastics, rubber, wood, paper, books, glass, iron and steel, tools,
nuclear reactors, electrical machinery and aircraft. For further information
on specific tariff rates contact the Department of Commerce Iceland Desk
Officer at the number listed in the Commercial Information Sources Section.

     Licensing: Most goods may be imported without license. The Ministry of
Commerce, after consulting the Central Bank, makes the ultimate decision on
matters concerning import licensing for goods on the restricted list. Import
licenses are issued by Iceland's two largest privately owned banks, the
National Bank of Iceland and the Fisheries Bank, and are valid for 3-16
months.

     Import Restrictions: Restricted commodities are: