Statement from Íslandsbanki

14.06.2011

In a ruling passed on 9 June 2011, the Supreme Court of Iceland found that a foreign currency loan taken out by a company named Mótormax ehf. at Landsbanki Íslands was in fact an ISK denominated loan that was illegally linked to the value of foreign currrencies. The contract form on which the ruling is based differs in material aspects from most contract forms used by Íslandsbanki and its predecessors. Íslandsbanki will however perform a thorough evaluation of its loan portfolio with the aim of assessing the possible impact of the aforementioned ruling.

Íslandsbanki would like to reiterate that all new agreements used to document new terms on foreign currency loans include a provision that promises customers full benefit from any subsequent court rulings that might result in more favourable terms than current agreements dictate.

Courts at the district level in Iceland have confirmed the legality of three of Íslandsbanki 's contract forms for foreign currency loans, one of which has been appealed to the Supreme Court. We anticipate that a ruling in that case will be handed down later this year. On the other hand a district court has ruled that the Bank's financing leases are in fact foreign currency linked loans and shall be treated as such.

Íslandsbanki has previously performed a thorough evaluation of the possible impact, of loans to legal entities being ruled illegal on the bank's earnings and equity base. The conclusion is that Íslandsbanki is a strongly capitalised bank, well positioned to deal with such a scenario. The bank's total capital ratio at the end of the first quarter 2011 was 27.4% compared to the 16% minimum requirement of the Icelandic Financial Supervisory Authority.

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