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Islandsbanki hf. : EFTA court - advisory opinion

Today the EFTA court published an advisory opinion on how the indexation of consumer loans, granted under the terms of the now expired act on consumer loans, was practiced in Iceland. The EFTA court found that it is not compliant with EU's Directive on Consumer Credit to calculate the total cost of the credit and the annual percentage rate of charge on the basis of 0% inflation if the known rate of inflation at the time of the credit agreement is different. The court does not give instructions on the consequences, but states that it is for the national courts to decide. The advisory opinion will be used in a court case that is being tried before the Reykjavik District court. At this point in time Íslandsbanki cannot predict if the advisory opinion will affect the outcome of the court case or the impact of the ultimate judgment in that case.

Should the ultimate judgments of Icelandic courts impact the enforceability of CPI-linked consumer loans Íslandsbanki may be affected. The bank has evaluated the potential impact and finds that the bank, will in any event meet the regulator's capital target for the bank. Íslandsbanki's capital base is strong, with equity in excess of ISK 200 billion, and the bank's equity ratio is now 29.4%, well above the regulator's capital target.

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