FX-denominated mortgage loans - guidelines from the FME and the Central Bank of Iceland

The Financial Supervisory Authority and the Central Bank of Iceland have issued a set of guidelines for financial companies on how to calculate interest on loans containing non-binding clauses linking loans to the exchange rate, cf. Supreme Court judgment of 16 June 2010. The aim of these guidelines is to reduce uncertainty and bridge the gap until the courts make a final decision on this issue.

According to the guidelines credit institutions must assess which loan agreements contain non-binding clauses linking loans to the exchange rate and which do not. Arion Bank is examining its foreign currency denominated loan agreements in response to these guidelines and it is expected to conclude its assessment next week.

In light of these events, Arion Bank has decided to extend the solutions to individuals relating to its FX-denominated mortgage loans by two months, or until 1 September 2010. The bank wishes to stress that the rights of borrowers are safeguarded at all times. The bank also wishes to point out that it will not be holding any forced property sales this year.