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Page last updated at 23:28 GMT, Monday, 6 October 2008 00:28 UK

Icelandic banks reassure savers

By Paul Lewis
BBC Radio 4's Money Box

Mark Sismey-Durrant, chief executive of Icesave in the UK (credit: Icesave)
Mark Sismey-Durrant said customers should not be nervous

Savers in the UK who have put their money into Icelandic banks have been told their deposits are safe.

That message was given today by the Icelandic government and the two Icelandic banks that operate in the UK.

Hundreds of thousands of UK savers have put their money into Icelandic banks which pay high interest rates.

But concerns about their safety rose after a week of reports that the Icelandic economy itself was in difficulties.

Bank's response

Mark Sismey-Durrant, chief executive of Icesave in the UK told Radio 4's Money Box programme,

"They shouldn't be nervous about the state of the bank.

"We have a strong capital base and 63% of our balance sheet is funded by deposits.

"We maintain strong liquidity levels."

Asked specifically if customers could be sure their money was safe and they could get it out when they wanted he replied, "Yes. They can be."

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At the end of September the Icelandic government rescued the country's third biggest bank, Glitnir, buying three quarters of it for 478m.

And some questioned whether the government could afford to bail out either of its two biggest banks, Kaupthing and Landsbanki - which trades as Icesave in the UK - if they got into difficulties.

Both banks are far bigger than Iceland's economy.

Icelandic government stance

But Tryggvi Herbertsson, economic adviser to the Icelandic prime minister, said the government could and would step in.

"Definitely we would come to the rescue of a bank - definitely.

"The banking system in Iceland is very large compared to the economy, but still we think we can maintain the problem because the balance sheet of the bank is very good."

"They have not been involved in sub-prime or buying housing debts from abroad and we are pretty confident that the balance sheet is healthy and the banks can operate healthily in the future."

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Despite such reassurances Icesave confirmed that many of its 300,000 customers had been reducing their accounts so they were below the limit that is protected by the financial services compensation scheme.

At the same time, a spokeswoman added, every week thousands of customers are moving money to Icesave to keep their balances down in other banks.

Compensation limit

The limit is 50,000 - up from 35,000 before 7 October 2008.

The first 20,000 euros of that comes from the Icelandic compensation scheme, with the balance coming from the scheme in the UK.

Tryggvi Herbertsson said, despite its economic problems, the Icelandic government would honour that commitment if a bank did get into trouble.

"We are not in that kind of difficulty.

"We are part of the European directive on deposit insurance and we are bound by international law."

The other Icelandic bank which operates savings accounts in the UK, Kaupthing Edge, is separately registered here and so savers will be protected through the UK scheme up to the 50,000 limit.

A spokesman for the bank told the BBC:

"We are in a strong financial position and our liquidity is good.

"Kaupthing Edge savers should be reassured that their deposits are covered by the UK's Financial Services Compensation Scheme."


BBC Radio 4's Money Box was broadcast on Saturday,
4 October 2008 at 1204 BST.



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SEE ALSO
External internet links
04 Oct 08 |  Moneybox
Iceland's financial freeze
03 Oct 08 |  Business
Iceland nationalises Glitnir bank
29 Sep 08 |  Business
Eurozone services signal slowdown
03 Oct 08 |  Business

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