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FME: Defaults to depository institutions at the end of the 2nd quarter 2006

11.9.2007

The FME has processed figures showing defaults by borrowers of depository institutions at the end of the 2nd quarter of fiscal year 2007 and comparable figures for the preceding quarters. In this analysis, default is defined as having amortisation and interest payments in arrears for more than one month. The default figures are total figures, i.e. stock of specific provisions has not been subtracted. This analysis presents the development of these default rates from year-end 2000. The data compiled does not include the subsidiaries of the banks. Attention is drawn to the fact that figures shown on defaults at the end of the 1st quarter of fiscal year 2007 were incorrect, displaying higher amounts in defaults for industries and aggregate defaults to loans than the correct figures.

The figures show that the ratio of aggregate defaults to loans (default ratio), has decreased by 0.1% from 0.7% at the end of the 1st quarter 2007 to slightly less than 0.6% at the end of the 2nd quarter 2007. The ratio was 0.5% at the end of the 4th quarter 2006. During the period starting at the end of the fiscal year 2005 to the end of the 2nd quarter 2007 the default ratios have been in the range of 0.5-0.7%, which are the lowest ratios during the 6 years covered by the data. Furthermore, the table presents adjusted default ratios with both one-year and two-year lags, indicating the effects large increases in loans have on these ratios in the succeeding years. Defaults, using these time-lagged measurements, are 0.6% and 1.1% of loans, compared to 0.8% and 1.3% at the end of the 4th quarter 2006. The defaults ratios measured by one-year and two-year lags are historically low. Please note that recent increases in loans may result in increased defaults later. Furthermore attention is drawn to the fact that the depositary institutions' participation in the Icelandic housing market, beginning during the second half of the year 2004, may have influenced the development of defaults shown in the figures.
 
The default ratio for industries has decreased by 0.1% from 0.6% at the end of the 1st quarter 2006 to 0.5% at the end of the 2nd quarter 2007. The ratio was 0.5% at the end of the 4th quarter 2006. During the period starting at the end of the fiscal year 2005 to the end of the 2nd quarter 2007 the default ratios for industries have been in the range of 0.5-0.6%, which are the lowest ratios during the 6 years covered by the data. Default ratio for industries using one-year and two-year lags are 0.6% and 1.0% at the end of the 2nd quarter 2007, showing the lowest figures during the period covered by the data.

The default ratio for households is 0.8% at the end of the 2nd quarter 2007 which is the same ratio as at the end of the two preceding quarters.  This default ratio is the lowest shown during the 6 years covered by the data. Default ratios for households using one-year and two-year lags are 0.9% and 1.4%% at the end of the 2nd quarter 2007, showing the lowest figures during the period covered by the data.

Please note that the total figures at the end of the 4th quarter of each fiscal year have been deducted by loans that have conclusively been written off which influences the comparison with the preceding quarters.

The figures can be downloaded here.

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