Defaults by borrowers of depository institutions at end of 1st quarter 2007

30.5.2007

The FME has processed figures showing defaults by borrowers of depository institutions at the end of the 1st 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.

The figures show that the ratio of aggregate defaults to loans (default ratio), has increased by slightly less than 0.3% from just over 0.5% at the end of the 4th quarter 2006 to 0.8% at the end of the 1st quarter 2007. The ratio was 0.6% at the end of 1st quarter 2006. 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 1.0% and slightly less than 1.8% of loans, compared to 0.8% and 1.3% at the end of the 4th quarter 2006 showing an increase during the 1st quarter of the year 2007. Accordingly the defaults to loans are beginning to increase after a steadily decrease from the second half of the year 2002. The increase in default ratio is mainly related to increase in default ratio for industries cf. the next two paragraph. 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 increased by just over 0.3% from slightly less than 0.5% at the end of the 4th quarter 2006 to 0.8% at the end of the 1st quarter 2007. The ratio was 0.5% at the end of the 1st quarter 2006. Default ratio for industries using one-year lag has increased by 0.3% from 0.7% at the end of the 4th quarter 2006 to 1.0% at the end of the 1st quarter 2007. Default ratio for industries using two-year lag has increased by slightly less than 0.7% from just over 1.1% at the end of the 4th quarter 2006 to 1.8% at the end of the 1st quarter 2007. The default ratios for industries are higher than comparable figures during preceding two years but still considerably lower than default rations during the period 2001 to 2004.

The default ratio for households has increased slightly from 0.8% at the end of the 4th quarter 2006 to just over 0,8% at the end of the 1st quarter 2007. The ratio was 1.0% at the end of 1st quarter 2006. Default ratios for households using one-year and two-year lags are 1.0% and 1.6%, compared to 1.1% and 1.8% at the end of the 4th quarter 2006. The default ratios for households are lower than comparable figures for the period from 2001 to 2007.

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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