Iceland’s Creditor Risk Grows as Banks Face Losses

Bloomberg Businessweek reports:

Icelandic banks may face a second crisis as a court ruling banning some foreign currency loans saddles lenders, mostly owned by international creditors, with losses on $28 billion of debt.

The Supreme Court ruled June 16 that loans indexed to foreign-currency rates were illegal in three cases involving private car loans and a corporate property loan. The decisions may mean that borrowers with such loans are only obliged to repay the principal in kronur, making the lenders liable for currency losses after a third of the krona’s value against the Japanese yen and Swiss franc was erased since September 2008.