Íslandsbanki is preparing to issue up to ISK5bn (Eu31m) of covered bonds this year after having been granted a licence to issue covered bonds under Icelandic legislation.

The bank announced today (Friday) that it has obtained the necessary licence from the Icelandic Financial Surveillance Authority.

“This is a part of the funding strategy of Íslandsbanki, which is intended to broaden the funding sources of the bank,” it said. “Today, deposits count for up to 75% of Íslandsbanki’s funding, but in the future goal is to lower that ratio and make the bank less dependent on deposits as a funding source.”

Íslandsbanki said that the bonds will primarily be offered to investors in Iceland and that it will thus be the first issuer of new bonds on the Nasdaq OMX Iceland Stock Exchange.

“The covered bonds are issued pursuant to Icelandic law on Covered Bonds nr. 11 from 2008, which imposes strict requirements on any issuer,” said Íslandsbanki. “For example, the collateral is required to pass a weekly stress test in regards to interest rates and currency rate fluctuations.

“The Icelandic FSA will carefully monitor covered bond issuance,” it added.