Failed Icelandic bank Glitnir to start repaying creditors

STOCKHOLM, Dec 17 (Reuters) - Failed Icelandic bank Glitnir said on Thursday it had got agreement from the central bank to begin paying out billions of dollars owed to creditors since it collapsed in 2008.

Iceland’s financial system crashed during the global financial crisis triggering the imposition capital controls to protect the country’s krona currency. These rules have prevented creditors of Iceland’s failed banks from recovering money generated from asset sales.

Paying out the money to creditors will ultimately enable Iceland to lift the capital controls which have stifled investment and prevented the country from rejoining the international financial community.

“There are two payments, a de minimis payment today and an initial one tomorrow,” Maria Agustdottir, who works for Glitnir’s resolution committee, said.

Glitnir had assets of around 981 billion Iceland krona ($7.5 billion) at the end of June. Claims against it totalled 2,260 billion krona.

The payment marks a watershed in a long running legal battle by creditors to recover some of billions of dollars they had lent to Iceland’s banks to finance a decade of expansion across Europe.

Before the crash, Iceland’s major banks’ assets were worth around 10 times as much as the country’s GDP.

The government has had to strike a balance between trying to get the country in shape to rejoin the international financial community and ensure that once capital controls are lifted money does not flow out of the country so fast that currency crashes and the economy suffers.

In October, Iceland’s central bank and finance ministry said they had agreed in principle to proposals from the three failed banks on winding down their businesses.

Fellow lenders Kaupthing and Landsbanki, which also collapsed, have also applied for exemptions from capital controls. ($1 = 130.5000 crowns) (Reporting by Simon Johnson. Editing by Jane Merriman)