April 4, 2019 / 11:25 AM / 16 days ago

WOW Air collapse will dent Iceland's growth and cause losses for banks: central bank

FILE PHOTO: People wait as WOW air flight gets delayed and cancelled at Toronto Pearson International Airport, in Toronto, Ontario, Canada March 27, 2019 in this picture obtained from social media on March 27, 2019. ANN CAMPBELL/via REUTERS

COPENHAGEN (Reuters) - The collapse of budget airline WOW Air last month will dent Iceland’s economic growth this year and cause some losses in the banking system, the country’s central bank said in a Financial Stability report on Thursday.

WOW Air, which had 1,000 employees, halted operations and canceled all future flights on March 28 after efforts to raise more funds had failed.

It was the latest budget airline to collapse as the European airline sector grapples with over-capacity and high fuel costs. Recent failures include Britain’s Flybmi, Nordic budget airline Primera Air and Cypriot counterpart Cobalt.

Iceland’s central bank said that although WOW Air’s collapse would cause some losses in the banking system the direct impact on the country’s systemically important banks would be limited.

“The shocks that have struck recently are highly unlikely under current conditions to jeopardize the stability of the financial system,” it said.

It said that the collapse of the budget airline and a failure of the vital capelin fish catch had made it clear that economic growth would be weaker than the 1.8 percent it had forecasted in February. It did not provide a new forecast.

Credit rating agency Moody’s said in a statement on Wednesday that Wow Air’s collapse posed downside risks for Iceland’s 2019 economic growth, and is credit negative for the country.

Reporting by Teis Jensen; Editing by Kirsten Donovan and Emelia Sithole-Matarise

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