Iceland in new deal to repay UK and Netherlands for failed banks

The government of Iceland has entered into new agreements with the governments of the UK and the Netherlands on the repayment of around $6 billion that depositors of the failed internet bank had lost last year. The two governments had rejected terms of an earlier repayment plan.

Under the new deal, the UK will lend Iceland $3.84 billion and the Netherlands $1.79 billion. The loan will be charged interest only for the first seven years and the repayments will be tied to Iceland's economic growth.

Iceland was forced to come to a settlement with the UK, the Netherlands and Germany in order to draw the $2.1 billion pledged by the International Monetary Fund (IMF) and a further $4 billion loan from a group of European countries, which was passed in November last year. (See: Iceland to get $6 billion from IMF, Europe)

The IMF loans were subject to Iceland settling the repayment of money lost by the UK and the Netherlands depositors in Icelandic banks.

Iceland then negotiated with Britain and the Netherlands to compensate British and Dutch depositors in its banks, which ultimately helped it to get approval of a $2 billion loan from the IMF. (See: IMF approves $2-billion loan for Iceland)

During the height of the banking crisis in October last year, Icelandic bank Landsbanki had collapsed and its customers of its UK subsidiary, IceSave, were left in the lurch as they could not withdraw any money from their accounts.