It is also important to appreciate that there is no systemic problem across the O&G industry. •  The problems in the O&G industry are concentrated in the upstream marine and offshore engineering segment which makes up less than one-fifth of the industry. •  About 60% of the surveyed banks’ O&G exposures are to the more resilient downstream, oil trading, and integrated firms, which are less impacted by the decline in oil prices. •  Firms focusing on oil refining have also fared better on account of regional demand for refined petroleum products and lower feedstock prices. The most recent stress tests conducted by the MAS indicates that the banking system would not do too badly even under some pretty severe scenarios. The stress scenario assumed: •  the US, EU, Japan and several emerging Asian economies slipping into recession and China’s economic growth falling below 3%;  •  sharp depreciation in regional currencies and oil and commodity prices falling by another 50% over 3 years;  •  a protracted recession in Singapore with resident unemployment spiking to more than 6%;  BIS central bankers’ speeches  3  •  property prices falling by another 50% over 3 years, with similar declines in China and Hong Kong; and  •  the banks’ top O&G counterparties failing. Under these rather dire conditions, the banks’ NPL ratios could rise to 8–10% by the end of 2018. That should not be surprising.
The second was the economic programme developed by the Icelandic authorities in co-operation with the IMF. The programme had three key goals: stabilisation of the exchange rate, fiscal sustainability, and reconstruction of the financial sector. Comprehensive capital controls were an important element in the programme, but their rationale was to help to stabilise the exchange rate in a situation where the currency had fallen more than 50% in 2008, where foreign króna positions that were a legacy of carry trade and capital inflows amounted to around 40% of GDP, and where a large fiscal deficit that had to be financed in the domestic market had developed. The capital controls therefore gave monetary policy more scope to help stabilise and turn around the real economy once inflation came down. Subsequently, they shielded the eocnomy from the financial spillover effects of the crisis in the eurozone. 2  BIS central bankers’ speeches  But the problem is that they are still in place, over five years after the climax of Iceland´s financial crisis. The reason is that Iceland is still facing a balance of payments crisis that is a legacy of former capital inflows and the unwinding of these big cross-border banks.