Admittedly, a lot of what was said in the much-quoted reports by international analysts is misrepresented, and some of it based on misunderstandings, wrong information and, occasionally, obvious antipathy towards the Icelandic  2  BIS Review 28/2006  banks and their activities. This is all regrettable and, in some cases, deserves to be condemned. But these cases are not the essence of the matter. The essential point is that the banking sector as a whole, or individual banks, are not in a position to refute this kind of coverage for once and for all. Another serious matter is that, at a certain time, these institutions are vulnerable to changes in supply or risk assessment in international banking and bond markets. For its part, the Central Bank reiterates at this meeting that the underlying financial position of the Icelandic banking sector is very solid, fulfils the most stringent requirements and has easily passed all the stress tests conducted on it. This of course is the crucial issue. However, the scenario that we have witnessed since November must be taken very seriously. The Icelandic banking sector must address the shortcomings that international analysts repeatedly stumble over, regardless of whether these are exaggerated and overestimated. Lending growth must be reined in as promised. Certain financial institutions need to improve their communications to a significant degree, and a joint effort by them all could be worth considering. Hype and empty phrases must be avoided.
Davíð Oddsson: Review of the Icelandic economy Address by Mr Davíð Oddsson, Chairman of the Board of Governors of the Central Bank of Iceland, at the Bank’s annual meeting, Reykjavik, 31 March 2006. *  *  *  Chairman of the Supervisory Board, Prime Minister, Cabinet Ministers, Ladies and Gentlemen: On behalf of the Board of Governors of the Central Bank of Iceland I welcome you all to the 45th annual meeting since the Central Bank was established on April 7, 1961. The Bank’s financial statements for the year 2005 have been ratified today by the Prime Minister. The Bank’s annual report has also been published. It includes a report on the Bank’s performance and a summary of how it has implemented its mandatory role. The Chairman of the Supervisory Board devoted part of his address to Birgir Ísleifur Gunnarsson, the former Chairman of the Board of Governors. The present Governors endorse his words wholeheartedly. In this context I would like to draw attention to two points that the former Chairman of the Board of Governors mentioned at the last annual meeting. One concerned the Bank’s forecast for inflation and the current account deficit. At that time the Bank forecast that the current account deficit would be equivalent to 12% of GDP in 2005 and inflation would be 2½% by today. Now it is clear that developments have been less favourable than was forecast and hoped. The current account deficit ended up at 16.6% of GDP and inflation is currently 4.5%.