The gradual liberalization of capital controls in Iceland is progressing in a measured manner, which in our view implies reduced risks for the country's banking sector. Furthermore, economic development in Iceland appears strong and private-sector leverage continues to decrease, thereby lowering risks related to domestic credit. Concurrently, the banks' access to external wholesale funding has improved, as reflected by large Eurobond issuances this year. As a result, we are raising our ratings on Arion Bank, Islandsbanki, and Landsbankinn to 'BBB/A-2' from 'BBB-/A-3', while revising our outlook on HFF to positive from stable and affirming the 'BB/B' ratings. The positive outlooks on all four entities indicate that we could raise the ratings if the economic and industry environment for Icelandic banks
