Credit Risk of Icelandic Municipalities

In this article the results of an extensive research on the credit risk of Icelandic municipalities are presented. The methodology named after Altman was applied and the credit risk of Icelandic municipalities was assessed according to his model. In addition the relationship between financial health and the size of municipalities was examined. Finally a small study was conducted where the financial health of municipalities around the capital area was different from other. The results are that this methodology is useful when evaluating the credit risk of Icelandic municipalities. The findings indicate that Icelandic municipalities have been able to continue functioning financially even though being very weak financially. Smaller municipalities were on average much financially stronger than the larger ones. But there was not a statistical significant difference in the financial strength of municipalities around the capital to other municipalities around the country.

JEL classification: G01, G31, G33, G38.