Iceland talks on failed banks' assets face delay

STOCKHOLM May 12 (Reuters) - Iceland said on Tuesday negotiations with creditors on the division of assets of its failed banks had been held up due to problems valuing the assets of the new banks set up after the country's financial meltdown.

Informal talks on the valuation of the assets and liabilities of the failed banks have begun, but a final deal with creditors could now very likely be delayed by a few weeks, Indridi Thorlaksson, Permanent Secretary at the Ministry of Finance, told Reuters.

Financial authorities had previously expected an agreement could be reached by May 18.

"I would expect that something in early June would be the likely date," Thorlaksson said. "The boat has been heavier than expected."

Restructuring and rebuilding the bank sector and repaying creditors as well as stabilising its currency, the Icelandic crown, are key parts of the $10 billion rescue programme agreed with the International Monetary Fund and Iceland's European neighbours last year.

The main commercial banks -- Kaupthing, Landsbanki and Glitnir -- all failed last year, buckling under the weight of massive debts and leaving creditors owed billions of dollars.

The government ringfenced the domestic operations in order to keep a functioning financial system on the island, naming its new banks New Kaupthing Bank, NBI and Islandsbanki.

Iceland's Financial Supervisory Authority had said the "old banks" and creditors would be compensated with payments made in the form of a bond issued by the new banks based on a net asset value set by Deloitte & Touche.

The biggest issue now is the risk that remains on the balance sheets of these so-called new banks. The government may have to provide equity to remove that risk, so that creditors are sure those bonds will be repaid.

Factors such as economic uncertainties and a possible restructuring of loans make it "unrealistic" to assume an agreement with creditors on a single price on assets could be reached, the finance ministry said.

Further financial information on the new banks, such as business plans, is also needed, it said. (Reporting by Mia Shanley, editing by Stephen Nisbet)