Germany gives 260 million pound loan to Iceland on Kaupthing

BERLIN (Reuters) - Germany said on Saturday it would provide a 308-million euro (260 million pound) loan to Iceland's deposit guarantee fund so it could pay back savings of German clients of Kaupthing bank, which was taken over by the Icelandic state last month.

The International Monetary Fund this week approved a $2.1 billion (1.4 billion pound) loan for Iceland. The loan had been held up due to a dispute between Iceland, Britain and the Netherlands over how to repay savers with deposits in frozen Icelandic accounts.

German savers also had money locked up.

German Finance Minister Peer Steinbrueck told Tagesspiegel daily the German savers would get their money back in full.

The German loan would total 308 million euros, the amount savers in Germany had held at Kaupthing, a spokesman for the finance ministry said.

Iceland was caught in the global financial crisis as its currency plunged and its financial system crashed last month under the weight of tens of billions of dollars of foreign debts incurred by its banks, three of which failed.

Britain, the Netherlands and Germany issued a statement last week saying they would provide "pre-financing" to help Iceland meet foreign deposit obligations. The IMF, in a conference call on Thursday, estimated those obligations at $5-6 billion.

A British finance ministry source said the country would lend Iceland 2.2 billion pounds. The Netherlands said it was working on aid to help cover 1.2 billion to 1.3 billion euros of Dutch deposits held in Icelandic accounts.

Kaupthing said last week it hoped to pay back customers of German operations in the next few days or weeks.