S&P warns on Iceland rating

REYKJAVIK: Iceland's credit risk may rise "considerably" as the island faces the threat of a shelved emergency bailout, Standard & Poor's said.

"The risk is there that the program will fall apart and with that, the downside risks would increase very considerably," said Moritz Kraemer, S&P's managing director for Europe, the Middle East and Africa. If the outlook for the bailout program doesn't improve, "it's quite possible" the government will collapse.

President Olafur R Grimsson's Jan 5 decision to block a UK and Dutch depositor accord called into question the continued disbursement of a $4.6 billion loan from the International Monetary Fund and the Nordic countries that Iceland needs to avert default. Fitch Ratings cut the island's credit grade to junk the same day and S&P said it may lower its BBB- rating to non-investment grade within a month if the rejection halts bailout flows.