The agreement calls for the Netherlands to receive a total of $1.7bn with an interest rate of three per cent [EPA]

Iceland is to repay the Netherlands and Britain the full amount that they advanced to their citizens who lost money following the collapse of Icesave, the Icelandic bank, the Dutch finance ministry has announced.

The Netherlands and Britain covered more than $5bn in losses incurred by account holders after Landsbanki, Icesave's parent company, went into receivership in October 2008.

The Dutch ministry said the repayments would begin in July 2016 and that the repayment period would not extend beyond January 1, 2046.

"There will be a full reimbursement of all the amounts pre-financed by the Netherlands and Britain ... to compensate national depositors in Icesave," Jan Cees de Jager, the Dutch finance minister, said in a letter to the lower house of  parliament.

'Saga not over'

However, De Jager cautioned that "the Icesave saga is still not over," with the deal still needing approval by parliament, the president and the government of Iceland.

"We see this as an intermediate step," said Nils Redecker, a finance ministry spokesman.

De Jager described the accord as "an important step in the process [as] ...  all the Icelandic negotiators initialled the agreement".

The agreement, worked out among the three countries in talks in London, calls for the Netherlands to receive a total of $1.7bn with an interest rate of three per cent.

De Jager did not specify the amount to be paid to the UK but said the interest rate would be 3.3 per cent.

In London, a treasury spokeswoman said that Britain "welcomes this new proposal from Iceland on IceSave and looks forward to successfully resolving the issue by signing a new loan agreement with Iceland".

"Mutually satisfactory closure of this issue will mark a new chapter in UK-Iceland relations," she said.

Earlier this year, Britain and the Netherlands had held intense discussions with Iceland ahead of a March 6 Icelandic referendum on the matter.

However, after more than 93 per cent of Icelandic voters rejected the deal to repay the money by 2024, at what was widely considered a high interest rate of 5.5 per cent, the talks stalled.

The dispute is considered a major sticking point as Iceland begins negotiations to join the European Union.

Source: Agencies