REYKJAVIK (AFP) - Iceland's government and the second-biggest bank Landsbanki have reached agreement on the bank's refinancing after it was nationalised in the financial crisis in 2008.

After the refinancing, the new Landsbanki, also referred to as NBI, is now Iceland's largest bank.

NBI will be 81-percent owned by the Icelandic state and the resolution committee of the old Landsbanki bank will retain 19 percent of shares in the new bank, the finance ministry and the Landsbanki resolution committee said in a statement.

The main creditors of the old Landsbanki are British, Dutch and Icelandic deposit insurance funds.

The Icelandic state will refinance the bank with 122 billion Icelandic kronur (664 million euros, 965 million dollars).

NBI will issue a bond worth 260 billion kronur, with a 10-year maturity, to the old bank. The new bank will also issue shares to the old bank worth 28 billion kronur, equivalent to about 19 percent of the total shares of the new Landsbanki.

The total assets of the new bank are estimated at 944 billion kronur, out of which loans to customers are worth 608 billion kronur, liquidity is 39 billion, shares are worth 30 billion and bonds are worth 24 billion.

The remaining 122 billion is the contribution of the state.

Iceland's once-booming financial sector ground to a halt in October 2008 when the country's major banks collapsed after borrowing beyond their means to fund aggressive investments abroad.

Thousands of Icelanders saw their savings wiped out, unemployment soared and the Icelandic krona plunged in value.

Iceland's two other biggest banks that were nationalised during the crisis have already been re-privatised.

What was previously the country's biggest bank, Kaupthing, was earlier this month re-named Arion Bank, with new shareholders including foreign banks and investment funds.

Islandsbanki, formerly Glitnir, in October became the first of the banks to go into private ownership after Glitnir creditors agreed to acquire 95 percent of the bank's share capital and the Icelandic state retained five percent.

The country's spectacular collapse prompted the country to take out a 2.1-billion-dollar (1.6-million-euro) loan from the International Monetary Fund.