SHARES IN Irish Life Permanent (ILP) dropped 12.6 per cent after the company said it had some exposure to debt issued by the failed Icelandic banks.

The bank and life assurance group, the country's largest mortgage lender, holds some bonds sold by the Icelandic banks.

Iceland took control of its three main banks - Kaupthing, Landsbanki and Glitnir - this month as the country was badly hit by the global credit freeze and dramatic falls in the value of its currency.

"In common with many other banks here, we do have some exposure to senior debt issued by the Icelandic banks which are being taken into state ownership," said ILP in a statement. "There is still uncertainty as to how that situation will resolve itself and the level of impairment that will result."

The company said it regarded the debt owing by the Icelandic banks as "very manageable from our perspective, regardless of what scenario unfolds".

The company said it has "a strong and flexible capital position" and has no exposure to commercial property loans or development loans.

The company will provide a market update on the exposure when it releases a trading statement in the middle of next month.

It's yet not clear how much of the debt owing by the Icelandic banks will be repaid. A source said the company had "some small exposures" to the Icelandic banks.

ILP's share price closed at €3.10. The company has fallen 74 per cent this year and has a market value of €858 million, down from €3.2 billion at the start of the year.

The head of Iceland's influential trades union body called for the Nordic nation to apply for EU membership, while the government held talks on possible aid from Norway and is still in negotiations regarding financial assistance from the International Monetary Fund to rescue its economy.

The US also sent a delegation to Reykjavik for financial talks.