Around £500,000 of a £6 million investment feared lost in the collapse of the Icelandic banking system is to be returned to Wyre Forest District Council.

The authority is expecting the cash to be returned before Christmas after administrators for two banks floated assets on the market. More than £1.3m has already been returned this year.

The cash has been returned from investments made in two banks – the Heritable and Kaupthing, Singer and Friedlander (KSF).

Council chiefs had invested £5 million in the KSF and £1 million in the Heritable.

An interim payment of £1,031,275 was made earlier this year from the KSF by administrators Ernst Young. No money has yet been received back from the £3m invested in the third bank, Landsbanki.

But officials from the council say they remain hopeful of recovering between 80 and 90 per cent of the £9 million investment with more cash expected to be returned next year.

But they said the main interest was in recouping as much as possible rather than the speed in which it was returned.

District council leader John Campion said: “We are pleased this £500,000 is being returned,” he said. “We are currently projecting getting around £7 or £8m of the money invested returned – which is around 80 or 90 per cent.

“In cases such as these many councils never get a single figure percentage returned so this is very heartening.

“More is expected over the next year but we are more concerned with protecting and getting back as much of the money as we can.We have been told the £500,000 will be received by the council before Christmas.”

Councillor Campion said it was still very early in the process. “The impact has lessened because of the money already returned but obviously we will be working to get as much as we can returned.”