Fourth quarter 2020 (4Q20) financial highlights
Íslandsbanki reported a net profit of ISK 3.5bn compared to 1.7bn in 4Q19, resulting in an annualised return on equity after tax of 7.6% which is in line with the Bank´s financial targets (4Q19: 3.7%). ROE margin, the return on equity in excess of risk-free rate, was at 7.1% for the quarter compared to 0.9% for 4Q19.
Net interest income (NII) amounted to ISK 8.3bn in the quarter, in line with 4Q19 with a net interest margin (NIM) of 2.5% in 4Q20 (4Q19: 2.7%). Net fee and commission income (NFCI) was comparable YoY at ISK 2.9bn.
The Bank recorded a net financial income of ISK 0.8bn in 4Q20 partially due to favourable market conditions.
Administrative expenses were down 5.8% YoY, a result of cost reduction initiatives in recent years and changes in operations caused by COVID-19 pandemic. The cost to income ratio (C/I ratio) was 51.7% which is under the Bank’s target ratio of 55%.
Impairment charges were around ISK 0.4bn higher YoY amounting to ISK 1.8bn in 4Q20. This is mostly related to continued uncertainty due to COVID-19, in particular for the tourism industry. The net impairment charge over loans to customers was 0.18% in Q420 (0.73% annualised).
The agreement that the Bank entered with other financial institutions and lenders in Iceland to provide a universal COVID-19 moratorium for customers in need ended this quarter. Further extensions of moratoria may be granted on a case-by-case basis, but such extensions are classified as forbearance. As a result, loans with forbearance have increased considerably.
ISK 36.4bn growth in loans to customers QoQ is mostly driven by mortgage lending. Deposits from customers fell 2.7% during the quarter. This is mainly due to a drop in deposits from pension funds while stable deposits continued to grow steadily.
Parallel to the publishing of the financial statements, the Bank publishes its Annual and Sustainability report and Pillar 3 report, along with an Impact and Allocation report for Íslandsbanki's Sustainable Financing Framework.
2020 financial highlights
Profit after tax for the year 2020 amounted to ISK 6.8bn (2019: ISK 8.5bn) and the annualised return on equity after tax was 3.7% (2019: 4.8%). ROE margin for 2020 was at 2.6% compared to 1.2% for the year 2019 showing increase in return on equity in excess of risk-free rate between years.
NII rose by 1.7% between years and net interest margin for 2020 was 2.6% compared to 2.7% for the year 2019.
NFCI decreased 3.4% YoY, amounting to 10.5bn for 2020 (2019: ISK 10.9bn). This is mostly explained by reduced payment card activity in the wake of COVID-19.
Administrative expenses fell 7.1% YoY totalling to ISK 22.7bn for the year (2019: ISK 24.5bn). The C/I ratio for the year was 54.3% compared to 58.8% for 2019. FTE reductions, modest wage increases and overall reduction in administrative expenses explain the decrease between years.
Net impairment charges on financial assets generated a loss of ISK 8.8bn for the year (2019: ISK 3.5bn). Thereof ISK 6.1bn are due to COVID-19, reflecting the economic uncertainty.
Loans to customers grew by ISK 107bn or 11.9% in 2020. The growth was mostly due to mortgage lending.
The NPL ratio (loans in stage 3) was 2.9% (gross) at end of year down from 3.0% at YE19.
Due to the COVID-19 pandemic, customers that experienced a temporary reduction in income were offered moratoria or other forbearances measures. This led to a substantial change in share of loans in stage 2 (with significant increase in credit risk), currently at 15.6% up from 2.6% the year before.
Deposits from customers amounted to ISK 679bn at the end of December and grew by 9.9% from YE19 or by ISK 61.1bn. The rise is largely due to increased stable deposits from retail customers and corporations. The Bank continued to build its long-term funding sources, especially in the fourth quarter, by issuing both covered bonds and senior unsecured bonds during the year. In November, the Bank issued the first sustainable bonds from an Icelandic issuer. A heavily oversubscribed €300 million 3-year benchmark issued at mid-swaps +100 bps was placed with investors across continental Europe, followed by an ISK 2.7 bn domestic sustainable issue with a maturity of 5 years.
The Bank´s capital position strengthened during the year with total capital ratio at 23.0% at the end of 2020, CET 1 ratio at 20.1% and leverage ratio at 13.6%. The Bank’s liquidity ratios remained sound and above all requirements.
Key figures and ratios
After tax profit, ISKm
Return on equity (after tax)
Net interest margin (of total assets)
Cost to income ratio¹
Loans to customers, ISKm
Total assets, ISKm
Risk exposure amount, ISKm
Deposits from customers, ISKm
Customer loans to customer deposits ratio
Liquidity coverage ratio (LCR), for all currencies
Net stable funding ratio (NSFR), for all currencies
Total equity, ISKm
Total capital ratio
Tier 1 capital ratio
1. Calculated as (Administrative expenses + Contribution to the Depositors´ and Investors´ Guarantee Fund – One off items) / (Total operating income – one off items)
2. Stage 3, loans to customers, gross carrying amount
Birna Einarsdóttir, CEO of Íslandsbanki
We are very satisfied with our 4Q20 performance, with an annualised return on equity of 7.6% despite severe headwinds across much of the economy. In 2020 we cut costs by 7.1% while simultaneously expanding our loan portfolio by 11.9% and increasing deposits by 9.9%.There has been much discussion of the state of the loan portfolio and the impact of COVID-19, but about 1,500 households and 650 companies took advantage of the special COVID-related measures we offered through end-2020. Most of our customers who needed an extended moratorium on loan payments were tourism companies. Loans protected by these moratoria accounted for about 6% of the Bank’s loan portfolio at the end of the year.
Íslandsbanki’s year-2020 profit was ISK 6.8 billion, including ISK 3.5 billion in Q4. Interest income and commissions were stable year-on-year. The securities brokerage and Corporate Finance departments performed particularly well. Corporate Finance completed approximately 30 projects, and Íslandsbanki led the Nasdaq Iceland exchange in trading volume during the year. Among the projects undertaken by Corporate Finance were Icelandair Group’s very successful share offering, the sale of Icelandair Hotels, and the sale of Borgun, as well as bond and stock issues for Iceland’s listed real estate companies. Iceland Funds recorded an increased profit for the fifth year in a row and strengthened its position as the largest fund company in Iceland, with a market share of 35%.
The entire world had to adjust to changed circumstances during the year and respond to the ongoing COVID-19 pandemic. The changed global environment brought with it a strong push towards further digitisation, and the Bank rolled out a range of innovations, including a new app for companies and a digital signature solution. Íslandsbanki’s digital distribution channels grew markedly, and the Bank placed strong emphasis on providing personal service to those who could not use digital products.
We could feel that, under these trying conditions, moving Iceland forward by empowering our customers to succeed was more important than ever before, and we are proud of that role. The Bank continues to take large strides in the area of sustainability. We aim to shrink the carbon footprint from our operations by 50% between 2019 and 2024. During the year, the Bank issued the largest sustainable bond in Iceland’s history, and the issue was more than 3 times oversubscribed. The proceeds will be used for sustainable lending and investments. The Bank has already allocated ISK 25 billion to eligible sustainable projects, as is discussed more fully in the Allocation and Impact Report for the Sustainable Financing Framework, which is being published concurrent with the Annual and Sustainability Report for the first time.
We look to the future with hope, and we intend to continue meeting our customers’ needs, with flexibility as a guidepost. Furthermore, Íslandsbanki’s strong financial position and current market conditions show that this is a good time to begin preparing to list the Bank on the securities market. Exciting times lie ahead.
Investor call in English
On 11 February 2021 at 9.30 am (GMT), the Bank will hold an investor call. The call will begin with a short update on the Icelandic economy, followed by a review of the Bank’s financial results. The call will be in English.
Please register by sending an e-mail to: email@example.com. Dial-in details and presentation will be sent out to registered participants prior to the call.
All materials relating to the Bank’s operating results, together with information on the financial calendar and silent periods, can be found here: https://www.islandsbanki.is/en/landing/about/investor-relations
For further information:
Investor Relations - Jóhann Ottó Wathne, firstname.lastname@example.org. Tel: +354 844-4607
Communications - Edda Hermannsdottir, email@example.com. Tel: +354 844-4005
Íslandsbanki IR releases
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Íslandsbanki is a universal bank and a leader in financial services in Iceland with a history of 145 years of servicing key industries. The Bank has a 25-40% market share across all domestic business segments. Íslandsbanki's purpose is to move Iceland forward by empowering our customers to succeed. Driven by the vision to be #1 for service, Íslandsbanki's relationship banking business model is propelled by three business divisions that manage and build relationships with the Bank's customers. Íslandsbanki has developed a wide range of online services such as the Íslandsbanki and Kass apps, enabling customers to do their banking anywhere and anytime. At the same time, the Bank continues to operate the most efficient branch network in Iceland through its strategically located 12 branches. Íslandsbanki has a BBB/A-2 rating from S&P Global Ratings. www.islandsbanki.is
This press release may contain “forward-looking statements,” involving uncertainty and risks that could cause actual results to differ materially from results expressed or implied by the statements. Íslandsbanki hf. undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this press release. It is the investor's responsibility to not place undue reliance on these forward-looking statements which only reflect the date of this press release. Forward-looking statements should not be considered as guarantees or predictions of future events and all forward-looking statements are qualified in their entirety by this cautionary statement.