Third quarter 2022 (3Q22) financial highlights – strong quarter with ROE above target
Íslandsbanki reported a profit of ISK 7.5bn in the third quarter (3Q21: ISK 7.6bn), generating an annualised return on equity (ROE) of 14.4% (3Q21: 15.7%), which is above both the Bank’s financial targets and market consensus. The main drivers were strong income generation and a positive net impairment.
Net interest income (NII) grew by 28.7% YoY and totalled ISK 11.3bn in 3Q22, compared to ISK 8.8bn in 3Q21, owing mainly to higher interest rate environment and growth in loans to customers and deposits from customers in recent quarters. The net interest margin was 3.0% in 3Q22, compared to 2.4% in 3Q21.
Net fee and commission income (NFCI) grew 2.6% YoY and amounted to ISK 3.5bn in 3Q22, compared to ISK 3.4bn in 3Q21. Fee income from cards and payment processing is the primary driver of the increase.
The Bank focuses on core banking operations, with NII and NFCI accounting for 102% of total operating income in 3Q22, compared to 92% in 3Q21. These two items combined grew 21.4% from 3Q21 to 3Q22.
Net financial expense was ISK 471m in 3Q22, compared to net financial income of ISK 941m in 3Q21, due to a loss in other NFI which is largely due to movements in ISK base rate curves.
Administrative expenses were ISK 5.3bn in 3Q22 compared to ISK 5.1bn in 3Q21, an increase of 3.6% YoY and a decrease of 5.5% in real terms.
The cost-to-income ratio was 36.3% in 3Q22, below the Bank’s financial target, down from 39.4% in 3Q21, due to strong revenue generation.
The positive ISK 1,165m net impairment on financial assets in 3Q22 is due to a more positive outlook for the tourism industry, updated real estate valuation and previously distressed credit case, but partly offset by the impact of expected inflation. This is compared to a positive impairment of ISK 1,757m in 3Q21. The net impairment charge as a share of loans to customers, the annualised cost of risk, was -40bp in 3Q22, compared to -64bp in 3Q21.
Loans to customers remained the same from the end of 2Q22 at ISK 1,153bn.
Deposits from customers increased by ISK 24.8bn, or 3.3%, during the quarter, up to ISK 782bn. The increase did primarily come from Business Banking and Personal Banking.
The liquidity position of the Bank remains robust with all liquidity ratios well above both internal targets and regulatory requirements.
Total equity amounted to ISK 211.6bn at the end of September 2022. The capital base was unchanged from the end of June, at ISK 213bn (ISK 228bn at year-end 2021). The Bank’s total capital ratio was 21.4%, compared to 21.5% at the end of June (25.3% at YE21). The corresponding CET1 ratio was 18.2% (300bp above requirement), same as end of June (21.3% at YE21). This is considerably above the Bank´s long-term CET1 target of ~16.5%. The ratios are determined on the basis of the unaudited net earnings in the quarter, with a deduction of 50% of net earnings as foreseeable dividends in line with the Bank’s dividend policy and foreseeable buybacks of ISK 15 billion. Lower total capital ratio is mostly the result of an increase in the risk exposure amount (REA) due to increase in loans to credit institutions during the third quarter.
The Bank’s MREL requirement is 21.2% of the total risk exposure amount (TREA), the Bank’s ratio was 27.6% at the end of September.
The leverage ratio was 11.9% at the end of September, including the 3Q22 profit, compared to 12.5% at the end of June (13.6% at YE21), indicating low leverage.
First nine months 2022 (9M22) financial highlights – ROE above target as revenue continues to rise
The Bank’s net profit for the first nine months of 2022 was ISK 18.6bn (9M21: ISK 16.6bn) with annualised return on equity for 9M22 of 12.1% compared to 11.7% in 9M21.
Net interest income totalled ISK 30.8bn in 9M22, an increase of 21.2% YoY, explained by growth in loans to customers and deposits from customers and a higher interest rate environment.
Net fee and commission income (NFCI) grew 8.9% YoY and amounted to ISK 10.0bn in 9M22, compared to ISK 9.2bn in 9M21. Fee income from cards and payment processing, strong performance in Allianz Ísland hf. together with investment banking and brokerage are primary drivers of the increase.
Net financial expense was ISK 358m in 9M22 compared to income of ISK 1,853m for 9M21.
Administrative expenses were ISK 17.1bn in 9M22 compared to ISK 17.4bn in 9M21, a decline of 1.9% YoY or by 5.5% in real terms.
Cost-to-income ratio dropped YoY from 46.6% in 9M21 to 41.9% in 9M22.
Net impairment on financial assets was positive and amounted to ISK 2,223m in the first nine months of 2022 (9M21: ISK 2,379m), mainly due to a more positive outlook for the tourism industry along with result of a court ruling regarding a fully impaired loan and outweighing the negative impact from increased inflation and international economic volatility. The net impairment charge as a share of loans to customers, the annualised cost of risk, was -26bp in 9M22, compared to -30bp in 9M21.
Revised 2022 guidance
Considering the good financial results during the year and prospects for the remainder of the year, the 2022 guidance for ROE is now revised upwards to 11-13% from the previous over 10%. Also, the 2022 guidance for the cost-to-income ratio is now revised to 41-44% from the previous 44-47%.
Key figures and ratios
Profit for the period, ISKm
Return on equity
Net interest margin (of total assets)
Cost of risk2
Loans to customers, ISKm
Total assets, ISKm
Risk exposure amount, ISKm
Deposits from customers, ISKm
Customer loans to customer deposits ratio
Non-performing loans (NPL) ratio3
Net stable funding ratio (NSFR), for all currencies
Liquidity coverage ratio (LCR), for all currencies
Total equity, ISKm
CET 1 ratio4
Tier 1 ratio4
Total capital ratio4
1. Calculated as (Administrative expenses + Contribution to the Depositors' and Investors' Guarantee Fund – One-off items) / (Total operating income – One-off items).
2. Negative cost of risk means that there is a net release of impairments.
3. Stage 3, loans to customers, gross carrying amount.
4. Including quarter profit for 30.9.21, 31.3.22 and 30.9.22
Birna Einarsdóttir, CEO of Íslandsbanki
Íslandsbanki continued with a very strong performance in 3Q22 with profit of ISK 7.5bn and ROE of 14.4%, well above our financial target. Core income continued to grow with combined growth of net interest and net fee and commission income up by 21% yet again. We saw a real cost reduction of 5.5% and seasonal salary factors helped contain costs, contributing to a cost-to-income ratio of 36.3%, thereby outreaching our target.
Loans to customers remained the same while deposits grew by 3.3% which further reinforces our main funding source. Íslandsbanki offers competitive interest rates and our fully digital account, Ávöxtun, which offers one of the best rates in the Icelandic market, has been a great success with our retail customers. Íslandsbanki diversified its funding profile further in the quarter with a EUR 300m inaugural issue of covered bonds and a successful ISK 10.5bn Tier 2 issue in October.
A major milestone was passed for the Bank when Síminn’s sale of Míla to Ardian France SA was completed, a transaction in which we played a key role. Íslandsbanki is a leader in investment banking in Iceland, and this project demonstrated the Bank’s ability to lead and integrate multi-faceted projects.
We published our road to net-zero emissions report along with the publication of the 3Q22 financials. The main emission reduction opportunities from balance sheet activities of the Bank are concentrated in the transition to green transportation in the air, on land and at sea. One of the report’s key findings is that emissions from balance sheet activities are projected to fall by 60% by 2030 and by 85% by 2040.
Íslandsbanki recently received the Equality Scale recognition from the Association of Businesswomen in Iceland for the fourth year in a row, which was a great honour. This encourages us to continue on the path of fostering equality issues and being a force for good. It was also extremely interesting to see a full hall of guests at our meeting on Women and Finance, but the Bank has held regular meetings related to equality issues since 2015.
I am satisfied with the progress that the Bank has made during the quarter. Core earnings remain solid and costs are controlled, the asset quality remains strong and the loan portfolio is well collateralised. The Icelandic economy continues to be resilient and Íslandsbanki will play its part in this success.
An earnings conference call and webcast will take place on Friday 28 October 2022
Íslandsbanki will host a webcast in English for investors and market participants on Friday 28 October at 8.30 Reykjavík/GMT, 9.30 London/BST, 10.30 CET. Birna Einarsdóttir, CEO, and Jóhann Ottó Wathne, Head of Treasury, will give an overview of the third quarter 2022 financial results and operational highlights.
Participation is accessible via this link. A recording will be available after the meeting on the Investor Relations website. To participate in the webcast via telephone and to be able to ask questions verbally, please register via this link. There will be a list of dial-in numbers and a personal PIN. If there is no local dial-in number for your country, or if you would prefer to receive a call instead of dialling in, the Call Me option is available. Then select your country, enter your telephone number and click on the blue Call Me button to be connected.
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 please contact:
Investor Relations, Margrét Lilja Hrafnkelsdóttir, email@example.com and tel: +354 844 4033.
Public Relations – Edda Hermannsdóttir, firstname.lastname@example.org Sími: +354 844 4005.
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With a history that dates from 1875, Íslandsbanki is an Icelandic universal bank with a strong customer focus. The Bank believes in moving Iceland forward by empowering its customers to succeed - reflecting a commitment to run a solid business that is a force for good in society. Driven by the ambition to be #1 for service, Íslandsbanki’s banking model is led by three business divisions that build and manage relationships with its customers. Íslandsbanki maintains a strong market share with the most efficient branch network in the country, supporting at the same time its customers’ move to more digital services. The Bank operates in a highly attractive market and, with its technically strong foundations and robust balance sheet, is well positioned for the opportunities that lie ahead. Íslandsbanki has a BBB/A-2 rating from S&P Global Ratings. The Bank’s shares are listed on Nasdaq Iceland Main Market.
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.