English Icelandic
Published: 2023-05-04 18:25:00 CEST
Íslandsbanki hf.
Interim report (Q1 and Q3)

Íslandsbanki hf.: Financial results for first quarter 2023

Solid financial results in first quarter 2023

First quarter 2023 (1Q23) financial highlights – Solid financial results in challenging market conditions

  • Íslandsbanki reported a profit of ISK 6.2bn in the first quarter (1Q22: ISK 5.2bn), generating an annualised return on equity (ROE) of 11.4% (1Q22: 10.2%), which is above the Bank’s financial targets. The main driver for the good performance was strong income generation, offsetting an increase in costs.
  • Net interest income (NII) grew by 34.9% YoY and totalled ISK 12.4bn in 1Q23, compared to ISK 9.2bn in 1Q22, owing mainly to the higher interest rate environment and growth in both loans and deposits from customers in recent quarters. The net interest margin was 3.2% in 1Q23, compared to 2.6% in 1Q22.
  • Net fee and commission income (NFCI) grew 13.2% YoY and amounted to ISK 3.5bn in 1Q23, compared to ISK 3.1bn in 1Q22. Fees from cards and payment processing and fee income from Allianz Ísland hf. continue to be the primary drivers of the increase.
  • Core banking operations remain the most important part of the Bank’s revenues, with NII and NFCI accounting for 95% of total operating income in 1Q23 (97% in 1Q22). These two items combined grew by 29.5% from 1Q22 to 1Q23.
  • Net financial income was ISK 538m in 1Q23, compared to net financial expense of ISK 95m in 1Q22, mainly owing to fluctuations in interest rates in both Icelandic krona and foreign currencies.
  • Administrative expenses rose considerably and were ISK 7.0bn in 1Q23 compared to ISK 5.8bn in 1Q22, an increase of 20.7% YoY. The rise is mainly explained by contractual wage increases, strategic projects, increased activity in Allianz Ísland hf. and high inflation. Part of the cost increase in 1Q23 should even out through the year or is offset by higher revenues.
  • The cost-to-income ratio was 42.1% in 1Q23, which is within the Bank’s financial target of between 40-45%, and down from 47.6% in 1Q22. Increasing costs are partly offset by strong revenue generation.
  • The net impairment of ISK 0.7bn in 1Q23 is mostly due to growth in the loan portfolio. This is compared to a positive impairment of ISK 0.5bn in 1Q22. The net impairment charge as a share of loans to customers, the annualised cost of risk, was +22bp in 1Q23, compared to -17bp in 1Q22.
  • Loans to customers grew by ISK 32.4bn in the quarter, or by 2.7% to ISK 1,219bn.
  • Deposits from customers grew by ISK 10.2bn, or 1.3%, during the quarter, up to ISK 800.1bn. The increase primarily came from Personal Banking.
  • The capital and liquidity position of the Bank remains robust with all ratios well above both internal targets and regulatory requirements.
  • Total equity at period-end amounted to ISK 210.4bn compared to ISK 218.9bn at year-end 2022. In 1Q23, Íslandsbanki paid approximately ISK 12.3bn in dividends to its shareholders. The Bank’s total capital ratio was 23.2% at end of 1Q23, compared to 22.2% at year-end 2022. The corresponding CET1 ratio was 19.9%, compared to 18.8% at year-end 2022. The Bank’s updated CET1 target is based on 100-300bp capital buffer on top of regulatory requirements.
  • The Bank plans to continue its ISK 5bn share buyback plan over the coming few months and to optimize its capital structure before year-end 2024, both being subject to market conditions.

Key figures and ratios

PROFITABILITYProfit for the period, ISKm6,2115,9827,4865,8805,187
 Return on equity11.4%11.1%14.4%11.7%10.2%
 Net interest margin (of total assets)3.2%3.1%3.0%2.9%2.6%
 Cost-to-income ratio142.1%42.5%36.3%42.7%47.6%
 Cost of risk20.22%0.22%(0.40%)(0.20%)(0.17%)

BALANCE SHEETLoans to customers, ISKm1,218,9991,186,6391,153,0471,153,6771,107,893
 Total assets, ISKm1,551,5301,566,2351,548,6721,437,2531,446,355

Risk exposure amount, ISKm1,004,978999,4911,012,986992,883945,321

Deposits from customers, ISKm800,071789,897781,614756,862761,471

Customer loans to customer deposits ratio152%150%148%152%145%

Non-performing loans (NPL) ratio31.7%1.8%1.7%1.8%1.8%
LIQUIDITYNet stable funding ratio (NSFR), for all currencies115%118%127%118%123%

Liquidity coverage ratio (LCR), for all currencies171%205%371%147%195%
CAPITALTotal equity, ISKm210,385218,874211,613203,662197,201

CET 1 ratio419.9%18.8%18.2%18.2%18.8%

Tier 1 ratio420.8%19.8%19.2%19.2%19.9%

Total capital ratio423.2%22.2%21.4%21.5%22.5%

Leverage ratio412.9%12.1%11.9%12.5%12.4%

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 1Q23 profit for 31.3.23, 3Q22 profit for 30.9.22 and 1Q22 profit for 31.3.22.

Birna Einarsdóttir, CEO of Íslandsbanki
We are satisfied with Íslandsbanki’s results in the first quarter of 2023. The tasks have been diverse and exciting during the first part of the year, with financial markets having been very challenging in recent months. The first quarter net profit amounted to ISK 6.2bn and return on equity was 11.4% which is above the Bank’s financial targets. The Bank’s operating income rose by 32.6% compared to 1Q22 and the growth in net interest income amounted to almost 35%, compared to 1Q22. Administrative expenses grew considerably during the quarter and increased by 20.7%, compared to 1Q22. The increase is mainly caused by contractual wage increases and contingent cost items. Strong revenue generation during the quarter resulted in the cost-to-income ratio being 42.1%, which is within the Bank’s financial targets. Loans to customers grew by 2.7% during the quarter and increase in deposits to customers amounted to ISK 10bn.

During the quarter we initiated a share repurchase programme, based on the authorisation granted by the 2022 AGM to the Bank to purchase own shares. From February to 15 March the Bank purchased own shares for more than ISK 900 million. The purchase is part of the Bank’s previous announcement on the intended buy back of own shares for up to ISK 5bn in the coming months, as part of the Bank’s capital optimisation planned before year end 2024, subject to market conditions. The authorisation to purchase own shares was renewed during the Bank’s AGM held in March, along with a decision to pay approximately ISK 12.3bn in dividends to shareholders.

The Bank’s new strategy was approved by the Board of Directors in March. The strategy was formed in close co-operation with employees from across the Bank. According to the new strategy the Bank’s purpose will continue to be a force for good, by creating value for the future with our customers. A successful implementation of the previous strategy resulted in strong internal growth and targeted steps were taken towards increasing the return on equity. The direction of the strategic priorities for the next two years is “Move forward and grow”, implying both organic growth and opportunities outside the Bank. The ongoing discussions with Kvika banki hf. are thus, in our opinion, a natural step on that journey. The project is large in scale, and the companies and advisors are currently assessing the synergies to be gained from the merger, as well as assessing the position of the merged company in the market. While a dedicated group of employees, along with our advisors, has been cast with the task of analysing this matter, we put great emphasis on continuing putting effort into all the exciting projects we get to be a part of with our customers.

An earnings conference call and webcast will take place on Friday 5 May 2023

Íslandsbanki will host a webcast in English for investors and market participants on Friday 5 May at 8.30 Reykjavík/GMT, 9.30 London/BST, 10.30 CET. Birna Einarsdóttir, CEO, and Jón Guðni Ómarsson, CFO, will give an overview of the first quarter 2023 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.

Financial calendar
Íslandsbanki plans to publish its financial statements according to the financial calendar below:
2Q23 results — 27 July 2023
3Q23 results — 26 October 2023
Please note that the dates are subject to change.

Additional investor material
All investor material will subsequently be available and archived on the Bank’s Investor Relations website, where other information on the Bank’s financial calendar and silent periods can also be found.

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.

1Q 2023 Investor Presentation.pdf
1Q 2023 Press Release.pdf
1Q23 Factbook.pdf
1Q23 Factsheet.pdf
ISB Condensed Consolidated Interim Financial Statements First Quarter 2023.pdf