English Icelandic
Published: 2022-07-28 17:33:42 CEST
Íslandsbanki hf.
Half Year financial report

Islandsbanki hf.: Financial results for second quarter 2022

Second quarter 2022 (2Q22) financial highlights – sound operations deliver strong performance and above-target ROE

  • Íslandsbanki reported a profit of ISK 5.9bn in the second quarter (2Q21: ISK 5.4bn), generating an annualised return on equity (ROE) of 11.7% (2Q21: 11.6%), which is above both the Bank’s financial targets and market consensus. The main drivers were strong income generation, good cost control and a positive net impairment.
  • Net interest income (NII) grew by 21.8% YoY and totalled ISK 10.3bn in 2Q22, compared to ISK 8.4bn in 2Q21, owing mainly to higher interest rate environment and growth in loans to customers and deposits from customers. The net interest margin was 2.9% in 2Q22, compared to 2.4% in 2Q21.
  • Net fee and commission income (NFCI) grew 18.1% YoY and amounted to ISK 3.4bn in 2Q22, compared to ISK 2.9bn in 2Q21. Fee income from cards and payment processing, investment banking and brokerage and from loans and guarantees are primary drivers of the increase.
  • The Bank focuses on core banking operations, with NII and NFCI accounting for around 98% of total operating income in 2Q22, compared to 93% in 2Q21. These two items combined grew 20.9% from 2Q21 to 2Q22.
  • Net financial income was ISK 208m in 2Q22, compared to net financial income of ISK 619m in 2Q21.
  • Administrative expenses were ISK 6.0bn in 2Q22 compared to ISK 6.5bn in 2Q21, a decline of 7.6% YoY. Excluding ISK 588m one-off cost in 2Q21, administrative expenses rose by 1.6% but declined by 5.9% in real terms.
  • The cost-to-income ratio was 42.7% in 2Q22, below the Bank’s target, down from 49.9% in 2Q21, due to strong revenue generation and cost reduction efforts.
  • The positive ISK 575m net impairment on financial assets in 2Q22 is mainly due to a result of a court ruling regarding a fully impaired loan coupled with a brighter outlook for the tourism industry. This is compared to a positive impairment of ISK 1,140m in 2Q21. The net impairment charge as a share of loans to customers, the annualised cost of risk, was -20bp in 2Q22, compared to -42bp in 2Q21.
  • Loans to customers rose by ISK 45.8bn, or by 4.1%, during the quarter, to ISK 1,154bn, where lending in all business areas contributed.
  • Deposits from customers decreased by ISK 4.6bn, or 0.6%, during the quarter, down to ISK 757bn.
  • 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 203.7bn at the end of June 2022. The corresponding capital base, that includes the AT1 and Tier2 issues, was reduced from ISK 228bn to ISK 213bn as a result of an authorised ISK 15bn buyback of own shares. The Bank’s total capital ratio was 21.5%, compared to 25.3% at YE21. The corresponding CET1 ratio was 18.2%, down from 21.3% at YE21. This is considerably above the long-term CET1 target of ~16.5%. Lower capital ratios are mostly the result of an increase in the risk exposure amount (REA).
  • The Bank estimates that long-term excess CET1 capital equals approximately ISK 30-35bn. Reduction in excess capital is due to strong and profitable loan growth in 2Q22. The Bank assumes that CET1 capital will be optimised before year-end 2023.
  • The leverage ratio was 12.5% at the end of June, compared to 13.6% at YE21, indicating low leverage. 

First half 2022 (1H22) financial highlights – ROE above target driven by rise in revenue

  • The Bank’s net profit for the first half of year 2022 was ISK 11.1bn (1H21: ISK 9.0bn) with annualised return on equity for 1H22 of 10.9% compared to 9.7% in 1H21.
  • Net interest income totalled ISK 19.5bn in 1H22, an increase of 17.2% YoY, explained by growth in loans to customers and a higher interest rate environment.
  • Net fee and commission income (NFCI) grew 12.6% YoY and amounted to ISK 6.5bn in 1H22, compared to ISK 5.8bn in 1H21. Fee income from cards and payment processing together with investment banking and brokerage are primary drivers of the increase.
  • Net financial income was ISK 113m in 1H22 compared to income of ISK 912m for 1H21.
  • Administrative expenses were ISK 11.8bn in 1H22 compared to ISK 12.3bn in 1H21, a decline of 4.2% YoY. Excluding ISK 588m one-off cost in 1H21, administrative expenses rose by 1.6% but declined by 5.9% in real terms.
  • Cost-to-income ratio dropped YoY from 50.6% in 1H21 to 45.0% in 1H22.
  • Net impairment on financial assets was a positive ISK 1,058m in the first half of 2022 (1H21: ISK 622m), due to brighter outlook for the tourism industry and a favourable court ruling regarding a fully impaired loan.

Revised 2022 Guidance

  • In light of the good financial results and prospects for the remainder of the year, the 2022 financial guidance for ROE is now revised upwards to over 10% from the previous 8-10%. Also, the guidance for the cost-to-income ratio is now revised to 44-47% from the previous 45-50%.

Key figures and ratios

    2Q22 1Q22 4Q21 3Q21 2Q21
PROFITABILITY Profit for the period, ISKm 5,880 5,187 7,092 7,587 5,431
  Return on equity 11.7% 10.2% 14.2% 15.7% 11.6%
  Net interest margin (of total assets) 2.9% 2.6% 2.4% 2.4% 2.4%
  Cost-to-income ratio1 42.7% 47.6% 45.3% 39.4% 49.9%
  Cost of risk2 (0.20%) (0.17%) (0.23%) (0.64%) (0.42%)
    30.6.22 31.3.22 31.12.21 30.9.21 30.6.21
BALANCE SHEET Loans to customers, ISKm 1,153,677 1,107,893 1,086,327 1,081,418 1,089,723
  Total assets, ISKm 1,437,253 1,446,355 1,428,821 1,456,372 1,446,860
  Risk exposure amount, ISKm 992,883 945,321 901,646 917,764 924,375
  Deposits from customers, ISKm 756,862 761,471 744,036 754,442 765,614
  Customer loans to customer deposits ratio 152% 145% 146% 143% 142%
  Non-performing loans (NPL) ratio3 1.8% 1.8% 2.0% 2.0% 2.1%
LIQUIDITY Net stable funding ratio (NSFR), for all currencies 118% 123% 122% 121% 122%
  Liquidity coverage ratio (LCR), for all currencies 147% 195% 156% 225% 187%
CAPITAL Total equity, ISKm 203,662 197,201 203,710 197,381 190,355
  CET 1 ratio4 18.2% 18.8% 21.3% 20.6% 20.1%
  Tier 1 ratio4 19.2% 19.9% 22.5% 21.8% 20.1%
  Total capital ratio4 21.5% 22.5% 25.3% 24.7% 22.9%
  Leverage ratio4 12.5% 12.4% 13.6% 13.2% 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 first quarter profit for 31.3.22 and third quarter profit for 30.9.21.

Birna Einarsdóttir, CEO of Íslandsbanki

The Íslandsbanki team can be proud of the second quarter results in which net profit amounted to ISK 5.9bn and ROE was 11.7% - above the Bank’s financial target. We saw strong growth in both net interest and net fee and commission income, combined up by 21% year-on-year. At the same time, we reached a real cost reduction of 5.9%. The cost-to-income ratio was 42.7% during the quarter, a level which beats the Bank’s financial target.

Lending activity has been brisk this year and loans to customers grew by 4.1% during the second quarter, which was evenly divided between retail and corporate customers. However, following the Central Bank’s latest rate hikes and policy actions, we expect loan growth to slow in the second half of 2022.

In June, Íslandsbanki signed an updated covered bond programme which permits issuance in foreign currencies. The programme, rated A by S&P, will grant to the Bank greater ease of access to overseas markets and will appeal to a more diverse range of investors.

Íslandsbanki was awarded “Best Bank in Iceland” by Euromoney for the fifth time in recent years. The magazine cited the Bank's strong financial improvement, increasing revenues and tight control of costs. The award is a pleasing endorsement of our efforts.

The Íslandsbanki Reykjavik Marathon will be held on 20 August which is the largest charitable event of the year in Iceland. Over ISK 1bn has been raised since its inception, benefitting over 115 charities. The Bank’s employees have taken the marathon very much to their hearts over the years and is emblematic of the Bank’s objective to be a force for good.

Investor relations

An earnings conference call and webcast will take place on Friday 29 July 2022

The Bank will host an investor meeting and webcast in English for investors and market participants on Friday 29 July at 8.30 Reykjavík/GMT, 9.30 London/BST, 10.30 CET. CEO Birna Einarsdóttir and CFO Jón Guðni Ómarsson will give an overview of the second quarter financial results and operational highlights.

Participant registration 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 please use the following dial-in details and ask to join Íslandsbanki 2Q22 call (no pin code necessary):

Iceland:+44 1 212 818 004
Denmark:+45 327 275 25
Sweden:+46 8 505 100 30
Norway:+47 210 358 72, participants have to press *0 to join the call
United Kingdom:+44 1 212 818 004
United States:+1 718 705 8796

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, ir@islandsbanki.is and tel: +354 844 4033.

Public Relations – Edda Hermannsdóttir, pr@islandsbanki.is Sími: +844 4005.

Íslandsbanki IR releases
If you wish to receive Íslandsbanki press releases by e-mail please register at: https://www.islandsbanki.is/en/article/email_list_ir

About Íslandsbanki
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.


2Q 2022 Factbook.pdf
2Q 2022 Factsheet.pdf
2Q 2022 Investor Presentation.pdf
2Q 2022 Press_Release.pdf