CEO's address
For Íslandsbanki, it can be said that an eventful 2021 was dominated by two events. The first was the highly successful initial public offering of a 35% stake in the Bank and its subsequent listing on the stock exchange. The second was the Bank’s continuing response to the COVID-19 pandemic and our employees’ remarkable ingenuity in serving our customers under demanding and constantly changing circumstances. We certainly benefited from having spent several years building up well-funded and profitable digital banking activities.
It was an honour to call in trades together with the Bank’s employees when the Bank’s shares were admitted for trading on the exchange in June. The listing of shares came in the wake of a successful stock offering, Iceland’s largest-ever initial public offering and the largest IPO for a European bank since 2018. The Icelandic Government sold about one-third of its holding, and the Bank currently has around 16,000 shareholders. Íslandsbanki’s listing on the exchange marked a new beginning for the Bank, which has been partially returned to private ownership, and trading in the Bank’s shares are in turn a sign of investor confidence. The IPO and market listing were named Trade of the Year at the awards ceremony held in December by Innherji, Vísir’s business arm.
Positive and permanent change
A review of 2021 inevitably includes looking at the impact of COVID-19. Like other economies around the world, we were shaken by the pandemic, but Iceland has benefited from its strong position from the outset, which will continue to bolster us. It should be noted that the pandemic did not diminish Iceland´s resources or the skills of its people, rather it helped the nation gain valuable lessons for the future.
The changes to services that Íslandsbanki adopted in early 2020, at the beginning of the pandemic, served to improve the customer experience even further in 2021. In the face of ever-shifting rules on the maximum number of customers permitted in branches, as well as other public health measures, we had to take wide-ranging actions, such as expediting the development of digital services, expanding the capabilities of the Íslandsbanki app and boosting remote service options.
Some of these changes are here to stay. For instance, we shortened our branch opening hours, effective in 2022. This will give branch employees greater flexibility to handle queries quickly during the morning. Extensive development of digital service options alongside a dramatic decline in the number of visits to branches has prompted more and more customers to carry out their daily banking via the app or the online bank. We have also focused on service tailored to the needs of senior citizens and others who cannot use the Bank’s digital channels, the response to which has been excellent. Service is our top priority and it always will be.
Late in 2021, the Íslandsbanki app was opened up to business users. This appears to have been a welcome addition to our distribution channels and by the end of the year 95% of corporate customers had adopted the app. The use of Fróði, the first chatbot of its type in Iceland, also increased considerably. Fróði now handles over half of all customer queries itself – at any time of the day or night. All of these are solutions that will continue to drive improvements to the Bank’s services in the future.
Lastly, we implemented our new core lending system at the end of 2021, the crowning achievement of the total upgrade of all of Íslandsbanki’s core infrastructure. This will strengthen our operations, offer greater possibilities to link both customers and partners to new technologies and help to expand the Bank’s product range.
Important support for businesses
New lending was brisk during the year, with loans to customers increasing by 7.9%. In 2020, we granted several hundred support loans and supplemental loans bearing Treasury guarantees, and we helped households and businesses to freeze loans as needed. In 2021, we continued to work with customers affected by the pandemic, with the aim of optimising their financing structure. For corporate customers we extended bridge financing that was then refinanced with bond issues.
The resilience of small and medium-sized companies, or SMEs, was clearly discernible during the year. SME deposits grew more than in a conventional year, with growth spread across all sectors. Loan turnover has increased, not least because of a strong financial position among Icelandic firms in sectors such as retail and wholesale trade, services, and construction. There is optimism among SMEs that are steadily working their way through the repercussions of the pandemic. For example, only 0.4% of the claim value of SME loans are still frozen because of COVID-19.
Íslandsbanki is a leader in service to SMEs, with a record-high market share of 37% according to Gallup’s survey of main banking providers. It is also gratifying to see that more than half of the firms on Creditinfo’s list of registered companies have chosen to do business with us.
Furthermore, Íslandsbanki established a corporate lending fund of ISK 13bn in co-operation with Iceland Funds. The fund gives institutional investors access to a market that has by and large been limited to banks. The launch of the fund also meets firms’ financing needs and supports promising projects that underpin GDP growth. This is consistent with the Bank’s emphasis on supporting companies across Iceland to the best of its ability. In 2019, services to capital area SMEs were merged into a single corporate banking centre in Norðurturn, the Bank’s headquarters, enhancing efficiency and improving service. Íslandsbanki also operates a corporate banking centre in Akureyri, which serves firms in North and East Iceland.
Savings provides security
2021 was a record year for foreign currency brokerage in Iceland, and Íslandsbanki was a leader in the market. This activity is a result of increased international trade. Signs of greater confidence in the Icelandic economy and business community are clearly discernible, signalling the prospect of further GDP growth and economic development.
2021 was also a record year for securities brokerage at Íslandsbanki, which led the bond market in terms of market share for the third year in a row. Household saving has grown markedly during the pandemic. Icelandic households’ deposits increased by 6,1%, between 2020 and 2021 and by 26,3% for SMEs. The number of stockholders in companies on the Nasdaq Iceland exchange grew from 8,327 at the end of 2019 to 30,569 by the end of August 2021, and the country’s equity securities funds have doubled in size since 2019.
This is a favourable trend, as savings provide a measure of security during times of uncertainty. Iceland Funds’ fund managers have borne their responsibility well and delivered excellent results: the IS EQUUS Equity Fund generated the strongest returns of all Icelandic funds and IS Private Fund E had the best returns among mixed funds. It is pleasing to see that alongside strong returns in the fund market, access to funds has been expanded significantly. This summer, with its funds-in-app option, Íslandsbanki became Iceland’s first bank to offer app-based fund trading.
A model of exemplary operations
Íslandsbanki is committed to being a role model in the Icelandic business community and has demonstrated this with its progress in the area of sustainability. At the end of 2020, the Board of Directors approved the Bank’s sustainability strategy, which is in line with the priorities laid down in the strategy formulated at the beginning of 2019. In consultation with its employees, the Bank decided to focus on four of the UN Sustainable Development Goals: Climate Action; Gender Equality; Quality Education; and Industry, Innovation, and Infrastructure.
Work towards these goals continued in 2021. Significant work was done on classifying the current loan portfolio and determining how large a share falls under the Bank’s sustainable financing framework. Work has begun on analysing the carbon footprint of the loan portfolio. The Bank participated in sustainable bond issues, including fishing company Brim’s blue and green bonds, the first in Iceland to fall under both blue and green financing frameworks. In addition, an alternative investment fund operated by Iceland Funds issued a social bond for Reykjavík University subsidiary Grunnstoð, thereby concluding the refinancing of the university’s premises. Funds acquired in this way are used to finance assets and projects that have a positive social impact – in this case, university education.
During the year, Íslandsbanki received an outstanding environmental, social, and governance (ESG) score of 90% from Reitun, the highest sustainability score the agency has ever given. The Bank’s excellent performance is the result of a co-ordinated effort by our employees and the integration of sustainability considerations into our operations alongside profit objectives. Íslandsbanki also became a founding member of the Net Zero Bank Alliance, an international alliance of banks that have committed to achieving carbon neutrality no later than 2050. A total of 43 banks are members of the alliance. Furthermore, the Bank became a member of Green Building Council Iceland, a co-operative forum promoting sustainable building and development. Íslandsbanki granted Iceland’s first green development loan during the year.
In line with our focus on sustainability, we added a carbon calculator to the Íslandsbanki app, enabling customers to estimate their carbon footprint. We also cast our net closer to home. Dalurinn, the Bank’s cafeteria, received the Nordic Swan Ecolabel in February, satisfying stringent criteria covering the entire path of its products and services. The Bank was awarded the Equality Scale during the year, and Íslandsbanki and Iceland Funds were recognised for excellence in corporate governance.
We can see that a steadily increasing number of households are choosing environment-friendly cars, and since mid-2020 we have offered favourable terms on green motor vehicle financing through Ergo. At the end of 2021, some 27% of all car loans and financing agreements were classified as green financing.
Finally, Íslandsbanki received the Kuðungur (the Conch), the Ministry for the Environment and Natural Resources’ environmental prize, for its outstanding work on environmental affairs. The award was presented on Environment Day in 2021. The adjudication panel noted in particular the strong emphasis Íslandsbanki has placed on bringing its entire staff on board in implementing sustainability priorities, including by holding a sustainability workshop for staff members and giving all employees the opportunity to shape the Bank’s strategy in connection with the UN Sustainable Development Goals.
The Bank’s profit for the year 2021 amounted to ISK 23.7 billion and ROE was 12.3%, which is above both the Bank’s targets and market expectations. Total operating income rose by 16.3%, with net fee and commissions up by 22% between years. The cost-to-income ratio was 46.2% and lowered substantially between years from a previous 54.3%. A positive net impairment of ISK 3 billion lifted the Bank’s results further as previous impairment was negative by ISK 8.8 billion – leading to a turnaround of ISK 11.8 billion. Retail lending helped boost loan growth by ISK 80 billion, with lending up 7.9% in 2021 as a whole. The deposit base grew strongly, or by ISK 65 billion or 9.5% in 2021.
Thanks
As I look back over 2021, gratitude is uppermost in my mind. Íslandsbanki’s customers demonstrated remarkable patience during the disruption of branch opening hours due to public health measures. They have also responded favourably to our new tech solutions, as we can see in the steadily increasing uptake of new features and banking methods.
We had a successful co-operative relationship with the Government and with the Bank’s foreign and domestic advisers during the run-up to the IPO. The Bank’s employees have invested substantial work into the massive project the IPO represented. Aa large group of retail investors participated, joining us as we listed the Bank on the stock exchange. The IPO was highly successful, and for that we are grateful.
As I thank the Board of Directors for a fruitful year of collaboration, I would particularly like to thank the Bank’s employees for their diligence and dedication in an unusually demanding year. We are proud of the high level of job satisfaction within the Bank and I believe that with such an outstanding team leading the way, we have a bright future ahead of us. We look forward to better times, building the future on a robust economy and the opportunity that lies with the Bank’s skilled employees.