CEO's address

We can be proud of Íslandsbanki's performance in 2022. Operations are solid, and we have managed to keep costs under control in spite of inflation. The Bank's assets are of high quality, and its loan portfolio is strong. The Icelandic economy has remained buoyant during turbulent times, and the Bank is an important participant in it.  

In the vanguard 

Íslandsbanki makes a concerted effort to be in the forefront in use of new technology, and its digital processes put the Bank in the lead in Europe. For instance, the Bank's product sales and services were revolutionised by its new sale platform, which enables customers to use a single authentication to carry out transactions with the Bank's deposit, credit, and lending products. Íslandsbanki was also first in the Icelandic market to introduce Google Pay as a payment solution. In addition, we rolled out a sustainable savings account for individuals and introduced Ávöxtun, the first fully digital deposit account. We have noticed that there is keen interest in Ávöxtun, and deposits have grown exponentially since we launched our marketing campaign. 

Íslandsbanki's software development centre in Warsaw began full-scale operations in 2022, and we can already see the increased support the unit provides to the IT Division. In 2023, Íslandsbanki's digital priorities will be on harnessing data for decision-making and enhancing automation in the areas of lending and business services. We can see that increased cooperation across units of the Bank and more effective data utilisation will give us a host of opportunities to provide digital yet personal service.  

The Bank's position is strong 

Deposits, the Bank's largest single source of funding, continued to grow during the year. The Bank also obtains funding through listed bond issues, both in Iceland and in foreign markets. Conditions in foreign bond markets worsened significantly in the wake of the war in Ukraine and the deterioration of the global economy, and are at their most challenging in decades. Nevertheless, Íslandsbanki showed its strength and managed to diversify its wholesale funding even further, including with its first euro-denominated covered bond issue, a loan from the Nordic Investment Bank (NIB), and its first króna-denominated subordinated bonds. 

We celebrated a number of small and large victories during the year. The conclusion of Síminn's sale of Míla to Ardian France SA was a major milestone for us, as Íslandsbanki played a key role in the process. Investment banking had a good year, and the sale of Míla, its biggest project of the year, showed the Bank’s capacity to lead and integrate a multifaceted transaction, one of the largest foreign investments in Iceland in years 

Mortgage lending grew apace at Íslandsbanki in 2022. Actually, there was strong demand for new loans throughout the Bank's divisions, as well as at Ergo, its asset financing arm. Over the course of the year, new lending grew by 9,2%, with loans to tourism operators and construction projects weighing heaviest. Deposits have also grown markedly, or by 6% in 2022 and by around 28% since end-2019.  

During the year, we focused on increasing the ratio of credit risk that is assessed in terms of environmental, social, and governance-related risk – commonly referred to as ESG risk-assessed credit risk – from 34% to 70% among large corporate borrowers, and we reached that goal. 

Through the years, Íslandsbanki's market share in the provision of service to small and medium-sized enterprises, or SMEs, has reflected its strong position among these customers. During the year, we launched a new promotional campaign introducing our SME services – called Your Firm in the Drivers Seat – emphasising how the Banks success is intertwined with that of its customers.  

We also made organisational changes by merging securities-related brokerage and advisory services into a single unit, Securities Brokerage, with the aim of enhancing the Bank's strength in the securities market and fostering continued product development. Despite demanding market conditions, the Bank's Asset Management initiative has been successful, and we see a steadily growing number of customers seeking out these services.  

We issued the first loans in cooperation with Iceland Funds' Corporate Credit Fund, which grew and expanded during the year. Fund subscribers rose in number from 2,200 in 2021 to 2,800 in 2022, an increase of roughly 25%. Households have continued to step up their saving, investing a sizeable share in funds, with the result that assets under management by Iceland Funds are at an all-time high. Iceland Funds' digital business grew by 7% in 2022, and now nearly half of all transactions take place via the Íslandsbanki app. In addition, Íslandsbanki is a leader in responsible investment and published data on its financed emissions for the first time during the year.  

Focus on equal rights 

Íslandsbanki places great importance on equal rights in a broad sense, including gender parity, inclusiveness, and accessibility for all. News coverage during the year included reports of setbacks in attitudes towards minorities. We must be on the watch and work against potential setbacks in equal rights – not only as regards the Bank's personnel, but also vis-à-vis our customers and our product offerings.  

Íslandsbanki works systematically to boost knowledge, proficiency, and interest in finance by offering accessible and interesting educational materials on financial matters. These materials are also available in English, and special educational seminars have been held for refugees. Furthermore, at the beginning of the year we offered a remote seminar tailored to young people aged 16-25. Íslandsbanki also makes an effort to provide service to immigrants and has made its app and online bank available in English and Polish.  

Furthermore, the Bank has focused on boosting women's interest and participation in investing. During the year, Íslandsbanki had the distinct honour of receiving the Equality Scale by the Association of Businesswomen in Iceland (FKA) for the fourth time in a row. Recognition such as this encourages us to hold fast to our commitment to focus on equal rights. It was particularly satisfying to see a full house at our meeting on women and finance. Íslandsbanki has held regular meetings on equal rights-related matters since 2015, and over 2,000 women have attended.  

The Íslandsbanki Entrepreneurship Fund pursued its goal of encouraging innovation and development during the year, and in early December it awarded ISK 40 million in grants to 15 entrepreneurial projects. In order to be eligible for a grant, the project must promote the four UN Sustainable Development Goals that Íslandsbanki has chosen to emphasise. In recent years, the Fund has awarded ISK 165 million in grants to a wide range of projects. 

Spotlight on sustainability 

Íslandsbanki traces its history back to 1875. In its earliest years, the Bank participated in the development of the fishing industry, acting as a springboard for the Icelandic economy. From the outset, the Bank has been a force in the community, and since 2014 sustainability has been one of its key strategic priorities. The results of the strategy formulation work done in 2019 defined sustainability and a positive impact on society as the Bank's role: to be a force for good in the community.  

The links between sustainability and service are growing stronger, and a steadily increasing number of firms have examined their operations and made changes so that they, like Íslandsbanki, can be a force for good. It is important that we all put our weight on the scales, but it was certainly gratifying to us to see Íslandsbanki stand out from the crowd for its focus on sustainability. In a survey conducted among Iceland's 300 largest firms, 55% of respondents mentioned Íslandsbanki as the leader for sustainability, which a constantly growing number of firms consider an important aspect of business operations.  

Customers' interest in sustainable products can also be seen throughout the Bank. A Gallup survey carried out at the beginning of the year also shows this clearly. Respondents were asked whether it mattered to them that their main commercial bank was a leader in sustainability. In the most recent survey, six of every ten participants said it mattered a great deal, which is twice the number from the previous year, when three of every ten gave the same response. This is, of course, enormously encouraging for us.  

Net zero is the goal 

Íslandsbanki's brand is strong and its image positive – enough so that the Bank was nominated by Brandr as one of Icelands top brands among companies with over 50 employees in the individual market.  

The Bank's performance in sustainability also continued to improve, according to ESG rating company Reitun, as Íslandsbanki received the highest score this past summer even though requirements had been tightened between years. It was extremely gratifying to see the Bank's environmental score rise by 12.9% year-on-year. Íslandsbanki's strong performance in the assessment reflects its determination to be a model of exemplary operations in the Icelandic business community. Emphasis on sustainability is part of all procedures and work habits within the Bank, and employees and management alike are keenly aware of the need to perform well in this area. We care about the environment and continue to work towards our target of achieving full carbon neutrality by 2040.  

Íslandsbanki is also a founding member of the Net-Zero Banking Alliance, an international alliance of banks that have committed to achieving carbon neutrality no later than 2050. We are proud to participate in a worldwide network of banks that share the experience and expertise they have gained on their journey towards this shared goal. 

Concurrent with the publication of our third quarter 2022 financial statements, we released our carbon neutrality report, On the Road to Net-Zero. One of the key findings from the report is that emissions from lending activities will decline 60% by 2030 and 85% by 2040. On the Road to Net-Zero shows, however, that the goal of achieving a carbon-neutral loan portfolio by 2040 is a very ambitious one. The path to this target is certainly not an easy one, nor is it fully mapped out. But the policy must be set so that it can be made clear what steps we must take, bravely and steadfastly. We want to show by our actions that we are ready to support our customers on their path to reduced emissions.  

Sound operations 

During the year, Íslandsbanki was designated Iceland's best bank by Euromoney magazine for the fifth time, with the adjudication panel citing the Bank's successful operations, income growth, and cost reduction. Awards like this are always encouraging to us. 

In 2022, Íslandsbanki generated a profit of ISK 24.5 billion, and its return on equity amounted to 11.8%, exceeding both the Bank's internal targets and market agents' expectations. Income growth year-on-year measured 14.1%, including 27% growth in fees and commissions. The Bank's expense ratio was 42.1%, down from the previous year's ratio of 46.2%. Loans to customers reflect trends in the Icelandic real estate market, growing by ISK 100 billion, or 9.2% year-on-year. Customer deposits grew by ISK 47 billion, or 6.2%. 

Furthermore, the Bank worked systematically with its customers to create the most favourable financing structure for them; for instance, by combining bond issues with conventional loans. Íslandsbanki leads the market for FX Sales, which had yet another good year in 2022.  

The State continued to scale down its holding in the Bank during the year, selling a 22.5% stake in March, leaving its ownership share at 42.5% at the year-end. The execution of the sale and the Bank's role as advisor generated significant public discussion. Official entities have conducted an appraisal of the share capital offering, and the results are expected in the near future. 

Thanks to customers and staff members 

As we look back, we can be proud of the Bank's performance in 2022, which reflects our values: passion, collaboration, and professionalism. I would like to thank the Bank's employees, who gave their all to provide top-quality professional service to our customers.  

In the past few years, Icelanders have weathered a host of storms: the COVID-19 pandemic, foreign war, the knock-on effects of both on the domestic price level, and economic uncertainty. At Íslandsbanki, we stand shoulder-to-shoulder with our customers and partners through good times and bad, and we look forward to doing so in the future.  

The Bank's owner group has grown broader with the last share capital offering, and it will become even more diverse when the next steps in that direction are taken. But no matter what its ownership structure is, the Bank stands on solid ground, with good values and a clear strategy for the benefit of shareholders and society alike – a force for good in the community and the economy.