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Fin­an­cial res­ults for fourth quarter 2022 and full year res­ults 2022

Fourth quarter 2022 (4Q22) financial highlights – Strong financial results in a volatile market environment

  • Íslandsbanki reported a profit of ISK 6.0bn in the fourth quarter (4Q21: ISK 7.1bn), generating an annualised return on equity (ROE) of 11.1% (4Q21: 14.2%), 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 42.9% YoY and totalled ISK 12.3bn in 4Q22, compared to ISK 8.6bn in 4Q21, 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 3.1% in 4Q22, compared to 2.4% in 4Q21.
  • Net fee and commission income (NFCI) grew 10.5% YoY and amounted to ISK 4.0bn in 4Q22, compared to ISK 3.7bn in 4Q21. Fee income from Allianz Ísland hf., a subsidiary of the Bank, and fees from cards and payment processing are the primary drivers of the increase.
  • The Bank focuses on core banking operations, with NII and NFCI accounting for 102% of total operating income in 4Q22, compared to 93.7% in 4Q21. These two items combined grew by 33.3% from 4Q21 to 4Q22.
  • Net financial expense was ISK 899m in 4Q22, compared to net financial income of ISK 646m in 4Q21, mainly owing to fluctuations in interest rates in both Icelandic krona and foreign currencies.
  • Administrative expenses were ISK 6.8bn in 4Q22 compared to ISK 5.8bn in 4Q21, an increase of 18.2% YoY. The rise is mainly explained by inflation, wage increases and a provision relating to an administrative fine.
  • The cost-to-income ratio was 42.5% in 4Q22, below the Bank’s financial target, down from 45.3% in 4Q21, due to strong revenue generation.
  • The net impairment of ISK 0.6bn in 4Q22 is due to increased inflation and its potential impact on credit quality. This is compared to a positive impairment of ISK 0.6bn in 4Q21. The net impairment charge as a share of loans to customers, the annualised cost of risk, was +22bp in 4Q22, compared to -23bp in 4Q21.
  • Loans to customers grew by ISK 33.6bn in the quarter, or by 2.9% to ISK 1,186bn.
  • Deposits from customers grew by ISK 8.3bn, or 1.1%, during the quarter, up to ISK 790bn. The increase did primarily come from Corporate & Investment Banking and Personal Banking.
  • The capital and liquidity position of the Bank remains robust with all ratios well above both internal targets and regulatory requirements.

2022 (FY22) financial highlights – Growth in core income key driver in a strong result

  • The Bank’s net profit for 2022 was ISK 24.5bn (2021: ISK 23.7bn) with annualised return on equity for 2022 of 11.8% compared to 12.3% in 2021.
  • Net interest income totalled ISK 43.1bn in 2022, an increase of 26.7% YoY, explained by growth in loans to customers and deposits from customers and a higher interest rate environment. The net interest margin was 2.9% in 2022, compared to 2.4% in 2021.
  • Net fee and commission income (NFCI) grew 9.4% YoY and amounted to ISK 14.1bn in 2022, compared to ISK 12.9bn in 2021. Rise in fee income from cards and payment processing, strong performance in Allianz Ísland hf. together with good activity in FX brokerage were the primary drivers of the increase.
  • Net financial expense was ISK 1,257m in 2022 compared to income of ISK 2,499 for 2021, due to volatility in capital markets and a rising rates environment.
  • Administrative expenses were ISK 23.9bn in 2022 compared to ISK 23.2bn in 2021, an increase of 3.1% YoY and a reduction by 4.8% in real terms.
  • Cost-to-income ratio dropped YoY from 46.2% in 2021 to 42.1% in 2022.
  • Net impairment on financial assets was positive and amounted to ISK 1,576m in 2022 (2021: ISK 3,018m), mainly due to a more positive outlook for the tourism industry along with the results 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 -14bp in 2022, compared to -28bp in 2021.
  • Total equity at year-end 2022 amounted to ISK 218.9bn compared to ISK 203.7bn at year-end 2021. In 2022, Íslandsbanki paid ISK 11.9bn in dividends to shareholders. The Bank’s total capital ratio was 22.2% at year-end, compared to 25.3% at year-end 2021. The corresponding CET1 ratio was 18.8%, compared to 21.3% at year-end 2021. This is considerably above the Bank´s long-term CET1 target of ~16.5%.
  • The Bank’s MREL-requirement is 21.2% of the total risk exposure amount (TREA). The MREL-requirement including combined buffer requirements was 30.5% at year-end 2022, the Bank’s ratio was 34.5% at year-end 2022.

Capital optimisation, dividend and buyback of own shares

  • The Board of Directors will be proposing an ISK 12.3bn ordinary dividend to the Bank´s Annual General meeting (AGM), in line with the Bank’s dividend policy.
  • The capital ratios take into account the previously planned share buyback of ISK 15bn. The Bank has seen a profitable growth in loans to customers during 2022 which exceeded initial plans and sees further opportunities to grow its loan portfolio. Furthermore, due to volatility in the global economy and capital markets, the Central Bank of Iceland has asked the Icelandic banks to be careful in terms of capital distributions in the near term. The Bank is therefore planning to start its share buybacks with a standard ISK 5 billion buyback program, to be conducted over the next few months and will make any required announcements to the market in due course. The remaining ISK 10 billion will be added back to the Bank's capital buffers and will result in a 100bps increase in the Bank’s capital ratios. The Bank will seek a renewed approval for share buybacks from the Bank's AGM in March and is planning to optimise its capital structure before year-end 2024.

We are pleased with the fourth quarter and full year 2022 results. We participated in many exciting initiatives with our customers and were a force for good. The fourth quarter net profit amounted to ISK 6.0bn and ISK 24.5bn for the full year 2022 with ROE being 11.8% for the full year. Total operating income rose by more than 14% in 2022 with net interest income up by almost 27% year-on year. The cost-to-income ratio was 42.1%, below our target of 45%. Loan growth was distributed equally between retail and corporate customers and was 9.2% for the full year. Deposits from customers also grew substantially, by 6.2% which further reinforces our main funding source. Conditions in the international bond markets remained challenging for most of the year. Nonetheless, the Bank successfully issued several transactions in foreign and domestic markets. Among milestones of the year were the Bank´s inaugural issues of covered bonds in euros and of subordinated bonds in Icelandic króna which further diversified the Bank´s funding mix.
We have started a strategic review that seeks to redefine and articulate the Bank's strategic projects for the coming years. Four years have passed since such review was last carried out and we can point to great success in meeting the objectives that it set out. We have retained the consulting firm McKinsey to lead the strategy work. We are pleased with good results across all business units, all of which are generating good return on equity. We are the market leader among small and medium-sized companies and enjoy the highest market share among the 300 largest companies in the country. This success is extremely important to us as SMEs are the backbone of the Icelandic economy and they have responded vigorously to the recent international economic turbulence. At the Bank´s AGM in March 2023 we will seek approval to pay out dividend in line with the Bank’s dividend policy. The bank will also initiate buyback of its shares. I am excited by the prospects for 2023 and the opportunities to be of further service to our customers and stakeholders.

Birna Einarsdóttir
CEO of Íslandsbanki

Investor relations
An earnings conference call and webcast will take place on Friday 10 February 2023
Íslandsbanki will host a webcast in English market participants on Friday 10 February at 8.30 Reykjavík/GMT/London, 9.30 CET. Birna Einarsdóttir, CEO, and Jón Guðni Ómarsson, CFO, will give an overview of the fourth 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.
Financial calendar
Íslandsbanki plans to publish its financial statements and hold its annual general meeting according to the financial calendar below:
Annual General Meeting — 16 March 2023
1Q23 results — 4 May 2023
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.