First Quarter 2020 (1Q20) financial highlights
- Íslandsbanki made a loss in 1Q20 of ISK 1.4bn compared to a profit of ISK 2.6bn in 1Q19. Annualised return on equity (after tax) in 1Q20 was -3.0% (1Q19: 5.9%).
- Net interest income was ISK 8.6bn (1Q19: ISK 7.9bn), an increase of 8.1% between years and the net interest margin was 2.8% (1Q19: 2.7%).
- Net fee and commission income totalled ISK 2.5bn (1Q19: ISK 2.6bn), down by 5.9% between years.
- Loan impairment charges and net valuation changes generated a loss of ISK 3,490m in 1Q20, compared to ISK 907m loss in1Q19.
- Administrative costs dropped by 8.4% between years and totalled ISK 5.7bn (1Q19: ISK 6.2bn).
- The cost to income ratio for the Group for the period was 62.9% compared to 59.6% for the same period in 2019 while the same ratio for the parent company was 61.5% compared to 58.1% in 1Q19.
- Loans to customers grew by 2.7% during 1Q20, to a total of ISK 924bn. The loan book grew mainly as a result of the depreciation of the Icelandic króna in the period, or by ISK 20.8bn. Total new lending amounted to ISK 57bn and refinancing amounted to ISK 16bn.
- Deposits from customers stood at ISK 648bn at end of 1Q20, an increase of 4.8% in 1Q20.
- Íslandsbanki´s liquidity position is strong, both the Icelandic króna and in foreign currencies, and exceeds all internal and external requirements. LCR and NSFR ratios were 177% and 120% respectively in all currencies for the Group at the end of March.
- Capital ratios are robust with the total capital ratio at 21.9% compared to 22.4% at year-end 2019, well above the Bank´s regulatory requirement of 17%. The Tier 1 ratio was 19.2% at the end of March compared to 19.9% at year-end 2019.
- Leverage ratio was 13.5% at end of 1Q20 compared to 14.2% year-end 2019, which is moderate by domestic and international comparison.
- Despite the Bank’s long-term dividend payout ratio target of 40-50%, the Annual General Meeting approved that a dividend to shareholders for the 2019 financial year should not be paid in light of uncertainties due to unprecedented circumstances in the financial markets. The Board may convene a special shareholder meeting later in the year where a proposal regarding payment of dividends of profit for previous fiscal years could be considered.
Birna Einarsdóttir, CEO of Íslandsbanki
Íslandsbanki is committed to work closely with its customers and to support them through the challenges they may face as a result of the ongoing pandemic. In order to support customers who are affected, several measures such as payment deferrals have already been put in place. The actions announced by the government also are rigorous and I am optimistic that the economy will have a swift recovery.
The financial results for the first quarter are impacted by large negative impairments and losses the trading and banking books for equity and equity like instruments. ROE is below our target as a result of the unprecedented circumstances that COVID-19 has led to. We are however pleased to see administration cost reduce by 8.4% and an increase in net interest income by 8.1% quarter on quarter. Íslandsbanki continued to provide liquidity to the economy with new lending amounting to ISK 57bn in the quarter. Deposits, that remain the Bank’s main source of funding, increased by 4.8% from year-end outpacing lending growth.
Íslandsbanki enters these turbulent times in a position of strong capital and liquidity with relevant ratios well above internal and regulatory targets. As a result, the Bank´s funding requirement for 2020 in foreign currencies is minimal. The Bank’s CET1 ratio is robust at 19.6%, ensuring our ability to support our customers.
In Q1, the Bank introduced three digital solutions that will make customers’ life easier. Customers can now refinance their mortgages via a digital solution, onboard themselves for securities trading in just a few minutes and sign documents electronically where laws allow.
Changed conditions in the community due to COVID-19 have meant that we have had to think in terms of solutions. We would like to thank our customers for adapting quickly to changing circumstances and for showing patience during these challenging times. I am also proud of the swift adjustment to remote working environment that the Bank’s employees have done with professionalism.
The strong balance sheets of households, corporates and the Icelandic state and strength of the Icelandic banking system coupled with a highly adaptable economy will enable the Icelandic nation to navigate through current events. Íslandsbanki will be there to support its customers and live by its vision to be number one for service.
COVID-19 related response
- The Government has introduced actions for individuals and corporates to counteract unemployment and to support and protect enterprises and innovation
- The Central Bank has acted to support the economy by e.g. lowering base rates and lower countercyclical buffer
- Íslandsbanki has supported individuals by allowing deferral of payments of principal and interest with more than 1,000 applications approved. Use of digital solutions has increased greatly, following closure of all branches, phone advisory has been available with bookable hours and special support has been available for senior citizens.
- In order to support corporates, suspension of repayments and interests on loans for up to six months is available. This is in line with agreement between financial institutions and SFF (Icelandic Financial Services Association). Focus has also been increased on proactively contacting customers to offer advice, conversation and solutions to challenges arising for corporate customers. An early allocation will also be made from the Bank’s Entrepreneur Fund.
- Electronic signatures have enabled quicker service and limited visits to branches as well as support offered to navigate via digital channels.
- Branches have been closed except for matters of urgent importance but will reopen on 11th of May.
- Business continuity has been ensured as approximately 85% of employees have been working from home during the COVID-19 period. The Bank was technically well prepared for remote working. Continuity and pandemic plans were already in place.
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