The Financial Supervisory Authority of the Central Bank of Iceland carries out an annual assessment of risk in the operations of systemically important financial institutions by means of a Supervisory Review and Evaluation Process (SREP). The process involves an assessment of the capital requirement for financial institutions which results in an additional capital requirement under Pillar 2.
The conclusion of this annual process for Íslandsbanki has now been made available. The Bank shall as of 30 June 2021 maintain an additional capital requirement of 2.5% of risk-weighted assets, which is an increase of 0.8 percentage points from the previous assessment. The Bank’s total capital requirement, taking into account capital buffers, therefore increases from 17.0% to 17.8%.
The increase is mostly due to temporary effects of COVID-19 and partially offsets the 2.0% reduction of the counter-cyclical capital buffer in March 2020. In the prospectus published on 7 June 2021 the Bank disclosed that the capital requirement was expected to increase and that the increase should be less than the reduction of the counter-cyclical buffer. This conclusion is therefore in line with the Bank’s expectations.