Standard & Poor's affirmed its rating on Íslandsbanki, BBB-/A-3 with stable outlook, after Glitnir hf. creditor group submitted amendments to its previous proposal concerning Glitnir's stability contributions. As part of the changes, Glitnir will relinquish to the government of Iceland all of its shares in ISB Holding ehf., which owns 95% of shares in Íslandsbanki. With this proposed change, Íslandsbanki will no longer pay dividends to Glitnir as was originally planned.
In their research update S&P notes that although Íslandsbanki will not pay dividends to Glitnir under the new agreement, they see the government's ownership as accommodating Glitnir's owners' desire to simplify the agreement and allow them to extract capital from Iceland by the end of the year.
S&P also notes that they do not see Íslandsbanki as a strategic investment for the government and believe that the Bank will be up for sale from the government of Iceland within two years. They believe that it is likely that capital levels will be reduced in preparation for an eventual sale and, as such, project the risk-adjusted capital (RAC) ratio at 12%-13% by the end of 2017, down from a pro forma mid-year 2015 RAC ratio of 17.3%.
S&P's stable outlook on Íslandsbanki reflects their assumption that Íslandsbanki will retain strong capital and liquidity buffers, even after expected deposit outflows owing to the relaxation of Iceland's capital controls over the coming months.