Third quarter 2021 (3Q21) financial highlights – best quarter in more than five years
Íslandsbanki reported a net profit of ISK 7.6bn in the third quarter (3Q20: ISK 3.4bn) generating an annualised return on equity of 15.7% (3Q20: 7.4%) which is above both the Bank’s financial targets and market expectations.
Growth in loans to customers during the year led an increase in net interest income YoY which totalled ISK 8.8bn in 3Q21 compared to ISK 8.3bn in 3Q20.
Net fee and commission income grew 20% YoY and amounted to ISK 3.4bn in 3Q21. Asset management and investment banking and brokerage are primary drivers for the increase.
The Bank focuses on core banking operations with NII and NFCI accounting for around 92% of total operating income in 3Q21. These two items grew 9% YoY.
Net financial income was ISK 941m in 3Q21 compared to a loss of ISK 255m in 3Q20, the increase largely explained by a positive value change in unlisted equity instruments and by income from listed shares and equity instruments.
Administrative expenses are comparable YoY totalling ISK 5.1bn in the 3Q21.
Cost-to-income ratio (C/I ratio) was 39.4% in 3Q21, below target, down from 46.7% in 3Q20 due to strong revenue generation and cost reduction efforts.
A positive ISK 1.8bn net impairment on financial assets in 3Q21 is mainly attributable to a brighter outlook for the tourism industry and reduced impairments on loans to individuals resulting from an updated risk assessment model. This is compared to an impairment charge of ISK 1.1bn in 3Q20. The net impairment charge over loans to customers, the annualised cost of risk, was -0.64% in 3Q21 compared to 0.44% in 3Q20.
Loans to customers fell by 0.8% in the quarter to ISK 1,081bn as growth in mortgages lending normalises following Central Bank rate hikes, whilst the growth from year-end 2020 is 7.4%, mostly driven by mortgage lending but also by growth in loans to companies.
At the end of the reporting period, the share of credit-impaired loans to customers was 2.0% (gross) down from 2.9% at YE20 following full repayment of exposures in Stage 3.
Deposits from customers fell by ISK 11bn in the quarter, the outflow is a result of the cash settlement of shares from the Bank’s IPO. Nonetheless, deposits grew by ISK 75bn in 2021.
The liquidity position remains strong with all ratios well above regulatory requirements and internal thresholds.
The Bank issued its inaugural Additional Tier 1 (AT1) issue in September – a SEK 750 million perpetual non-call 5-year transaction, paying a margin of STIBOR + 475 basis points. The deal was well oversubscribed and was sold to investors across the Nordic countries, France and Switzerland.
Total equity amounted to ISK 197bn at the end of September and the Bank’s capital ratio was 24.7%, including 3Q21 profit, compared to 23.0% at YE20. The corresponding CET1 ratio was 20.6%, up from 20.1% at YE20 This is considerably higher than the total capital ratio target which is currently at 18.3-19.8% and 19.5-21.0% in the long term.
The leverage ratio was 13.2% at the end of September, including 3Q21 profit, compared to 13.6% fat YE20, indicating low leverage.
First nine months 2021 (9M21) financial highlights – net profit turnaround led by positive net impairment
The Bank’s net profit for the first nine months of year 2021 was ISK 16.6bn (9M20: ISK 3.2bn) with annualised return on equity for 9M21 of 11.7% compared to a 2.4% in 9M20.
Net interest income totalled ISK 25.4bn in 9M21, a growth of 1.1% YoY which is explained by larger lending volumes and despite a low interest rate environment.
Net fee and commission income increased by 20.1% between years. The growth is evenly distributed between income types, demonstrating a strong underlying income foundation. Net fee and commission income totalled ISK 9.2bn for the first nine months of the year.
Net financial income was ISK 1.9bn compared to a loss of ISK 2.2bn for 9M20 as markets have been considerably more benign in 2021 compared to 2020
Administrative expenses rose between years, mostly explained by a one-off cost in relation to the Bank’s IPO (ISK 663m in 1H21) and salary increase due to collective salary increase and redundancy costs following layoffs.
Cost-to-income ratio dropped significantly YoY from 55.3% in 9M20 to 46.6% in 9M21.
Net impairment on financial assets was positive of ISK 2.4bn in the first nine months of 2021, mainly due to brighter outlook for the tourism industry, compared to a charge of ISK 7.0bn in 9M20 which reflected the economic situation at the start of the COVID-19 pandemic. The net impairment charge over loans to customers, the annualised cost of risk, was -0.30% in 9M21 compared to 0.98% in 9M20.
Key figures and ratios
Profit for the period, ISKm
Return on equity
Net interest margin (on total assets)
Cost of risk
Loans to customers, ISKm
Total assets, ISKm
Risk exposure amount, ISKm
Deposits from customers, ISKm
Customer loans to customer deposits ratio
Non-performing loans (NPL) ratio2
Liquidity coverage ratio (LCR), for all currencies
Net stable funding ratio (NSFR), for all currencies
Total equity, ISKm
CET 1 ratio3
Tier 1 ratio3
Total capital ratio3
1.Calculated as (Administrative expenses + Contribution to the Depositors' and Investors' Guarantee Fund – One-off items) / (Total operating income – One-off items)
2. Stage 3, loans to customers, gross carrying amount
3. Including third quarter profit
Birna Einarsdóttir, CEO of Íslandsbanki
Íslandsbanki’s financial result for 3Q21 is the best in over five years with a profit of ISK 7.6bn and an annualised ROE of 15.7% which is well above the Bank’s targets and market expectations. Although the improvement over the same quarter last year is mainly explained by an ISK 1.8bn positive net impairment of financial assets in 3Q21, there has also been strong underlying performance across the Bank. The reversal of impairment is mostly due to a brighter outlook for the tourism industry and subsequently, the cost of risk continues to normalise. Net interest income rose by 6% between years, largely as a result of higher lending volumes mainly in mortgages. Net fee and commission income rose by 20% due to strong operations, where nearly all income types contributed to the increase. Cost-to-income was 39.4% in the quarter, below the Bank’s target, as a result of strong income generation and cost reduction efforts in previous periods. Consequently, Íslandsbanki is well on its way to reach the long-term double-digit ROE target. In addition, the Bank successfully issued its inaugural Additional Tier 1 notes amounting to SEK 750m, during the quarter, as part of its plan to optimise its capital structure.
Íslandsbanki shares have traded strongly in the Nasdaq stock exchange since the successful completion of the Bank’s initial public offering (IPO) in June. The most widely held stock in Iceland, Íslandsbanki shares have traded in high volumes and have performed very well in comparison to listed companies and Iceland and listed Nordic banks.
Customer activity was vivid in the quarter and the use of the Bank’s digital services greater than ever. The Bank also participated in the issue of a green/blue bond with seafood company Brim and a social bond with Grunnstoð, subsidiary of Reykjavik University.
The implementation of the new core lending system is well under way and is on track to be finalised by year-end. Íslandsbanki will then have completed the update of all its core banking infrastructure making it even better equipped to be the chosen digital banking partner to its customers.
An earnings conference call and webcast will take place on Friday 29 October 2021
The Bank will host an investor meeting and webcast in English for investors and market participants on Friday 29 October at 8.30 Reykjavík/GMT, 9.30 London/BST, 10.30 CET. Birna Einarsdóttir, CEO, and Jón Guðni Ómarsson, CFO, will give an overview of the third quarter financial results and operational highlights.
Participant registration 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 in order to be able to ask questions please use the following dial-in details:
+354 800 74 37
+45 354 45 577
+46 8 566 42 651
+47 235 00 243
+44 33 330 00 804
+1 631 913 1422
Confirmation Code: 90140657#
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
For further information:
Investor Relations - Margrét Lilja Hrafnkeldsóttir email@example.com Sími: 844 - 4033
Public Relations - Björn Berg Gunnarsson, firstname.lastname@example.org Sími: 844 - 4869
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With a history that dates from 1875, Íslandsbanki is an Icelandic universal bank with a strong customer focus. The Bank believes in moving Iceland forward by empowering its customers to succeed - reflecting a commitment to run a solid business that is a force for good in society. Driven by the ambition to be #1 for service, Íslandsbanki’s banking model is led by three business divisions that build and manage relationships with its customers. Íslandsbanki maintains a strong market share with the most efficient branch network in the country, supporting at the same time its customers’ move to more digital services. The Bank operates in a highly attractive market and, with its technically strong foundations and robust balance sheet, is well positioned for the opportunities that lie ahead. Íslandsbanki has a BBB/A-2 rating from S&P Global Ratings. The Bank’s shares are listed on Nasdaq Iceland Main Market.