Birna Einarsdóttir, Chief Executive Officer

Chief Executive’s review

2015 was a satisfying year for Íslandsbanki on a number of levels. I am pleased to report solid returns based on very high capital levels, alongside balanced growth across all sectors of the Bank’s operations. This growth is rooted primarily in an economy that is more balanced than before, and in a proven strategy that delivers mutually beneficial relationships for both the Bank and its customers. Íslandsbanki continues to be ranked at the top in terms of customer satisfaction, giving us the potential to expand our market share.

A leading bank in Iceland, with a proven strategy

For the past five years, Íslandsbanki has been pursuing a vision that puts the ambition of being “#1 for service” at the core of our strategy. We are constantly broadening our understanding of our vision and our common goals. In 2015, the Bank carried out an in-depth analysis based on interviews, research and service surveys conducted among customers and employees. The result was that six points were defined as pillars of our vision to be #1 for service.

Until 2015, this vision has been articulated solely within the Bank, but we feel that the time is right to make a public promise to our customers – a promise that we will provide them with the best possible service. The message is simple and easy to understand: We have decided to provide the best banking services in Iceland, thereby making it easier for our customers to make well-informed decisions. This is a big promise, but it also entails a certain humility, zest for life, and understanding of the role of banking services in people’s lives.

It was therefore immensely satisfying when it was announced that Íslandsbanki was the highest-ranking bank in the Icelandic Customer Satisfaction Index for the third year running.

Iceland is an investment-grade market

There is increasing confidence in the Icelandic economy and its institutions, and in the prospects for continued, balanced prosperity in the years ahead. This confidence is exemplified by developments in credit ratings in 2015, with international rating agencies continuing to upgrade the Republic of Iceland’s investment-grade sovereign ratings and confirming Íslandsbanki as an investment-grade proposition for investors.

Balanced growth and profitability against a solid capital base

Íslandsbanki reported a strong return on equity despite rising equity levels, with its total capital ratio reaching the highest level seen since the Bank’s establishment. Core operations continued to produce stable income, and the net interest margin reached a sustainable level. The majority of the Bank’s total operating income originates from net interest income and net fee and commission income, resulting in a net profit of ISK 20.6bn, which translates to a return on equity of 10.8%.

The Bank has undertaken several projects designed to streamline its operations and improve efficiency, and these have begun to bear fruit, proving that Íslandsbanki is an eminently scalable platform. Costs are being kept under control by consolidating the Bank’s branch network, reducing the workforce and implementing various costcutting initiatives. At the same time, fee and commission income rose at an annual rate of 14.7%.

Íslandsbanki runs one of the most diversified funding programmes in Iceland and is the only bank to enjoy BBB- ratings from both Fitch and Standard & Poor’s. In addition to its presence in the retail deposit market, the Bank leads the field in covered bond issuance in the domestic market. Recent developments in the credit ratings of the sovereign and the Bank should encourage further improvement in borrowing terms and market access in the future.

Íslandsbanki is well capitalised, with one of the highest CET1 ratios of any universal bank. The Bank’s capital is also of high quality, as Íslandsbanki has not been required to issue hybrid capital of any type. Gearing is also very low by international comparison – our leverage ratio was 18.1% at year-end. This, in combination with strong profitability, means that Íslandsbanki is ready to contemplate its future ownership structure. Furthermore, the Bank has an attractive dividend policy, which targets a 40-50% payout ratio in the long term.

Low risk profile – transparent, safe, and simple business model following successful restructuring

Íslandsbanki’s loan portfolio has been all but transformed in recent years. At year-end 2015, the non-performing loan ratio was 2.2%, effectively putting Íslandsbanki in the top 25% of banks in Europe by that measure – an impressive performance given the Bank’s starting point in 2008. Íslandsbanki follows a transparent, safe, and simple business model that stresses prudent underwriting standards, strong liquidity, and a diversified funding strategy.

 

Multiply, simplify, and unify our customer relationships

Our relationship banking model drives how we build relationships with our customers, simplify our product offerings, and unify our objectives with society at large – or, as we like to put it – how we multiply, simplify and unify. 

New lending in 2015 totalled ISK 152bn, most of it to SMEs and large companies; however, demand for asset financing and residential mortgages has been on the rise as well. The Corporate Banking division had a very productive year, with new lending totalling ISK 52.6bn in 2015. The division was involved in many of Iceland’s large financing activities and continued to hone its international strategy in the North-Atlantic, capitalising on its historical expertise in selected markets.
The Markets division recorded a strong performance, owing to increased activity in capital markets, foreign exchange, and specific products enabling our customers to manage their risk more effectively. The Bank’s Corporate Finance team, the largest in Iceland, has been voted the leader in corporate finance for five years in a row, presumably due to its successful management of five of the twelve Main Market listings since 2010 and seven of the fifteen IPOs over the same period.

In addition to its educational outreach activities, VÍB and IS Funds introduced seven new funds this year, including two new covered bond funds as investment options available to the general public. This comparatively new asset class in Iceland is growing strongly, with total issuance in 2015 outpacing that of the Icelandic Treasury.

Íslandsbanki’s leading revenue generator by a wide margin, however, is Retail Banking. The Bank merged two branches in 2015 and continues to operate the most efficient branch network in Iceland, with 17 branches providing nationwide coverage. As we continue our transition of converting traditional cashier services to more complex advisory centres and self-service branches, we note that simple transactions and day-to-day banking business are increasingly being carried out through digital channels.

Digital channels have become our customers’ most preferred service medium. Last year we invested substantially in our digital service platform, adding new functions and solutions and strengthening our digital infrastructure. In 2011, we introduced our highly successful app for mobile devices. Over the course of 2015, the number of active users grew by more than 41% and the number of app-based financial transactions by a full 52%.

Ergo, the Bank’s asset financing division, continues to lead the asset financing market, with a market share of 57% in financing of corporate purchases of registered motor vehicles and 65% in lending to car rental agencies. New lending rose 25% over the year, some 82% of it to companies, car rental agencies in particular.

In response to strong growth in credit card turnover, the Bank has begun simplifying and improving its product line. In 2015, we swapped out about 95,000 VISA debit cards for MasterCard and simultaneously reduced credit card types from 117 to 15 and debit card types from 26 to 8.

Dedicated team delivering success

We are making great strides towards building the Bank we have been aspiring to. We are a strong, united team, and together we have achieved success that we can be proud of. We intend to continue on this path and demonstrate beyond doubt that Íslandsbanki provides the best banking services in Iceland. My thanks go out to all of our staff for their part in realising our ambition.

Íslandsbanki’s Annual Report 2015, together with the Consolidated Financial Statements and Pillar 3 Report, provide an extensive overview of the Bank‘s operations and business activities over the year. 

The reports are available in a PDF format.

Annual Report Financial Statements Pillar 3 Report

In addition, all presentation material, including the press release, fact sheet, fact book and video, is available on the IR website under financials.
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