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Íslandsbanki’s S&P rating raised to BBB/A-2 with positive outlook

Today, S&P Global Ratings (S&PGR) upgraded Íslandsbanki to BBB/A-2 from BBB-/A-3 with positive outlook.

According to S&PGR the upgrade primarily reflects improving operating conditions for Iceland's banking sector, with falling private sector leverage and improved access to foreign debt capital markets. Thus, S&PGR revised upward their anchor for banks operating in Iceland, the starting point in assigning a rating to Islandsbanki, to 'bbb-' from 'bb+'.

The positive outlook reflects positive trends in the Icelandic economy and the banking sector, and that the Bank's capital ratios remain strong while it prepares for a potential ownership change.

S&PGR further note that Íslandsbanki's capital levels are high by comparison. Thus, the rating score for ‘Capital and earnings’ was moved to ‘very strong’ from ‘strong’ resulting in a stand-alone credit profile (SACP) of 'bbb+', or a two-notch improvement from the 'bbb-' anchor. However, due to uncertainty as to future capitalisation levels in preparation for a possible sale or IPO, S&PGR apply a one-notch negative adjustment to the SACP resulting in a 'BBB' issuer credit rating. Rationale being that given Íslandsbanki’s very high leverage ratios versus international peers, the Bank may optimise its capital base in preparation for a possible sales process in the near future.

Jón Guðni Ómarsson, CFO
“There has been significant progress in the past 12 months to the benefit of Íslandsbanki and its operating environment. The debt levels of the Icelandic sovereign, as well as for individuals and corporates in Iceland, have been greatly reduced and the long awaited steps towards the lifting of capital controls passed into law. Íslandsbanki recently issued a benchmark bond issue of EUR 500m making us fully market funded. The Bond was well received by investors and has performed well in the secondary market. The rating upgrade to BBB/A-2 is well aligned with these developments.

From a stand-alone point of view, we continue to report solid returns based on very high capital levels, which together with our prudent liquidity management measures ensures Íslandsbanki is fully prepared for any effects that may stem from the full lifting of capital controls.“

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