CEO's address

In Íslandsbanki's operations, 2024 was a year of development and new resilience. We invested in infrastructure and governance to underpin future growth and provide even better service to our customers. It was also a frenetic year for the Icelandic economy, with earthquakes and volcanic eruptions on the Reykjanes peninsula shaking the real estate market and the tourism industry. High interest rates and inflation seemed like permanent guests early in the year, but they gave way in the autumn, giving the securities market and the economy a welcome shot in the arm.

For Íslandsbanki as well, 2024 was something of a turning point. After a period of internal reform, we began work on a new strategy based on themes selected by the Bank's Board of Directors, management, and employees. This work was successful, and we held workshops with our entire staff and external advisors. At the beginning of 2025, the Bank presented its new strategy to employees – the strategic lighthouse, with our customers' financial health as a beacon. This strategy aligns well with the Bank's role of being a force for good. Being a force for good is reflected in the Bank's day-to-day activities, whether we are helping customers to put a roof over their heads or found a company, or making banking services more convenient overall. Our strategy includes four defined strategic themes designed to support our commitment to strengthening the financial health of our customers. Íslandsbanki has long been a leader in education-related matters, and we plan to take further steps to help our customers gain an overview of their finances and move towards their financial goals.

A demanding year of high interest rates

Iceland's households and businesses were tough and resilient in last year's high-interest environment. Towards the end of the year, we finally saw the Central Bank of Iceland's policy rate lowered, and we are optimistic that rate cuts will continue steadily, although the geopolitical outlook is cloudy. We kept close track of our customers' situation as many of them refinanced their debt with CPI-linked loans, but we also offered them the option of fixing their loan payments temporarily so as to lower their debt service. Even so, we did not see an increase in non-performing loan ratios, which shows some resilience, although delinquencies could increase this year if interest rates do not fall quickly.

We drew attention to the risk that has developed in the banking system with customers' large-scale shift to CPI-linked loans. Icelandic banks' CPI imbalances have grown tenfold in less than two years, which exacerbates fluctuations in their earnings. As interest rates and inflation decline, we hope to be able to lower rates on loans to our customers as soon as possible. A fair number of customers have fixed-rate loans that are up for interest rate reset this year, and we will continue to keep track of them and assist them in this situation.

There are two sides to every coin, of course, and high interest rates have certainly benefited the Bank's depositors. Ávöxtun is our most popular savings account, and the number of accounts surged from 20,000 to 50,000 in 2024. About 12,000 customers invest their money with Iceland Funds, where individuals and companies alike can choose from a wide range of investment funds that are well suited for short- and long-term saving and investment. Iceland Funds, a subsidiary of the Bank and the oldest fund management company in Iceland, celebrated its 30th anniversary in 2024. The company wears its age well, giving top priority to professionalism as it seeks to maximise long-term returns. During the year, Iceland Funds introduced IS Fixed Income Strategy, an open fund that the Bank's customers can access via the app and online bank. It has broader investment strategy than bond funds generally do, and can therefore seize opportunities that may arise during the upcoming monetary easing phase.

There has been brisk demand for the services of the Bank's Asset Management division, and we have seen growth in customer numbers. We have made a concerted effort to provide sound advice and excellent service in a volatile market, but it is safe to say that many are eager to see the opportunities that 2025 will bring. In asset management, it is patience and willingness to wait out fluctuations that win out in the end. We have maintained a strong educational presence with high-quality events for Asset Management customers, including regular presentations of exciting companies through a series of meetings we call “Meet the Stock Exchange”.

Íslandsbanki was an active trader of foreign currency, equities, and securities despite a challenging market environment. The Bank had the highest turnover in equities on Nasdaq Iceland for 10 out of 12 months of 2024. We are optimistic about the year ahead and look forward to further growth.

Service and experience

Service is an important part of Íslandsbanki's culture, and during the year we worked towards refining our target group analysis, with the aim of serving our customers even better. We have bolstered cross-sales and are focused on strong growth in digital contact in the new year.

Part of the target group analysis centred on enhancing continuity in service to individuals who also operate companies or do large-scale business with the Bank. This service is called Tindur, an Icelandic word meaning apex or mountain peak, and its name strongly elicits the path staked out by customers who are aiming for the top as regards financial health. The service was tested in late 2024 and has exceeded all expectations. We look forward to introducing it more fully and welcoming new customers to the group.

The guiding light of our new strategy is to enhance the financial health of our customers. We have announced our collaboration with insurance company VÍS, through which we will expand our service and offer better terms. Íslandsbanki and VÍS place strong emphasis on outstanding service and will use a robust loyalty programme to offer better terms to customers.

We believe this will enhance our customers' overview of their finances. VÍS will be visible in all of the Bank's distribution channels and will have a presence in several of the Bank's branches. We look forward to introducing our collaboration in further detail this spring.

Leader in the corporate market

Íslandsbanki had the largest market share among small and medium-sized enterprises (SME) at the end of 2024, with a share of 43% in the greater Reykjavik area. The Bank had the highest net promoter score (NPS) among these customers, particularly in regional Iceland. We also pride ourselves in having a majority of companies designated as outstanding by CreditInfo among our customers.

Demand for new loans has been in line with expectations, while demand for motor vehicle loans has declined because of a contraction in new car sales in Iceland. Despite the challenging environment, delinquencies have been limited among companies, and we have tried to meet their needs to the maximum extent possible.

Personal service is the key to serving companies, but we also offer powerful digital solutions that we have developed rapidly in the recent past. With the addition of Payday to the app and access to collections services via the app and online bank, managing the company books has never been so easy. Furthermore, a new solution for expense management makes it simpler for companies to manage company payment cards by saving receipts in the app and exporting them directly to the company accounts.

A data-driven Bank

We will use data in an even more systematic way, to offer the right service in the right place. Last year we used automated market transactions with excellent results, and we see terrific opportunities for growth in the year to come. We believe that the best service is the right mixture of digital and personal service, and we know that the latter will always be an important part of major decisions. Being service-oriented is hard-wired into Íslandsbanki's company culture, and during our strategy planning process it was abundantly clear that our employees are committed to providing excellent service. To do this, we need competent people and smoother distribution channels, and we had a number of successes with our distribution channels last year. Customers can access nearly all of the services they need through the app, which now enables them to pay down loans, keep track of private pension savings, open accounts, and apply for a digital debit card. We are also dedicated to ensuring our customers' security in a world where fraud is continually on the rise. Our app contains relevant security settings, and our fraud monitoring team is available 24/7. Our chatbot, Fróði, is getting smarter by the day and can now close payment cards if needed and order new ones. We are particularly proud that, for the second year in a row, Fróði won an international prize for the most likeable chatbot at Boost Camp, the annual conference held by Boost.ai, Fróði's service provider.

We invested heavily in services and data during the year and, among other things, have reaped the benefits with even better up-times for all systems. Similarly, we took major strides in automation of the lending process, and our improved data provide even better support for digital sales. Our loyalty programme, Fríða, made considerable advances during the year, and now data for debit cards is processed in real time, so that customers can see their expected reimbursements immediately. We see great opportunities in our premium service, alongside even more refined target group analysis in the new year.

Progressive thinking

In its new strategy, Íslandsbanki's values are defined as progressive thinking, collaboration and professionalism. Progressive thinking, our newest, was selected following dialogue with employees and customers. It is well reflected in our annual event, called Brainstorm, where employees present ideas for new products or services. During the competition, employees suggested a number of progressive ideas on how to improve our service, and we plan to introduce new innovations early in the year.

We also aim to increase diversity in decision-making and increase involvement among young people. The Bank's Executive Board therefore decided to appoint a youth council comprising Bank employees from Generation Z, who were born after 1997. This group will meet regularly and will be given a chance to affect decision-making in the Bank, and it will be exciting to keep abreast of developments on that front. At the same time, we have strengthened innovation in the Bank's day-to-day operations, where employees will participate more actively in developing and creating innovations in banking service. It is safe to day, then, that fresh breezes will be stirring at Íslandsbanki this year.

Profitable growth

Profitable growth is a new strategic theme for Íslandsbanki, which entails, among other things, that the Bank is always looking for growth opportunities, internal and external, with profitability as a guidepost. We prioritise strengthening business connections in Iceland and abroad, and being a leader in infrastructure investments. The Bank will continue to focus on optimal utilisation of capital and efficient operations. We want to support rapidly growing companies with relevant products and services.

The implementation of the five-year sustainability targets set in 2020 was completed during the year and was highly successful. This year the Bank will set new and ambitious sustainability targets for the period through 2030. Our role of being a force for good shows clearly in our dialogue with customers. We participate in their growth and challenges, and we have had fruitful discussions with them about sustainability during the year. In 2024, our sustainable lending grew by 23%, and we intend to continue on this path in the new year. The Bank's loan portfolio grew by a total of 6% year-on-year in 2024. All business units contributed to the increase, although growth was strongest in residential mortgage lending.

Infrastructure Bank

The Corporate and Investment Banking division has strongly emphasised infrastructure in Iceland and has stressed the importance of responding to the investment need that has accumulated. We discussed this at the Bank's well received Financial Assembly last autumn, where we focused on development of land-based aquaculture in Iceland. We will continue to prioritise infrastructure and participate actively in the development that lies ahead. In doing so, we will use reports and analyses that, among other things, explore the possibility of public-private partnership.

The best team

In closing, I want to thank the Bank's employees for outstanding work during the year. This group has proven that it uses demanding times as a vehicle for learning and is galvanised and enriched by the experience. The strategy planning process has been invigorating and simply fun with more active involvement by Bank staff. I am convinced that we are moving Íslandsbanki into an exciting time when progressive thinking and even better service will be the keys to success.

I would like to thank our customers for collaborating and doing business with us during the year. It was a arduous year for the economy, and we look forward to tackling new challenges with you in a new year full of opportunities. Íslandsbanki stands on solid ground, and we intend to move forward – with our customers' financial health as a beacon.