Reports 2021
Íslandsbanki's 2021 Annual and Sustainability Report, with the Consolidated Financial Statements and the Pillar 3 Report, provide a clear picture of the Bank's operations during the year.
Our Profile
Moving Iceland forward by empowering our customers to succeed
- Íslandsbanki is a universal bank and a leader in financial services in Iceland with a history of more than 145 years of servicing key industries. The Bank has a 25-40% market share across all domestic business segments.
- Íslandsbanki's purpose is to move Iceland forward by empowering our customers to succeed. Driven by the vision to be #1 for service, Íslandsbanki's relationship banking business model is propelled by three business divisions that manage and build relationships with the Bank's customers.
- Íslandsbanki has developed a wide range of online services such as the Íslandsbanki and Kass apps, enabling customers to do their banking anywhere and anytime. At the same time, the Bank continues to operate the most efficient branch network in Iceland through its strategically located 12 branches.
- Íslandsbanki has a BBB/A-2 rating from S&P Global Ratings.
To our stakeholders
Chairman's statement
2021 was a busy, eventful, and successful year for Íslandsbanki. The Bank’s shares were listed on the Nasdaq Iceland stock exchange after the State sold a portion of its holding. The IPO and the market listing placed considerable demands on Bank staff, and the pandemic-induced changes in our business and service imposed its own requirements. Nonetheless, Íslandsbanki's business prospered and returns were solid.
CEO's address
For Íslandsbanki, it can be said that an eventful 2021 was dominated by two events. The first was the highly successful initial public offering of a 35% stake in
the Bank and its subsequent listing on the Nasdaq Iceland stock exchange. The second was the Bank’s continuing response to the COVID-19 pandemic and our employees’ remarkable ingenuity in serving our customers under demanding and constantly changing circumstances. We certainly benefited from having spent several years building up well-funded and profitable digital banking activities.
Empowering our customers to succeed
Íslandsbanki's strategy
Today Íslandsbanki operates in accordance with a strategy approved by the Board of Directors at the beginning of 2019, following extensive work involving customers, employees, and other stakeholders.
Strong together
Íslandsbanki strongly emphasises creating a constructive and healthy work environment with passion, professionalism, and collaboration as guideposts.
Through collaboration we are #1 for service
Good service makes all the difference
The overall experience of good service has never been as important as it is during this time of digital transformation of banking services. Our customers increasingly choose to carry out their daily banking outside conventional opening hours, opting instead to manage their finances at a time that best fits their lifestyle. It is therefore important for banks, whose services are continuously evolving, to design products and services that meet our customers’ various needs at any stage in their lives. We have emphasised education and the provision of reliable data and information sources, such as the Bank’s chatbot Fróði. Demand for mortgages was very strong in 2021
and we benefited greatly from our success in digitising this service. The result has been a record-breaking 90% customer satisfaction score among customers who refinanced or took out new mortgages during the year. The new year brings with it new opportunities to ensure a good service becomes even better.
The overall experience of good service has never been as important as it is during this time of digital transformation of banking services.
Sigríður Hrefna Hrafnkelsdóttir
Managing Director, Personal Banking
Icelandic firms well prepared for a strong rebound
2021 clearly showed the signs of continuing challenges due to the COVID-19 pandemic, but it also saw the Icelandic economy bounce back strongly. In particular, the turnaround could be felt in the tourism sector, with rising visitor numbers, and in overall domestic demand. Early in the year, demand for credit surged, hitting record highs alongside increased loan repayments and turnover, which ultimately delivered moderate growth in the loan portfolio. Furthermore, SMEs’ deposits increased more than in a typical year, far more than projected, with growth spread across all sectors. It was gratifying to see the results of Gallup’s year-end company survey, which confirms that Íslandsbanki has the largest market share and the most satisfied customers in the country. During the pandemic, Icelandic companies proved that they were well prepared for the associated economic volatility. Government actions also played an important role to help these companies manage the situation. There is optimism among SMEs that are rapidly working through the setbacks of the pandemic even though uncertainties remain.
2021 clearly showed the signs of continuing challenges due to the COVID-19 pandemic, but it also saw the Icelandic economy bounce back strongly.
Una Steinsdóttir
Managing Director, Business Banking
A strong performance in a busy market
All of the units within Corporate and Investment Banking achieved outstanding results in 2021. We were successful in helping our customers obtain financing through bond issues and new lending, which totalled ISK 87 billion during the year. We made significant strides in sustainability by granting Iceland’s first green development loan and we began analysing the loan portfolio’s carbon footprint. Corporate Finance and Securities Sales played a prominent role in the sale and listing of Íslandsbanki shares on the Nasdaq Iceland stock exchange, and Corporate Finance acted as advisor in connection with the sale of telecom company Míla in the largest foreign investment to take place in Iceland in years. Private Banking and Institutional Investors grew rapidly, with assets under management increasing by a net ISK 19 billion during the year. FX Sales and the Derivatives Desk had a record year and we envisage increased hedging activity in the coming term. Securities Sales led the field
in the fixed income market and the stock brokerage team had a record year buoyed along by a surge in market activity. Our experienced and committed staff also recorded its highest levels of customer satisfaction.
All of the units within Corporate and Investment Banking achieved outstanding results in 2021.
Ásmundur Tryggvason
Managing Director, Corporate and Investment Banking
Strong returns and readier access to funds are positive for savers
Household saving has grown markedly during the pandemic. Icelandic households’ deposits increased by almost ISK 170 billion, or over 17%, between 2019 and 2021. The number of shareholders in companies on the Nasdaq Iceland stock exchange grew from 8,300 at the end of 2019 to around 31,000 by the end of 2021, and the country’s equity funds have doubled in size since 2019. This is a highly favourable trend, as savings provide a measure of security during times of uncertainty. Iceland Funds’ fund managers have delivered outstanding results. The IS EQUUS Equity Fund generated the highest returns of all Icelandic funds in 2021. It is gratifying to see that alongside strong returns in the fund market, access to funds has been expanded significantly. This summer, with its funds-in-app option, Íslandsbanki became Iceland’s first bank to offer app-based fund trading. The feature has been a hit with users, particularly the younger generation.
Household saving has grown markedly during the pandemic. Icelandic households’ deposits increased by almost ISK 170 billion, or over 17%, between 2019 and 2021.
Kjartan Smári Höskuldsson
Managing Director, Iceland Funds hf.
Unified sales processes present opportunities for future growth
Digital banking has become the norm, but building a unified platform that blurs the lines between traditional retail ecommerce and banking is the future frontier.
In 2021, Íslandsbanki invested in creating a unified futuristic platform that will enable end-to-end sales processes for traditional banking products, as well as providing the opportunity to integrate offerings from external partners. This will ensure that we are ready to exploit the opportunities that present themselves with the implementation of PSD2. In addition, the focus
on renewal of our lending platforms in 2021 and the continuation of our data journey lay the foundation for the creation of truly personalised services and offerings. A key differentiator in the Icelandic market is the access to critical skills in order to scale and respond to the opportunities created by the technology investments of the last several years. The establishment of the Íslandsbanki Development Centre is a deliberate step in creating a world-class technical team.
Digital banking has become the norm, but building a unified platform that blurs the lines between traditional retail ecommerce and banking is the future frontier.
Riaan Dreyer
Managing Director, IT
Risk Management and Internal Control Capital Management Credit Risk Market Risk
Íslandsbanki has a long-standing tradition of facilitating credit to Icelandic households and businesses, and credit risk is the predominant risk factor in the Bank ́s risk taxonomy, accounting for almost 90% of the risk exposure amount. Accordingly, the Bank ́s credit risk culture is cultivated by learning from the past, beginning with a strong and risk mindful tone from the top, tradition of accountability with clear authorisation and decision-making protocols where conflicting opinions and open dialogue are celebrated.
Risk management practices are under continual development to prepare for changes in the operational environment and to utilise new possibilities that arise with improved technology. Íslandsbanki is well prepared to monitor and manage both traditional and emerging risks.
Íslandsbanki has a long-standing tradition of facilitating credit to Icelandic households and businesses, and credit risk is the predominant risk factor in the Bank ́s risk taxonomy, accounting for almost 90% of the risk exposure amount.
Guðmundur Kristinn Birgisson
Chief Risk Officer
Strong foundations through professionalism
Risk management
Risk management and the prudent pricing of risk are key elements in Íslandsbanki’s operations and value creation. In turn, an efficient risk assess- ment and internal control framework forms the foundation of the Bank’s risk and capital management strategy. Íslandsbanki’s risk governance is based on a three lines of defence model and aims for informed decision-making and strong risk awareness throughout the Bank.
Flexible products and pricing for customers
In 2021, Íslandsbanki achieved important milestones towards the realisation of its digital strategy. The digital strategy functions as a guidepost for digital product development and implementation of tech innovations. It is based on five main pillars where we connect with our customers and partners through digital solutions, recognise their needs, and provide them with frictionless banking services every step of the way.
Sustainable Íslandsbanki
Íslandsbanki is recognised as a sustainability leader in Iceland as is reflected in ESG risk rating, customer surveys and external rewards. Íslandsbanki is committed to supporting Iceland’s ambitious goals and the Paris Agreement. To that end, the Bank announced in April 2021 its commitment to become net zero on financed emissions by 2040 in addition to having net zero operations since 2019.
Sustainability Policy and goals
Íslandsbanki strives to be a responsible and positive force in society
Sustainability Results
Íslandsbanki publishes detailed information on the impact of its operations based on the environment, social and governance (ESG) criteria.
Initial financed emissions
A significant opportunity is given in financing the transition required to reach Iceland‘s ambitious Climate Action Plan and goal of achieving carbon neutrality by 2040.
Financials and funding
A successful year with strong results
The year was prosperous for Íslandsbanki as financial results were strong and operations had a good momentum. ROE of 12.3% in 2021 exceeds the Bank's financial targets. Income generation was especially good with a 16.3% increase in 2021 with growth in all business areas. We maintained a strong cost focus and saw the cost-to-income ratio fall between years. Brisk mortgage growth contributed to a 7.9% rise in lending and deposits grew by 9.5%. The Bank issued its first Additional Tier 1 - an issue of SEK 750m. The deal was well oversubscribed and was sold to investors across the Nordic countries, France and Switzerland. The Bank is well funded with all liquidity and capital ratios above targets and regulatory requirements. Consequently, the Bank's Board of Directors will propose to the Bank's AGM a dividend payment of ISK 11.9bn and will seek approval to buy back ISK 15bn of its own shares over the coming months.
The year was prosperous for Íslandsbanki as financial results were strong and operations had a good momentum. Income generation was especially good with a 16.3% increase in 2021with growth in all business areas.
Jón Guðni Ómarsson
Financial director
Economic review
After a deep contraction in 2020, the economic recovery took root in 2021. Domestic demand gained considerable traction, supported by the Government’s economic policy response, an improving labour market, and a sound financial position among most households and businesses. In spite of a small current account deficit, exports also gained ground. The outlook is for output growth to accelerate further in 2022.
Corporate & Organisational Structure
Íslandsbanki is governed by its shareholders, Board of Directors and the Chief Executive Officer in accordance with the Bank’s Articles of Association, other Board directives, and the relevant external legal and regulatory instruments.