CEO's address

Viðskiptavinurinn áfram í fyrsta sæti

The banking environment is constantly moving in new directions, bringing with it exciting opportunities, but also bringing threats that we must bear in mind. We therefore considered it necessary in 2019 to review the Bank's strategy, to see where and how we can improve, and to lay the groundwork for our future.

During the first half of the year, we invested considerable work in reviewing our strategy with an eye to the Bank's operations. We engaged the services of international consulting firm Boston Consulting Group, established working groups within the Bank, held a large number of workshops, and sought opinions from outside experts. The result is a new strategy for Íslandsbanki, which we introduced in spring 2019 at a strategy meeting for the Bank's entire staff.

We defined a new role for the Bank as a force for good, under the slogan “Moving Iceland forward by empowering our customers to succeed”. Through this, we aim to foster responsible, profitable, and sustainable operations, as well as encouraging our customers to act as a force for good. We selected three new values — passion, professionalism, and collaboration — and decided to retain our current vision of being #1 for service. In my opinion, this is the most important thing we do: provide our customers with the best service possible at all times. On the other hand, we are aware that consumers' expectations have changed rapidly in recent years, as has their definition of good service. This makes honest and open dialogue with our customers more important than ever before.

We will continue to work towards simplifying our operations and making them more efficient, while also thinking big, thereby ensuring that we have a lasting competitive advantage. We have defined a set of projects over a five-hear horizon, which will support the objectives the Bank intends to achieve with its new strategy. A great deal of progress has already been made in implementing the strategy. What lies ahead is further development on the digital side, and we are excited about working closely with our customers and partner companies.

Digital champion in service to individuals

In 2019, we continued to invest in IT, so as to make our Bank as secure and competitive as possible. We reorganised our IT department and shifted from a project-centred orientation to a product-driven model. We have formed product teams led by managers from the Bank's business units, thereby linking our business units more closely with our digital product development We defined a new role for the Bank as a force for good, under the slogan “Moving Iceland forward by empowering our customers to succeed” work, which is becoming increasingly more important for our operations. Our objective is to offer personalised service through digital solutions, with a focus on increased automation. This will help us to improve our service and control costs.

Our customers are satisfied with the direction we are taking, and in 2019 they used the Bank's digital solutions in greater numbers than ever before. Our new app has gotten rave reviews, and we look forward to launching new solutions for digital mortgage refinancing and digital securities trading, to name just two innovations in the pipeline.

Sustainable development is an investment

It is safe to say that corporate sustainability was in the global spotlight in 2019. We can feel that our customers and investors are interested in sustainability, and as one of Iceland's largest companies, we play an important role in the community. A large body of research and numerous scholarly articles suggest that companies that incorporate sustainability into their core operations benefit in a variety of ways: improved risk management, reduced costs, diversified access to capital, increased innovation, and stronger business relationships. Furthermore, companies that emphasise sustainability are likelier to attract and retain qualified staff.

For all of these reasons, our Board approved a forward-looking sustainability policy in late 2019. Our aim is to integrate the Bank's commitment to sustainability into its profit objectives. In our operations, we will rely on internationally accepted environmental, social, and governance criteria, and this year, for the first time, we are publishing a joint annual and sustainability report focusing on these criteria. We intend to support the UN Sustainable Development Goals (SDGs) and have decided to emphasise four of them: quality education; gender equality; industry, innovation, and infrastructure; and climate action.

Implementing sustainability is a long-term venture for us at Íslandsbanki, as it is for others in the business community and society at large. We reserve the right to have opinions about how things should be, but we also realise that we are not perfect any more than others are. That said, we have to begin somewhere, and we are eager to collaborate with our customers and partners and to engage in productive dialogue on these topics, putting into action our commitment to being a force for good and empowering our customers to succeed.

Operating performance in line with

Economic headwinds early in 2019 created challenging conditions and a demanding operating environment for many of the Bank's customers. But we are glad to see signs of resilience in the economy; in particular, 2019 turned out more positive than was widely expected. The Bank's income rose by 7.8% during the year, and other operating expenses declined, but as in 2018, subsidiaries' operations had a negative impact on the consolidated results. The Bank's operating performance in 2019 was good, with a consolidated profit of ISK 8.5 billion. This is equivalent to a return on equity of 4.8%, which is well below our long-term target. The return on equity from regular operations based on a CET1 ratio of 16% was 6.6%.

Growth in deposits and lending was strong during the year, at 6.8% and 6.3%, respectively, and the year-end ratio of impaired loans and advances was 2.4%, in line with the Bank's forecast. Conditions in the capital markets, both in Iceland and abroad, were favourable for the Bank, and our funding remained diverse and successful. During the year, Íslandsbanki issued its third subordinated bond classified as Tier 2 capital, in addition to a public issue in Icelandic króna, the first of its kind issued by the country's three commercial banks. The Bank's liquidity and capital ratios therefore remained strong, and well above both internal targets and regulatory requirements.

Sound operations and a strong balance sheet with effective risk management are fundamental elements in the Bank's performance, and as before, Íslandsbanki remains well prepared to contribute to the growth and success of the domestic economy. The Bank's profitability and capital position will affect long-term lending growth, however.

Brisk investment banking activity, booming returns, and strong support for entrepreneurs

2019 turned out better than expected for the Icelandic economy, and we at Íslandsbanki are satisfied with our performance during the year. We led the market in securities brokerage, our corporate finance team had a very strong year and completed a number of worthwhile projects, and our currency brokerage desk recorded its highest turnover since 2008. Assets under management grew markedly during the year, as did assets held in custody. Furthermore, Iceland Funds had an excellent year, with funds in three out of four categories ranking first nationwide in terms of returns. We gave steadfast support to small and medium-sized entrepreneurial and innovative firms during the year and collaborated with Reykjavik Economics on an interesting report on innovation. We gave grants totalling ISK 30.5 million to nine exciting entrepreneurial projects, all of which support the UN SDGs in one way or another, and we look forward to seeing these companies grow and make a positive impact in the future.

Thanks to staff and customers

I am grateful to the Bank's employees, whose professionalism drives them onwards with a passion for providing Íslandsbanki customers with outstanding service. Exciting but demanding times lie ahead, and we look forward to continuing to implement our new strategy in cooperation with our customers and partner companies.