Islandsbanki hf.: Financial results for third quarter 2020

Third quarter 2020 (3Q20) financial highlights

Íslandsbanki reported a profit of ISK 3.4bn in 3Q20 compared to ISK 2.1bn in 3Q19, generating a 7.4% annualised return on equity after tax (3Q19: 4.7%).
NII increased by 1.4% YoY. NIM was at 2.5%, down from 2.6% in 2Q20. NFCI increased by 12.3% YoY, due to higher fees from asset management, investment banking and brokerage and related to the sale of Borgun hf. as eliminations from the first half are reversed following the sale of the subsidiary. Net financial loss was ISK 255m compared to ISK 602m in 3Q19.
Administrative expenses fell by 8.9% YoY as a result of cost reduction initiatives in recent years. C/I ratio for the Group was 46.7% in 3Q20 compared to 56.3% in 3Q19, therefore under the Bank’s target (<55%).
An additional impairment amounting to ISK 1.1bn was applied in 3Q20. This charge is mostly COVID-19 related and due to updated macroeconomic scenarios.
Loans to customers grew by ISK 37.0bn QoQ, largely driven by mortgage lending. Deposits from customers rose by ISK 17.4bn QoQ mainly from retail customers and pension funds.

First nine months of 2020 (9M20) financial highlights

Íslandsbanki reported a profit of ISK 3.2bn during the first nine months of 2020 (9M19: ISK 6.8bn) and the annualised return on equity (after tax) was 2.4% (9M19: 5.1%).
The main reason for lower profit YoY is an impairment charge amounting to ISK 7.0bn that reflects the economic uncertainty following COVID-19. In addition, net financial loss amounted to ISK 2.2bn due to unfavourable market conditions, mainly in 1Q20.
Net interest income (NII) rose by 2.4% YoY and net interest margin was 2.6% compared to 2.7% after 9M19. Net fee and commission income (NFCI) fell by 3.7% YoY and is in most part explained by reduced payment card activity in the wake of COVID-19.
Administrative expenses fell by 7.6% YoY due to FTE reductions, modest wage increases and an overall reduction in expenses. The C/I ratio was 55.3% for 9M20 (9M19: 57.5%).
Loans to customers amounted to ISK 970bn at the end of September and rose by 7.9% from YE19 or by ISK 70.7bn. This growth was mostly due to mortgage lending and the depreciation of the Icelandic króna in 9M20. NPL ratio was 3.3% for Stage 3 loans (gross) by end 9M20 from previous 3.6% by end of 6M20.
Deposits from customers amounted to ISK 699bn at the end of September and grew by 13.0% from YE19 or by ISK 80.3bn. The rise is largely due to increased deposits from retail customers and pension funds. The Bank’s strong liquidity position has meant a period of no new issuance in foreign currencies. The Bank will nonetheless remain alert to possibilities to issue and to undertake liability management exercises where appropriate.
Capital position is strong with total capital ratio at 22.2% by the end of 9M20, CET 1 ratio at 19.4%, leverage ratio at 13.4%. The Bank’s liquidity ratios remain sound.

Key figures and ratios

		3Q20	3Q19	9M20	9M19

PROFITABILITY	After tax profit, ISKm	3,361	2,086	3,230	6,795
	Return on equity (after tax)	7.4%	4.7%	2.4%	5.1%
	Net interest margin (of total assets)	2.5%	2.7%	2.6%	2.7%
	Cost to income ratio¹	46.7%	56.3%	55.3%	57.5%

		30.09.2020	30.06.2020	31.03.2020	31.12.2019

BALANCE SHEET	Loans to customers, ISKm	970,309	933,320	923,850	899,632
	Total assets, ISKm	1,328,724	1,303,256	1,255,691	1,199,490
	Risk exposure amount, ISKm	942,339	923,133	911,375	884,550
	Deposits from customers, ISKm	698,610	681,223	647,795	618,313
	Customer loans to customer deposits ratio	138.9%	137.0%	142.6%	145.5%
	NPL ratio²	3.3%	3.6%	2.8%	3.0%


LIQUIDITY	Liquidity coverage ratio (LCR), for all currencies	136%	179%	177%	155%
	Net stable funding ratio (NSFR), for all currencies	113%	117%	120%	119%


CAPITAL	Total equity, ISKm	182,509	179,722	179,542	180,062
	Tier 1 capital ratio	19.4%	19.4%	19.2%	19.9%
	Total capital ratio	22.2%	22.2%	21.9%	22.4%
	Leverage ratio	13.4%	13.4%	13.5%	14.2%

1. Calculated as (Administrative expenses + Contribution to the Depositors´ and Investors´ Guarantee Fund – One off items) / (Total operating income – one off items)
2. Stage 3, loans to customers, gross carrying amount

Birna Einarsdóttir, CEO of Íslandsbanki

Íslandsbanki reported a profit of ISK 3.4bn in 3Q20. Total income grew between years and administrative expenses continued to decline, or by 9% between years as a result of cost reduction initiatives in recent periods. The Bank’s balance sheet grew by 2% in 3Q20 with a great rise in demand for mortgages driven by lower interest rates. Digital solutions have accelerated the mortgage process greatly which has proven essential now when activity has reached new heights.

The first nine months of 2020 have been characterised by providing services and solutions for our customers who have been the most impacted by COVID-19 where about 700 customers have been granted moratorium. Economic uncertainty still prevails and in the Bank’s updated macroeconomic forecast, a deep contraction in 2020 is assumed followed by a rebound with positive GDP growth in 2021.

The Bank jointly managed the successful issuance of new shares in local airline Icelandair which will certainly ensure resilience for the tourism industry when travel restrictions will be lifted. The Bank’s new solution for the digital onboarding of customers to enable securities trading proved invaluable leading up to the share offering when thousands of customers benefitted from the smooth and easy process.

Íslandsbanki was the first Icelandic bank to publish a sustainable financing framework. The framework paves way for sustainable bond issuances. Íslandsbanki was also awarded the Icelandic Knowledge Award by the Association of Business and Economist graduates in Iceland (FVH) for taking a lead regarding sustainability. The award is acknowledgement for the sustainability policy that the Bank has in place and the purpose of moving Iceland forward by empowering our customers to succeed.

Investor relations
Investor call in English at 9.30 am (GMT).

On 29 October 2020 at 9.30 am (GMT), the Bank will hold an investor call. The call will begin with a short update on the Icelandic economy, followed by a review of the Bank’s financial results. The call will be in English.

Please register by sending an e-mail to: ir@islandsbanki.is. Dial-in details and presentations will be sent out to registered participants prior to the call.

All materials relating to the Bank’s operating results, together with information on the financial calendar and silent periods, can be found here: https://www.islandsbanki.is/en/landing/about/investor-relations

For further information:

Head of Investor Relations – Margrét Lilja Hrafnkelsdottir, ir@islandsbanki.is. Tel: +354 844-4033
Head of Communications - Edda Hermannsdottir, pr@islandsbanki.is. Tel: +354 844-4005

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About Íslandsbanki
Íslandsbanki is a universal bank and a leader in financial services in Iceland with a history of 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. www.islandsbanki.is

Disclaimer
This press release may contain “forward-looking statements,” involving uncertainty and risks that could cause actual results to differ materially from results expressed or implied by the statements. Íslandsbanki hf. undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this press release. It is the investor's responsibility to not place undue reliance on these forward-looking statements which only reflect the date of this press release. Forward-looking statements should not be considered as guarantees or predictions of future events and all forward-looking statements are qualified in their entirety by this cautionary statement.

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