4Q23 RESULTS HIGHLIGHTS
Fourth quarter 2023 (4Q23) financial highlights
• Íslandsbanki reported a net profit of ISK 6.2 billion in the fourth quarter of 2023 (4Q22: ISK 6.0 billion), generating an annualised return on equity (ROE) of 11.2% (4Q22: 11.1%). This is in line with the updated ROE guidance for 2023 which is in the range of 10.7-11.7% and above the Bank's financial target of ROE exceeding 10%.
• Net interest income (NII) amounted to ISK 11.7 billion and decreased by 5.0% in 4Q23 compared to 4Q22 when it was ISK 12.3 billion.
• The net interest margin (NIM) was 2.9% in 4Q23, compared to 3.1% in 4Q22.
• Net fee and commission income (NFCI) decreased by 6.6% compared to 4Q22 and amounted to ISK 3.8 billion in 4Q23.
• Net financial income was ISK 455 million in 4Q23, compared to an expense of ISK 899 million in 4Q22.
• Administrative expenses in the fourth quarter 2023 were ISK 7.0 billion compared to ISK 6.5 billion in 4Q22, an increase of 6.9%. The amount for 4Q22 excludes an administrative fine in the amount of ISK 300 million charged in the fourth quarter of 2022.
• The cost-to-income ratio was 42.7% in 4Q23, which is within the Bank's guidance of the ratio being 40-45% and achieves its financial target of the ratio being below 45%. The cost-to-income ratio was 40.6% in 4Q22.
• Net impairment amounted to ISK 1,002 million in 4Q23, compared to an impairment of ISK 647 million in 4Q22. The net impairment charge as a share of loans to customers, the annualised cost of risk, was 33bp in 4Q23, compared to 22bp in 4Q22.
• Loans to customers increased by ISK 12.9 billion in the quarter, or by 1.1% from the third quarter to ISK 1,223 billion at the end of fourth quarter 2023.
• Deposits from customers fell by ISK 13.5 billion, or 1.6%, during the quarter, down to ISK 851 billion.
• Total equity at period-end amounted to ISK 224.7 billion compared to ISK 218.9 billion at year-end 2022.
• The total capital ratio was 25.3% at end of 4Q23, compared to 22.2% at year-end 2022. The corresponding CET1 ratio was 21.4%, compared to 18.8% at year-end 2022, which is 620bp above regulatory requirements, and above the Bank's financial target of having a 100-300bp capital buffer on top of CET1 regulatory requirements.
2023 (FY23) financial highlights
• Net profit for 2023 was ISK 24.6 billion (2022: ISK 24.5 billion), with annualised return on equity for 2023 being 11.3%, compared to 11.8% in 2022.
• Net interest income totalled ISK 48.6 billion in 2023, an increase of 12.7% compared to the previous year. Net interest margin (NIM) for 2023 was 3.0%, having been 2.9% in 2022.
• Net fee and commission income (NFCI) grew by 1.3% YoY and amounted to ISK 14.2 billion in 2023, compared to ISK 14.1 billion in 2022.
• In 2023 net financial income was ISK 241 million compared to an expense of ISK 1,257 million in 2022.
• Administrative expenses were ISK 26.7 billion in 2023, excluding an administrative fine in the amount of ISK 860 million charged in the second quarter of 2023, compared to ISK 23,6 billion in 2022 excluding administrative fine of ISK 300 million.
• Cost-to-income ratio was 41.6% in 2023, the same as it was for 2022.
• Deposits from customers rose by 7.7% from 2022, from ISK 790 billion in 2022 to ISK 851 billion in 2023.
• Net impairment on financial assets amounted to ISK 1,015 million in 2023 having been positive in 2022 by ISK 1.576 million.
Capital optimisation, dividend and further distribution of excess capital
• A dividend payment in the amount of ISK 12.3 billion, in line with the dividend policy of paying out around 50% of preceding year's profit, will be proposed by the Board of Directors to the Annual General Meeting (AGM) to be held in March 2024.
• The Bank announced during its FY22 financial results in February 2023 its plan to commence an ISK 5 billion share repurchase programme. In 2023 the Bank purchased 20,390,831 shares, equivalent to 1.02% of the issued share capital of the Bank, through standard share repurchase program. The total amount paid under the repurchase program in 2023 was ISK 2.3 billion.
• The Bank continues to explore ways to further optimise its capital structure. Distribution of excess CET1 capital in the amount of ISK 10 billion through continued repurchase of own shares, is planned throughout 2024, subject to the AGM renewing an approval to that effect. Additional capital optimisation is planned before year-end 2025, subject to market conditions.
| 4Q23 | 4Q22 | 2023 | 2022 | 2021 | ||
| PROFITABILITY | Profit for the period, ISKm | 6,228 | 5,982 | 24,585 | 24,535 | 23,725 |
| Return on equity | 11.2% | 11.1% | 11.3% | 11.8% | 12.3% | |
| Net interest margin (of total assets) | 2.9% | 3.1% | 3.0% | 2.9% | 2.4% | |
| Cost-to-income ratio (1, (2 | 42.7% | 40.6% | 41.6% | 41.6% | 46.2% | |
| Cost of risk (3 | 0.33% | 0.22% | 0.08% | (0.14%) | (0.28%) | |
| 31.12.23 | 30.9.23 | 30.6.23 | 31.12.22 | 31.12.21 | ||
| BALANCE SHEET | Loans to customers, ISKm | 1,223,426 | 1,210,499 | 1,237,758 | 1,186,639 | 1,086,327 |
| Total assets, ISKm | 1,582,694 | 1,643,600 | 1,593,239 | 1,566,235 | 1,428,821 | |
| Risk exposure amount, ISKm | 977,032 | 986,355 | 1,015,197 | 999,491 | 901,646 | |
| Deposits from customers, ISKm | 850,709 | 864,189 | 816,641 | 789,897 | 744,036 | |
| Customer loans to customer deposits ratio | 144% | 140% | 152% | 150% | 146% | |
| Non-performing loans (NPL) ratio (4 | 1.8% | 1.8% | 1.7% | 1.8% | 2.0% | |
| LIQUIDITY | Net stable funding ratio (NSFR), for all currencies | 124% | 120% | 119% | 118% | 122% |
| Liquidity coverage ratio (LCR), for all currencies | 195% | 247% | 259% | 205% | 156% | |
| CAPITAL | Total equity, ISKm | 224,693 | 219,694 | 215,524 | 218,874 | 203,710 |
| CET1 ratio (5 | 21.4% | 20.9% | 20.0% | 18.8% | 21.3% | |
| Tier 1 ratio (5 | 22.5% | 21.9% | 20.9% | 19.8% | 22.5% | |
| Total capital ratio (5 | 25.3% | 24.6% | 23.2% | 22.2% | 25.3% | |
| Leverage ratio (5 | 13.4% | 12.7% | 12.8% | 12.1% | 13.6% | |
| MREL ratio (6 | 41.3% | 39.2% | 38.4% | 34.5% | - | |
1. Calculated as (Administrative expenses + Contribution to the Depositors' and Investors' Guarantee Fund - One-off items) / (Total operating income - One-off items).
2. C/I ratio in 2023 excludes a charge of ISK 860m due to an administrative fine. C/I ratio for 4Q22 and 2022 included a provision of ISK 300m made in connection with an administrative fine, the C/I ratio for 4Q22 and 2022 has been restated so it excludes the provision.
3. Negative cost of risk means that there is a net release of impairments.
4. Stage 3, loans to customers, gross carrying amount.
5. Including 3Q23 profit for 30.9.23.
6. MREL ratio includes the CET1 capital held to meet the combined buffer requirement.
Jón Guðni Ómarsson, CEO of Íslandsbanki
The fourth quarter of 2023 was a good one for Íslandsbanki and closed off an eventful and busy year. The fourth quarter profit amounted to ISK 6.2 billion and ISK 24.6 billion for the full year. Return on equity was 11.3% in 2023 and 11.2% for the fourth quarter, which is above our financial targets, and in line with analysts' estimates. The Bank's total operating income rose by more than 12% from previous year, with net interest income increasing the most relatively. Our cost-to-income ratio for the year landed at 41.6% for the year, beating the Bank's target to have it below 45%. Compared to year-end 2022, lending increased by 3.1% for the year which is a more moderate increase than previous years, with the current high interest rate environment clearly playing its part there. Quality of assets is good, and we see limited increase in delinquencies. Deposits from customers increased by 8% during the year, further strengthening the Bank's main source of funding.
I am pleased to note the good results across all the Bank's business units this year. FX Sales had a busy year and towards the end of the year you could finally see signs of a positive turnaround in markets both domestically as well as abroad. The Corporate Finance team participated in many successful projects during the year, including the IPO of Ísfélag hf. to Nasdaq Iceland's main market. The year was characterised by a notable uptick in lending in Business Banking, including at the Bank's leasing unit, Ergo. Focus on the development of digital product offering is resulting in diverse products and increasing our possibilities for personalised services to customers. Sustainability continues to play an important part in our daily tasks and we have set out ambitious sustainability goals for 2025 as can be seen in the Bank's 2023 Annual and Sustainability Report, available on our website.
The Bank's bond issues were well received and as the year drew to a close there were signs of markets abroad reaching a level of normality after turbulent 18 months. The international credit rating agencies S&P Global Ratings (S&P) and Moody's Investor Services (Moody's) have also been positive towards the Bank this year, notably with Moody's assigning an A3 rating to Íslandsbanki in August. Both agencies made reference to the Bank's strong capitalisation and its good and stable profitability.
A new year brings both new opportunities and challenges. We are reminded of the geological forces that are part of this country's story and, just like the entire nation, we stand with the people of Grindavík through the ongoing seismic activity and volcanic eruptions on the Reykjanes peninsula.
The outlook for the Bank businesses is encouraging and our foundations are solid. Íslandsbanki is well prepared to take on the opportunities that will come our way and we look forward to working with our customers and other stakeholders to advance their interests.
INVESTOR RELATIONS
An earnings conference call and webcast will take place on Friday 9 February 2024
Íslandsbanki will host a webcast in English for investors and market participants on Friday 9 February at 8.30 Reykjavík/GMT/London/BST, 9.30 CET.
Jón Guðni Ómarsson, CEO, and Ellert Hlöðversson, CFO, will give an overview of the fourth quarter 2023 and full year financial results and operational highlights.
The webcast will be accessible live through a link on the Bank's Investor Relations website where a recording will also be available after the meeting. Participation and the ability to ask written question is accessible via this link. If you wish to participate in the webcast via teleconference and be able to ask questions verbally, please register via this link here. Information regarding the webcast is available here.
Further information is available through Íslandsbanki Investor Relations, ir@islandsbanki.is.
Financial calendar
Íslandsbanki plans to publish its financial statements and hold its Annual General Meeting on the below dates:
21 March 2024 - Annual General Meeting
2 May 2024 - Interim financial results 1Q24
25 July 2024 - Interim financial results 2Q24
23 October 2024 - Interim financial results 3Q24
Please note that the dates are subject to change.
Additional investor material
All investor material will subsequently be available and archived on the Bank's Investor Relations website, where other information on the Bank's financial calendar and silent periods can also be found.
In the event of discrepancy between the Icelandic and English version of the Press Release the English version prevails.
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.
