23 February FY2015 Financial Results

Transcription

1 23 February 2016 FY2015 Financial Results

2 Forward Looking Statements Important information All information contained in this presentation should be regarded as preliminary and based on company data available at the time of the presentation. Due care and attention has been used in the preparation of forecast information. However, actual results may vary from their forecasts, and any variation may be materially positive or negative. Forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of Íslandsbanki. Íslandsbanki cannot guarantee that the information contained herein is without fault or entirely accurate. The information in this material is based on sources that ÍSB believes to be reliable. Íslandsbanki can however not guarantee that all information is correct. Furthermore, information and opinions may change without notice. ÍSB is under no obligation to make amendments or changes to this publication if errors are found or opinions or information change. Íslandsbanki accepts no responsibility for the accuracy of its sources. Íslandsbanki and its management may make certain statements that constitute forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as anticipates, targets, expects, estimates, intends, plans, goals, believes and other similar expressions or future or conditional verbs such as will, should, would and could. The forward-looking statements made represent Íslandsbanki s current expectations, plans or forecasts of its future results and revenues and beliefs held by the company at the time of publication. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and are often beyond Íslandsbanki s control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements. Forward-looking statements speak only as of the date they are made, and Íslandsbanki undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made. Íslandsbanki does not assume any responsibility or liability for any reliance on any of the information contained herein. Íslandsbanki is the owner of all works of authorship including, but not limited to, all design, text, sound recordings, images and trademarks in this material unless otherwise explicitly stated. The use of Íslandsbanki s material, works or trademarks is forbidden without written consent except were otherwise expressly stated. Furthermore, it is prohibited to publish material made or gathered by ÍSB without written consent. 2

3 Table of Contents I. Overview II. Income Statement III. Assets IV. Liabilities, Liquidity & Capitalisation

4 I. Overview

5 This is Íslandsbanki A leader in financial services in Iceland, Íslandsbanki is a universal bank with a proven strategy RECOGNITION Driven by the vision to be #1 for service, our business model is based on four traditional business divisions that together with the Relationship banking division drive how we build relationships with our customers, simplify our product offering and unify our objectives with society at large or as we like to say it - how we multiply, simplify and unify. KEY FIGURES FY 2015 EMPLOYEES MARKET SHARE WAYS TO BANK ROE (Regular operations) Cost / Income Capital Ratio Total Assets 13.2% 56.2% 30.1% 1,046b n CREDIT RATINGS RELATIONSHIP BANKING MULTIPLY SIMPLIFY UNIFY Stable outlook Positive outlook Retail +31% market share Most efficient branch network Leading in mobile payments and digital solutions Ergo, market leader in asset financing with 50% market share Kreditkort exclusive issuer of AMEX Markets 20-45% market share Leader in investment banking and corporate finance Instrumental in rebuilding domestic securities and derivatives markets Market analysis, economic forecasts and daily newsletter Corporate +33% market share Leader in servicing large companies in all major sectors in Iceland, in particular seafood, energy, tourism and municipalities International sector expertise in selected industries Wealth VÍB 20-40% market share Leader in wealth management and private banking Private equity funds, Eldey TLH, FAST-1 and Akur Ambitious educational activities 5

6 Leading customer perception in key segments Opportunity to transform positive market perception to market share CONSIDERED THE LEADING BANK FOR: INDIVIDUALS 1 SMEs 4 LARGE COMPANIES 2 CORPORATE FINANCE 6 NPS SMEs NPS LARGE COMPANIES 36% 35% 24% 29% 17% 19% 31% 19% 15% 29% 10% 21% ÍSB Bank I Bank II ÍSB Bank I Bank II ÍSB Bank I Bank II ÍSB Bank I Bank II ÍSB Bank I Bank II ÍSB Bank I Bank II MOST PROFESSIONAL FIRST CHOICE FOR: SMEs 4 LARGE COMPANIES ASSET FINANCING 5 ASSET MANAGEMENT 3 MUTUAL FUNDS INVESTMENT 3 39% 32% 34% 37% 33% 18% 19% 15% 21% 20% 17% 12% 18% 17% 11% ÍSB Bank I Bank II ÍSB Bank I Bank II ÍSB Bank I Bank II ÍSB Bank I Bank II ÍSB Bank I Bank II 1. Source: Capacent Gallup: Survey for leading bank for individuals is based on 6-month rolling average of monthly tracking done by Capacent in December Source: Capacent Gallup: Large corporate survey among 300 top corporates in Iceland according to Frjáls Verslun, an Icelandic Business Magazine, December Source: Capacent Gallup : Market position in savings, May Source: Capacent Gallup: Survey amongst small and medium enterprises according to Capacent in December Source: Capacent Gallup: Asset financing: Survey done for Ergo in December Source: Capacent Gallup: Survey amongst corporate finance in December

7 Key takeaways 2015 Solid returns based on very high capital levels, alongside balanced growth across all operations 1. MACRO 2. NEW OWNERSHIP 3. HEALTHY EARNINGS GDP growth of 6.3% and Sovereign rating upgrades as compositions of old banks were confirmed and lifting of capital controls in sight Ownership transferred to Icelandic authorities as part of stability contribution from Glitnir, nearly 50% of the three estates total contributions Net profit of ISK 20.6bn, rendering ROE of 10.8% Regular earnings of ISK 16.2bn, ROE of 13.2% (14% CET1) NFC income up 14.7%, thereof 6.7% in the parent Cost income ratio of 56.2% 4. TRANSPARENT BALANCE SHEET 5. HIGH QUALITY CAPITAL Loans to customers grew 4.9%, on the back of ISK 152bn in new lending Share of loans 90 days in arrears or impaired was 2.2%, down from 3.5% at YE14 Low asset encumbrance ratio of 10.4% Group s liquidity coverage ratio (LCR) was 143% and NFSR was 120% Continued diversification of funding base and successful bond issues in NOK, SEK and EUR Total capital ratio of 30.1% and CET1 of 28.3% and leverage ratio of 18.2% Positive outlook from S&P BBB-/A-3 and stable outlook from Fitch BBB-/F3 7

8 2015 was an eventful year Multiply IS Funds introduced 7 new funds Simplify Best bank in Iceland Ranked the #1bank in the Customer Satisfaction index 2013, 2014 & 2014 Gallup customer satisfaction surveys rate the bank #1 in service to SME s and large corporates Unify Sponsor of Startup Tourism and the Iceland Tourism Investment Conference & Exhibition Job satisfaction Score 4,35 (1-5) VÍB Asset Servicing launched Over 2,200 mortgages. First time buyers solutions: discount on fees on additional loans Landsvirkjun Íslandsbanki a co-arranger & facility agent in an ISK 12bn revolving credit facility 14,700 proactive calls to customers 1,000 Financial health checks 3,200 proactive company visits Education 82 events 5,000 guests 55,707 online views New private equity fund Proud sponsor of the Marathon participants Over ISK 80m raised for charities, and 450m since 2006 A new educational app for our youngest customers Equity advisors raising around $300m in capital Eldey TLH APP usage 41% increase from the previous year New branch Grandi (Two branches merged) 7 Industry reports issued New and user -friendly website launched 95,000 Visa debit cards swapped to debit Master cards 80% of the cards now activated Implementation of a centralized core banking solution for deposits and payment system in progress Progress made in self service solutions with electronic signatures now available Restructuring completed NPL down to 2.2% 8

9 II. Income Statement

10 Overview Key figures & ratios PROFITABILITY ROE (after tax), % 10.8% 12.8% 14.7% 17.2% 1.5% ROE 14% CET1 (regular operations)* 13.2% 12.6% 10.6% 16.6% 18.9% Net interest margin (of total assets), % 2.9% 3.0% 3.4% 4.1% 4.5% Cost to income ratio, %** 56.2% 57.7% 58.5% 53.8% 50.0% After tax profit, ISKm 20,578 22,750 23,069 23,418 1,866 Earnings from regular operations, ISKm*** 16,199 14,846 12,169 16,552 15, CAPITAL Total equity, ISKm 202, , , , ,703 Tier 1 capital ratio, % 28.3% 26.5% 25.1% 22.0% 19.1% Total capital ratio, % 30.1% 29.6% 28.4% 25.5% 22.6% BALANCE SHEET Total assets, ISKm 1,045, , , , ,915 Risk weighted assets, ISKm 699, , , , ,419 Loans to customers, ISKm 665, , , , ,394 Total deposits, ISKm 618, , , , ,788 Total deposit / loan ratio, % 88.3% 82.9% 86.7% 83.3% 86.5% **Return from regular operations on normalized CET1 of 14%, adjusted for risk free interest on excess capital **Calculated as (Administrative expenses + Contribution to the Depositors and Investors Guarantee Fund One off items) / Total operating income ***Earnings from regular operations is defined as earnings excluding one-off items e.g. bank tax, net loan impairment, fair value gain deriving from changes in classification of assets, costs associated with onefrom discontinued operations off costs, and net earnings 10

11 Income statement Strong growth in net fee and commission income supported by profit from equities and valuation gains ISKm Q15 4Q14 Net interest income 28,010 27, ,003 6, Net fee and commission income 13,170 11,483 1,687 3,235 2, Net financial income 3,881 1,568 2,313 1, Net foreign exchange (loss) gain (1,490) 165 (1,655) (137) 116 (252) Other operating income 1,102 2,122 (1,020) (106) Total operating income 44,673 42,443 2,230 11,959 10,659 1,300 Salaries and related expenses (13,891) (13,307) (584) (3,670) (3,497) (173) Other operating expenses (9,869) (9,594) (275) (2,848) (2,914) 65 Administrative expenses (23,760) (22,901) (859) (6,518) (6,412) (106) Depositors and Investors Guarantee Fund (1,067) (1,055) (12) (270) (265) (5) Bank Tax (2,878) (2,444) (434) (818) (565) (253) Total operating expenses (27,705) (26,400) (1,305) (7,607) (7,241) (366) Profit before net loan impairment 16,968 16, ,352 3, Net loan impairment 8,135 8,810 (675) 409 3,006 (2,597) Profit before tax 25,103 24, ,762 6,424 (1,663) Income tax expense (5,851) (6,239) 388 (1,147) (1,434) 287 Profit for the period from continuing operations 19,252 18, ,614 4,990 (1,376) Profit from discontinued ops. net of income tax 1,326 4,136 (2,810) 274 (430) 704 Profit for the period 20,578 22,750 (2,172) 3,889 4,560 (671) 11

12 Earnings from regular operations Strong ROE from regular operations supported by gains from equities ISKm Q15 4Q14 Reported after tax profit 20,578 22,750 (2,172) 3,889 4,560 (671) Net loan impairment before collective impairment* (7,752) (7,844) 92 (229) (2,865) 2,636 Bank tax 2,878 2, One-off costs** (263) (550) Profit (loss) from discontinued ops (1,326) (4,136) 2,810 (274) 430 (704) Tax impact of adjustments 2,084 2,182 (99) (718) Earnings from regular operations*** 16,199 14,846 1,352 4,357 3, ROE 14% CET1 (regular operations)**** 13.2% 12.6% 13.6% 11.1% ROA from regular operations (after tax) 1.7% 1.6% 1.7% 1.5% Net interest margin adj. 14% CET1 2.5% 2.7% 2.4% 2.5% Cost / income ratio adj. 14% CET1 60.6% 62.2% 60.5% 67.6% Due to increased capital requirements, medium to long-term CET1 targets are expected to rise. The target ratio will be determined within the next months in line with more clarity on the lifting of capital controls and regulatory capital requirements. As a guidance however, the medium to long-term CET1 target will likely be in the range of 14-16%. The effect of higher CET1 on profitability is subject to the competitive situation at any given time and the impact on ratings and funding costs Net loan impairments have since 2008 been substantially impacted by an increase in value of loans bought at deep discount. As restructuring of the loan book has now been concluded there should be a lot less impact from those re-valuations going forward. As of 2016, the earning Reported from regular operations Will therefore include all loan impairments and valuation changes Bank tax is a special tax introduced in Dec The Bank tax increased in 2013 from % to 0.376% to fund the Government s debt relief programs. The Increased taxation is assumed to be a temporary measure concluding in the year 2016 * Please note that the line item Loan impairment charges and net valuation change in the Income Statement, includes collective impairment. The line item in the regular operations statement above, includes only net valuation changes ** One-off costs include One-off costs include the impact of settlement with the competition authorities, repayment from debt ombudsman and transfer of summer houses to the employee association, *** Earnings from regular operations is defined as earnings excluding one-off items e.g. net loan impairment before collective impairment, fair value gain deriving from changes in accounting treatment, Bank tax, one off costs and net earnings from discontinued operations **** Return from regular operations and corresponding ratios on normalized CET1 of 14%, adjusted for risk free interest on excess capital 12

13 Operating income Focus on long-term stable cash flows, core operations continue to generate majority of total income TOTAL OPERATING INCOME ISKm + 5.3% NET INTEREST INCOME (NII) ISKm + 3.3% 47,649 44,673 31,225 32,940 28,430 27,105 28,010 41,710 42,597 42, NET FEE AND COMMISSION INCOME (NFC) ISKm % Thereof 6.7% within parent co. 5,966 9,459 10,433 11,483 13, OTHER INCOME ISKm 4,519 5,250 3,734 3,855 3,

14 Cost awareness Reduction in administrative expenses due to synergy effects and lower restructuring cost ADMINISTRATIVE EXPENSES* & COST INCOME RATIO (excluding one-off costs) ISKm ADMINISTRATIVE EXPENSE vs COST INDEX** (excluding one-off costs) ISK bn ,589 23,924 23,451 24, , % 53.8% 58.5% 57.7% 56.2% Admin expenses Actual Admin exps - cost index Diff NUMBER OF BRANCHES Iceland No. of branches No. of branches BYR AVERAGE FTEs Parent vs Consolidated *** - 3.2% 1,003 1,112 1,119 1,262 1,056 1, , , Admin exps minus one-off Cost/income ratio Average number of FTEs (parent co.) Average number of FTEs (consolidated) * Excluding write down of goodwill and bank tax ** The cost index, which is measured as 60% of the average increase in salary index and 40% of the average increase in consumer price index in 2015, is a new measurement which has been used throughout the banking arena to measure cost development if zero action is taken *** Excluding groups held for sale and summer employees 14

15 Tax & levies paid to various institutions Taxation has increased in recent years, Bank tax is the most significant ISKm Q15 4Q14 Income tax * 4,805 4,964 (159) 948 1,119 Special financial activities tax** 1,046 1,275 (229) Bank tax *** 2,878 2, Financial activities tax (FAT) **** FME and The Debtors Ombudsman (32) Depositors and Investors Guarantee Fund (TIF) 1,067 1, Total 10,786 10, ,486 2,515 SPECIAL TAXATION ISKm CONTRIBUTION TO TIF, FME & OMBUDSMAN ISKm 1,833 1, , ,321 2,444 2, Bank tax FAT Special financial activity tax Depositors' Fund FME and the Debtors Ombudsman Corporate tax is 20%. ** In addition, a new special financial activities tax was introduced in 2012 calculated as 6% of taxable profits above ISK 1bn. *** Change in legislation in Q raised Bank tax from 0.041% on total liabilities to 0.376% of total liabilities in excess of 50bn **** 5.5% calculated on salaries in 2015 and Was 6.75% in

16 III. Assets

17 Assets Consolidated 31 December 2015 ISKm Cash and balances with CB 216, , ,779 Bonds and debt instruments 78,606 87,347 75,186 Shares and equity instruments 18,320 10,531 9,208 Derivatives 1,980 1, Loans to credit institutions 35,534 35,072 44,078 Loans to customers 665, , ,741 Investment in associates ,563 Property and equipment 7,344 7,402 8,772 Intangible assets 1, Other assets 6,674 8,140 12,434 Non-current assets held for sale 12,792 21,649 47,106 Total assets 1,045, , ,009 Liquid assets The three line items, Cash and balances with CB, Bonds and debt instruments, and Loans to credit institutions, amount to about ISK 331bn, whereby ISK 314bn are considered to be liquid assets The increase is due mainly to a significant rise in deposits and cash levels resulting from a system-wide increase in money supply due to the Central Bank of Iceland s foreign currency purchases during the year Shares and equity instruments Increase a result of fair value gains in exposures, the greatest being from VISA Europe through the Bank s subsidiary Borgun Loans to customers New lending amounted to ISK 152bn in since year end 2014 The loan book grew by 4.9%, below the nominal GDP rate of 6.3% Intangible assets Increases as a result of purchasing and developing software relating to the new core banking systems Other assets Includes unsettled securities transactions. The date of settling fluctuates month by month and largely causing the difference between quarters Non-current assets held for sale Six companies have been divested in 2015 in addition to a reduction in foreclosed mortgages - The asset encumbrance ratio is 10.4% at December

18 Diversified loan portfolio The loan portfolio grew by 5% in 2015 LOANS TO CUSTOMERS ISKbn, by sector, consolidated Industrials and transportation 9% Seafood 13% Commerce and services 13% Other 9% ISK 665.7bn Real estate 15% Individuals - mortgage lending 30% Individuals - other lending 11% A healthy growth in the loan portfolio Loans to individuals increased by 4% in the year, led by 6% growth in mortgages Loan to companies in the commerce and service sector increased by ISK 10bn New lending amounted to ISK 152bn In addition, ISK 98bn in loans were refinanced Customers made instalments amounting to ISK 121bn Tourism Economic activities related to tourism are growing in Iceland. The Bank has not defined tourism as a separate sector since it affects various types of businesses. Outstanding loans to the tourism industry are 10% of the loan portfolio, most are in the real estate, commerce & service and industrials & transportation sectors Large exposures The Bank has currently one large exposure which is 12% of its capital base International lending Most of the Bank s activities are in Iceland. The overseas strategy in the North-Atlantic region is built on a heritage of servicing the core industries in Iceland, primarily focusing on the seafood industry. The Bank has had intermittent presence tied to the Norwegian operators of offshore service vessels for over ten years, but the exposure is now only about 1% of the Bank s loan portfolio The oil offshore service sector has been affected by the volatility of oil prices in 2015 and early The Bank has at year-end 2015 already recognised the impairment loss deemed appropriate, based on the risks related to the exposure 18

19 Loans covered by collateral LTV of mortgages continues to improve CONTINUOUS LTV DISTRIBUTION OF THE LOAN PORTFOLIO ISKbn, by type of underlying asset, as of CONTINUOUS LTV DISTRIBUTION OF MORTGAGES TO INDIVIDUALS ISKbn, as of average LTV 69% (74% )* Residential real estate Commercial real estate Vessels Cash & securites Vehicles & equipment Other collateral Most of the Banks collateral is in the form of residential and commercial real estate The second most important collateral type is vessels See the Bank s Pillar 3 Report for more detail Average LTV of mortgages to individuals decreased from 74% to 69% mainly due to update in tax value but also because of the CPIlinked mortgage relief scheme The mortgage portfolio decreased by ISK 8.8bn due to the Government s CPI-linked mortgage relief scheme. New mortgage lending in 2015 was ISK 33bn * the average LTV can be calculated in many different ways and therefore the definition is important for comparison to other banks. The weight is Íslandsbanki s total amount outstanding on the property and the LTV used is the maximum LTV of all Íslandsbanki s loans of the property. The calculation is based on tax value. 19

20 Healthy loan portfolio Non-performing loans low in comparison and asset quality steadily improving NON-PERFORMING LOANS (INTERNATIONAL INDICATOR) Impaired loans and past due (>90 days) loans to loan to customers 25% LOANS TO CUSTOMERS Impaired, past due and neither past due nor impaired loans 100% 90% 20% 80% 70% 15% 60% 50% 10% 40% 30% 5% 20% 10% 0% Interquartile range Median Íslandsbanki 0% Neither past due nor impaired 4-90 days past due > 90 days past due Impaired The ratio measuring non-performing loans in the whole portfolio continues to decrease from 3.5% YE14 to 2.2% Asset quality indicators have improved and compare well to other banks The European Systemic Risk Board uses a solvency indicator that is based on impaired loans and loans 90 days past due. The graph shows the interquartile range and the median of over 50 European banks compared to ISB 20

21 IV. Liabilities, Liquidity & Capitalisation

22 Liabilities Consolidated - 31 December 2015 ISKm Deposits from CB and credit inst. 25,631 25,796 29,689 Deposits from customers 593, , ,331 Derivatives and short positions 6,981 3,963 11,176 Debt issued and other borrowings 150,308 96,889 89,193 Subordinated loans 19,517 21,306 21,890 Tax liabilities 8,358 8,388 10,826 Other liabilities 36,677 37,262 37,130 Non-current liabilities held for sale 2,825 2,790 9,456 Total liabilities 843, , ,692 Total equity 202, , ,318 Total liabilities and equity 1,045, , ,009 Deposits Customer deposits increased by ISK 12.2 billion in Q4, largely attributable to institutional investors Customer term deposits now 30% of total customer deposits The increase in deposits is partly due to system-wide increase in money supply due to the Central Bank of Iceland s foreign currency purchases during the year Debt issued and other borrowings Includes covered bonds, commercial paper and bond issued to the Central Bank secured on a pool of mortgages, highlights include: Covered bond issuance increased 16.4bn GMTN program increased 39.7bn Commercial paper increased 5.6bn Subordinated loans EUR 138m denominated Tier 2 issue maturing in Only 80% of the amount eligible as regulatory capital Equity Total equity increases 9%, in the year, in line with net profit, and the fair value gain in VISA Europe through the Bank s subsidiary Borgun of ISK 5.4bn 9bn in dividends were paid out in 2015 and 16bn since 2013 The Board of Directors is proposing dividend payments of up to 50% of profits to shareholders in

23 Deposits remain the main source of funding Significant increase in non core deposits DEPOSIT DEVELOPMENT AND DEPOSIT RATIO ISK bn, year-end, consolidated DEPOSITS FROM CUSTOMERS %, year-end, consolidated Foreign financial entities and other foreign enitites Pension funds and domestic financial entities Financial institutions in disolution Corporations, sovereigns, central banks and PSE Retail and SME Deposit/loan ratio % 87% 88% 90% % 80% % % 50% % % % 10% 0 0% % 76% 28% 28% 34% 39% 72% 72% 66% 61% On demand Term deposits Stable core deposit base Deposits remain the main funding source for the Bank Deposit to loan ratio remains high, may decrease somewhat as more investment opportunities arise in the domestic market, the composition agreement of Glitnir finalize and outflow due to offshore ISK Core deposits remain stable while the increase in deposits is mainly due to inflow from institutional investors Increased focus on term deposits Focus on notice accounts and fixed interest accounts Customer term deposits have been steadily increasing Ratio of term deposits might lower when agreements regarding the stability contribution have been executed 23

24 Continued diversification of funding Debt issuance increased throughout 2015, mainly domestic CBs and FX under the GMTN Programme Domestic funding Íslandsbanki is the largest issuer of covered bonds in the domestic market Domestically, the Bank is also a frequent issuer of unsecured listed securities Only bank in Iceland with two international ratings Íslandsbanki is investment grade - S&P BBB-/A-3 with positive outlook (Jan) - Fitch BBB-/F3 with stable outlook Issuance highlights of 2015 in FX include: Terms continue to improve with successive FX transactions in SEK, NOK and EUR In February, the Bank issued a SEK 300m four-year floating-rate note (FRN) at STIBOR +310 which was tapped by SEK 150m in April and again in July In July, the Bank issued a EUR 100m 2.875% fixed-rate note due in 2018, its second such transaction, which was tapped by EUR 125m in December In October, the Bank issued a three-year NOK 500m floatingrate note at NIBOR +260bp In January 2016, first private placement since 2008 of USD 35m Floating Rate Note paying 3 month USD LIBOR bps ANNUAL COVERED BOND MARKET ISSUANCE Nominal, ISKbn : ISK bn : ISK bn 2013: ISK : ISK 18.1bn bn des.11 jún.12 des.12 jún.13 des.13 jún.14 des.14 jún.15 des.15 Arion banki Landsbankinn Íslandsbanki Uppsafnað Total annual á árinu, issuance h-ás(right) MATURITY PROFILE OF LONG-TERM DEBT , ISKbn 2.0% % % 4.5% % >2020 Total ISK Total FX Repayment of long term debt as a % of BS 30 24

25 Sound management of liquidity Liquid assets of ISK 314bn exceed internal and external requirements NET STABLE FUNDING RATIO (NFSR) , consolidated, % 160% 140% 120% 100% 80% 60% 40% 20% 126% 124% 120% 124% 112% 112% All liquidity measures are above regulatory requirements FX liquid assets: 107% 111% 141% 120% 0% NSFR all currencies (group level) NSFR foreign currencies (group level) FX NSFR - minimum - FX Government bonds have a minimum requirement of AA rating - FX cash placed with highly rated correspondent banks Liquidity ratios expected to decrease somewhat with deposit outflow in connection to the composition agreements of Glitnir and CBI auctions for offshore ISK, while still remaining well above the regulatory minimum The regulatory requirements for the NSFR only apply to foreign currencies and were not introduced until 1 December 2014 LIQUIDITY COVERAGE RATIO ALL CURRENCIES % 180% 160% 140% 120% 100% 80% 60% 40% 20% 138% 128% 143% 125% 114% 128% 130% 134% 117% 114% 151% 130% 156% 137% 143% 132% 0% Liquidity coverage ratio (parent level) LCR - minimum LIQUIDITY COVERAGE RATIO FOREIGN CURRENCIES % 700% 600% 500% 400% 300% 200% 100% 431% 332% 302% 378% 296% 264% 617% 494% 401% 291% Liquidity coverage ratio (group level) 442% 346% 409% 364% 467% 399% 0% Liquidity coverage ratio (parent level) LCR - minimum Liquidity coverage ratio (group level) 25

26 Sound capital position Minimum capital target raised from 18% to 23% for the near to medium term CAPITAL RATIOS % RWA ISKbn 29.6% 26.5% 19.5% 28.4% 28.3% 25.7% 25.8% 18.8% 29.2% 26.9% 30.1% 28.3% 18.3% 18.3% 18.1% Total capital ratio Tier 1 ratio Leverage ratio Capital ratios Total capital base was ISK 211bn at compared to ISK 208bn at The capital base increase, due to retained earnings, is partly offset by the reduction of the Tier 2 subordinated loan where only 80% is eligible as a part of the capital base The leverage ratio was 18.1% at the end of the period Ratio of RWA to total assets around 70% Risk weighted assets (RWA) Risk weighted assets decrease between quarters mainly due to a decrease in the currency imbalance Capital target New minimum total capital ratio target of 23% for the near to medium term More conservative requirements set by the FME Bank s view that s important to retain a sizable strategic buffer due to lifting of capital controls The CET1 target ratio will be determined within the next months in line with more clarity on the lifting of capital controls and regulatory capital requirements. As guidance however, the medium to long-term CET1 target will likely be in the range of 14-16% Dividends Long-term dividend pay-out target ratio of 40-50% of net profit In , the Bank has paid out a total of ISK 15.9bn in dividends, thereof 8.9bn was paid out after the 2014 results, or 39% of net profit

27 Regulatory capital requirement The Financial Stability Council (I-FSC) has suggested a plan for the implementation of the CRD IV capital buffers in Iceland Total capital ratio 30.1% - The systemic risk buffer only applies to domestic RWA and translates to 2.5% of total RWA for Íslandsbanki 30% The total capital reference for Íslandsbanki is 19.9%, assuming full implementation of the capital buffers Based on the current risk profile, the composition of the 19.9% is subject to the following restrictions: 25% 23.0% % needs to be in the form of CET1-2.2% can be in the form of alternative tier 1 (AT1) instruments and - 3.0% in the form of tier 2 instruments (T2) For more details see chapter 3 in the Pillar 3 Report 20% 19.9% Strategic add-on IMPLEMENTATION OF CRD IV CAPITAL BUFFERS 9% 8% 1.0% 15% Combined capital buffers Stress buffer 7% 6% 3.0% Countercyclical capital buffer 10% Pillar 2 Pillar 2 5% 4% 3% 2% 1% 0% 3.0% 3.0% 2.0% 2.0% 2.0% 2.5% 1.8% 1.0% April 2016 June 2016 January 2017 Systemic risk buffer* O-SII buffer Capital conservation buffer 5% 0% Pillar 1 Pillar 1 Current regulatory requirements* Minimum capital target *Assuming full implementation of capital buffers 27

28 New Ownership The Icelandic Government is now the Bank s sole shareholder YE2015 OWNERSHIP STRUCTURE At the end of 2015, Glitnir hf. held 95% of share capital in Íslandsbanki through its subsidiary, ISB Holding ehf. The remaining 5% was held by the Icelandic Government and was administered by Icelandic State Financial Investments FUTURE OWNERSHIP STRUCTURE In January 2016 Glitnir hf., as part of the creditor group s stability contribution, relinquished to the Icelandic Government all of its shares in ISB Holding ehf., which held 95% of the Bank s shares Glitnir s stability contribution In October, the CBI presented an assessment of recent composition proposals for the estates of Glitnir, Kaupthing and LBI, which were later confirmed by the Icelandic courts As a result of the composition agreement between Glitnir and its creditors, ownership of the Bank will be transferred from Glitnir to the Icelandic Government in 1Q16 Positive macro impact expected with Sovereign rating upgrades, improving investment position with reduction of Treasury debt by more than 50% and easing of capital controls finally in sight Ready for future ownership structure Ready for sales process since 2010 and is compliant as if a listed company since 2012 ÍSB always been privately owned, mirrored in corporate culture Icelandic Government has stated their holding in Íslandsbanki is a temporary one, whereby ISFI will manage the sales process 28

29 Key financial targets Medium and long term strategies structured around achieving key financial targets TARGET Guidance RETURN ON EQUITY Risk free rate + 6% (Currently at 11.5%) 13.2% 12.6% 10.6% Medium to long term target of RF+6% for return from regular operations based on normalized capital. Returns expected to be 10-12% in the near term Return on excess capital in line with risk free rate after tax, with upside potential from one-off items COST / INCOME RATIO TOTAL CAPITAL RATIO DIVIDEND PAYOUT RATIO 55.0% 56.2% 57.7% 58.5% > 23.0% 30.1% 29.6% 28.4% 40-50% 50% 40% 17% Headcount and non-headcount related cost control programmes in place Current target of >23% for the short term A medium to long term target for total capital and CET1 will be determined within the next months in line with more clarity on the lifting of capital controls and regulatory capital requirements. Long term pay-out ratios based the relevant years earnings and paid out the following year 2015 payout ratio suggested by the board and subject to shareholder meeting approval 29

30 Key points Sustainable business model based driven by vision to be #1 for service 1. OWNERSHIP 2. HEALTHY EARNINGS 3. PROVEN STRATEGY Transfer of ownership to the Icelandic State as part of Glitnir s stability contribution Healthy growth across all operations with net profit of ISK 20.6bn, NFC up 14.7% and cost income ratio of 56.2% Highest ranking bank in the Icelandic Satisfaction Index for three years running 4. PROFITABILITY AGAINST SOLID CAPITAL BASE 5. RATINGS ROE on normalized equity from regular operations of 13.2% Target return of 12% and outlook for 10-12% return in the short term Investment grade rating from both S&P (BBB-/A-3) and Fitch (Fitch BBB-/F3 ) and recently placed on positive outlook by S&P 30

31 Improved information disclosure Today we issue our Annual Report, our Pillar 3 report in addition to our Annual Financial Statements Fact sheet Financial review press release Investor presentation Fact book (excel) Webcast 31

32 Thank you