Íslandsbanki's 2009 full year results

Reykjavík 14 April 2010: Íslandsbanki turned a profit of ISK 23.9bn in 2009, with income tax estimated at ISK 4.7bn. The Bank’s total capital ratio of 19.8% exceeds the 16% minimum set by the Icelandic Financial Supervisory Authority (FME). Return on equity is 30% but no dividend will be paid to owners. 2009 is the Bank’s first full year of operations. Previous year’s results only covered a two and a half month period and are therefore non-comparable. The Bank’s Financial Statements were audited by the Bank’s external auditors, Deloitte, who issued an unqualified opinion in their audit report 

• Profit after tax was ISK 23.9bn, estimated income tax due for the period is ISK 4.7bn and employers national insurance contribution amounted to ISK 415m.
• Net interest income was ISK 32bn, a large portion of which was due to an imbalance between CPI linked assets and liabilities. Measured inflation during the period was 8,63%.
• Net fee and commission income was ISK 7.1bn.
• Net financial income was 11.1bn, mostly due to a net foreign exchange gain following a weakening of the ISK in the first half of the year. This gain was largely offset by substantial impairments made for unrealisable FX gains from FX-denominated loans made to borrowers with ISK income.
• Net income from revaluation of loans acquired at a deep discount amounted to ISK 2bn.
• Premium to the Depositors' and Investors' guarantee fund amounted to ISK 672m. Future obligations to the Fund are not recognised. This amount is expected to double for the year 2010.
• The core cost/income ratio for 2009 was 41.3%.
• Total assets at 31 December 2009 were ISK 717bn.
• Annualised return on equity is 30%
• Total capital ratio at end of the period was 19.8% which is substantially above the 16% minimum set by the FME.
• Loans to customers totalled ISK 577bn. Total deposits amounted to ISK 479bn.
• The deposit/loan ratio was 83% at year end.
• Equity as of 31 December 2009 amounted to ISK 92bn.
• The average number of full time employees was 1,039 during period.
Birna Einarsdóttir, CEO of Íslandsbanki:
„2009 was a year characterised by great economic uncertainty which put its mark on the Bank‘s operations. The fundamental business is strong and turns a profit which better equips the Bank to meet the challenging market conditions that still lie ahead. The Bank contributes ISK 5.1bn to public finances in the form of taxes and national insurance contributions in 2009.

In the last year the Bank has emphasised the strengthening of its foundations which has called for an increase in the number of staff in its compliance and support units. This work will continue in 2010 with more initiatives being undertaken with regards to the Bank’s internal control, rules and regulations.”

Further information:
Már Másson, Head of Corporate Communication
phone +354 844 4990, E-mail: mar.masson@islandsbanki.is

Sigrún Hjartardóttir, Corporate Communication
phone +354 844 4748, E-mail: sigrun.hjartardottir@islandsbanki.is
 

Íslandsbanki 2009 - A very full year in summary

2009 was the first full year of operations for the new bank and marked the start of its efforts to help restore normality to a shell-shocked financial system in Iceland. An exhaustive list of all the projects and programmes that were initiated in the bank in 2009 lies beyond the scope of this newsletter, but progress might broadly described as follows:
The first quarter´s activities focused on the pressing need to give some relief to those customers who were burdened with suddenly much more onerous repayments on foreign currency loans. The bank introduced a range of payment adjustment schemes for mortgages, and was the first bank in Iceland to do so. At the same time, the bank re-branded itself as Íslandsbanki – a name that the bank had used for much of its century-long history – and a much-trusted brand in its time.
May saw the start of formal negotiations between the bank and Glitnir‘s resolution commitee on compensation for the assets transferred from Glitnir to the new bank. These negotiations proved to be protracted, reaching their conclusion in October. The investment in time and effort that the bank made in both its Capital Markets and its Asset Management divisions really began to bear fruit, with the bank being ranked as the largest fixed income broker in 1H09, and the launch of the IS Government Fund was a great success for Asset Management.
Summer saw Íslandsbanki, the Icelandic government and Glitnir´s resolution committee reaching an agreement on the new bank‘s capital structure, shortly followed by an ISK 65 billion equity injection from the government. The bank launched a payment adjustment scheme for FX-denominated car loans to complement the earlier mortgage scheme.
In October, Glitnir announced that it would acquire, on behalf of its creditors, a 95% stake in Íslandsbanki. At the behest of these new shareholders work was started to assemble a new Board of Directors , with the result that in 2010 Íslandsbanki has the strongest and most diversified Board in Icelandic banking history.
The bank´s annual report contains a very full account of these events , and we would be delighted to assist with any queries you may have.
 

Economic update

The recession in the Icelandic economy is so far proving somewhat milder than most forecasts had assumed. GDP contraction in 2009 proved 6.5% following 1% growth in 2008. While the contraction is the most severe in post-WWII Iceland, it is by no means unique in an international context as most advanced economies grapple with the economic consequences of the global financial crisis. Vast improvement in foreign trade is the main reason for the relatively benign outcome, offsetting a 21% fall in domestic expenditure last year. This is reflected in the turnaround in the current account balance, which swung from a deficit of 18.5% of GDP in 2008 to a modest surplus in 2009, excluding accrued but unpaid interest expenses by banks now in winding-up proceedings.

There are two main reasons for the improvement in Iceland’s external balance. First, being a small, open economy that imports consumer- and investment goods and exports commodities and services, a fall in domestic demand of the size seen in Iceland was always going to be accompanied by a substantial improvement in net export receipts, even if the effect was to a degree weakened by low commodity prices in H1 of 2009. Secondly, the all-time low real exchange rate of the ISK has greatly improved the competitiveness of the non-sheltered sector of the economy, in particular shielding the tourism industry and various niche services and industries from the effects of the global slump. This, along with improving terms of trade as the price of Iceland’s main export commodities rebounded in H2 of 2009, combined to bring the net surplus on goods and services trade in 2009 to ISK 127 bn., equivalent to 8.4% of GDP.

The trade surplus helped shoring up the ISK in Q1 of 2010, aided by the fact that the capital controls imposed in October 2008 finally seem to serve their purpose adequately after their latest revision late last year. By the end of March, the Krona had strenghtened by 2% since the start of 2010. This development, along with increased economic slack, means that the near-term outlook for inflation has improved even if the headline inflation figure rose to 8.5% in March. The Central Bank has reacted by lowering its policy rate by 1 percentage point to 9% since the start of the year, a level last seen in Iceland in Q3 2005.

The latest economic indicators suggest that the economy may be reaching a nadir. Umemployment printed at 9.3% of the workforce in February 2010, the highest umemployment rate ever recorded in Iceland. However, the labour market will most likely improve in coming months due to seasonal factors and labour market experts are optimistic that the unemployment rate seen in February will prove to be a record not to be beaten in coming years. Consumption indicators such as payment card turnover and consumer confidence polls indicate that private consumption has reached a plateau following rapid decrease during most of 2009. Most forecasts assume a return to modest economic growth in H2 of 2010.

Even if the central scenario is for gradual recovery later this year, there are still a number of uncertainty factors that could throw a spanner in the works. One is of course the still-unresolved Icesave dispute which has caused delays in the second review of Iceland’s IMF programme, although the review now looks likely to go forward in coming weeks. Another is the future of the general agreement between employers, labour unions and the government on reviving the labour market. The Confederation of Icelandic Employers has declared that the agreement is void due to the government not keeping its end of the bargain. Should this indeed prove to be the case, more labour market unrest could be in the cards for H2 this year.