Risk is inherent in Landsbankinn’s entire activity and robust, sound risk management is key to the Bank’s operation. Risk management involves identification, assessment, disclosure and control of all risks.
In general, the Bank’s risk measurements and assessment of material risk factors are positive and all key risk factors were within risk appetite at year-end 2023. Defaults in the Bank’s loan portfolio remain minimal, the Bank is securely funded and its liquidity and equity positions are strong.
Credit risk is the most significant risk in the Bank’s operation, or 89% of risk-weighted exposure. The carrying amount of loans to customers increased by ISK 87 billion in 2023, with growth in both the retail and corporate portfolios.
The second most significant risk in the Bank’s operation is operational risk, which includes numerous sub-risks. The Bank has been focused on protecting customers against cyberattacks, which remain a growing threat. The Bank has been certified under the ISO 27001 information security standard for over 15 years. The certification along with staff and customer education on information security is one of the main pillars of the Bank’s cybersecurity.
At year-end 2023, the Bank’s total capital ratio of 23.6% was well above current regulatory requirement of 20.2%.
The Bank’s liquidity position was very strong at year end and liquidity ratios well above regulatory requirements and the Bank’s internal risk limits. The total liquidity coverage ratio (LCR) was 181%, 129% in ISK and 1,499% in EUR.
Risk factors in the Bank’s operations are assessed by various measurements, in line with their scope and nature, and these measurements provide the foundation for risk limits, analysis of risk factors, disclosure of information and risk management. A common measurement for all risk factors is the Bank’s internal assessment of economic capital (EC). In 2023, internal assessment of the Bank’s capital requirements was considerably lower than capital requirements.
Landsbankinn’s risk policy
Landsbankinn has adopted a risk policy that provides a framework for the Bank’s risk management and risk appetite and forms the basis for long-term profitability and stability. The Bank’s risk policy also sets out the parameters for implementing risk culture, risk rules and governance that sets out decision and risk-taking authorisations, follow-up and control of risk management.
All main risks in the Bank’s operation are identified, assessed and measured, both financial and non-financial risks. The main risks in the Bank’s operation are credit risk, market risk, liquidity risk, concentration risk, operational risk, business risk, legal risk, reputational risk, conduct risk, compliance risk, IT risk, data risk, model risk and climate risk.
Landsbankinn’s governance structure sets out the main decision process on key risks, the decision-making and risk-taking authority of individuals, follow-up and control by the Board of Directors, CEO and individual Bank committees.
The Board of Directors has approved a risk appetite which reflects the Bank’s risk strategy and functions as a management tool that controls risk-taking, in addition to setting aims for aggregate risk in the Bank’s operation. Risk appetite is reviewed at least annually.
Active internal control
Active internal control forms one of the cornerstones of robust risk management and is conducive to the Bank operating in accordance with its risk policy and risk appetite.
Internal control is a process shaped by the Bank’s executives and employees and comprises all actions taken with the aim to support, manage, mitigate or monitor certain activities and in so doing increase the likelihood of the Bank attaining set goals.
Landsbankinn endeavours to maintain good and constructive relations with regulators and to ensure accurate information disclosure.
Risk metrics in Landsbankinn’s risk appetite
The Bank’s main risk metrics are listed below. In addition, the Bank assesses and measure various other risk factors to support risk management and decision taking.
|Average probability of default
|Largest exposure (% of Tier 1 equity)
|Total large exposures (% of Tier 1 equity)
|Total market risk
|Liquidity and funding risk
|LCR in Icelandic króna (ISK)
|LCR in foreign currency
|LCR in euro (EUR)
|LCR - total
|Net stable funding ratio - total
|Capital adequacy risk
|Total capital ratio
|Real changes to RWA base
|ROE after taxes
Further information in risk report
Landsbankinn publishes a risk report that provides in-depth information on all risk factors for the Bank and risk assessment methods.