From the Chairman of the Board

There is uncertainty in the economy, stemming from international conflicts, collective bargaining agreements that have expired and not least because of ongoing volcanic and seismic activity on the Reykjanes peninsula. The people of Grindavík have been in all of our thoughts here at Landsbankinn since 10 November last year. Many of our valued customers hail from Grindavík, both individuals and companies, as well as important members of our team.

Landsbankinn has supported the people of Grindavík in various ways during these difficult times. All retail customers with housing mortgages were immediately offered a six-month payment deferral. Soon after, the Bank offered to cancel interest and inflation-indexation on Grindavík housing mortgages for a period of three months. When volcanic activity reached the town itself in January, another three months were added to the cancellation period. The Bank expects to participate in funding of the National Treasury's purchase based on the proposal of the Minister of Finance and Economic Affairs, currently before Parliament. I hope that the people of Grindavík, both families and businesses, can get their bearings again soon.

Landsbankinn had positive results in 2023. The Bank’s profitability was 11.6%, in line with its own target 10% long-term profitability. This profitability target aligns with the targets of similarly sized Nordic banks and it is natural that the Bank’s owners expect a return on the considerable equity bound in the Bank.

Only through profitable operations can the Bank continue to invest, to develop and to counter increased competition with full force and by offering its customers exemplary service.

The Bank's position is strong by any measure. Funding went well in 2023 and covered bond issuances in foreign currency, in the total amount of EUR 600 million, were successful. It is also worth mentioning the Bank’s long-term loan agreement with the Nordic Investment Bank (NIB) to partly finance the Bank’s new headquarters and our fifth loan agreement with NIB for the funding of domestic SMEs and projects with an environmental component. Issuance of ISK 12 billion sub-ordinated bonds was successful and customer deposits, which are the Bank’s main funding source, grew by 8.3% in 2023.

Important to pressure inflation down

Many of the Bank’s customers took out non-indexed housing mortgages with variable interest while interest rates were low. These customers are now facing considerably higher debt service on their mortgages following the increase in interest rate levels. The fixed-rate period will end for many customers this year and, all things remaining equal, their debt service will increase significantly. Despite higher interest rates, arrears on housing mortgage are at a low, indicating that most of our customers were not stretched to their limit. But even though both people and businesses have been able to shoulder higher interest rates at least temporarily, the importance of contributing to stability and creating conditions that allow for lower rates should be clear to all. The results of collective bargaining in the private sector will be a determining factor.

Continue to lead

In recent years, financial services and the financial market have undergone significant and rapid change, both internationally and in Iceland. Several companies now offer financial services and competition has grown stiffer regarding certain services. In an increasingly competitive environment, the Bank benefits from having in recent years invested extensively in IT and the development of digital services. As a result, the Bank is more agile and can be quicker to respond to technical innovations and legal requirements. We are no less dynamic when it comes to implementing new and interesting ideas. The Bank has also responded to stiffer competition by adding to its income streams through new services such as merchant acquiring service, which has been well received. To ensure continued success, the Bank must continue to add income streams that strengthen its operation and allow it to offer even more diverse and better financial services.

Service charges and interest margin fund exemplary service

We are proud that Landsbankinn operates the strongest service network of all financial undertakings in Iceland and will continue to endeavour to offer first-rate banking service, both through digital solutions,personal advisory and other service channels. Alongside the Bank’s significant investment in the development of financial infrastructure and new technology, the interest margin for households has decreased as have service fees, in real terms. Public debate does not often mention that the interest margin and service fees fund both comprehensive and complex service as well as higher tax levies than what is common in our neighbouring countries. A comparison of service fees and interest margin, published in a report from a workgroup under the auspices of the Minister of Culture and Commerce last year, was favourable for Landsbankinn and an encouragement to de even better.

Complicated regulatory environment

The legislation that applies to financial undertakings is extensive and complicated. A large part of such laws originates in European regulations that are built around companies that operate in much larger markets. Obviously, the Bank always aims to comply with new legal requirements but it is no secret that this can be a gargantuan task. The most comprehensive such task in 2023 was implementation of the PSD2 directive, intended to open the banking system and facilitate competition. This proved a technological challenge that required considerable investment but the project went well and was successful.

The Bank’s employees can be proud of the initiative we have taken in this field, as in so many others.

Work on implementation of European regulations continues in force in 2024, is such areas as digital resilience, payment service and not least sustainability. Sustainability has become an increasingly important aspect of the Bank’s operation in recent years and more directly linked to treasury and funding activities. Upcoming projects include work on the EU Taxonomy, disclosure on sustainability and assessment of ESG risk. In response, the Board of Directors decided to create a Sustainability Committee which will work as a sub-committee of the Board for period of 1-2 years. The Committee will have finished its work when new sustainability metrics, monitored by the Board and its sub-committees, have been implemented by the Bank and it has become clear to what extent the EU directive on financial disclosure will be transposed into Icelandic law and how compliance will be managed by the Bank.

Trust, professionalism and sound risk culture

Landsbankinn places great emphasis on complying with new rules in a prompt and professional manner and on ensure effective education to ensure that they are followed in full. Trust, professionalism and sound risk culture is a priority. These factors influence the Bank’s entire operation and communication with customer, regulators and shareholders.

In 2023, the Financial Supervisory Authority (FSA) of the Central Bank of Iceland published the results of two comprehensive reviews of the Bank’s activities, on the one hand on measures to combat money laundering and terrorist financing and on the other hand, on Landsbankinn’s actions in the Icelandic State Financial Investments’ public offering of the state’s 22.5% stake in Íslandsbanki in 2022. The results of both of these reviews were published in December. The FSA remarked on certain aspects of the Bank’s measures to combat money laundering and terrorist financing. As regards the offering of the state’s share in Íslandsbanki, the FSA remarked on the value assessment of financial instruments and the timing of the categorisation of four clients as professional investors. The Bank agreed with the FSA’s findings and has put in place necessary improvement measured. The FSA did not see reason to fine or otherwise penalise the Bank in either case.

On behalf of the Board of Directors, I thank Lilja Björk Einarsdóttir, CEO, other executives and the Bank’s employees for pleasant and effective collaboration. I also extend our thanks to shareholders, regulators and other stakeholders, for good relations in the past year.