From the Chairman of the Board
The Bank performed well in 2021 and its position is strong. Profitability was 10.8% in 2021, in line with the Bank’s long-term goal of achieving around or over 10% return on equity.
Helga Björk Eiríksdóttir, Chairman of the Board
Landsbankinn’s success in 2021 is largely grounded on successful work based on its strategy, approved in 2020. One of our key strategic goals is to enhance customer satisfaction. We are very proud and delighted that the Bank topped the Icelandic Performance Satisfaction Index in 2021, for the third year running, an outcome confirmed by our own customer satisfaction surveys. We are also pleased by how many new customers have joined the Bank. Our market share in the retail market is currently 39.5% and has never been higher.
Emphasis on favourable terms on housing mortgages and smooth and effective service no doubt plays an important part in the increase in new customers and high growth in market share in the mortgage market. In only five years, our share has grown from 17% to 29% and Landsbankinn is now by far the largest single lender on this market. When compared to only the other two commercial banks, our market share is 41%. The number of customers entering the mortgage market and taking our loans with the Bank reflects the competitive rates we offer first-time buyers. Our market share among first-time buyers was around 46% in 2021, according to Gallup.
This high growth in mortgage lending has for the first time in 2021 led to total lending to individuals in the Bank’s loan book exceeding total lending to corporates.
Not by any great margin, yet this is a milestone nevertheless, as corporate lending made up 60% and retail lending around 40% not many years ago.
Costs continue to decrease
While income has increased, operating costs have continued to dwindle. The Bank’s success is remarkable and it should be noted that last year, the Bank’s cost-income ratio, i.e. cost to total income, was 43.2%, or comparable to the most efficient Nordic banks in terms of operating cost. Operating cost as a ratio of total assets has decreased steadily, from holding steady at around 2% for several years to 1.4% in 2021. Operating cost, calculated as a ratio of total assets and total income, of course takes into account that the Bank’s balance sheet has grown substantially and income increased. But even considering the increase measured in Icelandic króna, the success is clear.
Regular and special dividend
Sound and stable operations and a strong financial position allow the Bank to pay a dividend to shareholders. In line with the Bank’s dividend policy, the Board of Directors intends to propose that the Annual General Meeting approve a dividend of ISK 14.4 billion, equivalent to around 50% of 2021 profit. Should this proposal be approved, dividend paid by Landsbankinn in 2013-2022 will in total amount to ISK 160.6 billion, accruing almost in its entirety to the National Treasury. The Board of Directors is also considering proposing payment of a special dividend in 2022.
Supporting our customers
Landsbankinn’s operation of course takes into consideration economic conditions in Iceland and it is clear that the economy is now much better placed than most of us dared to hope in the early days of the pandemic. The outlook is for good economic growth, and while there are some negative developments in the inflation rate, interest rates are lower than usual and purchasing power is higher than ever. The recession that followed in the wake of the pandemic is unusual in that it had negative economic consequences mostly for a small segment of the population, i.e. on those who became unemployed or worked in the sectors that were hardest hit by the pandemic - tourism, hotels and restaurants, music and theatre, to name the main sectors.
The travel sector received a tremendous blow. Two million tourists visited Iceland in 2019. The pandemic brought this number down to 480,000 and up a little to 690,000 in 2021. The high investment and development in Icelandic tourism in recent years supports expectations for a bountiful harvest once the pandemic is in the past and travel picks up again.
Service throughout Iceland and around the clock
Landsbankinn is focused on providing outstanding digital solutions. Our customers are very appreciative and use of our digital solutions continues to grow.
Unlike other financial undertakings, we also emphasise maintaining a presence throughout the country. The Bank operates branches and outlets in 29 locations in rural Iceland and 7 branches in the capital region.
This service network is unique in Iceland. This creates unequalled connections, both with individuals and companies. Clearly, the need for branch services has declined and fewer customers visit them. We have responded in various ways, including by shortening opening hours while extending remote meeting hours to 18:00. We have also ensured that employees working out of branches throughout Iceland are able to work on projects that are not location-dependent. While our policy is still to maintain a presence throughout Iceland, we will continue to develop and adapt our branch network with regard for changes in the operating environment and changing customer needs.
Rapid changes in the financial market
Changes in Landsbankinn’s operating environment are not least from growing competition in the financial market from a broader group of fintechs and financial undertakings, both domestic and international. The competitive environment has actually changed more rapidly and extensively than most of us expected. The legal environment, technological changes and changing consumer behaviour all mean that development is proceeding at breakneck speed and we must keep up by offering new solutions that meet customer needs. That is certainly our intention and the Bank is very well placed to grow. These developments also bring more complicated and comprehensive supervision and regulation that Landsbankinn, like other systematically important financial institutions, must comply with. We understand that complying with and meeting stringent requirements creates trust, which we are thankful for. At the same time, it must be noted that it is important to ensure that such supervision and charges levied on the Bank should not be more encumbering for us than our competitors, both domestic and international.
Leading in sustainability
It is admirable how many individuals and companies have taken the initiative to enhance sustainability in their local environment and operation in recent years.
Landsbankinn has for many years led the field in corporate social responsibility and sustainability and we intend to continue to act as an example in implementing the changes that financial markets are undergoing with increased emphasis on sustainable finances.
We consider that climate issues should rank even higher on the list of risk factors banks should assess and manage. We can look to both local and international examples that show the impact climate change can have on both people and profit in both the long and shorter term. Drought in the winter months has led to unusually low water levels in domestic reservoirs. While this may be a short-term fluctuation only, it is nevertheless a good example of how changing weather patterns can have large and negative impacts on companies and their operation.
New and practical housing opens new opportunities
Changes in banking have called for new work practices at Landsbankinn. Projects are increasingly completed in close collaboration between departments, in larger or smaller teams. One of the reasons for the Board’s decision in spring 2017 to begin construction of new headquarters for the Bank was the unsuitability of current housing in Kvosin to such work. Design of the new building has special consideration for these factors and ensures flexibility in the organisation of the building that allows for easy adaptation to changes in line with new approaches. We believe that the move to Austurbakki will create new opportunities to better harness the great energy and knowledge our team possesses.
The Bank’s operation in Kvosin is now scattered around 12 buildings, leading to regular and costly disruption when changes are called for, such as due to operational changes. These buildings are also getting on in years, with the oldest house constructed in 1907 and the youngest in 1970. The move to a new building will free up current housing in Austurstræti, Hafnarstræti and Tryggvagata. The Bank owns four of these buildings, Austurstræti 11 and Hafnarstræti 10, 12 and 14. Preparations to sell these buildings have begun. We will take special care in considering the future of Austurstræti 11, as it holds unique cultural and historic value and must be ensured a worthy future.
Organisation changes release energy
In early 2021, following on the heels of our new strategy, the departments Human Resources, Marketing & Communications and Economic Research all joined forces as the collective Community. The aim was to strengthen and support collaboration between these departments in line with the objectives of the new strategy as regards an innovative customer approach, including through instruction, communication and also as regards employee education and training. To enhance the drive of these departments even further, it was decided in spring to create a new division out of the Community group to underline our focus on these issues and ensure their progression.
We face many challenges, from growing competition, rapid technological development and regulatory changes. In order to meet these challenges with aplomb, it is important for the Bank to continue to attract and retain strong and talented personnel.
This requires that the Bank can offer both competitive wages and a desirable workplace. We must also ensure that our human resources develop in line with changes to the Bank’s activities and to always perform to the best of our ability in order to provide the best service.
Excellent performance under difficult conditions
The Annual General Meeting of the Bank in 2021 elected three new Directors to the Board, Elín H. Jónsdóttir, Guðrún Blöndal and Helgi Friðjón Arnarson. Sigríður Olgeirsdóttir was elected as alternate. The new regular members replace Einar Thór Bjarnason, elected to the Board in 2016, Hersir Sigurgeirsson, elected to the Board in 2016 and serving until November 2020, and Sigríður Benediktsdóttir, elected to the Board in 2017. I thank them all for their excellent work. On behalf of the Board of Directors, I thank Lilja Björk Einarsdóttir, CEO, other executives and the Bank’s employees for their outstanding performance under difficult conditions and for pleasant and effective collaboration in 2021.