From the Chief Executive Officer
The operating year 2023 was strong for the Bank but also a year of milestones and changes. We are proud that banking customers are most satisfied with Landsbankinn’s service and intend to continue to simplify life for them and have a positive impact on Icelandic society.
Landsbankinn delivered robust results in 2023. The Bank is well funded, its cost-income ratio among the lowest in banking by international standards and the Bank’s dividend capacity is strong. All aspects of the Bank’s operation returned good results and return on equity was 11.6%, higher than the Bank’s long-term profitability target. Higher returns on liquid assets, a turnaround in the stock market, lending growth and altered balance sheet composition are the main drivers of increased profit between years. It is good to see that the household interest margin remains stable despite high interest rate levels.
Sound operations in the past several years and a dynamic strategy that focuses on simplifying life for customers has changed the Bank. We are exceedingly proud of topping the Icelandic Performance Satisfaction index in the banking market for the fifth year in a row.
This success is no coincidence - it is the result of systematic efforts to make the Bank’s service first-rate, simple and accessible. Our customer base continued to grow and Landsbankinn's market share in the retail market is now 40.5% - a record.
Service around the country and fantastic app
There is great satisfaction with Landsbankinn’s app and other digital solutions. Our customers also appreciate the availability of advice and service in our 35 branches and outlets throughout Iceland, in addition to our dynamic Customer Service Centre. We have involved employees in rural Iceland in consultations and other services provided over the phone, email and remote meetings; service that doesn’t depend on physical location. This bolsters our operation in all parts of the country, allows us to mitigate pressure and boost service. In 2023, branches in rural Iceland handled over 80% of all advisory service in remote meetings and 70% of phone consultations.
Landsbankinn has stood firm with the people of Grindavík in the uncertainty that seismic and volcanic activity continues to cause. Our team of fantastic advisors certainly proved their worth when the Bank contacted all its Grindavík customers who have housing mortgages to help them take advantage of payment deferral and cancellation of interest and indexation.
Strong in the corporate banking market
The Bank is strongly placed in the corporate market and leading in many sectors, such as seafood and fisheries, and in construction. The Bank funds around 3,600 apartments that are currently under construction, corresponding to around half of all current construction projects. Landsbankinn Corporate Finance had a very good year and the Bank’s Acquiring Service has been extremely well received since the service was launched in 2022. We will continue to grow Landsbankinn’s service platform and broaden its income sources.
Leading in open banking
We have taken the lead in ushering in the open banking system. Customers reap the benefit of this technological lead, including in Landsbankinn’s app, which now includes features that no other banking app has. Our Annual & Sustainability Report reviews the numerous new initiatives launched in 2023 and the journey behind our great capacity for change and development. The journey continues and this year we look forward to offering customers the option of refinancing their mortgages in the app, which will be another large milestone in banking service.
Successful bond issue
The Bank was active on capital markets in 2023, having weathered difficult conditions on international markets in 2022. Successful bond issuance in 2023 is a testament to confidence in the Bank in both domestic and international financial markets. The Bank’s most recent green issuance, which was oversubscribed five times over, was extremely successful and, as a result, almost 50% of the Bank’s international funding is now green.
Sustainability is an important aspect of the Bank’s operation and we are working towards the goals of the Paris Climate Agreement. The Bank's most effective tool to have a positive impact is through lending to corporates that are working effectively on sustainability, especially on environmental issues. If the companies succeed, so does Landsbankinn and society in general.
We have adopted scientific goals to reduce emissions and, in February 2024, our goals were verified by the Science Based Targets initiative (SBTi). We are the first Icelandic bank to achieve this.
Household interest margin decreases
Economic uncertainty has certainly not lessened in recent months. We all feel the effect of persistent inflation and high interest rates which are increasingly hampering business activities. With that in mind, it is positive to see that even despite more stringent demands made of financial undertakings, the cost of Landsbankinn’s customer service has not increased. To the contrary - years of working to simplify and make the Bank’s operation more efficient has resulted in fewer employees at the same time the Bank’s balance sheet has doubled and customer numbers are up by tens of thousands. This economy of scale and emphasis on efficient operation has contributed to lower interest margins for households, which is the difference between the interest on unrestricted savings accounts and variable interest on housing mortgages.
In recent years, we have worked on moving the Bank’s operation from unnecessarily large facilities to more suitable and practical housing. The efficiencies achieved are considerable. Since 2017, total housing occupied by the Bank has decreased by nearly 40%, from over 40,000 to around 25,000 square metres.
The year 2023 marked a milestone in Landsbankinn’s operation when we moved from Austurstræti 11 where the Bank had operated for around 100 years. We also moved operations from eleven other buildings in Kvosin and two in Borgartún, joining forces under one roof in Reykjastræti 6.
Total square metres occupied by the Bank in central Reykjavík were reduced from 18,000 to 10,000, operating expenses are down permanently and the work environment changed for the better. We wanted the design of the new building to contribute to communication and collaboration and it certainly has. We who work here feel how much energy and capacity for change was released as a result of the move and surveys of employee well-being show a marked increase in satisfaction with the work environment. The new building is only one of numerous changes that have been made to the Bank’s operation in recent years, enabling it to continue to offer first-rate service around Iceland and competitive terms. Of no less importance is the boost these changes give to employee satisfaction, contributing to a positive attitude. This provides us with solid momentum going forward.
Grow with the economy
Healthy profitability is proof of sound operations and long-term operating goals. Steady and solid results coupled with yearly lending growth expands the Bank’s balance sheet, ensuring that it grows in tandem with the economy. This enables the Bank to offer both small and large companies competitive terms and first-rate service. Increased economy of scale in operations also results in improved terms and even better services for individuals.
I am happy with the Bank’s leadership in financial services in Iceland and pleased that our customers appreciate our service. We know that higher interest rates create various difficulties and will stand with our customers going forward as we have in the past.
To the Bank’s employees - thank you for a great year. This fantastic team embodies drive and a positive attitude. We are soundly supported by the Bank’s Board which provides both supervision and guidance. We are determined to simplify life for our customers, to contribute to good and sound operation and to have a positive impact on society. Landsbankinn’s purpose is to ensure trusted banking for the future and we intend to continue to be a leader in Icelandic bankin