"The Bank's core operations yielded positive results in 2016 - net interest and commission income increased considerably between years while the Bank’s operating expenses decreased. Our market share in the retail market has never been higher and the Bank's position in the corporate market and on financial markets remains strong."
- Landsbankinn's interim CEO Hreiðar Bjarnason,
in a news announcement accompanying the Bank's results on 9 February 2017
|Key performance indicators (KPIs)||31.12.2016||31.12.2015|
|Net operating income||48,217||72,363|
|Net interest income||34,650||32,324|
|ROE after taxes||6.6%||14.8%|
|Capital ratio (CAR)||30.2%||30.4%|
|Net interest margin||2.3%||2.2%|
|Overall liquidity ratio (LCR)||128%||113%|
|FX liquidity ratio (LCR FX)||743%||360%|
|Loans / deposits ratio||144.7%||145.2%|
|Full-time equiv. positions||1,012||1,063|
* Cost-income ratio = Total operating expenses / (Net operating income – value adjustments to loans)
All amounts in ISKm
Landsbankinn's after-tax operating profit amounted to ISK 16.6 bn in 2016, as compared with ISK 36.5 bn in 2015. ROE was 6.6% as compared with 14.8% in 2015. At the end of 2016, the Bank's CAR was 30.2% as compared to 30.4% at the beginning of the year.
The Bank's liquidity position, both in Icelandic króna and foreign currency, remains very strong. Liquid assets amounted to ISK 161 bn at year-end 2016.
The primary measurement of short-term liquidity risk is the liquidity coverage ratio (LCR) which measures the ratio of highly liquid assets to net outflow over a 30-day period under stressed conditions.
Landsbankinn's LCR was 128% at year-end 2016 and the Central Bank requires a 90% minimum LCR. The foreign currency LCR for the same period was 743%; the Central Bank requires a 100% minimum.
|Liquid assets||31.12.2016||31.12.2015||Change in 2016|
|Liquid assets with central banks||18,816||25,024
|Loans to financial institutions (maturity less than 7 days)||16,732||16,342
|Bonds eligible for repurchase agreements||125,159||167,463
|Total liquid assets||160,710||208,829
All amounts in ISKm
Loans to customers totalled ISK 853 bn at the end of 2016, up from ISK 821 bn at the beginning of the year and thus increasing by ISK 812 bn.
New lending amounted to ISK 267 bn in 2016. Total lending decreased by ISK 25 bn due to exchange rate impact, indexation and positive value changes. Instalments from customers amounted to ISK 197 billion during the year.
The Bank's total assets decreased by ISK 7.5 bn in 2016.
Customer deposits, not counting financial undertakings, grew by 5.5% during the year, or by ISK 30.7 bn. Deposits from financial undertakings decreased by ISK 36.6 bn, first and foremost in relation to the Central Bank's currency auction in June 2016.
"Our market share in the retail market has never been higher and the Bank's position in the corporate market and on financial markets remains strong. Surveys show that customer satisfaction increased considerably during the year, a fact we consider tremendously important, as the Bank emphasises providing customers throughout Iceland with exemplary service at competitive terms."
Landsbankinn has held a credit rating from international rating agency Standard & Poor’s since early 2014. In October 2016, the Bank's rating was raised a notch and is currently BBB/A-2 with a positive outlook.
In September 2016, Landsbankinn issued non-indexed bonds in the amount of EUR 500 million. The bonds mature in March 2021, have a fixed 1.625% coupon and were sold at terms equivalent to a 190 basis point spread above mid-swaps in euros.
In November 2016, Landsbankinn issued non-indexed bonds in the amount of SEK 1 bn. The bonds mature in 4.5 years and were issued in two tranches; SEK 750 million at a 1.375% fixed rate and SEK 250 million floating rate at STIBOR + 1.5%. The bonds are issued under Landsbankinn’s EUR 1.500 million EMTN programme and are listed on the Irish Stock Exchange.
The Bank's operating profit for 2016 amounted to ISK 16.6 bn, as compared to ISK 36.5 bn in 2015. Impairment of loans amounted to ISK 318 m in 2016. In 2016, the Supreme Court ruled against the Bank in three cases that test the precedent for correcting previous recalculations of foreign currency indexed loans in accordance with Supreme Court rulings No. 600/2011 and 464/2012.
The Supreme Court found the impact of the additional claim to be so severe that the Bank should absorb the disputed interest margin, caused by illegal foreign currency indexation of the loans in question.
These rulings may set a precedent for cases involving other foreign currency indexed loans to corporates, where circumstances are similar, yet further rulings are necessary to clarify the precedent. As a result, the assessment of the financial impact of the rulings might change to reflect future rulings. Expenses in the amount of ISK 5,435 million were recognised as a result of these rulings towards the end of Q4 2016.
Net interest income amounted to ISK 34.7 bn in 2016, as compared with ISK 32.3 bn in 2015. The ratio of interest spread to average capital position was 2.3% in 2016, up by 0.1% between years.
Value changes in lending have in recent years caused considerable fluctuations in the Bank's operating performance. In 2016, ISK 5.4 bn were expensed as a result of Supreme Court rulings, as compared with a positive value change of ISK 18 bn in 2015. Net commission income amounted to 7.8 bn in 2016, an increase of ISK 1 bn between years. The increase is due first and foremost to changes in the payment card market and increased activity in market transactions.
Other operating income amounted to ISK 6 bn in 2016, as compared with ISK 14.9 bn the previous year, which is a 59% decrease between years. The year-on-year decrease is a result of market developments in 2016.
Operating expenses in 2016 amounted to ISK 23.5 bn which represents a YoY decrease, from ISK 23.7 bn in 2015. Labour cost increased by just under ISK 295 m between years and other operating costs decreased by ISK 513 m. The Bank's cost-income ratio for 2016 was 48.4%. This ratio is the difference between the Bank's operating expenses and net operating revenue discounting value changes to lending. Full-time equivalent positions with the Bank decreased from 1,063 to 1,012 in 2016, down by 51.