Consolidated Financial Statements
31 December 2022
Kvika banki hf. • Katrínartún 2 • 105 Reykjavík • Iceland • Reg. no. 540502‐2930
Kvikabankihf.
Table of Contents
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Appendix‐unaudited
81
ConsolidatedStatementofFinancialPosition...........................................................................
ConsolidatedStatementofChangesinEquity...........................................................................
StatementontheCorporateGovernanceofKvikabankihf.2022............................................
‐Generalinformation................................................................................................................
ConsolidatedStatementofCashFlows......................................................................................
‐Significantaccountingpolicies................................................................................................
‐Riskmanagement....................................................................................................................
‐Financialassetsandfinancialliabilities..................................................................................
‐Segmentinformation..............................................................................................................
‐In
comest
atement...................................................................................................................
‐StatementofFinancialPosition..............................................................................................
‐Otherinformation...................................................................................................................
IndependentAuditor'sReport...................................................................................................
NotestotheConsolidatedFinancialStatements.......................................................................
ConsolidatedStatementofComprehensiveIncome.................................................................
ConsolidatedIncomeStatement................................................................................................
EndorsementandStatementbytheBoardofDirectorsandtheCEO.......................................
Kvikahighlights...........................................................................................................................
ConsolidatedFinancialStatements31December2022
31.12.2022
Kvika
Kvika offers diversified financial and insurance services
through five business segments: Commercial Banking,
Corporate Banking & Capital Markets, Insurance, Asset
Management and UK operations. The business segments
Insurance, Asset Management and UK are operated in the
subsidiaries TM tryggingar hf., Kvika eignastýring hf. and
Kvika Securities Ltd.
Kvika’s purpose is to increase competition and simplify
customers’ finances by utilizing its infrastructure and
financial strength. Kvika’s vision is to transform financial
services in Iceland with mutual benefits in mind. On that
journey, Kvika is guided by its values that contribute to the
development of robust business relationships, long‐term
results, and active innovation.
Kvika has grown considerably in recent years, both through
M&A activity as well as through organic growth in all
operating segments.
Diversified operations
Revenues by segment / 12M 2022
Key figures
ISK m. 2022 2021
Net operating income 19,180 21,997
Profit before taxes 5,621 10,487
RoTE 13.1% 34.7%
31.12.2022 31.12.2021
Total Assets 303,189 246,240
Loans to customers 107,139 71,588
Deposits 112,245 78,670
LCR 320% 290%
NSFR 140% 130%
Group Solvency 1.36 1.57
Corporate Governance Reitun ESG score Outlook: Stable
Q3 22Q2 22Q4 21 Q1 22
4.9
5.7
Q4 22
3.8
5.0 5.0
Net operating income
ISK bn.
Loans to cus tomers
ISK bn.
Total capital ratio
(%)
LCR ratio
(%)
0
20
40
60
80
100
120
140
160
180
200
220
240
10
0
90
50
20
30
60
40
70
80
100
110
95.5%
72
Q2 22
91.0%
Q1 22Q4 21
94.7%
103.5%
96.3%
Q3 22
98
Q4 22
83
104
107
Loans to deposits
0
5
10
15
20
25
30
35
40
45
50
0
5
10
15
20
25
30
35
20.9%
Q1 22
24.4%
23.3%
Q3 22
30.4%
Q4 21
21.7%
Q4 22Q2 22
20.9%
33.8%
26.2%
23.5% 23.5%
CET1
0
50
100
150
200
250
300
350
0
50
100
150
200
250
300
350
Q3 22Q4 21
130%
Q1 22
141%
126%
Q2 22
129%
140%
229%
Q4 22
290%
247%
308%
320%
NSFR
16.1%
37.5%
5.5%
24.5%
16.4%
Asset Management
Commercial Banking
Investment Banking
Insurance UK
Kvikabankihf.
Endorsement and Statement
by the Board of Directors and the CEO
ThesearetheConsolidatedFinancialStatementsofKvikabankihf.("Kvika"orthe"Bank")anditssubsidiaries(togetherthe"Group")fortheyear2022.
AbouttheBank
Kvika’s core values are long‐term thinking, simplicity, and courage. The Group focuses on fostering long‐term relationships with its customers by
providinghigh‐qualityandefficientfinancialservicesincoreareas.
Kvika banki has grown significantly in recent years and operates under several brands. The main brands, apart from Kvika, are TM, Kvika Asset
Management, Lykill, Auður, Netgíró, Aur and Ortus Secured Finance. Additionally, preparations for the operations of a new subsidiary in the field of
paymentfacilitationareunderway.
In Dece mber 2022, th e Ban k ann ounc ed cha nges to its organ izatio nal ch art. The objecti ve of the cha nges i s to be tter prep are the Gro up fo r continued
operational success and to adjust its structure to a growing Group which continues to lead increased competition and innovation in the financial
market. Th e cha nges are also i n lin e with the goal s and emphasi s set f orth in strategic p lan ning introdu ced in Novembe r 2021. Part of th e Commercial
Banking division, along with the Investment Banking division, will form a new revenue division, Corporate Banking and Capital Markets. Corporate
Banking and Capital Markets will emphasize Kvika’s unique position when it comes to servicing corporations and investors, and make it easier for the
Group to use i ts incre ased f in anci al stren gth to better serve its custo mers. The se cha nges too k eff ect fro m 1 Ja n u a ry 2023. Follo wing the cha n ge s Kvika
banki will operate two revenue divisions, on the one hand Commercial Banking and on the other Corporate Banking and Capital Markets. Additionally,
threerevenuedivisionsareoperatedthroughKvika’ssubsidiaries:TM,KvikaAssetManagementandKvikaSecuritiesintheUK.
The Group provides businesses, investors and individuals with comprehensive investment banking, insurance services and ass et management
services, as well as selected banking services. At the end of December 2022 the Group had ISK 462 billion of assets under management, compared to
ISK 528 billion at year end 2021. The decrease is mainly caused by divestments of funds (ISK 42 bn.) and poor market performance in the period. The
Bank is listedonthemainlistofNasdaqOMXIceland.
Operationsduringtheyear2022
Profit before taxes for the year amounted to ISK 5,621 million (2021: ISK 10,487 million), corresponding to an annualised 13.1% return on weighted
tangible equity, based on the tangible equity position at the beginning of the year adjusted for changes in share capital and transactions with treasury
shares
duringtheyear.
Turmoi l in th e dome stic an d glo bal ca pital markets in 2022 cause d by th e Russi an Fed eratio n's in vasio n into Ukraine , risin g inf latio n and interest rates
globally and market disruptions due to strict Covid 19 restrictions in China have had a considerable global impact on the prices of securities, and as a
result, have affected a number of assets held by the Group. The Group's net operating income during the year was ISK 19,180 million (2021: ISK 21,997
million). Net interest income amounted to ISK 7,675 million (2021: ISK 4,646 million). Net fee income amounted to ISK 6,408 million (2021: ISK 6,828
million). Net premiums and claims amounted to ISK 4,210 million (2021: ISK 4,247 million. Other operating income amounted to ISK 887 million (2021:
ISK 6,276 million). Administrative expenses during the year amounted to ISK 13,076 million (2021: ISK 11, 635 million). During the year, the Group h ad a
negativenetimpairmentchargeofISK532million(2021:positivenetimpairmentchargeofISK139million).
The figure s in the conso lidated inc ome state ment f or th e year 2022 do not include the operations of Ortu s Secu red Finance ltd . ("Ortu s") fo r January
and February as the business combination took place at end of February. Further, the figures in the consolidated income statement for the comparison
year 2021 are not di rectly comparable due to the number of business combi nations which were effected during that year. Reference is made to the
ConsolidatedFinancialStatementsfor2021forfurtherinformationonthosebusinesscombinations.
Balancesheet
According to the Consolidated Statement of Financial Position, equity at the end of the year amounted to ISK 81,190 million (31.12.2021: ISK 78,368
million)andtotalassetsamountedtoISK303,189million(31.12.2021:ISK246,240million).
Kvika’s statement of financial position grew by ISK 57 billion or 23% in 2022. Loans to custom ers grew b y ISK 36 billion or 50% during the year and the
growth is mainly attributable to the acquisition of Ortus Secured Finance ltd. earlier in the year as well as increased lending to corporate clients. Liquid
assetsamounttoISK116billionatendof2022or38%oftotalassets.
Kvika establ ished the Grou p‘s f irst EMTN Programme in year e nd 2021 w ith in augural forei gn debt issua nce of SEK 500 milli on in January 2022. In the
domestic debt market, Kvika issued bonds in EUR and ISK in the first and fourth quarters. In May 2022 the international ratings agency Moody’s
Investors Service ("Moody‘s") a ssigned a fi rst time Baa2 lo ng‐term an d Prime‐2 sh ort‐term fore ign and l o cal curren cy ban k depo sit an d issuer rati n gs to
Kvika.ThiswillfurthersupporttheGroup‘sissuance
ofbondsandotherfundingefforts.
AcquisitionofOrtusSecuredFinanceltd.
In Febru ary 2022, the Grou p concl uded the a cqui sition o f Ortus. Ortus is a B ritish al ternati ve credit p rovi der sp ecia lisi ng in p roperty b acked lend i ng to
borrowers in the United Kingdom. Ortus’ headquarters are in London, where it shares an office with Kvika Securities Ltd. The company also operates
offices in Belfast, N‐Ireland and in Glasgow, Scotland. The transaction is a good strategic fit and allows for significant diversification of the Group's loan
portfolio, as well as opportunities to generate synergies in terms of improved funding costs. In accordance with IFRS 3, Business Combinations, the
purchase price of Ortus has been allocated to identifiable assets and liabilities acquired. The purchase price allocation process resulted in the
recognitionofgoodwillamountingtoISK
1.8billion.Refertonote3forfurtherinformationontheacquisition.
ConsolidatedFinancialStatements31December2022 2
Kvikabankihf.
Shareholder 31.12.2022 31.12.2021
9.13% 8.20%
7.64% 6.28%
6.59% 6.11%
4.80% 4.33%
4.66% 4.61%
3.41% 4.40%
3.07% 3.08%
2.43% 2.47%
2.23% 1.90%
2.13% 2.14%
46.09% 43.52%
Birtalífeyrissjóður..........................................................................................................................................
Stapilífeyrissjóður.........................................................................................................................................
Lífsverklífeyrissjóður.....................................................................................................................................
Almennilífeyrissjóðurinn...............................................................................................................................
BrúLífeyrissjóðurstarfsmannasveitarfélaga................................................................................................
FurtherinformationabouttheshareholdersoftheBankisprovidedinnote71.
Gildi‐lífeyrissjóður........................................................................................................................................
Arionbankihf.................................................................................................................................................
Lífeyrissjóðu rverzlunarmanna......................................................................................................................
Lífeyrissjóðu rstarfsmannaríkisinsA‐deild....................................................................................................
Stoðirhf..........................................................................................................................................................
Endorsement and Statement
by the Board of Directors and the CEO
DecisiontoentertheacquiringmarketinIceland
In May 2022, it was announced that the Group had signed an asset purchase agreement stating that Group will acquire part of Valitor hf.‘s ("Valitor")
merchant agreements. The Group's market share will be considerable and it will be a new and strong competitor on the acquiring market in Iceland.
The Group currently provides various services with payment solutions and this agreement will further strengthen the Group's position in payment
services in Iceland. According to the agreement it is envisaged that the Group will become a Payment Facilitat or and will, in the coming months, acquire
agreements with the relevant merchants according to provisions of the agreement, which from that point will become customers of the Group. The
effects of the agreement on the Bank's capital base are negligible and the effect on the year 2022 operating re su lts is minor. Refer to note 72 for further
information.
MergerdiscussionswithÍslandsbankihf.
In Februa ry 2023 the board of directors of Kvika and Ísla ndsban ki hf. deci ded to commen ce discussi ons on the merge r of the two comp anies. Kvika’s
board of directors believes that merging the companies would create a strong financial institution with an optimal revenue combination. The merged
company could provide its customers with diversified services and would contribute to increased competition in the financial market through fintech
and other solutions, as well as being an interesting investment opportunity. At the signing date of the Consolidated Financial Statements the discussion
hadrecentlycommencedandhadthereforenotyetyieldedanyresults.
Operationaloutlook
The ou tl o ok for Kv ik a in 2023 is positive , underpinned by Kvika’s five operating segments which provide a diverse source of income for the group. Kvika
has a strong financial position with robust liquidity and capital which are well above regulatory requirements. The outlook for Kvika in 2023 is
supported by a relatively strong economic outlook for Iceland in international comparison as is further described in the Economic outlook. The
economic outlook in the UK is more challenging. According to the IMF's January World Economic Outlook, t he UK’s GD P is expected to decline modestly
by 0.6% in 2023, ref lecti ng tigh ter fisc al and moneta ry pol ici es an d fin anci al co ndi tions, a s wel l as stil l‐high energy retail prices weighing on household
budgets. Although interest margins across Kvika´s UK operations have come under pressure amid Bank of England rate hikes, the tepid growth outlook
for the UK is not expected to have material impact on the credit quality of Kvika's outstanding loans in the region, as most of its business is focused on
specialisedrealestatelendingwithconservativeloan‐to‐valueratio,whichcontinuestoaveragecloseto50%.
Economicoutlook
In the yea r end 2022 th e Icelan dic ec onomy see ms to have n early fu lly rec overed afte r the sha rp contrac tion that sta rted in 2020 due to the Covid‐19
pandemic. In the current environment of steep rise of interest rates and high inflation, households and businesses have shown to be resiliant
throughoutandpostpandemic.ItisanticipatedthatGDPgrowthin2022willbe7.1%butslowdownto2.6%in2023toaround2%onwards.
Unemployment is anticipated to remain low or at 3.8% in 2023 and in crease slightly as the economy slows down. Historically the labour marke t has
been flexible and has returned to pre‐pandemic levels, with increased staffing shortages and wage i ncreases, as the tourism and services sectors have
reboundedsharplyandin2023itisforecastedthat1.9milliontouristswillvisitIceland,inlinewithnumbersprepandemic.
Annual inflation peaked at 9.9% in July 2022 and is f o reca ste d to com e off gradually in 2023 with a ve ra ge annual inflation of 6.5% and converge to 3.0%
in 2025. The Centra l Ban k of Icelan d incre ased ke y inte rest rate by 4.0% in 2022 wi th key interest rate a t 6.0% at yea r end 2022. Key inte rest rate are
expe cted to co ntin ue to rise in the f irst hal f of 2023 an d to re main h igh th rou gh ou t 2023 bu t exp ected to co me of f in 2024 as infl atio n is f orec asted to
comedowntowardslongtermtargetof2.5%.
Sharecapitalandshareholders
The Bank's issued share capital amounted to ISK 4,929 million as at 31 December 2022 (31.12.2021: ISK 4,907 million). At the end of the year the Bank
held ISK 148 million treasury shares (31.12.2021: ISK 117 million). The shares were acquired through a share buy‐back programme. The net change in
theBank'sissuedsharecapi ta lamountedtoanominalvalueofISK22millionduringtheyear
(ISK2,766millionduringtheyear2021).
The Bank had 2,992 shareholders at year‐end 2022 (2021: 2,820), none o f which he ld more than 10% o f shares in the Bank (2021: 0). The ten largest
shareholdersareasfollows:
ConsolidatedFinancialStatements31December2022 3
Kvikabankihf.
Endorsement and Statement
by the Board of Directors and the CEO
Capitaladequacyanddividends
In Novemb er 2022, Kvika w as noti fied o f fina l results o f the Superv isory Re view an d Evalua tion Proce ss (SREP) carri ed out b y the Fin an cial Supervisory
Authority of the Central Bank of Iceland on the assessment of the risk in Kv ik a’ s operations and capital r equir e m ent s. Key conclusions of the assessment
are that Kvika‘s total capital requirement, taking into account all capital buffers, decreased by 4.9% from Kvika‘s last assessment which was completed
in 2019. The decrease is mostly caused by the fact that the minimum capital requirement (Pillar 1 and 2) will amount to 11.5% of risk weighted
exposures at any given time instead of 15.1%. At year end 2022 the total capital requirement, taking into account all capital buffers, amounted to
17.9%.Kvika'scapitaladequacyratiowas23.5atyearend2022(2021:33.8%)
TheGroup'ssolvencyratioat31.12.2022was1.36,(31.12.2021:1.57)witharegulatoryminimumrequirementof1.0.
The Ban k's 2022 Annual General Meeting ("AGM") approved a motion from the Board of Directors ("BOD") permitting the Bank to purchase up to 10%
of own shares subject to regulatory approvals. This authorisation applies until the next annual general meeting in 2023. In May , the BOD autho rised a
buy‐back programme for the repurchase of up to 418,730,531 shares, or up to ISK 3 billion in total consideration. In September 2022, the Bank
announced that the buy‐back programme had been completed, as shares for ISK 3 billion had been bought. The AGM also approved a motion from the
BOD to, subject to approval from the Financial Supervisory Authority of the Central Bank of Iceland, decrease the share capital of the Bank by
117,256,300sharesbycancellingtreasurysharesheldbytheBank.InApril2022,thesharecapitalreductionwascarriedout.
The Bank's Board of Directors propose that a dividend of 0.4 ISK per s
hare or ISK 1,912 million, taking into account treasury shares held by the
Group, will be paid in the year 2023 on 2022 operations. The dividend payment amounts to 40.1% of Kvika’s profit after tax which is above Kvika’s
dividend policy which states that the aim is for shareholders to be returned an annual dividend of at least 25% of last year's profit after taxes,
whether in the formofdividendsorthroughthepurchaseofownshares.
Riskmanagement
The objective of risk management is to promote a good and efficient culture of risk awareness within the Group and to increase the understanding of
employees and management on the Group's risk taking, in addition to an assessment process related to risk and capital position. An emphasis is placed
on being up to speed on the latest developments and adoption of rules related to risk management, such as regarding capital‐ and liquidity
management. The Group is faced with various kinds of risk that relate to its operations as a financial conglomerate and arise from its day‐to‐day
operations. An active risk management entails analysing risk, measuring it and taking actions to limit it, as well as monitoring risk factors across the
Group. The Group’s risk management, and its main operations, are described in the notes accompanying the Consolidated Financial Statements. Refer
tonotes47‐62onanalysisofexposuretovarioustypesofrisk.
Corporategovernance
Kvika is o b li ge d to ob se rv e rec ogn i se d co rpo ra te go ve rn a n ce gu i d e l i n e s, pursuant to Par. 7 o f Arti cl e 54 o f Act No . 161/2002, on Financial Undertakings.
The Ban k compli es with ch apter VII o f Act No. 161/2002 an d in most resp ects with the Gu ideli nes on Co rporate Go vernance i ssued joi ntly in February
2021bytheChamber
ofCommerce,ConfederationofIcelandicEnterprise(SA)andNASDAQIceland.TheonlydeviationfromtheguidelinesisthatKvika
has not appointed a nomination committee nor decided how one should be appointed as further discussed in an appendix to these financial
statements, which contains a corporate governance statement. Kvika has twice been recognized as a company which has achieved excellence in
corporate governance following a formal assessment based on the Icelandic Guidelines on Corporate Governance issued by the Icelandic Chamber of
Commerce , Confed eration o f Icelan dic Ente rprise (SA) an d Nasdaq Ice land , first i n 2018 and agai n in 2021. The reco gnition a ppli es for th ree years a t a
time unless there have been significant changes to the Board of Directors or the ownership of the Bank. The Board of Directors intends to have such an
assessment carried out on a regular basis and maintain the aforementioned recognition. Additionally, Kvika complies with Guidelines of the European
Banking Authority (EBA) on Internal Governance (EBA/GL/2021/05), cf. Art. 15 of Regulation of the European Parliament and of the Council no.
1093/2010,whichwasincorporatedintoIcelandiclawwithActno.24/2017onEuropeanSupervisorySystemontheFinancialMarket.
In accordance w ith the Bank´s articles o f association, five memb ers and two alternate members are elected to the Board of Directors each year at the
Annual General Meeting. The eligibility of members of the Board is subject to statutory law. It is the Bank´s policy concerning election of the Board of
Directors that the Board collectively has su fficient knowledge, competenc y and experience to understand the Bank´s operations, including the main risk
factors. The ratio of each gender of members of the Board and alternate members shall be at least 40%. The election of Board members and their
eligibility is furthermore governed by the provisions of the Act on Public Limited Liability Companies No. 2/1995 and the A ct on Fi nan cia l Undertakings
No.161/2002.
The Bank´s articles of association may be amended at lawfully convened sha reholders´ meetings, provided that the notice of the meeting specifies that
proposals for such amendments are scheduled and outlines the main substance of the amendments. An amendment takes effect only if approved by at
least 2/3 of the votes cast and by shareholders controlling at least 2/3 of the shares represented at the meeting. However, the provisions of the articles
of association regarding the voting rights of shareholders and equality among them cannot be amended except with the consent of all the shareholders
whoaresubjectto
thecurtailmentofrights,cf.paragraph3ofArticle94oftheActonPublicLimitedLiabilityCompaniesNo.2/1995.
The Board determines compensation for the CEO. The Board of Direc tors emphasizes good corporate governance and adhere nce to accepted guidelines
on corporate governance. The Board has laid down comprehensive rules in which the authority of the Board is defined and its scope of work in
conjunction with the CEO. They address e.g. competence of Board members to participate in individual decisions, confidentiality and information
disclosure between the CEO and the Board. All Board members are independent of the Bank and its major shareholders and there are no executive
directorsontheBoard.TheBankaimstopromotegenderequalityandtwooutoffiveboardmembersarewomen.
The Board of Directors has delegated certain tasks to three separate subcommittees, the Risk Committee, Audit Committee and Remuneration
Committ ee. The appointment of committee members shall always comply with currently applicable law. It is not permitted to appoint employees of the
Bank to any subcommittee. Members shall have the necessary experience and knowledge for each committee's tasks according to applicable laws and
rules.Eachcommitteehasincorporatedproceduralruleswhich
havebeenconfirmedbytheBoardofDirectors.
The Board of Directors determines the risk policy and risk appetite of the Group with rules on risk management of the financial conglomerate of Kvika,
whichdefineriskfactorsinKvika’soperations,includingtheirnatureandacceptablevolume.
ConsolidatedFinancialStatements31December2022 4
Kvikabankihf.
Endorsement and Statement
by the Board of Directors and the CEO
The Group's strategy is to increase competition in financial services and simplify customers' finances. It is possible by utilizing infrastructure, financial
strength and offering diverse services. The Group's values are long‐term thinking, simplicity, and courage. One of the guiding principles of the policy
includes focus on sustainability and social responsibility. Among the Group's seven goals based on the policy is to aim for a reduction in carbon
emissions and thus have a measurable impact on Iceland's carbon footprint and climate issues in general. In addition to climate issues, other factors
relatedtosustainabilityandsocialresponsibility(ESGfactors)arealsoimportantpartoftheGroup'sbusinessmodel.
In 2022, in‐depth strategic sustainability work was undertaken with employees across all units of the Group. The result was a new sustainability policy,
adopted in November 2022, that applies to Kvika and the whole Group based on Kvika's ownership strategy for important subsidiaries, which stipulates
that sustainability and corporate social responsibility is coordinated throughout the Group. The sustainability policy places greater emphasis t han
before on sustainability being a natural part of operations and decision‐making processes. In the strategy planning emphasis was placed on setting
goals and defining projects within four focus areas, which are: product development and innovation, sustainable business environment, internal and
externalcommunication,aswellasemployeesandsociety.
The Group's new sustainability strategy adopts six UN Sustainable Development Goals (UNSDG) to emphasize in the operations. They are goal no. 3 on
good health and wellbeing; goal no. 4 on quality education; goal no. 5 on gender equality; goal no. 9 on industry innovation and infrastructure; goal no.
13onclimateaction;andgoalno.17onpartnershipforthegoals.
Kvika's CEO and the Executive Board is responsible for the implementation and execution of the sustainability strategy. The sustainability project
manager, together with Kvika's Committee on Social Responsibility and Sustainability, monitor the implementation of sustainability on a consolidated
basis.Followingtheadoption
ofthenewsustainabilitypolicy,measuresweretakentoincreasesustainabilityeducationandcommunication.
During the year, a survey was also conducted among the Group's employees and other stakeholders about the materiality of the various categories
related to the environment, social affairs, personnel issues, and governance. The results of the survey will be useful when implementing and executing
thesustainabilitypolicyandwhenprioritizingsustainabilitydisclosure.
Other ESG‐related policies, including policy on education and professional development and a remote work policy, were formulated during the year.
Furthermore, the Group´s equality policy, health policy, human resources policy, remuneration policy and a response plan against bullying, harassment
and violence were updated to accommodate changes related to the merger of the Bank with TM and Lykill in 2021. The Group operates for the most
part in Iceland, where there is a strict law and framework for human rights issues and violations, and therefore a special human rights policy has not
beendeemednecessary.
The Goup supports national and international climate policy and the Icelandic government's goal of carbon neutrality in 2040. Kvika is a member of the
United Nations Principles for Responsible Investment (UN PRI) and a founding member of IcelandSIF, an association for responsible investments. Kvika
is also a member of Festa, a center for social responsibility and sustainability, and supports Grænvangur, a cooperation platform between business a nd
government on climate issues and green solutions. Furthermore, during the year, TM applied to become a signatory of the United Nations Principles for
SustainableInsurance(UNPSI).
In November 2022, Kvika became a member of PCAF (e. Partnership for Carbon Accounting Financials), on the development and use of a climate meter
for financial companies. During the year, Kvika also calculated financed emission from investments and loans of the Bank and investments of TM, as of
the end of the year 2021. That is part of the Group´s work to understand more fully its overall direct and indirect carbon footprint. Kvika has set a goal
tohavearealandmeasurableimpactonIceland´scarbonfootprintandonclimateissuesingeneral.Kvikahasnotyetthoughsetscience‐basedtargets.
Kvika is focused on fintech (financial technology solutions) and automation in its operations, which Kvika considers to be a strength from an
environmental perspective, given reduced carbon emission when service is provided online, and reduced use of paper as technology replaces the use of
paper. Kvika's new sustainability strategy and strategy on responsible lending and investment, which is an appendix to the Bank´s credit rules, are
focused on green and sustainable lending. Accordingly, internal incentives were adopted for the Bank's business units during the year, which include
more favourable internal pricing on green projects than other. By such means, Kvika aims to encourage the business units to seek opportunities in
greenlendingandtherebysupportgreeninvestments.
Emissions of greenhouse gases due to the use of own vehicles, h ea t, and electricity (scope 1 and 2) and Kvika's total emissions (scope 1, 2 and 3) have
increased, parallel with increased activity in operations, following the merger of Kvika with TM and Lykill in 2021. Kvika has been successful in reducing
carbon emissions when looking at energy efficiency since 2020, as energy consumption per employee has decreased by 17%. Emission capacity based
on the number of employees was similar between 2021 and 2022. Kvika has offset measured carbon emissions for the year 2022 with certified carbon
unitsfromtheUnitedStates‐basedcompanyAspiration,whichsellscertifiedcarboncredits,originating
fromqualitycarbonprojects.
Sustainabilityandnon‐financialreporting
The CEO reports to the Board and verifies the effectiveness of internal controls and risk management in the Consolidated Financial Statements. Internal
controls and risk management applied in the preparation of the Consolidated Financial Statements are organised with a view to preventing any
significant d eficiencies in the accounting process. Kvika’s Board of Directors and control units regularly verify the effectiveness of internal controls and
riskmanagement.
The Risk Committee has an advisory and supervisory role for the Bank’s Board of Directors, among other things, in determining its risk policy and risk
appetite. The Audit Committee is intended to play an advisory and supervisory role for the Bank’s Board of Directors by, among other things, ensuring
the quality of financial statements and other financial information from the Bank and the independence of its auditors. The Audit Committee supervises
accounting procedures and the effectiveness of internal controls as well as internal and external auditing. The main aspects of internal and external
control and the Bank’s management in connection with the accounting process are described in detail in the Statement on the Corporate Governance
ofKvika.
Further information about the Bank's corporate governance can be found in an appendix to these financial statements which contains a corporate
governancestatement.AcopyofthestatementisavailableontheBank'swebsite,www.kvika.is.
ConsolidatedFinancialStatements31December2022 5
Kvikabankihf.
Endorsement and Statement
by the Board of Directors and the CEO
In 2022, the position of an expert in sustainability was established at Kvika Asset Management ("KAM") and a sustainability forum for discussion of
sustainability risks and product development at KAM. During the year, KAM has further developed its internal ESG risk assessment methodology to
evaluate its portfolio and analyse the extent to which companies are exposed to ESG risk factors. About 36% of KAM's portfolio has undergone an ESG
risk assessment. TM has used the same methodology when ESG evaluating its investment portfolio. At TM, emphasis has been placed on improving
processes regarding ESG focus to customers and partners, e.g. with ESG risk assessments. TM continues to focus on automation, such as in its claims
departmentsandotherservices.
Efforts have been made to gain a better overview of risks related to climate change during the year. Climate risk, together with social factors and
governance, f orm the regulatory framework for sustainability risk management. Kvika looks towards the TCFD (Task Force on Climate Related Financial
Disclosure) guidelines in its sustainability risk f ramework. A rough assessment was made of the impact of climate risk during the year based on the
sectors of the Bank's loan and asset portfolio. Results indicate that the weight of climate risk is insignificant according to this first analysis. The industry
categories of the loan portfolio are monitored, which could potentially carry some climate risk, mostly transition risk. Climate‐related issues are p art of
theboard'sregularagendaastheriskmanagementinformsKvika'sboardaboutclimaterelatedriskannually.
An annual attitude survey among employees was carried out during the year, which measures, among other things, job satisfaction, stress, equality,
and balance between work and personal life of employees. Job satisfaction measured an average of 4.38 out of a possible 5, a nd employee dedication
was an average of 4.09. Employee turnover of full‐time employees at the Group in 2022 was 9,3%. The percentage of women in the group is 47%, and
thepercentageofwomeninmanagementposionsattheGroupis40%.
Kvika has established rules for protection against conflicts of interest, the aim of which is to increase credibility and protect the Bank's reputation. They
are also intended to prevent, or deal with, conflicts of interest that may occur in connection with investment services or additional services. Rules have
also been adopted for gifts, rewards, and incentive payments, as well as a policy on reputational risk and conduct risk, rules on the separation of work
areas and rules on staff's own business. These rules and policies are on a consolidated basis and, in addition to the code of conduct, lay the foundation
fortheGroup'sdefencesagainstcorruptionandbribery.
Additionally, the Bank has established rules and relevant processes, as well as monitoring for actions against money laundering and terrorist finan cing,
in accordance with relevant laws and regulations, and performs regular monitoring. Kvika performs a risk assessment of all its activities and individual
business relationships. Due diligence is carried out b efore the establishment of a contractual relationship and regularly during the lifetime of an
ongoing business relationship. For risk classification of business relationships and regular transaction monitoring, Kvika uses Lucinity, which is a digital
systemthatusesmoderntechnologyandartificialintelligencetospotsuspiciousbehaviour.
Community restrictions due to the corona virus epidemic were abolished in the first half of 2022. Although the epidemic has taken a toll on Icelandic
society, positive changes at the Group can be pointed out, such as an increased emphasis on health education to employees, both physical and mental
health, as well as increased flexibility for staff with a new remote work policy. Work has been done to update Kvika's sponsorship policy, which is in line
withtheUNSDGadoptedbyKvika,andthetotalamountofsponsorshipsat
thegroupduringtheyearwasISK86,965,000.
Kvika complies with Article 66. d. of the Act on Annual Accounts no. 3/2006 on non‐financial disclosure. Along with this financial statement Kvika
publishes a sustainability report for 2022 based on ESG indicators according to the ESG guidelines of Nasdaq in the Nordics (ESG Reporting Guide 2.0)
and to a limited extent based on GRI indicators according to the Global Reporting Initiative Standards (GRI). One chapter contains a section that is the
Bank's impact and allocation report according to Kvika's green financial framework. Deloitte provides a limited assurance opinion on Kvika's
sustainability and non ‐financial disclosures for the year 2022, as well as on the allocation of green funds according to Kvika´s green financing
framework.
More information on Kvika´s sustainability and non‐financial information can be found in the sustainability report that accompanies this Consolidated
FinancialStatement,andisavailableontheBank'swebsitewww.kvika.is.
ConsolidatedFinancialStatements31December2022 6
Kvikabankihf.
Endorsement and Statement
by the Board of Directors and the CEO
StatementbytheBoardofDirectorsandtheCEO
SigurðurHannesson,Chairman
GuðmundurÞórðarson,DeputyChairman
HelgaKristínAuðunsdóttir
IngunnSvalaLeifsdóttir
GuðjónReynisson
ChiefExecutiveOfficer
MarinóÖrnTryggvason
The consolidated financial statements of Kvika banki hf. for the year ended 31 December 2022 are electronically certificated by the Board of Directors
andtheCEO.
The Consolidated Financial Statements of Kvika banki hf. for the year 2022 have been prepared in accordance with International Financial Reporting
Standards as adopted by the EU, and additional requirements, as applicable, in the Act on Annual Accounts no. 3/2006, the Act on Financial
Undertakingsno.161/2002andrulesonaccountingforcreditinstitutionsno.834/2003.
To the b est of our knowledge these Consolidated Financial Statements give a true and f air view of the Group's assets, liabilities and financial position as
at 31 December 2022 and the financial performance of the Group and changes of cash flows for the year 2022. Furthermore, in our opinion the
Consolidated Financial Statements and the Endorsement of the Board of Directors and the CEO give a fair view of the development and performance of
theGroup'soperationsanditspositionand
describetheprincipalrisksanduncertaintiesfacedbytheGroup.
In our opinion, the Consolidated Financial Statements of Kvika banki hf. for the year 2022 identified as "254900WR3I1Z9NPC7D84‐2022‐12‐31‐en" are
preparedinallmaterialrespects,incompliancewiththeEuropeanSingleElectronicFormatRegulation(ESEF).
The Board of Directors and the CEO of the Bank have today discussed the Consolidated Financial Statements for the year 2022, and confirm them by the
meansoftheirsignatures.
Reykjavík,15February2023.
BoardofDirectors:
ConsolidatedFinancialStatements31December2022 7
Kvikabankihf.
Independent Auditor's Report
TotheBoardofDirectorsandShareholdersofKvikabankihf.
Opinion
BasisforOpinion
KeyAuditMatters
KeyAuditMatters Howthematterwasaddressedinouraudit
Impairmentchargesforloans
•
• •
• •
• •
•
Ourexaminationincludedthefollowingelements:
Testing o f key controls over assumptions used in the expected credit loss
models.
Substantively testing the valuation of collateral with particular focus on
managementoverlaysappliedtocollateral
value.
Measurement of l oan impairment charges is considered a key audit
matter as the determination of assumptions for expected credit losses
is highly subjective due to the level of judgement applied by
management.
Substantively testing the PD model from Credit Info and h ow it has been
calibratedtorepresentthebanksportfolio.
During our audit we have evaluated whether the groups expected credit loss
modelsarecomplianttoIFRS9.
We have audited the consolidated financial statements of Kvika banki hf. for the year ended December 31, 2022 which comprise the consolidated
income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement
of changes in equity, the consolidated statement of cash flows for the year then ended and the notes to the consolidated financial statements, including
asummaryofsignificantaccountingpolicies.
In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of Kvika banki hf.as
at December 31, 2022, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements, as applicable, in the Act on Annual Accounts, the
ActonFinancialUndertakingsandrulesonaccountingforcreditinstitutions.
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described
in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements section of our report. We are independent of Kvika banki hf. in
accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the
ethical requirements that are relevant to our audit of the financial statements in Iceland, and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the IESBA. This includes that, based on the best of our knowledge and belief, no prohibited services referred to
in the EU Audit Regulation 537/2014 Article 5.1 has been provided to the audited company or, where applicable, its parent company or its controlled
companieswithintheEU.Webelievethatthe
auditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements
of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our
opinionthereon,andwedonotprovideaseparateopiniononthesematters.
Loans for the group amounted to ISK 107,139 million at year end and
the total allowance for the group amounted to ISK 2,666 million
against loans at amortized cost, unused credit facilities and guarantees
at31December2022.
Based on our risk assessment and industry knowledge, we have examined the
impairment charges for loans and provisions for undrawn loan commitments
and evaluated the methodology applied as well as the assumptions made
accordingtothedescriptionofthekeyauditmatter.
Our opinion in this report on the consolidated financial statements is consistent with the content of the additional report that has been submitted to the
company´sauditcommitteeinaccordancewiththe
EUAuditRegulation537/2014Article11.
Valuation of collateral and assumptions of future cash flows on
manuallyassessedcredit‐impairedexposures.
Themostsignificantjudgementsare:
Assumptions used in the expected credit loss models to
incorporateforwardlookinginformation
Timely identification of exposures with significant increase in credit
riskandcreditimpairedexposures.
We have reviewed the disclosures to the consolidated financial statements to
confirmcompliancewithIFRS.
Testing the appropriateness of forward looking information and how they
havebeenappliedintheexpectedcreditlossmodels.
Management has provided further information about expected credit
losses and provisions for guarantees in notes 23, 49 and 93 to the
consolidatedfinancialstatements.
Management overlays for particular exposures, which are not
appropriatelycapturedintheexpectedcreditlossmodel.
ConsolidatedFinancialStatements31December2022 8
Kvikabankihf.
Independent Auditor's Report
Measurementofliabilitiesunderinsurancecontracts
•
•
•
•
•
Otherinformation
ResponsibilitiesoftheBoardofDirectorsandtheCEOfortheConsolidatedFinancialStatements
Auditor’sResponsibilitiesfortheAuditoftheConsolidatedFinancialStatements
•
•
•
AspartofanauditinaccordancewithISAs,weexerciseprofessionaljudgementandm
aintainprofessionalscepticismthroughouttheaudit.Wealso:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than f or one resulting from error, as fraud may involve collusion, forgery,
intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but
notforthepurposeofexpressinganopinionontheeffectivenessofGroup'sinternalcontrol.
The Board of Directors and the CEO are responsible for the other information. The other information comprises the report of board of directors,
StatementoftheCorporateGovernanceandNon‐Financialinformation.
Based on our risk assessment, we have examined the valuation of claims
provisionandevaluat
edthemethodologyappliedandtheassump tion smade.
Ourexaminationincludedthefollowingelements,wherewealsomadeuseof
ourinternationallyqualifiedactuaries:
Testing of key controls over the actuarial models, data collection and
anal
y
sisandtheassum
p
tions‐settin
g
p
rocesses.
ReconcliationsofreportedandIBNRclaimsatyearend.
Evaluated managements first estimates of claims when further information
ismissing.
In addition we have evaluated whether disclosures in the consolidated financial
statements are in accordance with International Financial Reporting Standards
(IFRS).
Liabilities under insurance contracts for the Group amounted to ISK
24,362 million at 31 December 2022. There of claims provision
amountedto17,860million.
Measurement of claims provision is deemed a key audit matter as the
determination of assumptions for the measurement of claims provision
requiresManagementtoapplyjudgementsaboutfutureevents.
Changes in assumptions and the methodology applied may have a
materialimpactonthemeasurementofclaimsprovision.
Management has provided further information about liabilities under
insurance contracts in notes 33 and 103 to the consolidated financial
statements.
EvaluatedmanagementmethodologyandcalculationsofIBNR.
Performed substantive testing on reported claims and estimated whether
theliabilitywassufficientlyrecognized.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon, except
theconfirmationregardingreportoftheboardofdirectorsasstatedbelow.
In accordance with Paragraph 2 article 104 of the Icelandic Financial Statement Act no. 3/2006, we confirm to the best of our knowledge that the
accompanying report of the board of directors includes all information required b y the Icelandic Financial Statement Act that is not disclosed elsewhere
inthefinancialstatements.
The Board of Directors and the CEO are responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with International Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements, as applicable, in the Act on Annual Accounts,
the Act on Financial Undertakings and rules on accounting for credit institutions, and for such internal control as the Board of Directors and the CEO
determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud
orerror.
In preparing the consolidated financial statements, the Board of Directors and the CEO are responsible for assessing Kvika banki hf.’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of
DirectorsandtheCEOeitherintendstoliquidatethecompanyortoceaseoperations,orhasnorealisticalternativebuttodoso.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
reportthatfact.Wehavenothingtoreportinthisregard.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by
management.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influencetheeconomicdecisionsofuserstakenonthebasisoftheseconsolidatedfinancialstatements.
ConsolidatedFinancialStatements31December2022 9
Kvikabankihf.
Independent Auditor's Report
•
•
•
Reportonotherlegalandregulatoryrequirements
ReportonEuropeansingleelectronicformat(ESEFRegulation)
Deloitteehf.
TheconsolidatedfinancialstatementsofKvikabankihf.fortheyearended31December2022areelectronicallycertificatedbytheauditors.
StateAuthorizedPublicAccountant
We also provide the Board of Directors and the Audit Committee with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and
whereapplicable,relatedsafeguards.
From the matters communicated with the Board of Directors and the Audit Committee, we determine those matters that were of most significance in
the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our
auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public
interestbenefitsof
suchcommunication.
Kópavogur,15February2023.
In addition to our work as the auditors of Kvika banki hf., Deloitte has provided the firm with permitted additional services such as review of interim
financial statements, other assurance engagements and consultation on tax matters. Deloitte has in place internal procedures in order to ensure its
independence before acceptance of additional services. Deloitte has provided to the audit commitee written confirmation that Deloitte is independent
ofKvikabankihf.
Deloitte was appointed auditor of Kvika banki hf. by the general meeting of shareholders on 31 March 2022. Deloitte have been elected since the
generalmeeting2016.
PálínaÁrnadóttir
As part of our audit of the consolidated financial statements of Kvika banki hf. we performed procedures to be able to issue an opinion on whether the
consolidated financial statements of Kvika banki hf. for the year 2022 with the file name 254900WR3I1Z9NPC7D84‐2022‐12‐31‐en is prepared, in all
material respects, in compliance with laws no. 20/2021 disclosure obligation of issuers of securities and the obligation to flag relating to requiremen ts
regarding European single electronic format regulation EU 2019/815 which include requirements related to the preparation of the consolidated financial
statementsinXHTMLformatandiXBRLmarkup.
Management is responsible for preparing the consolidated financial statements in compliance with laws no. 20/2021 disclosure obligation of issuersof
securities and the obligation to flag. This responsibility includes preparing the consolidated financial statements in a XHTML format in a ccordancetoEU
regulation2019/815ontheEuropeansingleelectronicformat(ESEFregulation).
Our responsibility is to obtain reasonable assurance, based on evidence that we have obtained, on whether the consolidated financial statements is
prepared in all material respects, in compliance with the ESEF Regulation, and to issue a report that includes our opinion. The nature, timing and extent
of procedures selected depend on the auditor's judgement, including the assessment of the risks of material departures f rom the requirement set out in
theESEFregulation,whetherduetofraudor
error.
In our opinion, the consolidated financial statements of Kvika banki hf. for the 2022 with the file name 254900WR3I1Z9NPC7D84‐2022‐12‐31‐en is
prepared,inallmaterialrespects,incompliancewiththeESEFRegulation.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the
consolidatedfinancialstatementsrepresenttheunderlyingtransactionsandeventsinamannerthatachievesfairpresentation.
Obtain sufficient appropriate audit evidence regarding the f inancial information of the entities or business activities within the Group to expressan
opinion on the consolidated and separate financial statements. We are responsible for the direction, supervision and performance of the group
audit.Weremainsolelyresponsibleforourauditopinion.
We communicate with the Board of Directors and the Audit Committee regarding, among other matters, the planned scope and timing of the audit and
significantauditfindings,includinganysignificantdeficienciesininternal
controlthatweidentifyduringouraudit.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going
concern.
ConsolidatedFinancialStatements31December2022 10
Kvikabankihf. AmountsareinISKthousands
Consolidated Income Statement
For the year 2022
Notes 2022 2021
15,208,446 7,084,596
(7,532,996) (2,438,481)
Netinterestincome
5
7,675,450 4,646,115
6,902,601 7,224,480
(494,491) (396,739)
Netfeeandcommissionincome
6
6,408,110 6,827,741
16,517,836 11,808,210
(12,307,539) (7,560,809)
Netpremiumsandclaims
7
4,210,297 4,247,400
8 272 5,671,978
26 26,725 (27,566)
859,600 631,391
Othernetoperatingincome
886,597 6,275,803
Netoperatingincome
19,180,453 21,997,059
10‐13 (13,075,783) (11,634,885)
14 (531,823) 138,842
(17,646) (97,548)
27 65,398 83,095
Profitbeforetaxes
5,620,600 10,486,563
15 (212,479) 347,634
16 (309,391) (35,454)
17 (185,348) (135,299)
Profitfortheyear
4,913,381 10,663,444
Notes 2022 2021
4,882,945 10,734,181
25 30,437 (70,737)
Profitfortheyear
4,913,381 10,663,444
Earningspershare
18
1.02 2.62
1.02 2.56
Thenotesonpages18to79areanintegralpartoftheseConsolidatedFinancialStatements.
Specialtaxonfinancialinstitutions........................................................................................................................
Revaluationofinvestmentproperties....................................................................................................................
Specialtaxonfinancialactivity...............................................................................................................................
Basicearningspershare(ISKpershare).................................................................................................................
Dilutedearningspershare(ISKpershare).............................................................................................................
Incometax...............................................................................................................................................................
Attributabletothesha reholdersofKvikabankihf................................................................................................
Attributabletonon‐controllinginterest.................................................................................................................
Shareinprofit(loss)ofassociates,netofincometax............................................................................................
Interestincome.......................................................................................................................................................
Interestexpense.....................................................................................................................................................
Feeandcommissionincome..................................................................................................................................
Feeandcommissionexpense.................................................................................................................................
Netfinancialincome...............................................................................................................................
................
Earnedpremiums,netofreinsurers'share............................................................................................................
Claimsincurred,netofreinsurers'share................................................................................................................
Otheroperatingincome..........................................................................................................................................
Administrativeexpenses.........................................................................................................................................
Netimpairment.......................................................................................................................................................
Revaluationofcontingentconsideration...............................................................................................................
ConsolidatedFinancialStatements31December2022 11
Kvikabankihf. AmountsareinISKthousands
For the year 2022
Notes 2022 2021
Profitfortheyear
4,913,381 10,663,444
(537,359) (108,180)
37,864 11,522
(499,495) (96,657)
(3,706) 12,238
Othercomphrehensiveincomethatisormaybereclassifiedsubsequentlytoprofitandloss
(503,202) (84,419)
Totalcomprehensiveincomefortheyear
4,410,180 10,579,025
Notes 2022 2021
4,374,678 10,649,762
35,502 (70,737)
Totalcomprehensiveincomefortheyear
4,410,180 10,579,025
Thenotesonpages18to79areanintegralpartoftheseConsolidatedFinancialStatements.
Consolidated Statement of Comprehensive Income
Attributabletothesha reholdersofKvikabankihf.................................................................................................
Attributabletonon‐controllinginterest..................................................................................................................
Exchangedifferenceontranslationofforeignoperations...................................................................................
ChangesinfairvalueoffinancialassetsthroughOCI,netoftax.........................................................................
RealizednetlosstransferredtotheIncomeStatement,netoftax......................................................................
ChangestoreserveforfinancialassetsatfairvaluethroughOCI....................................................
ConsolidatedFinancialStatements31December2022 12
Kvikabankihf. AmountsareinISKthousands
Consolidated Statement of Financial Position
As at 31 December 2022
Assets
Notes 31.12.2022 31.12.2021
19 36,670,586 38,645,894
20 65,160,407 40,046,651
21 19,410,508 22,683,295
22 13,841,853 22,085,696
23 107,139,227 71,587,646
24 4,940,738 2,734,216
26 88,988 67,000
27 1,165,398 1,100,000
28 34,079,900 31,455,409
29 884,222 1,458,621
480,706 405,695
15,30 3,232,933 3,177,763
33 627,469 749,383
31 15,465,850 10,042,553
Totalassets
303,188,786 246,239,821
Liabilities
32 112,245,198 78,669,807
33 24,362,281 22,434,447
34 28,120,009 17,261,048
35 38,103,414 32,597,716
36 3,686,451 3,371,766
37 1,486,107 1,323,631
38 1,343,186 1,280,868
24 1,609,537 3,008,401
203,214 347,068
30 944,274 899,942
39 9,894,650 6,677,507
Totalliabilities
221,998,322 167,872,201
Equity
40 4,781,026 4,790,139
48,602,825 50,316,002
3,068,159 9,613,793
24,661,171 13,696,745
TotalequityattributabletotheshareholdersofKvikabankihf.
81,113,180 78,416,678
25 77,285 (49,058)
Totalequity
81,190,465 78,367,620
Totalliabilitiesandequity
303,188,786 246,239,821
Thenotesonpages18to79areanintegralpartoftheseConsolidatedFinancialStatements.
Non‐controllinginterest.....................................................................................................................
Shortpositionsheldfortrading.........................................................................................................
Shortpositionsusedforhedging.......................................................................................................
Currenttaxliabilities..........................................................................................................................
Sharecapital.......................................................................................................................................
Sharepremium...................................................................................................................................
Otherliabilities...................................................................................................................................
Deferredtax
liabilities........................................................................................................................
Derivatives..........................................................................................................................................
CashandbalanceswithCentralBank................................................................................................
Otherassets........................................................................................................................................
Deferredtaxassets.............................................................................................................................
Subordinatedliabilities......................................................................................................................
Derivatives..........................................................................................................................................
Fixedincomesecurities......................................................................................................................
Sharesandothervariableincomesecurities.....................................................................................
Securitiesusedforhedging................................................................................................................
Loanstocustomers............................................................................................................................
Investmentinassociates....................................................................................................................
Intangibleassets.................................................................................................................................
Propertyandequipment....................................................................................................................
Deposits.............................................................................................................................................
Technicalprovision.............................................................................................................................
Borrowings.........................................................................................................................................
Investmentproperties........................................................................................................................
Otherreserves....................................................................................................................................
Retainedearnings...............................................................................................................................
Issuedbonds.......................................................................................................................................
Reinsuranceassets.............................................................................................................................
Operatingleaseassets........................................................................................................................
ConsolidatedFinancialStatements31December2022 13
Kvikabankihf. AmountsareinISKthousands
Consolidated Statement of Cash Flows
For the year 2022
Cashflowsfromoperatingactivities
Notes 2022 2021
4,913,381 10,663,444
883,787 89,214
(26,725) 27,566
1,584,933 1,966,889
(7,675,450) (4,646,115)
531,823 (138,842)
212,479 (329,374)
(65,398) (83,095)
98,030 (71,925)
456,862 7,477,762
Changesin:
(25,738,126) 3,833,960
2,048,054 (5,042,426)
8,243,842 (2,465,456)
(22,900,240) (2,802,876)
(2,206,522) (763,439)
336,993 946,974
(4,459,405) 1,558,140
31,715,859 18,479,161
2,416,668 (276,730)
224,794 351,965
(2,073,983) 1,215,432
2,412,906 (380,224)
(9,979,157) 14,654,481
14,169,572 6,555,029
(6,624,663) (1,905,378)
(212,479) 0
Netcash(to)fromoperatingactivities
(2,189,865) 26,781,893
Cashflowsfrominvestingactivities
28 (835,246) (458,271)
(270,542) (160,551)
6,087 3,750
3 (318,994) 3,741,180
0 19,915
Netcash(to)frominvestingactivities
(1,418,694) 3,146,023
Cashflowsfromfinancingactivities
(1,543,572) (12,600,892)
0 (5,291,000)
5,551,208 223,107
41 0 (1,258,799)
1,225,240 1,994,343
(3,003,998) (2,858,421)
(410,412) (299,701)
Netcashfrom(to)financingactivities
1,818,466 (20,091,363)
(1,790,093) 9,836,553
38,645,894 28,945,030
(185,215) (135,688)
CashandbalanceswithCentralBankattheendoftheyear
19 36,670,586 38,645,894
Thenotesonpages18to79areanintegralpartoftheseConsolidatedFinancialStatements.
Netimpairment.........................................................................................................................................
Otheradjustments.....................................................................................................................................
Investmentproperties,fairvaluechange.................................................................................................
Profitfortheyear.........................................................................................................................................
Adjustmentsfor:
Indexationandexchangeratedifference.................................................................................................
Sharelossofassociates,netofincometax...............................................................................................
Depreciationandamortisation.................................................................................................................
Netinterestincome...................................................................................................................................
Incometax.................................................................................................................................................
Issuedbills....................................................................................................................................................
Interestreceived..........................................................................................................................................
Netsale(acquisition)ofpropertyandequipment......................................................................................
Borrowings...................................................................................................................................................
Dividendfromassoiciates............................................................................................................................
Acquisitionofsubsidiaryandassociates,netofcash..................................................................................
Otherliabilities..........................................................................................................................................
Interestpaid
.................................................................................................................................................
Incometaxpaid............................................................................................................................................
Fixedincomesecurities.............................................................................................................................
Sharesandothervariableincomesecurities............................................................................................
Otherassets...............................................................................................................................................
Operatingleaseassets...............................................................................................................................
Derivatives‐liabilities...............................................................................................................................
Securitiesusedforhedging.......................................................................................................................
Derivatives‐assets....................................................................................................................................
Technicalprovision....................................................................................................................................
Shortpositions...........................................................................................................................................
Loanstocustomers....................................................................................................................................
Deposits....................................................................................................................................................
Effects
ofexchangeratefluctuationsoncashandbalanceswithCentralBank.........................................
CashandbalanceswithCentralBankatthebeginningoftheyear............................................................
Aquiredownshares.....................................................................................................................................
NetchangeincashandbalanceswithCentralBank...................................................................................
Leasereceivablepayments..........................................................................................................................
Repaymentofleaseliabilities......................................................................................................................
Acquisitionof
intangibleassets...................................................................................................................
Increase(decrease)insharecapitalandsharepremium............................................................................
Issuedbonds................................................................................................................................................
Subordinatedliabilities................................................................................................................................
ConsolidatedFinancialStatements31December2022 16
Kvikabankihf. AmountsareinISKthousands
Notes to the Consolidated Financial Statements
0
Generalinformation Page Riskmanagement(cont.) Page
1 Reportingentity.............................................................................. 18 53 Insurancerisk..................................................................................... 46
2 Basisofpreparation....................................................................... 18 54 Liquidityrisk....................................................................................... 46
3 Businesscombinations................................................................... 19 55 Marketrisk......................................................................................... 50
56 Interestraterisk................................................................................. 50
Segmentinformation 57 Interestrateriskassociatedwithtradingportfolios......................... 50
4 Businesssegments......................................................................... 20 58 Interestrateriskassociatedwithnon‐tradingportfolios.................. 51
59 Ex
posuretowardschangesintheCPI................................................ 52
Incomestatement 60 Currencyrisk...................................................................................... 52
5 Netinterestincome........................................................................ 22 61 Equityrisk........................................................................................... 54
6 Netfeeandcommissionincome.................................................... 22 62 Operationalrisk................................................................................. 54
7 Netpremiumsandclaims............................................................... 22
8 Netfinancialincome...................................................................... 23
9 Foreigncurrencyexchangedifference........................................... 23 Financialassetsandliabilities
10 Administrativeexpens
es................................................................ 23 63 Accountingclassifi cationoffinancialassetsandfinancialliabilities 55
11 Salariesandrelatedexpenses........................................................ 23 64 Financialassetsandfinancialliabilitiesmeasuredatfairvalue........ 56
12 EmploymenttermsoftheBoardofDirectorsandmanagement.. 24 65 Financialassetsandfinancialliabilitiesnotmeasuredatfairvalue.59
13 Auditor'sfees..................................................................................
24
14 Netimpairment.............................................................................. 25 Otherinformation
15 Incometax...................................................................................... 25 66 Pledgedassets................................................................................... 60
16 Specialtaxonfinancialactivity...................................................... 25 67 Relatedparties................................................................................... 60
17 Specialtaxonfinancialinstitutions................................................ 25 68 Remunerationpolicy......................................................................... 61
18 Earningspershare.......................................................................... 25 69 Incentivescheme............................................................................... 61
70 Share‐basedpayments...................................................................... 61
71 ShareholdersoftheBank.................................................................. 63
StatementofFi
nancialPosition 72 Othersmatters................................................................................... 63
19 CashandbalanceswithCentralBank............................................ 26 73 Eventsafterthereportingdate......................................................... 63
20 Fixedincomesecurities.................................................................. 26
21 Sharesandothervariableincomesecurities................................. 26 Significantaccountingpolicies 64
22 Securitiesusedforhedging............................................................ 26
23 Loanstocustomers........................................................................ 27
24 Derivatives...................................................................................... 27
25 Groupentities................................................................................. 27
26 In
vestmentinassociates................................................................ 28
27 Investmentproperties.................................................................... 28
28 Intangibleassets............................................................................. 28
29 Operatingleaseassets.................................................................... 29
30 Deferredtaxassetsandliabilities.................................................. 30
31 Otherassets.................................................................................... 30
32 Deposits......................................................................................... 30
33 Technicalprovision......................................................................... 31
34 Borrowings..................................................................................... 32
35 Issuedbonds................................................................................... 32
36 Subordinatedliabilities.................................................................. 33
37 Shortposi tionsheldfortrading..................................................... 33
38 Shortposi tionsusedforhedg
ing................................................... 33
39 Otherliabilities............................................................................... 33
40 Sharecapital................................................................................... 34
41 Warrants......................................................................................... 35
42 Solvencyofafinancialconglomerate............................................ 35
43 Capitaladequacyratio(CAR).......................................................... 36
44 Solvencyofinsuranceactivities..................................................... 37
Riskmanagement
45 Riskmanagementframework........................................................ 38
46 Hedging........................................................................................... 39
47 Creditrisk‐overview...................................................................... 39
48 Maximumexposuretocreditrisk.................................................. 40
49 Cred
itqualityoffinancialassets.................................................... 40
50 Loan‐to‐value................................................................................. 45
51 Collateralagainstexposurestoderivatives................................... 45
52 Largeexposures.............................................................................. 45
ConsolidatedFinancialStatements31December2022 17
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
18
Notes to the Consolidated Financial Statements
General information
1.
Reporting entity
Kvika banki hf. ("Kvika" or the "Bank") is a limited liability company incorporated and domiciled in Iceland, with its registered office at Katrínartún 2,
Reykjavík. The Bank operates as a bank based on Act No. 161/2002, on Financial Undertakings, and is supervised by the Financial Supervisory
Authority of the Central Bank ("FME"). The Group, comprised of Kvika and its subsidiaries, has been designated by the FME as a financial
conglomerate as defined in Article no. 3 of Act no. 61/2017 on Additional Supervision of Financial Conglomerates.
The Consolidated Financial Statements for the year ended 31 December 2022 comprise Kvika banki hf. and its subsidiaries (together referred to as the
Group). During 2022, the Group operated five business segments, Asset Management, Corporate Banking, Insurance Services, Investment Banking and
UK operations. In December 2022, the Bank announced changes to its organizational chart, which took effect from 1 January 2023. The objective of
the changes is to better prepare the Group for continued operational success and to adjust its structure to a growing Group which continues to lead
increased competition and innovation in the financial market. The changes are also in line with the goals and emphasis set forth in strategic planning
introduced in November 2021. Part of the Commercial Banking division, along with the Investment Banking division, will form a new revenue division,
Corporate Banking and Capital Markets. The new revenue division will emphasize Kvika’s unique position when it comes to servicing corporations and
investors, and make it easier for the Group to use its increased financial strength to better serve its customers. The Group provides businesses,
investors and individuals with comprehensive investment banking, insurance services and asset management services as well as selected banking
services.
The Consolidated Financial Statements were approved and authorised for issue by the Board of Directors and the CEO on 15 February 2023.
2.
Basis of preparation
a.
Statement of compliance
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the
European Union and additional requirements, as applicable, in the Act on Annual Accounts no. 3/2006, the Act on Financial Undertakings no.
161/2002 and rules on accounting for credit institutions no. 834/2003.
b.
Basis of measurement
The Consolidated Financial Statements have been prepared using the historical cost basis except for the following:
‐
fixed income securities are measured at fair value;
‐
shares and other variable income securities are measured at fair value;
‐ securities used for hedging are measured at fair value;
‐ certain loans to customers which are measured at fair value;
‐ derivatives are measured at fair value;
‐ investment properties are measured at fair value;
‐ certain receivables are measured at fair value;
‐
shared based payment is accounted for in accordance with IFRS 2;
‐
contingent consideration is measured at fair value;
‐ short positions are measured at fair value; and
‐
technical provision is measured in accordance with IFRS 4.
c.
Functional and presentation currency
The Consolidated Financial Statements are prepared in Icelandic Krona (ISK), which is the Group's functional currency. All financial information has
been rounded to the nearest thousand, unless otherwise stated.
The Group's assets and liabilities which are denominated in other currency than ISK are translated to ISK using the exchange rate as at the end of day
31 December 2022.
d.
Going concern
The Bank's management has assessed the Group's ability to continue as a going concern and is satisfied that the Group has the resources to continue
its operations.
e.
Estimates and judgements
The preparation of financial statements in accordance with IFRSs requires management to make judgements, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these
estimates.
The estimates and underlying assumptions are based on historical result and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements about carrying amounts of assets and liabilities that are not readily
apparent from other sources.
The estimates and underlying assumptions are reviewed on an on‐going basis. Revisions to accounting estimates are recognised in the period in which
the estimate is revised if the revision affects only that period or in the period and future periods if the revision affects both current and future periods.
Information about areas of estimation uncertainty and critical judgements made by management in applying accounting policies that can have a
significant effect on the amounts recognised in the Consolidated Financial Statements is provided in note 117.
f.
Relevance and importance of notes to the reader
In order to enhance the informational value of the Consolidated Financial Statements, the notes are evaluated based on relevance and importance for
the reader. This can result in information, that has been evaluated as neither important or relevant for the reader, not being presented in the notes.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
19
Notes to the Consolidated Financial Statements
3.
Business combinations
Acquisition of Ortus Secured Finance ltd.
In February 2022, the Group acquired a majority shareholding in Ortus Secured Finance Ltd ("Ortus"), by purchasing an additional 63.1% of the
ordinary shares and 70% of the preference shares. The Group first acquired 15.1% of the ordinary shares and 30% of the preference shares in 2018,
which were held at fair value at the acquisition date.
Ortus is a British alternative credit provider specialising in property backed lending to borrowers in the United Kingdom. Ortus’ headquarters are in
London, where it shares an office with Kvika Securities Ltd. The company also operates offices in Belfast, N‐Ireland and in Glasgow, Scotland. The
transaction is a good strategic fit and allows for significant diversification of the Group´s loan portfolio, as well as opportunities to generate synergies
in terms of improved funding costs.
The total valuation of the preference and ordinary shares was ISK 5,572 million at the acquisition date. The purchase price will be paid by cash. A
contingent consideration, which is conditional on the performance of a loan to a customer, is a part of the acquisition price. The Group paid ISK 3,686
million for the ordinary and preference shares it acquired at the acquisition date.
The Group has a contractual agreement to acquire the remaining 21.8% of shareholding in 2024 and 2026. As a result of this, there is no non‐
controlling interest recognised in the Group. At the acquisition date, this item was recorded as a derivative liability with at fair value of ISK 692 million.
It will be reassessed on a quarterly basis for further fair value adjustments, which will be recognised through the Consolidated Income Statement.
During the years 2021 and 2022, the Group incurred transaction costs related to the acquisition amounting to ISK 34 million which were expensed as
operating expenditure.
In accordance with IFRS 3, Business Combinations, the total consideration has been allocated to Ortus‘ identifiable assets and liabilities acquired, that
have been re‐measured to fair value at the acquisition date. The purchase price allocation led to capitalized intangible assets amounting to ISK 2,668
million, reference is made to note 28 for more information. The following table summarises the consideration paid for Ortus and the recognised
amounts of assets acquired and liabilities assumed at the acquisition date, being 28 February 2022.
Identifiable assets acquired and liabilities assumed
Assets
Book value at
acquisition date
Fair value
changes
Total
Cash and cash equivalents ...............................................................................................................................
3,367,206
3,367,206
Loans to customers ..........................................................................................................................................
11,598,808
11,598,808
Intangible assets ..............................................................................................................................................
0
2,668,287
2,668,287
Other assets ....................................................................................................................................................
554,825
554,825
Total
15,520,839
2,668,287
18,189,125
Liabilities
Borrowings ......................................................................................................................................................
12,402,533
12,402,533
Other liabilities ................................................................................................................................................
214,589
214,589
Total
12,617,122
0
12,617,122
Total identifiable net assets .............................................................................................................................................................................
2,903,717
Acquisition price
…...........................................................................................................................................................................................
5,572,004
Calculated goodwill on acquisition ..................................................................................................................................................................
2,668,287
The figures in the consolidated income statement for the year 2022 do not include the operations of Ortus during January and February as the
acquisition took place at end of February. If the acquisition had occurred on 1 January 2022, it is estimated that the consolidated net operating
income would have been ISK 19,316 million and the consolidated profit before tax for the year would have been ISK 5,648 million. Net income for
Ortus for the period from acquisition date to year end amounted to ISK 1,052 million and profit before tax ISK 91 million.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
20
Notes to the Consolidated Financial Statements
Segment information
4.
Business segments
Segment reporting is based on the same principles and structure as internal reporting to the CEO and the Board of Directors. Segment
performance is evaluated on profit before tax.
Reportable segments
Following business combinations during the year 2022, the Group changed the structure of its internal reporting and reportable segments for the
year 2022. During 2022, the Group defined five reportable operating segments; Insurance, Asset Management, Commercial Banking, Investment
Banking and UK operations. The figures for the year 2022 reflect the operating segment structure that was in place during that year and
comparison amounts for the previous period have been restated accordingly.
‐ Insurance
The TM insurance group offers its customers comprehensive insurance services, including life insurance.
‐ Asset Management
Products and services offered include asset management involving both domestic and foreign assets, private banking, and private pension
plans. The management of a broad range of mutual funds, investment funds and institutional investor funds is include in this segment
through the operations of Kvika eignastýring hf. and Gamma Capital Management hf.
‐ Commercial Banking
Commercial Banking offers various forms of banking services and related advisory services, in addition to providing specialised lending
services. Included in this operating segment is Lykill, the leasing operations of the Group, and the Group's fintech operations, such as Auður,
Netgíró and Aur.
‐ Investment Banking
Investment Banking consists of Capital Markets and Corporate Finance. The functions of Market Making and Treasury are also included in the
segment although they are a part of Kvika's Finance division.
‐ UK operations
The UK operations consist of asset management and corporate finance services through Kvika Securities Ltd. and specialised lending services
through Ortus Secured Finance Ltd.
UK operations is the only geographic area outside of Iceland and accounts for 5.5% (2021: 4.8%) of Net operating income.
Supporting units consist of the functions carried out by the Bank's support divisions, such as Risk Management, Finance, IT and Operations, etc.
The information presented relating to the supporting units does not represent an operating segment.
2022
Insurance
Asset
Management
Commercial
Banking
Investment
Banking
UK
operations
Supporting
units
Total
Net interest income .........................................
590,492
2,377
4,728,338
2,000,766
452,856
(99,379)
7,675,450
Net fee and commission income ....................
(3,227)
3,068,805
1,293,929
1,652,450
349,492
46,660
6,408,110
Net premiums and claims ...............................
4,210,297
‐
‐
‐
‐
‐
4,210,297
Net financial income ........................................
(278,089)
62,421
588,256
(620,168)
247,678
172
272
Share in profit of associates ...........................
(0)
(68)
26,793
‐
‐
‐
26,725
Other operating income ..................................
187,787
9,089
559,556
‐
(1,098)
104,267
859,600
Net operating income
4,707,260
3,142,624
7,196,872
3,033,048
1,048,928
51,721
19,180,453
Salaries and related expenses ........................
(1,636,218)
(1,080,555)
(841,763)
(847,114)
(416,019)
(2,399,934)
(7,221,603)
Other operating expenses ...............................
(1,555,920)
(84,732)
(1,444,439)
(281,876)
(561,705)
(1,925,508)
(5,854,180)
Net impairment ................................................
35,498
‐
(473,618)
432
(94,136)
‐
(531,823)
Revaluation of contingent consideration ......
‐
(17,646)
‐
‐
‐
‐
(17,646)
Revaluation of investment properties ...........
65,398
‐
‐
‐
‐
‐
65,398
Cost allocation ..................................................
(983,422)
(866,607)
(1,364,364)
(838,531)
(217,730)
4,270,655
‐
Profit (loss) before tax
632,596
1,093,085
3,072,688
1,065,958
(240,661)
(3,066)
5,620,600
Net segment revenue from external
customers ....................................................
4,610,232
3,148,027
7,030,533
2,742,407
1,606,200
43,054
19,180,453
Net segment revenue from other
segments ........................................................
97,029
(5,402)
166,338
290,641
(557,272)
8,667
0
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
21
Notes to the Consolidated Financial Statements
4.
Business segments (cont.)
Asset
Commercial
Investment
UK
Supporting
2021
Insurance
Management
Banking
Banking
operations
units
Total
Net interest income .........................................
205,437
(654)
3,365,277
1,140,324
(59,298)
(4,971)
4,646,115
Net fee and commission income ....................
(14,483)
3,700,065
857,952
1,528,891
704,561
50,755
6,827,741
Net premiums and claims ...............................
4,247,400
‐
‐
‐
‐
‐
4,247,400
Net financial income ........................................
3,399,270
79,056
655,736
1,135,363
402,553
‐
5,671,978
Share in profit of associates ...........................
0
(1,864)
(28,201)
‐
‐
2,498
(27,566)
Other operating income ..................................
84,510
7,078
517,837
2,646
‐
19,319
631,391
Net operating income
7,922,134
3,783,682
5,368,601
3,807,225
1,047,816
67,602
21,997,059
Salaries and related expenses ........................
(1,163,622)
(1,149,644)
(665,856)
(783,455)
(506,127)
(2,010,955)
(6,279,660)
Other operating expenses ...............................
(1,127,112)
(95,716)
(1,417,256)
(200,400)
(546,219)
(1,968,522)
(5,355,225)
Net impairment ................................................
(8,245)
‐
149,572
‐
‐
(2,484)
138,842
Revaluation of contingent consideration ......
‐
(97,548)
‐
‐
‐
‐
(97,548)
Revaluation of investment properties ...........
‐
‐
83,095
‐
‐
‐
83,095
Profit (loss) before cost allocation and tax
5,623,155
2,440,773
3,518,156
2,823,369
(4,530)
(3,914,360)
10,486,563
Net segment revenue from external
customers ....................................................
7,920,167
3,823,249
6,074,775
3,008,029
1,102,892
67,948
21,997,059
Net segment revenue from other
segments ........................................................
1,968
(39,567)
(706,174)
799,195
(55,076)
(346)
0
The figures for the year 2021 have been restated to reflect changes made in the presentation of internal reporting and reportable segments
following business combinations in 2022. Cost allocation was not part of internal reporting during 2021 as a result of the considerable business
combinations during that year. As a result, there are no comparison figures available for that line item.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
22
Notes to the Consolidated Financial Statements
Income statement
5.
Net interest income
Interest income is specified as follows:
2022
2021
Cash and balances with Central Bank ..........................................................................................................................................
1,001,738
98,077
Derivatives ....................................................................................................................................................................................
2,422,309
1,358,756
Loans to customers ......................................................................................................................................................................
9,622,075
4,985,407
Fixed income securities (FVOCI) ...................................................................................................................................................
1,902,457
459,687
Other interest income ..................................................................................................................................................................
259,866
182,670
Total
15,208,446
7,084,596
Interest expense is specified as follows:
2022
2021
Deposits
........................................................................................................................................................................................
2,957,125
688,525
Borrowings ....................................................................................................................................................................................
1,417,832
325,855
Issued
bills
....................................................................................................................................................................................
0
34,334
Issued
bonds
................................................................................................................................................................................
2,404,363
866,116
Subordinated liabilities .................................................................................................................................................................
518,940
385,960
Derivatives ....................................................................................................................................................................................
95,360
10,557
Other interest expense* ...............................................................................................................................................................
139,376
127,136
Total
7,532,996
2,438,481
Net interest income
7,675,450
4,646,115
* Thereof are lease liabilities' interest expense amounting to ISK 96 million (2021: ISK 39 million).
Total interest income recognised in respect of financial assets not carried at fair value through profit or loss amounts to ISK 10,681 million (2021: ISK
5,021 million). Total interest expense recognised in respect of financial liabilities not carried at fair value through profit or loss amounts to ISK 7,437
million (2021: ISK 2,432 million).
6. Net fee and commission income
Fee income and expenses are presented on a net fee basis, as presented in internal reporting to management for decision making purposes, and
broken down by business segments. The business segments are representative of the nature and types of activity from which the Group generates
fee income from. A description of each business segment is provided in note 4. As discussed in that note, the Group changed the structure of its
internal reporting and reportable segments during 2022. The figures for the period in 2022 reflect this structure and the comparison amounts have
been restated accordingly.
Net fee and commission income by business segment
2022
2021
Insurance .......................................................................................................................................................................................
(3,227)
(14,483)
Asset Management .......................................................................................................................................................................
3,068,805
3,700,065
Commercial Banking .....................................................................................................................................................................
1,293,929
857,952
Investment Banking
......................................................................................................................................................................
1,652,450
1,528,891
UK
operations
..............................................................................................................................................................................
349,492
704,561
Supporting units ............................................................................................................................................................................
46,660
50,755
Total
6,408,110
6,827,741
7.
Net premiums and claims
Net premiums and claims is specified as follows:
Earned premiums, net of reinsurers' share
2022
2021
Premiums written .........................................................................................................................................................................
17,878,052
8,048,480
Premiums written, reinsurers' share ............................................................................................................................................
(891,759)
(315,788)
Change in provision for unearned premiums ..............................................................................................................................
(487,411)
4,484,240
Change in provision for unearned premiums, reinsurers' share .................................................................................................
18,954
(408,723)
Total
16,517,836
11,808,210
Claims incurred, net of reinsurers' share
2022
2021
Claims
paid
...................................................................................................................................................................................
(11,288,304)
(8,126,007)
Claims paid, reinsurers' share ......................................................................................................................................................
545,937
853,013
Change in provision for claims due to insurance operations ......................................................................................................
(1,352,124)
245,620
Change in risk margin ...................................................................................................................................................................
(72,247)
5,075
Change in provision for claims, reinsurers' share ........................................................................................................................
(140,802)
(538,510)
Total
(12,307,539)
(7,560,809)
Net premiums and claims
4,210,297
4,247,400
Combined ratio
95.3%
84.1%
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
23
Notes to the Consolidated Financial Statements
8.
Net financial income
Net financial income is specified as follows:
2022
2021
Net gain (loss) on financial assets and financial liabilities mandatorily measured at fair value through profit or loss
Fixed income securities ..............................................................................................................................................................
641,136
622,126
Financial assets at fair value through OCI .................................................................................................................................
(47,330)
(14,403)
Shares and other variable income securities ............................................................................................................................
(131,725)
4,647,213
Derivatives .................................................................................................................................................................................
(608,946)
388,524
Loans to customers ....................................................................................................................................................................
(6,120)
(36,956)
Unwinding, interest and exchange rate change of technical provision ...........................................................................................
(16,118)
488
Foreign currency exchange difference ..............................................................................................................................................
169,374
64,987
Total
272
5,671,978
9. Foreign currency exchange difference
Foreign currency exchange difference is specified as follows:
2022
2021
Gain (loss) on financial instruments at fair value through profit and loss .................................................................................
434,301
(148,309)
(Loss) gain on other financial instruments .................................................................................................................................... (264,927) 213,295
Total
169,374
64,987
10. Administrative expenses
Administrative expenses are specified as follows:
2022
2021
Salaries and related expenses ...........................................................................................................................................................
7,221,603
6,279,660
Other operating expenses .................................................................................................................................................................
4,258,430
3,627,764
Depositors' and Investors' Guarantee Fund contributions ..............................................................................................................
10,817
31,718
Depreciation and amortisation .........................................................................................................................................................
1,324,255
1,243,431
Depreciation of right of use asset ..................................................................................................................................................... 260,679 452,312
Total
13,075,783
11,634,885
11. Salaries and related expenses
Salaries and related expenses are specified as follows:
2022
2021
Salaries ...............................................................................................................................................................................................
5,488,641
4,675,858
Performance based payments excluding share‐based payments ...................................................................................................
149,063
275,830
Share‐based payment expenses .......................................................................................................................................................
104,889
4,389
Pension fund contributions ...............................................................................................................................................................
733,535
642,849
Tax on financial activity .....................................................................................................................................................................
320,888
306,555
Other salary related expenses ........................................................................................................................................................... 424,586 374,179
Total
7,221,603
6,279,660
Average number of full time employees during the year ...........................................................................................................
348
316
Total number of full time employees at year‐end ......................................................................................................................
367
331
The figures for 2021 do not include employees of Ortus Secured Finanace ltd. At the beginning of 2022, Ortus had 18 full time employees and Kvika
and its subsidiaries had 331, or 349 in total.
According to Act No. 165/2011, passed in 2011, banks and other financial institutions providing VAT exempt services, must pay a tax based on salary
payments, called tax on financial activity. The current tax rate is 5.50% (2021: 5.50%).
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
24
Notes to the Consolidated Financial Statements
12. Employment terms of the Board of Directors and management
Salaries and benefits paid to the Board of Directors, the CEO and Managing Directors, including the Deputy CEO, of the Bank for their work for
companies within the Group, and their shareholding in the Bank, are specified as follows:
31.12.2022 31.12.2021
Salaries and
Number Warrants Salaries and Number Warrants
benefits of shares & options benefits of shares & options
Marinó Örn Tryggvason, CEO ..............................................................................
59,659
7,460
1,872
63,756
3,427
7,390
Sigurður Hannesson, Chairman of the Board and member of
the Risk and Remuneration committees ......................................................
19,894
8,550
0
17,461
8,550
0
Guðmundur Þórðarson, Deputy Chairman of the Board and
chairperson of the Risk committee ..............................................................
14,184
66,750
0
10,002
66,750
0
Guðjón Karl Reynisson, Board member and chairperson
of the Remuneration committee ..................................................................
10,999
10,411
0
9,379
10,411
0
Helga Kristín Auðunsdóttir, Board member and member of
the Audit committee ....................................................................................
13,920
0
0
8,916
0
0
Ingunn Svala Leifsdóttir, Board member and chairperson of
the Audit committee ....................................................................................
10,497
0
0
3,159
0
0
Sigurgeir Guðlaugsson, alternate Board member ..............................................
501
0
0
0
0
0
Helga Jóhanna Oddsdóttir, alternate Board member .......................................
292
0
0
0
0
0
Hrönn Sveinsdóttir, former member of the Audit committe and
former Board member ..................................................................................
0
0
0
4,759
0
0
Inga Björg Hjaltadóttir, former member of the Audit committe and
former Board member ..................................................................................
0
0
0
5,579
0
0
Kristín Friðgeirsdóttir, former Board member and former member of
the Audit committee ....................................................................................
0
0
0
1,229
0
0
Albert Þór Jónsson, former alternate Board member .......................................
0
0
0
489
0
0
Managing Directors (2022: 4 (on average: 5.5), 2021: 7 (on average: 6.75)) .
271,360
29,242
5,587
380,996
47,971
29,564
Former Managing Directors (2022: 2 (on average: 0.5), 2021: none) ..............
22,650
‐
‐
0
‐
‐
Total
423,956
122,413
7,459
505,725
137,108
36,954
Salaries and benefits are substantially all short‐term employee benefits. Salaries and benefits paid to members of the Board of Directors include
compensation for their participation in Board committees.
The CEO and the managing directors received performance based payments in 2022. In 2022 a number of changes were made to the Bank's
executive committee. Besides the CEO, the following were a part of the Bank's executive committee during 2022: i) Ármann Þorvaldsson, Deputy CEO
(until December), ii) Ragnar Páll Dyer, CFO (until December), iii) Ólöf Jónsdóttir, MD of Operations and Development (from January to April), and MD
of Commercial Banking (as of April), iv) Lilja Jensen, General Counsel, v) Bjarni Eyvinds, MD Investment Banking, vi) Anna Rut Ágústsdóttir, MD
Operations and Development (as of April), vii) Thomas Skov Jensen, MD Risk Management (as of April), Magnús Ingi Einarsson, MD Commercial
Banking (until April) and Baldur Stefánsson, MD Corporate Finance (until February).
In December 2022, it was announced that Eiríkur Magnús Jensson and Sigurður Viðarsson had been hired as the Bank's CFO and its deputy CEO, and
that they would take up their positions in January 2023.
As the resignations of the CFO and the deputy CEO were received in December, they are included in the figure for salaries and benefits for 2022 for
managing directors, but are not counted as managing directors at year end.
As a result of the aforementioned, the salaries and benefits figures for managing directors for 2022 and 2021 are not directly comparable.
Figures for shares, share options and warrants are in thousands and include shares held by companies owned by or under the control of the
respective parties as at 31 December 2022 and 31 December 2021. If the holdings are held indirectly through companies, then the pro rata
ownership of the aforementioned persons has been included.
The Bank has defined the Deputy CEO and two Managing Directors as Key Employees, as defined in Act No. 161/2002 on Financial Undertakings.
Furthermore the Bank has approved and published internal rules covering the qualification requirements, evaluation process and conduct of Key
Employees, in accordance with requirements set forth by the Financial Supervisory Authority of the Central Bank.
The Bank has adopted a remuneration policy which covers three remuneration components, base pay, performance based incentive scheme and
other benefits, including pension fund contributions. Further information about the remuneration policy is provided in notes 68‐70.
13.
Auditor's fees
Remuneration to the Group's auditors is specified as follows:
2022
2021
Audit of annual accounts .......................................................................................................................................................................
134,150
83,724
Review of interim accounts ...................................................................................................................................................................
26,471
28,350
Other audit related services ..................................................................................................................................................................
19,161
14,934
Total
179,782
127,008
The table above shows fees paid to Deloitte and other component auditors. Total fee paid to other component auditors for the year 2022 amounts to
ISK 41 million. (2021: ISK 15 million)
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
25
Notes to the Consolidated Financial Statements
14. Net impairment
Net change in impairment of loans ....................................................................................................................................................
Net change in impairment of other assets .........................................................................................................................................
Net change in impairment of loan commitments, guarantees and unused credit facilities .............................................................
2022 2021
(525,554) 124,089
(413) (10,730)
(5,857) 25,483
Total (531,823) 138,842
15.
Income tax
The Bank and some of its subsidiaries will not pay income tax on its profit for 2022 due to the fact that Group has a tax loss carry forward that offsets
the calculated income tax. At year end 2022, the tax loss carry forward of the Group amounted to ISK 16 billion. A substantial part of the tax loss
carry forward is utilisable until end of year 2028. Management is of the opinion that the Group's operations in the years to come will result in taxable
results which will be offset with the tax loss carry forward. The Group has therefore recognised the tax loss carry forward as a deferred tax asset in
the consolidated statement of financial position.
Income tax is recognised based on the tax rates and tax laws enacted during the current year, according to which the domestic corporate income tax
rate was 20.0% (2021: 20.0%). Companies within the Group, which operate outside of Iceland, recognise income tax in accordance with the
applicable tax laws in the country where they are resident.
Income tax recognized in the income statement is specified as follows:
Reconciliation of effective tax rate:
2022
2021
Profit before tax ....................................................................................................................................
5,620,600
10,486,563
Income tax using the domestic corporation tax rate ..........................................................................
20.0%
(1,124,472)
20.0%
(2,097,313)
Non‐deductible expenses ....................................................................................................................
0.1%
(7,472)
0.1%
(7,395)
Tax exempt revenues / loss ..................................................................................................................
14.6%
(819,189)
(17.4%)
1,822,451
Recognition of tax losses ......................................................................................................................
(31.1%)
1,747,062
(11.1%)
1,159,050
Effects due to merger ...........................................................................................................................
0.0%
0
6.0%
(632,952)
Other changes ........................................................................................................................................
0.1%
(8,408)
(1.0%)
103,792
Effective income tax
3.8%
(212,479)
(3.3%)
347,634
Profit before tax amounts to ISK 5,621 million. Income tax amounts to ISK ‐212 million, resulting in an effective tax rate of 3.8%. This is substantially
different from the Icelandic corporate tax rate of 20%, mainly due to non‐taxable income from shares and revaluation of the deferred tax asset.
16.
Special tax on financial activity
The special tax on financial activity is an additional income tax which becomes effective when the income tax base exceeds ISK 1,000 million. It is
levied on the same entities as the tax on financial activity according to Act No. 90/2003. The tax rate is set at 6.0% (2021: 6.0%) and the tax is not a
deductible expense for income tax purposes. The tax is presented separately in the consolidated income statement.
17.
Special tax on financial institutions
According to Act No. 155/2010 on Special Tax on Financial Institutions, certain types of financial institutions, including banks, must pay annually a tax
based on the carrying amount of their liabilities as determined for tax purposes in excess of ISK 50 billion at year‐end. The tax rate is set at 0.145%
(2021: 0.145%) and the tax is not a deductible expense for income tax purposes. The tax is presented separately in the consolidated income
statement.
18.
Earnings per share
The calculation of basic earnings per share is based on earnings attributable to shareholders and a weighted average number of shares outstanding
during the period. The diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. The Bank has issued warrants and stock options that have a dilutive effect.
2022
2021
Net earnings attributable to equity holders of the Bank
4,882,945
10,734,181
Weighted average number of outstanding shares .......................................................................................................................
4,786,389
4,104,785
Adjustments for warrants and stock options ................................................................................................................................
506
90,703
Total
4,786,894
4,195,488
Basic earnings per share (ISK) .............................................................................................................................................................
1.02
2.62
Diluted earnings per share (ISK) .........................................................................................................................................................
1.02
2.56
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
26
Notes to the Consolidated Financial Statements
Statement of Financial Position
19. Cash and balances with Central Bank
Cash and balances with Central Bank are specified as follows:
31.12.2022
31.12.2021
Deposits with Central Bank ..............................................................................................................................................
24,718,270
16,611,434
Cash on hand ....................................................................................................................................................................
22,822
14,651
Balances with banks .........................................................................................................................................................
7,391,501
16,093,533
Foreign treasury bills .......................................................................................................................................................
2,831,108
2,564,841
Included in cash and cash equivalents
34,963,701
35,284,459
Restricted balances with Central Bank ‐ fixed reserve requirement ..............................................................................
1,706,885
1,235,491
Receivables from Central Bank ........................................................................................................................................
0
2,125,945
Total
36,670,586
38,645,894
The Bank holds mandatory reserve deposit accounts with the Central Bank of Iceland in compliance with the Central Bank’s Rules on Minimum
Reserve Requirements No. 585/2018. Under these rules the reserve requirement is divided into two parts: a fixed reserve requirement bearing no
interest and an average maintenance level requirement bearing the same interest as that on deposit‐taking institutions’ current accounts with the
Central Bank. The mandatory reserve deposit with the Central Bank and the receivables from the Central Bank are not available for the Group to
use in its daily operations.
20.
Fixed income securities
Fixed income securities are specified as follows:
Mandatorily measured at fair value through profit or loss
31.12.2022
31.12.2021
Listed government bonds and bonds with government guarantees ...........................................................................
2,867,887
5,343,444
Listed bonds ...................................................................................................................................................................
3,456,180
8,492,751
Unlisted bonds ...............................................................................................................................................................
Measured at fair value through other comprehensive income
3,901,728
4,907,093
Listed government bonds and bonds with government guarantees ...........................................................................
38,347,272
18,127,222
Listed treasury bills ........................................................................................................................................................
12,864,314
2,997,628
Listed bonds ...................................................................................................................................................................
3,723,026
178,512
Total
65,160,407
40,046,651
21. Shares and other variable income securities
Shares and other variable income securities are specified as follows:
Mandatorily measured at fair value through profit or loss
31.12.2022
31.12.2021
Listed shares ..................................................................................................................................................................
4,879,257
5,523,914
Unlisted shares ..............................................................................................................................................................
7,325,211
8,907,091
Unlisted unit shares in bond funds ...............................................................................................................................
3,040,899
3,824,181
Unlisted unit shares in other funds ...............................................................................................................................
4,165,141
4,428,108
Total
19,410,508
22,683,295
22. Securities used for hedging
Securities used for hedging are specified as follows:
31.12.2022
31.12.2021
Listed government bonds and bonds with government guarantees .............................................................................
3,852,697
126,113
Listed bonds .....................................................................................................................................................................
896,385
1,699,621
Listed shares .....................................................................................................................................................................
8,925,858
18,745,871
Unlisted unit shares .........................................................................................................................................................
166,914
1,514,091
Total
13,841,853
22,085,696
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
27
Notes to the Consolidated Financial Statements
23.
Loans to customers
The breakdown of the loan portfolio by individuals and corporates is specified as follows:
Individuals
Gross
Corporates
Gross
Total
Gross
carrying Book
carrying
Book
carrying
Book
31.12.2022
amount value
amount
value
amount
value
Loans to customers at amortised cost .......................
38,691,137 37,938,073
69,891,033
67,990,764
108,582,170
105,928,837
Loans to customers at FV through profit or loss ........
46,291 46,291
1,164,100
1,164,100
1,210,390
1,210,390
Total
38,737,428 37,984,363
71,055,132
69,154,864
109,792,560
107,139,227
Individuals
Gross
Corporates
Gross
Total
Gross
carrying Book
carrying
Book
carrying
Book
31.12.2021
amount value
amount
value
amount
value
Loans to customers at amortised cost .......................
31,285,094
30,771,742
39,114,914
38,291,634
70,400,008
69,063,377
Loans to customers at FV through profit or loss ........
650,814
650,814
1,873,455
1,873,455
2,524,269
2,524,269
Total
31,935,908
31,422,557
40,988,369
40,165,089
72,924,277
71,587,646
The Group presents finance lease receivables as part of loans to customers at amortised cost. As at 31 December 2022, the book value of finance
lease receivables amounted to ISK 18,604 million (31.12.2021: ISK 16,139 million).
24.
Derivatives
Derivatives are specified as follows:
Notional
Carrying value
31.12.2022
Assets
Liabilities
Assets
Liabilities
Interest rate derivatives ..........................................................................................
9,494,772
7,722,424
1,774,759
0
Currency forwards ...................................................................................................
25,007,309
25,007,681
282,893
360,113
Bond and equity total return swaps ......................................................................
29,475,867
28,082,769
2,637,546
1,249,424
Equity options ..........................................................................................................
104,499
0
245,539
0
Total
64,082,448
60,812,874
4,940,738
1,609,537
Notional Carrying value
31.12.2021
Assets
Liabilities
Assets
Liabilities
Interest rate derivatives .........................................................................................
14,353,716
13,087,145
1,799,162
0
Currency forwards ..................................................................................................
8,260,384
9,306,104
54,740
126,212
Bond and equity total return swaps .....................................................................
23,328,516
25,873,506
336,233
2,882,189
Equity options .........................................................................................................
453,594
0
544,081
0
Total
46,396,210
48,266,754
2,734,216
3,008,401
25.
Group entities
The main subsidiaries held directly or indirectly by the Group are listed in the table below.
Share
Share
Entity
Nature of operations
Domicile
31.12.2022
31.12.2021
Aur app ehf. .............................................................
Financial technology services
Iceland
‐
100%
FÍ Fasteignafélag GP ehf. ........................................
Real estate fund management
Iceland
100%
100%
GAMMA Capital Management hf. .........................
Fund management
Iceland
100%
100%
Kvika eignastýring hf. ..............................................
Asset management
Iceland
100%
100%
Netgíró hf. ................................................................
Consumer lending operations
Iceland
‐
100%
Rafklettur ehf. .........................................................
Holding company
Iceland
100%
100%
Skilum ehf. ...............................................................
Debt Collection
Iceland
100%
‐
Straumur greiðslumiðlun hf. ..................................
Payment facilitator
Iceland
100%
‐
TM líftryggingar hf. .................................................
Insurance services
Iceland
100%
100%
TM tryggingar hf. .....................................................
Insurance services
Iceland
100%
100%
AC GP 3 ehf. .............................................................
Fund management
Iceland
80%
80%
Kvika Securities ltd. .................................................
Business consultancy services
UK
100%
100%
Ortus Secured Finance ltd. .....................................
Lending operations
UK
78%
15%
During the first quarter of 2022, the Group acquired a majority stake in Ortus Secured Finance ltd. Reference is made to note 3 for more
information on the acquisition. Furthermore, the mergers of Aur app ehf. and Netgíró hf. with Kvika banki hf. were finalised during the first quarter
of 2022. Additionally, the Group acquired Skilum ehf. during the second quarter of 2022 for a nominal fee and founded Straumur greiðslumiðlun
hf. during the fourth quarter of 2022.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
28
Notes to the Consolidated Financial Statements
26.
Investment in associates
a.
Investment in associates is accounted for using the equity method and is specified as follows:
Share
Share
Entity Nature of operations
Domicile
31.12.2022
31.12.2021
Gláma fjárfestingar slhf ....................................................... Holding company
Iceland
24%
24%
Moberg d. o. o. .................................................................... Digital solutions provider
Croatia
40%
40%
The Group does not consider its associates material, neither individually nor as a group.
b.
Changes in investments in associates are specified as follows:
31.12.2022
31.12.2021
Balance at the beginning of the year .................................................................................................................................
Acquisition of shares in associates .....................................................................................................................................
Dividend received ...............................................................................................................................................................
Disposal of shares in associates .........................................................................................................................................
Share in profit (loss) of associates, net of income tax .......................................................................................................
Exchange rate difference ....................................................................................................................................................
67,000 42,240
0 67,000
(6,087) (3,750)
0 (10,924)
26,725 (27,566)
1,350 0
Total
88,988
67,000
27. Investment properties
Investment properties are specified as follows:
31.12.2022
31.12.2021
Balance at the beginning of the year .................................................................................................................................
1,100,000
1,016,905
Revaluation of investment properties ...............................................................................................................................
65,398
83,095
Total
1,165,398
1,100,000
28.
Intangible assets
Intangible assets are specified as follows:
Customer
Software
31.12.2022
Goodwill
relationships
Brands
and other
Total
Balance as at 1 January 2022 ..........................................................
24,257,972
2,255,810
2,340,265
2,601,362
31,455,409
Additions during the period ..............................................................
0
0
0
835,246
835,246
Additions through business combinations .......................................
1,771,221
812,437
84,629
0
2,668,287
Discontinued ......................................................................................
0
0
0
(7,737)
(7,737)
Amortisation ......................................................................................
0
(235,264)
(148,761)
(506,373)
(890,399)
Currency adjustments .......................................................................
12,732
6,011
351
0
19,095
Balance as at 31 December 2022
26,041,926
2,838,993
2,276,484
2,922,498
34,079,900
Gross carrying amount ......................................................................
26,041,926
3,210,439
2,524,768
4,105,486
35,882,618
Accumulated amortisation and impairment losses .........................
0
(371,446)
(248,284)
(1,182,988)
(1,802,718)
Balance as at 31 December 2022
26,041,926
2,838,993
2,276,484
2,922,498
34,079,900
Customer
Software
31.12.2021
Goodwill
relationships
Brands
and other
Total
Balance as at 1 January 2021 ............................................................
2,943,881
0
0
618,740
3,562,621
Additions during the period ..............................................................
0
0
0
458,271
458,271
Additions through business combinations .......................................
21,314,091
2,391,991
2,439,788
2,017,629
28,163,498
Amortisation ......................................................................................
0
(136,181)
(99,523)
(493,278)
(728,982)
Balance as at 31 December 2021
24,257,972
2,255,810
2,340,265
2,601,362
31,455,409
Gross carrying amount ......................................................................
24,257,972
2,391,991
2,439,788
3,270,240
32,359,991
Accumulated amortisation and impairment losses .........................
0
(136,181)
(99,523)
(668,878)
(904,582)
Balance as at 31 December 2021
24,257,972
2,255,810
2,340,265
2,601,362
31,455,409
Acquisitions by the Group during the first half of 2022 as a part of business combinations resulted in the recognition of goodwill, customer
relationship and brand. Refer to note 3 for more information on the acquisitions.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
29
Notes to the Consolidated Financial Statements
28. Intangible assets (cont.)
b. Impairment testing
Assets with indefinite useful life, such as goodwill, are not amortised but are subject to annual impairment testing as described in note 97.
Goodwill is allocated to cash generating units ("CGUs") for the purpose of impairment testing. The allocation is made to those CGUs or groups of
CGUs that are expected to benefit from the business combinations in which the goodwill arose. Goodwill has been allocated to five CGUs, Asset
Management, Commercial Banking, Investment Banking, UK operations and Insurance. When the purchase price allocation for the 2021 business
combinations was finalised in 2022, a part of the goodwill that had been allocated preliminary to Commercial Banking was allocated to Investment
Banking. The goodwill allocated to UK operations, following business combinations during the year 2022, is a based on a preliminary estimate. The
allocation will be finalised during the year 2023.
The goodwill impairment tests were performed at the end of 2022. Their results show that the recoverable values exceed the carrying values of
goodwill. In addition to the base case testing, additional scenarios were tested where some key inputs had been stressed. In all scenarios tested
the results show that there is sufficient headroom and that there are no triggers indicating that impairment is necessary.
The cash flow projections for 2023 are derived from the Group's one year business plan which has been approved by the Board of Directors. In
some instances, the Group's subsidiaries have prepared a three year business plan which has been approved by the Board of Directors of those
companies. Management prepares a five year cash flow projection for each CGU, which is derived from the one year business plan and is also
based on management assumptions. The following table shows the key assumptions used in the estimation of the recoverable amount. The
recoverable amounts are calculated by discounting the estimated future growth rate of the CGUs. The time value of money and price of
uncertainty, calculated as the weighted average cost of capital ("WACC"), are based on external market information about market risk, interest
rates and CGU specific elements like country risk.
31.12.2022
Future
growth rate
Discount
rate
Book value
Asset Management .................................................................................................................................
3.5%
13.1%
2,943,881
Commercial Banking ................................................................................................................................
3.5%
11.3%
11,826,735
Investment Banking .................................................................................................................................
3.5%
13.7%
1,199,761
UK operations ..........................................................................................................................................
3.5%
9.8%
1,771,221
Insurance
.................................................................................................................................................
3.5%
12.1%
8,300,327
Total goodwill
26,041,926
Future
Discount
31.12.2021
growth rate
rate
Book value
Asset Management .................................................................................................................................
3.5%
10.1%
2,943,881
Commercial Banking ................................................................................................................................
3.5%
11.1%
13,013,764
Insurance..................................................................................................................................................
3.0%
11.2%
8,300,327
Total goodwill
24,257,972
29.
Operating lease assets
Operating lease assets are specified as follows:
31.12.2022
31.12.2021
Balance as at 1 January ....................................................................................................................................................
1,458,621
0
Additions through business combinations ......................................................................................................................
0
1,784,025
Additions ...........................................................................................................................................................................
133,883
233,914
Disposals ...........................................................................................................................................................................
(470,876)
(319,763)
Depreciation .....................................................................................................................................................................
(237,406)
(239,555)
Total
884,222
1,458,621
Gross carrying amount .....................................................................................................................................................
1,505,807
2,226,907
Accumulated depreciation ...............................................................................................................................................
(621,585)
(768,286)
Total
884,222
1,458,621
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
30
Notes to the Consolidated Financial Statements
30.
Deferred tax assets and liabilities
31.12.2022
31.12.2021
Deferred tax assets .................................................................................................................................................................
3,232,933
3,177,763
Deferred tax liabilities .............................................................................................................................................................
(944,274)
(899,942)
Net
2,288,659
2,277,821
The Group's deferred tax assets (liabilities) are attributable to the following items:
31.12.2022
31.12.2021
Property and equipment ........................................................................................................................................................
32,677
153,226
Intangible assets .....................................................................................................................................................................
(644,801)
(446,335)
Other items .............................................................................................................................................................................
(274,934)
(225,954)
Tax losses carried forward ......................................................................................................................................................
3,175,718
2,796,884
Total
2,288,659
2,277,821
At year end 2022, tax losses carried forward amount to ISK 15.9 billion, and are set to expire as follows:
Tax losses 2017, expiring in 2027 ...................................................................................................................................................................
Tax losses 2018, expiring in 2028 ...................................................................................................................................................................
Tax losses 2019, expiring in 2029 ...................................................................................................................................................................
Tax losses 2020, expiring in 2030 ...................................................................................................................................................................
Tax losses 2021, expiring in 2031 ...................................................................................................................................................................
Tax losses
25,746
14,850,383
44,384
939,402
18,675
Total 15,878,589
31.
Other assets
Other assets are specified as follows:
Accounts receivable ................................................................................................................................................................
Unsettled transactions ............................................................................................................................................................
Right of use asset and lease receivables ................................................................................................................................
Investment where investment risk is borne by life‐insurance policyholders ........................................................................
Receivables at fair value .........................................................................................................................................................
Sundry assets ...........................................................................................................................................................................
31.12.2022 31.12.2021
8,258,141 7,599,584
4,443,719 984,264
1,576,582 800,087
121,906 111,172
0 30,202
1,065,503 517,245
Total 15,465,850 10,042,553
Right of use asset and lease receivables are specified as follows:
Right of use asset and lease receivables as at 1 January .......................................................................................................
Additions during the period ....................................................................................................................................................
Additions through business combinations .............................................................................................................................
Termination of lease agreements ..........................................................................................................................................
Disposal ...................................................................................................................................................................................
Indexation.................................................................................................................................................................................
Currency adjustments .............................................................................................................................................................
Depreciation and lease receivable installment ......................................................................................................................
31.12.2022 31.12.2021
800,087 478,995
935,915 453,937
0 301,665
(26,458) 0
0 (175,404)
128,709 37,716
5,247 0
(266,917) (296,822)
Total 1,576,582 800,087
Right of use asset and lease receivables mostly consist of real estates for the Group's own use. The Group has entered into sublease contracts for
parts of the real estates which it does not use for its operations.
32.
Deposits
Deposits are specified as follows:
31.12.2022
31.12.2021
Demand deposits ....................................................................................................................................................................
91,504,652
63,858,051
Time deposits ..........................................................................................................................................................................
20,740,545
14,811,756
Total
112,245,198
78,669,807
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
31
Notes to the Consolidated Financial Statements
33.
Technical provision
Technical provision is specified as follows:
31.12.2022
31.12.2021
Claims provision ......................................................................................................................................................................
17,859,746
16,492,994
Premium provision .................................................................................................................................................................
5,799,959
5,311,124
Risk margin ..............................................................................................................................................................................
702,576
630,329
Technical provisions, total
24,362,281
22,434,447
The Group buys reinsurance primarily as excess of loss treaties to protect itself against extreme events, but certain lines are protected by quota
share treaties.
Reinsurer's share:
Claims provision ......................................................................................................................................................................
494,617
635,419
Premium provision .................................................................................................................................................................
132,853
113,964
Reinsurer's share, total
627,469
749,383
Own technical provision:
Claims provision ......................................................................................................................................................................
17,365,129
15,857,575
Premium provision .................................................................................................................................................................
5,667,107
5,197,160
Risk margin .............................................................................................................................................................................
702,576
630,329
Own technical provision (net), total
23,734,811
21,685,065
Reinsurer's
Development of claims provisions in 2022 Total
share
Own share
Claims provisions at 01.01.2022 .............................................................................................................. 16,492,994
(635,419)
15,857,575
Paid claims in the period due to older accident years .......................................................................... (5,742,391)
441,266
(5,301,125)
Exchange rate change of claims provisions due to older accident years ............................................ 9,827
0
9,827
Unwinding and interest rate change of claims provisions due to older accident years .................... 4,801
0
4,801
Change in settlement cost allocation due to older accident years ...................................................... (313,720)
0
(313,720)
Change in assessment of claims provisions due to older accident years ............................................ (261,132)
(164,314)
(425,446)
Change in Claims provisions for claims incurred in 2022 ...................................................................... 7,669,367
(136,151)
7,533,216
Claims provisions at 31.12.2022 17,859,746
(494,617)
17,365,129
Change in claims provisions due to insurance operations .................................................................... 1,352,124
140,802
1,492,925
Proportional change in assessment of claims for older accident years ............................................... (1.6%)
25.9%
(2.7%)
Development of claims provisions from 1.4.2021 to 31.12.2021
Claims provisions at 1.4.2021 ................................................................................................................... 16,764,649
(1,173,928)
15,590,720
Paid claims in the period due to older accident years ........................................................................... (3,967,947)
310,640
(3,657,306)
Exchange rate change of claims provisions due to older accident years ............................................. 4,150
0
4,150
Unwinding and interest rate change of claims provisions due to older accident years ..................... (30,185)
0
(30,185)
Change in settlement cost allocation due to older accident years ....................................................... (210,595)
0
(210,595)
Change in assessment of claims provisions due to older accident years ............................................. (66,201)
(114,159)
(180,360)
Change in Claims provisions for claims incurred in 2021 ....................................................................... 3,999,123
342,028
4,341,151
Claims provisions at 31.12.2021 16,492,994
(635,419)
15,857,575
Change in claims provisions due to insurance operations ..................................................................... (245,620)
538,510
292,890
Proportional change in assessment of claims for older accident years ................................................ (0.4%)
9.7%
(1.2%)
The positive development of own claims provision in the year 2022 contributes to a decrease in combined ratio of 2,4%, whereas it contributed to
a decrease of 1,4% in the year 2021.
Development of premium provisions in 2022
Premium provisions at 1.1.2022 ...............................................................................................................
5,311,124
(113,964)
5,197,160
Exchange rate change of premium provisions ........................................................................................
1,424
66
1,490
Change in the provision for unearned premiums ...................................................................................
487,411
(18,954)
468,457
Premium provisions at 31.12.2022
5,799,959
(132,853)
5,667,107
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
32
Notes to the Consolidated Financial Statements
33. Technical provision (cont.)
Development of premium provisions from 1.4.2021 to 31.12.2021 Total
Reinsurer's
share
Own share
Premium provisions at 1.4.2021 ................................................................................................................. 9,769,559
(522,428)
9,247,131
Exchange rate change of premium provisions .......................................................................................... 25,806
(258)
25,547
Change in the provision for unearned premiums .................................................................................... (4,484,240)
408,723
(4,075,518)
Premium provisions at 31.12.2021 5,311,124
(113,964)
5,197,160
Unwinding, change in interest and exchange rate in 2022
Unwinding and change in interest rate of claims provisions due to older accident years …................ 4,801
0
4,801
Exchange rate change of claims provisions ............................................................................................... 9,827
0
9,827
Exchange rate change of premium provisions .......................................................................................... 1,424
66
1,490
Total 16,052
66
16,118
Unwinding, change in interest and exchange rate in from 1.4.2021 to 31.12.2021
Unwinding and change in interest rate of claims provisions due to older accident years ................... (30,185)
0
(30,185)
Exchange rate change of claims provisions ............................................................................................... 4,150
0
4,150
Exchange rate change of premium provisions .......................................................................................... 25,806
(258)
25,547
Total (229)
(258)
(488)
34. Borrowings
Borrowings are specified as follows:
31.12.2022
31.12.2021
Money market deposits ..................................................................................................................................................
9,778,280
15,650,931
Secured borrowings ........................................................................................................................................................
15,674,280
0
Other borrowings ............................................................................................................................................................
2,667,449
1,610,117
Total
28,120,009
17,261,048
Money market deposits typically have a principal of ISK 5‐500 million and maturity between 1 day and 6 months and pay fixed interest rates.
Secured borrowings are in GBP and are to be paid at maturity. The borrowings mature in 2024.
The Group has not had any defaults of principal, interest or other breaches with respect to its debt issued and other borrowed funds.
35.
Issued bonds
Issued bonds are specified as follows:
First
Maturity
Currency, nominal value
issued
Maturity
type Terms of interest
31.12.2022
31.12.2021
Unsecured bonds:
KVB 21 01, GBP 12 million ...................
2021
2023
At maturity Floating, 3 month LIBOR + 2.50%
2,067,377
2,117,105
KVB 20 01, ISK 5,000 million ...............
2020
2023
At maturity Floating, 1 month REIBOR + 0.85%
4,632,806
4,609,836
Lykill 23 11, ISK 3,010 million ..............
2020
2023
At maturity Floating, 1 month REIBOR + 1.10%
2,600,598
2,575,197
EMTN 24 0131, SEK 500 million .........
2022
2024
At maturity Floating, 3 month STIBOR + 2.80%
6,866,708
0
EMTN 24 0204, EUR 8.5 million .........
2022
2024
At maturity Floating, 3 month EURIBOR + 2.80%
1,296,978
0
KVIKA 24 1119, GBP 11.4 million .......
2021
2024
At maturity Floating, 3 month LIBOR + 1.75%
1,959,110
2,007,693
KVIKA 24 1216 GB, ISK 4,500 million
2021
2024
At maturity Floating, 3 month REIBOR + 0.90%
4,513,777
4,506,565
KVB 19 01, ISK 5,000 million ...............
2019
2024
Amortizing Floating, 1 month REIBOR + 1.50%
2,005,242
3,003,775
KVIKA 25 1201 GB ISK 1.660 million ....
2022
2025
At maturity Floating, 3 month REIBOR + 1.25%
1,670,790
0
KVB 21 02, ISK 5,400 million ...............
2021
2027
At maturity CPI‐indexed, fixed 1.0%
6,110,428
5,589,138
KVIKA 32 0112, ISK 2,000 million ........
2022
2032
At maturity CPI‐indexed, fixed 1.40%
2,197,224
0
Asset backed bonds:
Lykill 16 01, ISK 10,870 million ............
2016
2023
Amortizing Floating, 1 month REIBOR + 1.10%
1,368,276
2,928,877
Lykill 23 09, ISK 1,000 million ..............
2019
2023
Amortizing Fixed, 5.20%
204,013
464,019
Lykill 24 06, ISK 1,570 million ..............
2020
2024
Amortizing Fixed, 2.80%
610,086
1,002,853
Lykill 26 05, ISK 5,130 million ..............
2019
2026
Amortizing CPI‐indexed, fixed 3.30%
0
3,792,658
Total
38,103,414
32,597,716
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
33
Notes to the Consolidated Financial Statements
36.
Subordinated liabilities
a.
Subordinated liabilities:
First
Maturity
Currency, nominal value
issued
Maturity
type
Terms of interest
31.12.2022
31.12.2021
KVB 18 02, ISK 800 million ................
2018
2028
At maturity
CPI‐Indexed, fixed 7.50%
1,040,313
960,156
TM 15 1, ISK 2,000 million ................
2015
2045
At maturity
CPI‐Indexed, fixed 5.25%
2,646,139
2,411,610
Total
3,686,451
3,371,766
At the interest payment date in the year 2023 for KVB 18 02, the Group has the right to repay the subordinated bond and on any subsequent
interest payment dates until maturity.
At the interest payment date in May 2025 for TM 15 01, the annual interest rate increases from 5.25% p.a. to 6.25% p.a. At the interest payment
date in May 2025 for TM 15 01, the Group has the right to repay the subordinated bond and on any subsequent interest payment dates until
maturity.
Subordinated liabilities are financial liabilities in the form of subordinated capital which, in case of the Group's voluntary or compulsory winding‐
up, will not be repaid until after the claims of ordinary creditors have been met. In the calculation of the capital ratio, they are included within Tier
2 and are a part of the equity base. The amount eligible for Tier 2 capital treatment is amortised on a straight‐line basis over the final 5 years to
maturity or up to 20% a year. The Group may only retire subordinated liabilities with the permission of the FME.
b.
Subordinated liabilities are specified as follows:
31.12.2022
31.12.2021
Balance at the beginning of the year .....................................................................................................................................
3,371,766
2,077,225
Redemption of KVB 15 01 ......................................................................................................................................................
0
(1,258,799)
Additions through business combinations ............................................................................................................................
0
2,358,610
Paid interest ............................................................................................................................................................................
(164,833)
(113,125)
Paid interests due to indexation ............................................................................................................................................
(39,421)
(14,763)
Accrued interests and indexation ..........................................................................................................................................
518,940
322,618
Total
3,686,451
3,371,766
37.
Short positions held for trading
Short positions held for trading are specified as follows:
31.12.2022
31.12.2021
Listed government bonds and bonds with government guarantees ....................................................................................
970,178
608,965
Listed bonds ............................................................................................................................................................................
515,929
714,665
Total
1,486,107
1,323,631
38.
Short positions used for hedging
Short positions used for hedging are specified as follows:
31.12.2022
31.12.2021
Listed government bonds and bonds with government guarantees ....................................................................................
1,343,186
1,280,868
Total
1,343,186
1,280,868
39.
Other liabilities
Other liabilities are specified as follows:
31.12.2022
31.12.2021
Salaries and salary related expenses .....................................................................................................................................
1,265,867
1,481,030
Lease liability ..........................................................................................................................................................................
1,827,582
1,041,121
Accounts payable and accrued expenses ..............................................................................................................................
2,189,717
974,515
Unsettled transactions ...........................................................................................................................................................
1,970,758
875,985
Withholding taxes ...................................................................................................................................................................
781,845
694,281
Contingent consideration .......................................................................................................................................................
373,715
483,486
Special taxes on financial institutions and financial activities ...............................................................................................
494,455
170,753
Reinsurance liabilities .............................................................................................................................................................
83,128
142,407
Technical provision for life‐insurance policies where investment risk is borne by policyholders .......................................
121,906
111,172
Expected credit loss allowance for loan commitments, guarantees and unused credit facilities .......................................
12,935
6,720
Other liabilities ........................................................................................................................................................................
772,743
696,038
Total
9,894,650
6,677,507
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
34
Notes to the Consolidated Financial Statements
39. Other liabilities (cont.)
Lease liability is specified as follows:
31.12.2022
31.12.2021
Lease liability as at 1 January ..........................................................................................................................................
1,041,121
477,691
Additions during the period ............................................................................................................................................
1,054,121
452,001
Additions through business combinations .....................................................................................................................
0
373,413
Termination of lease agreements ...................................................................................................................................
(14,428)
0
Currency adjustments .....................................................................................................................................................
7,554
0
Installment ......................................................................................................................................................................
(410,412)
(299,701)
Indexation .......................................................................................................................................................................
149,626
37,716
Total
1,827,582
1,041,121
40. Share capital
a.
Share capital
The nominal value of shares issued by the Bank is ISK 1 per share. All currently issued shares are fully paid. The holders of shares are entitled to
receive dividends as approved by the general meeting and are entitled to one vote per nominal value of ISK 1 at shareholders' meetings. Reference
is made to the Bank's Articles of Association for more information about the share capital.
31.12.2022
31.12.2021
Share capital according to the Bank's Articles of Association ........................................................................................
4,928,897
4,907,395
Nominal amount of treasury shares ...............................................................................................................................
147,871
117,256
Authorised but not issued shares ...................................................................................................................................
310,000
413,325
b.
Changes made to the nominal amount of share capital
The Bank's share capital was increased by ISK 139 million in nominal value during the year 2022 in order to serve the exercising of issued warrants.
During the year, the share capital was decreased by ISK 117 millon in nominal value following a resolution by the AGM to cancel treasury shares.
Furthermore, during the year, the Bank has acquired treasury shares amounting to ISK 148 million in nominal value as a result of a share buy‐back
plan.
c.
Share capital increase authorisations
According to the Bank's Articles of Association dated 15 December 2022, the Board of Directors is authorised to increase the share capital as
follows:
Temporary provision III to the Articles of Association authorises the Board of Directors to issue options or warrants for up to ISK 240 million in
nominal value. To serve such instruments the Board of Directors is authorised to either increase the share capital accordingly or purchase own
shares, as permitted by law. This authorisation is valid until 31 March 2027.
Temporary provision V to the Articles of Association authorises the Board of Directors to increase the share capital of the Bank in stages by up to
ISK 70 million in nominal value, for the purposes of fulfilling stock option agreements in accordance with the Bank's stock option plan which has
been approved by Iceland Revenue and Customs as provided for in Art. 10 of the Income Tax Act, No. 90/2003. This authorisation is valid until 31
December 2024.
A copy of the Bank's Articles of Association, including the temporary provisions, is available on the Bank's website, www.kvika.is, reference is made
to them for more information.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
35
Notes to the Consolidated Financial Statements
41.
Warrants
During the years 2017 to 2019, the Bank issued warrants for shares in the total nominal amount of ISK 675,500,000. During the years 2019 to 2022,
warrants for the nominal amount of ISK 675,433,330 shares were excercised. At year end 2022 there are no warrants outstanding as the final
excercise period lapsed in December 2022.
42.
Solvency of a financial conglomerate
The FME has designated the Group as a financial conglomerate as defined in Article no. 3 of Act no. 61/2017 on Additional Supervision of Financial
Conglomerates. As a result of this designation, the Group's capital adequacy is now calculated as the solvency ratio of a financial conglomerate.
The Group furthermore calculates the consolidated capital adequacy ratio for entities not belonging to the insurance sector by excluding the
insurance activities from calculation of risk weighted exposures and capital base. The Group similarly calculates the solvency ratio of entities solely
belonging to the insurance sector.
Solvency measures the Group's ability to take on setbacks, thus indicating its financial strength. The available capital and capital requirements of
the Group is calculated as a financial conglomerate according to Articles 16, 17 and 18 of Act on Additional Supervision of Financial Conglomerates
No. 61/2017. The Group's solvency ratio is 1.36, with a regulatory minimum requirement of 1.0.
Solvency ratio of the Group as a financial conglomerate is specified as follows:
31.12.2022
31.12.2021
Available capital
Own Funds eligible for non insurance activities ....................................................................................................................
32,456,104
32,496,219
Own Funds eligible for insurance activities ........................................................................................................................... 13,094,779 14,121,233
Total
45,550,883
46,617,452
Solvency requirement for insurance activities
Solvency Capital Requirements (SCR) ....................................................................................................................................
8,772,791
9,986,019
Own funds requirement for non insurance activities
Statutory minimum capital requirement (Pillar I) .................................................................................................................
11,037,600
7,680,858
Additional capital requirements (Pillar II) ..............................................................................................................................
4,828,950
6,816,762
Minimum capital requirement for non insurance activities
15,866,550
14,497,620
Additional capital protection buffers .....................................................................................................................................
8,830,080
5,280,590
Total
24,696,631
19,778,210
Solvency ..................................................................................................................................................................................
45,550,883
46,617,452
Solvency requirement (SCR) ...................................................................................................................................................
8,772,791
9,986,019
Own funds requirement for non insurance activities ............................................................................................................ 24,696,631 19,778,210
Minimum solvency of financial conglomerate .......................................................................................................................
Solvency ratio ..........................................................................................................................................................................
33,469,422 29,764,229
1.36 1.57
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
36
Notes to the Consolidated Financial Statements
43.
Capital adequacy ratio (CAR)
The capital adequacy ratio of the Group, excluding entities which belong to the insurance sector, calculated in accordance with Article 84 of Act No.
161/2002 on Financial Undertakings, was 23.5%. The minimum requirement from the FME is 11.5%. The ratio is calculated as follows:
Own funds eligible for non insurance activities
31.12.2022
31.12.2021
Total equity .............................................................................................................................................................................
81,190,465
78,367,620
Proposed dividends ................................................................................................................................................................
(1,912,410)
0
Capital eligible as CET1 Capital
79,278,054
78,367,620
Goodwill and intangibles ........................................................................................................................................................
(28,380,760)
(25,564,998)
Shares in other financial institutions ......................................................................................................................................
(18,830,034)
(20,441,123)
Deferred tax asset .................................................................................................................................................................. (3,232,933) (3,177,763)
Common equity Tier 1 capital (CET 1)
28,834,327
29,183,736
Tier 2 capital ...........................................................................................................................................................................
3,621,777
3,312,483
Total own funds
32,456,104
32,496,219
Risk weighted exposures
Credit risk ................................................................................................................................................................................
109,104,748
70,135,184
Market risk ..............................................................................................................................................................................
4,091,761
4,051,492
Operational risk ...................................................................................................................................................................... 24,773,495 21,824,053
Total risk weighted exposures
137,970,004
96,010,729
Capital ratios
Capital adequacy ratio (CAR) ..................................................................................................................................................
23.5%
33.8%
CET1 ratio ................................................................................................................................................................................
20.9%
30.4%
Minimum Capital adequacy ratio requirement .....................................................................................................................
11.5%
15.1%
Minimum Capital adequacy ratio requirement including supervisory buffers .....................................................................
17.9%
20.6%
Minimum CET 1 ratio requirement including supervisory buffers ........................................................................................
12.9%
14.0%
The Icelandic Financial Supervisory Authority (FME) supervises the Bank on a consolidated basis and, as such, receives information on the capital
adequacy of, and sets capital requirements for, the Bank as a whole. The Bank's regulatory capital calculations for credit risk and market risk are
based on the standardised approach and the capital calculations for operational risk are based on the basic indicator approach.
Minimum capital requirement is based on the Bank's Internal Capital Adequacy Assessment Process (ICAAP) and is reviewed by the FME through
the Supervisory Review and Evaluation Process (SREP). In November 2022, the FME notified Kvika of the SREP results on the assessment of the risk
in Kvika’s operations and capital requirements. The Bank's minimum regulatory capital requirement, based on the aforementioned SREP results, is
11.5%. The FME has notified the Bank that a new SREP process will be conducted in 2023. The minimum regulatory capital requirement including
the additional capital buffers is 17.9% as at 31 December 2022.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
37
Notes to the Consolidated Financial Statements
44.
Solvency of insurance activities
The Group calculates solvency capital and capital requirements for entities which belong to the insurance sector. The available capital and required
capital is calulated in accordance with Articles 88 and 96 of the Act on Insurance Activity No. 100/2016. This brings the solvency ratio for entities
which belong to the insurance sector to 1.49. Solvency capital requirements according to law is the minimum insurance companies have to meet.
Own funds eligible for insurance activities solvency
31.12.2022
31.12.2021
Equity eligible for insurance activities .....................................................................................................................................
18,370,084
22,163,820
Goodwill and intangibles .........................................................................................................................................................
(5,699,140)
(5,888,497)
Difference between net technical provision in the financial statements and solvency rules ...............................................
423,835
350,979
Proposed dividend payment ...................................................................................................................................................
0
(2,500,000)
Non‐controlling interest ..........................................................................................................................................................
0
(5,069)
Total
13,094,779
14,121,233
Solvency requirement
Life insurance risk ....................................................................................................................................................................
425,729
326,634
Health insurance risk ...............................................................................................................................................................
1,475,602
1,390,074
Non‐life insurance risk .............................................................................................................................................................
5,484,355
4,956,453
Market risk ...............................................................................................................................................................................
5,336,721
7,478,337
Counterparty default risk ........................................................................................................................................................
1,117,766
962,624
Multifaceted effects ................................................................................................................................................................ (4,229,553) (4,259,005)
Base Solvency Capital Requirements (Basic SCR)
9,610,620
10,855,118
Operational risk ........................................................................................................................................................................
680,934
627,562
Adjustment for the loss‐absorbing capacity of deferred taxes .............................................................................................. (1,518,763) (1,496,661)
Solvency Capital Requirements (SCR) 8,772,791 9,986,019
Solvency ...................................................................................................................................................................................
Solvency requirement (SCR) ....................................................................................................................................................
Solvency ratio after dividend ...................................................................................................................................................
Eligible items to meet the minimum capital ...........................................................................................................................
Minimum required capital (MRC) ...........................................................................................................................................
Minimum required capital ratio after dividend ......................................................................................................................
13,094,779 14,121,233
8,772,791 9,986,019
1.49 1.41
13,094,779 14,121,233
4,057,090 3,818,920
3.23 3.70
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
38
Notes to the Consolidated Financial Statements
Risk management
45.
Risk management framework
a.
Board of Directors
The Bank's Board of Directors is responsible for the Group's corporate governance, including the establishment and oversight of the Group's risk
management framework and risk appetite setting. In that respect, the Board of Directors has set a policy on the Group's corporate governance. In
order to ensure harmonized and good governance on a consolidated basis, the Bank's Board of Directors further sets out ownership policies for
subsidiaries that are considered an important part of the Group's operations. According to the ownership policies, the Boards of Directors of the
relevant subsidiaries shall always provide the Bank with all information necessary for it to carry out its supervisory role and the services that the
Bank provides to the relevant subsidiaries. Further, as risk management must be co‐ordinated on a group‐wide basis, those subsidiaries, shall
provide risk management with all necessary information to enable the Bank to be able to fulfil its obligations as parent company of the Group.
The head of risk management and the Bank's compliance officer can request a direct audience with the Boards of Directors of those subsidiaries.
Risk management policies are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through training
and management standards and procedures, continuously aims to develop a disciplined and constructive control environment in which all
employees understand their roles and obligations.
b.
Board of Directors sub‐committees
The Bank's Board of Directors has established three sub‐committees, the Risk Committee, Audit Committee and Remuneration Committee. In
accordance with the Bank´s articles of association, members of the committees are appointed in accordance with applicable law, and each
committee currently has three members. It is not permitted to appoint employees of the Bank to any committee. Members shall have the
necessary experience and knowledge for each committee´s tasks according to applicable laws and rules. Each committee has incorporated
procedural rules which have been confirmed by the Board of Directors.
The Risk Committee is intended to perform a consultative and supervisory role for the Bank’s Board of Directors, including for the formation of
the Bank’s risk policy and risk appetite. The Risk Committee supervises the arrangement and activity of risk management, credit risk, market risk,
liquidity risk, operational risk, reputational risk and other risk as applicable.
The Audit Committee is intended to perform a consultative and supervisory role for the Bank’s Board of Directors, including to ensure the quality
of the annual accounts and other financial information of the Bank and the independence of the Bank’s auditors. The Audit Committee monitors
the work process for the preparation of financial statements, the functioning of internal controls as well as internal and external auditing.
The Remuneration Committee is intended to perform a consultative and supervisory role for the Bank’s Board of Directors in connection with the
Bank’s remuneration and that they support the objectives and interests of the Bank.
c.
CEO
The CEO is responsible for the effective implementation through the corporate governance structure and committees. The CEO has established
three committees, which are responsible for developing and monitoring risk management policies in their specified areas.
d.
Committees
The Bank operates three committees that are involved in risk management: an Asset and Liability Committee (ALCO), a Credit Committee and an
Operations Committee. ALCO and the Operations Committee operate on a Group level.
ALCO supervises the management of the Group's balance sheet, assets and liabilities. This involves determining the most efficient division
between returns and risk and allocating funds to the Group's business units.
The Credit Committee addresses matters regarding the Bank's loan activities and is responsible for and makes decisions on the investments and
sale of unlisted assets, such as unlisted securities and financial instruments, shares in private limited companies and other companies, and as
regards other divisions than Treasury and Market Making, the investment and sale of unit share certificates in funds for collective investment.
The committee is responsible for the approval of larger loans and is the primary forum for the discussion of the Bank's credit rules, including
credit limits for relevant divisions of the Bank.
The Operations Committee is responsible for supervision and implementation of the Group's security and quality policies. The security policy
mainly addresses data security and operational security in IT systems, physical security for the personnel and proper access controls and
monitoring in the Bank's premises. The quality work is aimed at upholding proper quality in work processes, IT systems and services to support
performance and profitability, lower operational risk and increase the customer experience.
e.
Risk management
The purpose of the Bank's risk management unit is to identify, quantify, control and report on the risks that the Group is exposed to in its daily
activities. The unit also participates in drafting the overall risk policy and has representatives on the ALCO committee, Credit committee and the
Operations committee. The unit’s main activities include monitoring and managing credit risk, market risk, liquidity risk and operational risk. The
Board of Directors sets the rules and guidelines regarding the Group's risk policy and the obligations of risk management and credit control. The
division reports regularly on the Group’s positions and exposure to risk to the Board of Directors, the CEO and to the ALCO committee.
f.
Compliance Officer
The compliance function is an independent function that operates under the CEO, and the appointment of the Compliance Officer and his deputy
is confirmed by the Board. The compliance function monitors the Bank's compliance risk on a permanent basis and that the measures, policies
and procedures that have been put in place so that the Bank complies with its obligations are adequate and effective. The Compliance Officer is
also responsible for coordinating and monitoring the Bank's compliance with applicable anti‐money laundering and terrorist financing laws and
regulations. The Compliance officer, further, manages provisions of applicable market abuse laws and regulations, regarding the handling of
inside information and PDMR transactions, and oversees the complaints managements process. Compliance is operated on a consolidated basis
and the employees responsible for compliance in the Bank’s subsidiaries report to and receive support from the Compliance Officer and the
parent entity’s compliance function.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
39
Notes to the Consolidated Financial Statements
45.
Risk management framework (cont.)
g.
Internal Audit
The internal Audit of Kvika is responsible for providing an independent and objective opinion on the Group’s operations. Furthermore, to provide
advice which aims to increase the Group’s value and to strengthen risk management and internal control. The Internal Audit’s main task, is to
estimate whether adequate processes and systems are in place, and whether they are relevant and efficient for Kvika to reach its goals. Internal
audit is a part of Kvika Group and is an important part of its internal controls system. It furthermore operates according to the International
Standards for the Professional Practice of Internal Auditing. The Internal Auditor is recruited by the Board of Directors and is located accordingly
in the hierarchy. Its operations cover all units of operations, including the subsidiaries TM tryggingar hf., Kvika eignastýring hf., and Kvika
Securities Ltd. According to the letter of appointment, the internal auditor has direct and unrestricted access to the Board of Directors on a
Group level.
46.
Hedging
Securities held as a hedge against derivatives positions of customers make up a part of the Group's portfolio of assets. The Group hedges
currency exposure between the Group's loan portfolio and debts to the extent possible, but does not apply hedge accounting.
47.
Credit risk ‐ overview
a.
Definition
One of the Group's primary sources of risk is counterparty credit risk. Credit risk is defined as the risk that one party to a financial instrument will
cause a financial loss for the other party by failing to discharge an obligation.
b.
Management
The risk management unit is responsible for managing and reporting on credit risk. The Group uses a variety of tools and processes to manage
credit risk, including collaterals, hedges and loan portfolio management.
c.
Credit approval process
The originating department prepares a proposal for each larger loan or credit line which is presented to the credit committee for approval. The
proposal consists of a basic description of the client, the purpose of the loan, a simple credit assessment and arguments for or against granting
the loan. The committee decides whether there is need for further credit assessment and on what terms the loan may be granted. For smaller
loans the originating department optains a general credit approval from the credit committee with respect to the process, terms, credit limits and
total amount of the specific lending type.
A more thorough credit assessment may be conducted if considered appropriate and can include an assessment of a borrower's fundamental
credit strength as well as the value of any collateral. To assess the borrower's capacity to meet his or her obligations the committee can request
stress test analysis of the borrower's cash flow or call for third party assessments.
d.
Collateral
Securing loans with collateral is a traditional method to reduce credit risk. The Group uses different methods to reduce credit risk by obtaining
collateral from customers where appropriate. Such collateral gives the Group right to the collateralised assets for current and future obligations
incurred by the customer.
The Group places emphasis on pricing loans according to the value and quality of pledged collateral. The Group applies appropriate haircuts on
all collateral in order to ensure proper risk mitigation. For all collateral in listed securities, the Group maintains the right to liquidate collateral in
case its market value falls below a predefined limit.
To a very large extent the Group's loan portfolio consists of senior loans, most of which are highly collateralised.
e.
Credit rating, control and provisioning
The risk management unit is responsible for credit rating and reviewing the loan portfolio. In case of any significant delay of payments or defaults
the unit carefully analyses the underlying assets and loan documents and organizes the process of collection.
The Group monitors the value of collateral by listed securities on a real time basis, and takes prompt action when necessary.
f.
Loan portfolio management
To ensure an effective diversification of the loan portfolio the board has set a limit framework defining maximum exposure as a ratio of the
Group’s equity and/or the total size of the loan portfolio. These limits include limitation on joint exposure to associated clients, exposure to
individual and associated industries, single regions and countries etc. It is the responsibility of risk management to monitor that these limits are
not being violated and to report discrepancies to the credit committee.
g.
Impairment
Provisioning for loan impairments is estimated on the basis of expected loss models assessing the portfolio as a whole as well as individual
lending. Risk management suggest a level of provisioning for the portfolio, based on the expected loss assessment. Risk management reassess
impairments in the event of collateral decay, delayed payments, indication of increased risk, or other early warning signs. Provisions require
approval from the credit committee. Refer to note 88 in the 2022 financial statements for more information on the Group's impairment policy.
h.
Derivatives
The Group offers derivative contracts in the form of swap contracts on highly liquid securities. On the day when the contract is entered into, the
Group purchases the underlying security and hedges its exposure to price changes. Collateral is in the form of cash or listed, highly liquid
securities. The risk management sets rules about the level of collateralisation and monitors the compliance to these rules. Contracts are closed if
required levels of collateralisation are not met.
i.
Securities used for hedging
The Group hedges itself for market risk of derivative contracts by purchasing the underlying securities at the commencement of the contract.
Since the contracts require delivery of the underlying securities to the customer on the settlement day, the credit risk towards the issuer is
immaterial.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
40
Notes to the Consolidated Financial Statements
48.
Maximum exposure to credit risk
The maximum exposure to credit risk for on‐balance sheet and off‐balance sheet items, before taking into account any collateral held or other
credit enhancements, is specified as follows:
31.12.2022
On‐balance sheet exposure
Public
entities
Financial
institutions
Corporate
customers
Individuals
31.12.2022
Cash and balances with Central Bank ........................................................
29,279,085
7,391,501
36,670,586
Fixed income securities ...............................................................................
54,989,042
5,309,011
4,862,354
65,160,407
Loans to customers .....................................................................................
15,103
69,139,761
37,984,363
107,139,227
Derivatives ...................................................................................................
3,955,424
917,391
67,923
4,940,738
Other assets .................................................................................................
1,014,247
1,484,295
9,296,867
2,093,859
13,889,268
85,297,477
18,140,231
84,216,373
40,146,145
227,800,226
Off‐balance sheet exposure
Loan commitments ......................................................................................
1,955,620
725,755
2,681,375
Financial guarantee contracts ....................................................................
261,861
261,861
Maximum exposure to credit risk
85,297,477
18,140,231
86,433,854
40,871,900
230,743,462
31.12.2021
Public
Financial
Corporate
On‐balance sheet exposure
entities
institutions
customers
Individuals
31.12.2021
Cash and balances with Central Bank .......................................................
22,552,361
16,093,533
38,645,894
Fixed income securities ..............................................................................
27,881,492
5,800,281
6,364,877
40,046,651
Loans to customers .....................................................................................
14,708
150
40,150,231
31,422,557
71,587,646
Derivatives ...................................................................................................
2,131,645
595,510
7,061
2,734,216
Other assets .................................................................................................
541,252
2,395,982
4,182,883
2,122,349
9,242,466
Off‐balance sheet exposure
50,989,813
26,421,592
51,293,502
33,551,966
162,256,873
Loan commitments .....................................................................................
2,819,754
333,034
3,152,788
Financial guarantee contracts ....................................................................
512,901
512,901
Maximum exposure to credit risk
50,989,813
26,421,592
54,626,156
33,885,000
165,922,562
49.
Credit quality of financial assets
The book value of financial assets which fall under the impairment requirements of IFRS 9 are presented net of expected credit losses ("ECL") in
the statement of financial position. The ECL are recalculated for each asset on at least a quarterly basis. The assessment of ECL is based upon
calculations being derived from models on PD, LGD and EAD. Furthermore, the assessment is based upon management's assumptions regarding
the development of macroeconomic factors over the coming twelve months. The assumptions for macroeconomic development are decided for
three scenarios: a base case, an upside scenario and a downside scenario, including a probability weight for each scenario. The assumptions are
used for calculations of the probability weighted ECLs. The amount of ECL to be recognized is dependent on the Group's definition of significant
increase in credit risk, which controls the impairment stage each asset is allocated to. The factors that are used to measure significant increase in
credit risk include comparison of changes in PD values, annualized lifetime PD values, days past due and watch list.
Based on Kvika's risk assessment, the Group does not expect that the Russian Federation's invasions into Ukraine will have a direct impact on the
Group's credit risk or operations. The secondary impact on the credit risk could be through its impact on the general economic outlook, such as
inflation, interest rates and global GDP growth.
The following table shows the first 12 month macro economic values for the variables used in the expected credit loss model. The Group utilises
an economic forecast which is aligned with requirements for the calculation of expected credit loss. Following the Group's acquisition of Ortus
Secured Finance ltd., the Group owns loan portfolios in two geographical segments, i.e. Iceland and the United Kingdom ("UK"). In general, the
Group utilises the same ECL methodology for the portfolios in both segments, although in the UK it is to a larger extent based on an individual
assessment by credit specialists. Reference is made to note 88 for further information about the Group‘s impairment methodology.
Scenarios
Model parameters 31.12.2022 Base case Upside Downside
Unemployment rate
3.8%
3.2%
4.6%
Inflation CPI index
4.4%
4.8%
6.7%
Assigned weight
60.0%
10.0%
30.0%
Scenarios
Model parameters 31.12.2021 Base case Upside Downside
Unemployment rate
4.3%
3.6%
5.0%
Inflation CPI index
5.7%
5.4%
5.8%
Assigned weight
60.0%
10.0%
30.0%
Consolidated Financial Statements 31 December 2022
41
Kvika banki hf. Amounts are in ISK thousands
Notes to the Consolidated Financial Statements
49.
Credit quality of financial assets (cont.)
a.
Breakdown of loans to customers by industry and information on collateral and other credit enhancements
The Group applies the same valuation methods to collateral held as other comparable assets held by the Group. For other types of assets the Group uses third party valuation where possible.
Allocated collateral
Impairment Listed Unlisted
Claim due to expected Carrying Total securities andsecurities and Residential Commercial Industrial Unsecured
31.12.2022 value credit loss amount % collateral Deposits
liquid funds
other funds real estate real estate Automobiles equipment Guarantees Other claim value
Public entities ......................................................
15,205
(101)
15,103
0.0%
13,283
0
0
0
0
0
12,571
0
0
712
5,298
Financial institutions ...........................................
0
0
0
0.0%
0
0
0
0
0
0
0
0
0
0
0
Corporate
Real estate activities .....................................
25,345,063
(851,711)
24,493,352
22.9%
64,676,404
10,455
15,979
3,585,720
27,853,966
32,110,347
719,242
167,171
10,000
203,524
627,578
Construction ..................................................
10,270,953
(257,339)
10,013,615
9.3%
19,746,074
5,538
368,182
0
7,035,420
4,913,005
3,593,914
3,281,321
0
548,694
338,057
Activities of Holding Companies ..................
9,722,282
(31,475)
9,690,807
9.0%
22,428,613
36,857
363,192
11,217,850
7,467,709
2,594,675
159,892
86,548
476,455
25,436
1,161,514
Service Activities ...........................................
9,580,738
(180,993)
9,399,745
8.8%
18,488,730
14,912
88,391
3,045,055
316,519
830,661
10,169,808
2,326,169
0
1,697,215
288,971
Accommodat. and Food Service Activit …....
4,250,532
(2,665)
4,247,868
4.0%
7,810,464
48,600
0
260,499
2,949,673
4,108,349
376,230
0
0
67,113
582,359
Wholesale and Retail Trade ..........................
3,702,513
(53,119)
3,649,393
3.4%
6,075,435
101,455
70,278
0
0
1,234,684
2,280,567
1,282,092
100,000
1,006,358
236,447
Other ..............................................................
8,167,845
(522,864)
7,644,981
7.1%
14,167,010
310,042
3,414,030
581,856
1,489,635
1,740,913
2,158,699
3,012,388
854,054
605,394
1,210,526
Individual .............................................................
38,737,428
(753,064)
37,984,363
35.5%
56,036,869
47,136
1,332,491
782,099
12,114,940
2,913,038
37,087,081
1,445,293
0
314,790
7,831,670
Total
109,792,560
(2,653,333)
107,139,227
100.0%
209,442,883
574,996
5,652,543
19,473,080
59,227,861
50,445,672
56,558,004
11,600,982
1,440,509
4,469,236
12,282,420
Allocated collateral
Impairment Listed Unlisted
Claim due to expected Carrying Total securities andsecurities and Residential Commercial Industrial Unsecured
31.12.2021 value credit loss amount % collateral Deposits
liquid funds other funds real estate real estate Automobiles equipment Guarantees Other claim value
Public entities ..................................................... 14,863
(155)
14,708
0.0%
12,094
0
0
0
0
0
7,109
0
0
4,985
3,578
Financial institutions ........................................... 186
(35)
150
0.0%
947
0
0
0
0
0
947
0
0
0
0
Corporate
Service activities ……..……………………………….. 8,456,811
(247,535)
8,209,276
11.5%
15,651,650
14,947
174,157
4,014,414
0
357,702
7,981,939
1,901,548
0
1,206,943
938,771
Construction …………………………………………….. 7,917,387
(322,606)
7,594,781
10.6%
15,033,846
72,849
0
0
5,273,648
3,604,444
2,805,676
2,641,503
0
635,726
137,565
Activities of Holding Companies ……………….. 6,139,170
(12,842)
6,126,328
8.6%
17,448,909
33,420
1,159
10,009,915
2,057,402
4,552,973
109,251
102,295
178,500
403,993
382,487
Real estate activities …………………………………. 5,672,433
(23,272)
5,649,161
7.9%
14,962,837
123,210
1,281,231
2,620,852
4,748,147
5,557,610
522,141
75,810
16,000
17,835
109,875
Activit. of Holding Comp. ‐ Sec. Financing ... 2,692,571
(330)
2,692,241
3.8%
7,278,984
192,983
6,781,355
304,646
0
0
0
0
0
0
10,337
Wholesale and Retail Trad ……………………….. 3,266,183
(39,934)
3,226,249
4.5%
5,808,339
428,926
0
680,000
0
483,601
2,153,630
1,050,763
0
1,011,419
523,089
Other ………………………………………………………… 6,828,764
(176,570)
6,652,195
9.3%
12,894,412
5,652
450,718
1,427,675
212,449
3,071,002
1,981,879
2,249,651
194,500
3,300,888
3,253,774
Individual ……………………………………………………….. 31,935,908
(513,375)
31,422,557
43.9%
44,164,668
41,690
2,221,224
823,646
6,589,474
402,206
32,743,905
1,157,983
0
184,542
6,215,381
Total 72,924,277
(1,336,655)
71,587,646
100.0%
133,256,687
913,676
10,909,844
19,881,148
18,881,119
18,029,538
48,306,477
9,179,552
389,000
6,766,330
11,574,857
Collatarel value is shown as the market‐ or accounting value of collateral allocated to exposures. Other collateral includes financial claims, inventories and receivables. For larger unsecured claim values, the Group is in general covered by covenants in
the loan agreement, e.g. with a negative pledge or other ring fencing.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
42
Notes to the Consolidated Financial Statements
49. Credit quality of financial assets (cont.)
b.
Credit quality of financial assets by credit quality band
The following tables show financial assets subject to the impairment requirements of IFRS 9 broken down by credit quality bands where band i
denotes the lowest and band iv the highest credit risk. Assets measured at fair value through profit or loss are not subject to the stage
classification requirements of IFRS 9 but are nevertheless included in the tables in order to give a more complete picture of the credit quality of
loans to customers and reconcile the tables to the carrying amount on the balance sheet. The Bank uses primarily adjusted external credit
ratings to assess the default probability of its customers and some larger borrowers are furthermore individually assessed by credit specialists.
Exposures which are non‐rated relate mostly to retail portfolios where individual rating has not been obtained.
31.12.2022
Loans to customers:
Credit quality band I ..............................................................................
Stage 1
80,658,854
Stage 2
600,058
Stage 3
FVTPL
1,036,459
Total
82,295,371
Credit quality band II .............................................................................
11,518,509
2,774,574
14,293,083
Credit quality band III ............................................................................
2,569,408
2,594,665
46,291
5,210,364
Credit quality band IV ............................................................................
795,448
642,777
1,438,225
In default ................................................................................................
56,257
528,954
5,313,498
127,641
6,026,351
Non‐rated ...............................................................................................
506,757
22,410
529,166
Gross carrying amount
96,105,233
7,163,439
5,313,498
1,210,390
109,792,560
Expected credit loss ...............................................................................
(258,197)
(255,541)
(2,139,595)
(2,653,333)
Book value
95,847,035
6,907,898
3,173,904
1,210,390
107,139,227
Loan commitments, guarantees and unused credit facilities:
Credit quality band I ..............................................................................
Stage 1
1,839,673
Stage 2
3,595
Stage 3
FVTPL
27,460
Total
1,870,728
Credit quality band II .............................................................................
217,400
217,400
Credit quality band III ............................................................................
274,343
318,188
236,380
828,910
Credit quality band IV ............................................................................
14,097
225
14,322
In default ................................................................................................
402
1,000
10,474
11,876
Non‐rated ...............................................................................................
0
Total off‐balance sheet amount
2,345,915
323,008
10,474
263,840
2,943,236
Expected credit loss ...............................................................................
(11,408)
(1,269)
(258)
(12,935)
Net off‐balance sheet amount
2,334,507
321,739
10,216
263,840
2,930,302
31.12.2021
Loans to customers:
Stage 1
Stage 2
Stage 3
FVTPL
Total
Credit quality band I ..............................................................................
47,608,198
527,551
5,254
995,247
49,136,251
Credit quality band II .............................................................................
6,501,676
649,356
408
7,151,440
Credit quality band III ............................................................................
2,726,307
3,561,501
4,480
6,292,288
Credit quality band IV ............................................................................
386,107
1,167,598
1,897
1,555,602
In default ................................................................................................
62,259
269,872
1,959,308
127,217
2,418,657
Non‐rated ...............................................................................................
3,748,503
1,003,618
216,115
1,401,804
6,370,040
Gross carrying amount
61,033,049
7,179,496
2,187,463
2,524,269
72,924,277
Expected credit loss ..............................................................................
(211,083)
(293,663)
(831,885)
(1,336,631)
Book value
60,821,966
6,885,833
1,355,578
2,524,269
71,587,646
Loan commitments, guarantees and unused credit facilities:
Credit quality band I ..............................................................................
Stage 1
1,808,577
Stage 2
Stage 3
FVTPL
Total
1,808,577
Credit quality band II .............................................................................
87,689
87,689
Credit quality band III ............................................................................
1,029,809
1,000
10
1,030,819
Credit quality band IV ............................................................................
44,741
134,415
179,156
In default ................................................................................................
1,000
2,636
3,636
Non‐rated ...............................................................................................
470,753
828
7,535
76,694
555,811
Total off‐balance sheet amount
3,442,569
136,243
10,182
76,694
3,665,688
Expected credit loss ...............................................................................
(4,940)
(130)
(1,649)
(6,720)
Net off‐balance sheet amount
3,437,629
136,113
8,533
76,694
3,658,969
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
43
Notes to the Consolidated Financial Statements
49.
Credit quality of financial assets (cont.)
c.
Breakdown of loans to customers into not past due and past due
31.12.2022
Claim
Expected
Carrying
value
credit loss
amount
Not past due .............................................................................................................................................
99,766,659
(535,445)
99,231,215
Past due 1‐30 days ...................................................................................................................................
3,080,787
(77,173)
3,003,615
Past due 31‐60 days .................................................................................................................................
2,559,244
(519,905)
2,039,339
Past due 61‐90 days .................................................................................................................................
968,329
(39,792)
928,538
Past due 91‐180 days ...............................................................................................................................
381,807
(65,948)
315,859
Past due 181‐360 days .............................................................................................................................
629,617
(146,403)
483,214
Past due more than 360 days ..................................................................................................................
2,406,115
(1,268,667)
1,137,448
Total
109,792,560
(2,653,333)
107,139,227
31.12.2021
Not past due .............................................................................................................................................
Claim
value
69,602,189
Expected
credit loss
(727,673)
Carrying
amount
68,874,516
Past due 1‐30 days ...................................................................................................................................
1,362,406
(96,311)
1,266,095
Past due 31‐60 days .................................................................................................................................
797,031
(19,728)
777,303
Past due 61‐90 days .................................................................................................................................
76,257
(13,221)
63,036
Past due 91‐180 days ...............................................................................................................................
209,085
(44,399)
164,687
Past due 181‐360 days .............................................................................................................................
627,918
(251,984)
375,935
Past due more than 360 days ..................................................................................................................
249,390
(183,316)
66,074
Total
72,924,277
(1,336,631)
71,587,646
d. Allowance for expected credit loss on loans to customers and loan commitments, guarantees and unused credit facilities
The following tables show changes in the expected credit loss allowance of loans to customers and for loan commitments, guarantees and
unused credit facilities during the period.
Pursuant to the due diligence that was performed on the loan book of Ortus Secured Finance ltd. prior to the Group's acquisition of the
company in February 2022, it was agreed with the sellers of shares that a pro‐rata indemnity against losses on a specific loan exposure would be
provided. This indemnity totals GBP 2.29 million.
31.12.2022
Expected credit loss allowance total
Transfers of financial assets:
Stage 1
Stage 2
Stage 3
Total
Balance as at 1 January 2022
216,023
293,794
833,534
1,343,351
Transfer to Stage 1 ‐ (Initial recognition) ......................................................................
51,349
(40,605)
(10,744)
0
Transfer to Stage 2 ‐ (significantly increased credit risk) ..............................................
(7,894)
23,377
(15,483)
0
Transfer to Stage 3 ‐ (credit impaired) ..........................................................................
(9,714)
(125,921)
135,635
0
Net remeasurement of loss allowance .................................................................................
(63,511)
(3,464)
450,319
383,343
New financial assets, originated or purchased .....................................................................
202,002
177,845
1,317,950
1,697,797
Derecognitions and maturities ..............................................................................................
(118,478)
(66,385)
(413,543)
(598,406)
Write‐offs ...............................................................................................................................
(172)
(1,832)
(157,814)
(159,818)
Balance as at 31 December 2022
269,605
256,810
2,139,852
2,666,267
Expected credit loss allowance for loans to customers
Stage 1 Stage 2 Stage 3 Total
Transfers of financial assets:
Balance as at 1 January 2022
211,083
293,663
831,885
1,336,631
Transfer to Stage 1 ‐ (Initial recognition) .......................................................................
51,041
(40,550)
(10,491)
0
Transfer to Stage 2 ‐ (significantly increased credit risk) ..............................................
(6,795)
22,279
(15,483)
0
Transfer to Stage 3 ‐ (credit impaired) ..........................................................................
(9,714)
(125,921)
135,635
0
Net remeasurement of loss allowance .................................................................................
(67,769)
(3,588)
450,570
379,213
New financial assets, originated or purchased .....................................................................
197,246
177,845
1,317,710
1,692,801
Derecognitions and maturities ..............................................................................................
(116,723)
(66,356)
(412,417)
(595,495)
Write‐offs ...............................................................................................................................
(172)
(1,832)
(157,814)
(159,818)
Balance as at 31 December 2022
258,197
255,541
2,139,595
2,653,333
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
44
Notes to the Consolidated Financial Statements
49.
Credit quality of financial assets (cont.)
Expected credit loss allowance for loan commitments, guarantees and unused credit facilities
Stage 1
Stage 2
Stage 3
Total
Transfers of financial assets:
Balance as at 1 January 2022
4,940
130
1,649
6,720
Transfer to Stage 1 ‐ (Initial recognition) .......................................................................
307
(55)
(253)
0
Transfer to Stage 2 ‐ (significantly increased credit risk) ...............................................
(1,098)
1,098
0
Transfer to Stage 3 ‐ (credit impaired) ...........................................................................
0
Net remeasurement of loss allowance .................................................................................
4,258
124
(252)
4,130
New financial assets, originated or purchased ....................................................................
4,756
239
4,996
Derecognitions and maturities .............................................................................................
(1,755)
(29)
(1,127)
(2,911)
Balance as at 31 December 2022
11,408
1,269
258
12,935
31.12.2021
Expected credit loss allowance total
Stage 1 Stage 2 Stage 3 Total
Transfers of financial assets:
Balance as at 1 January 2021
321,032
85,853
161,137
568,022
Transfer to Stage 1 ‐ (Initial recognition) .......................................................................
34,178
(29,997)
(4,181)
0
Transfer to Stage 2 ‐ (significantly increased credit risk) ..............................................
(47,041)
47,041
0
Transfer to Stage 3 ‐ (credit impaired) ...........................................................................
(40,441)
40,441
0
Net remeasurement of loss allowance .................................................................................
(96,561)
70,239
(5,768)
(32,090)
New financial assets, originated or purchased .....................................................................
191,888
161,773
764,301
1,117,962
Derecognitions and maturities ..............................................................................................
(147,031)
(41,115)
(42,547)
(230,693)
Write‐offs ...............................................................................................................................
(79,850)
(79,850)
Balance as at 31 December 2021
216,023
293,794
833,534
1,343,351
Expected credit loss allowance for loans to customers
Stage 1 Stage 2 Stage 3 Total
Transfers of financial assets:
Balance as at 1 January 2021
306,203
72,222
158,226
536,650
Transfer to Stage 1 ‐ (Initial recognition) .......................................................................
22,686
(18,946)
(3,740)
0
Transfer to Stage 2 ‐ (significantly increased credit risk) ..............................................
(47,022)
47,022
0
Transfer to Stage 3 ‐ (credit impaired) ...........................................................................
(40,439)
40,439
0
Net remeasurement of loss allowance .................................................................................
(80,142)
70,417
(6,232)
(15,958)
New financial assets, originated or purchased .....................................................................
190,271
161,773
763,828
1,115,872
Derecognitions and maturities ..............................................................................................
(140,474)
(38,824)
(40,786)
(220,084)
Write‐offs ...............................................................................................................................
(79,850)
(79,850)
Balance as at 31 December 2021
211,083
293,663
831,885
1,336,631
Expected credit loss allowance for loan commitments, guarantees and unused credit facilities
Stage 1
Stage 2
Stage 3
Total
Transfers of financial assets:
Balance as at 1 January 2021
14,830
13,631
2,911
31,371
Transfer to Stage 1 ‐ (Initial recognition) ........................................................................
11,492
(11,051)
(440)
0
Transfer to Stage 2 ‐ (significantly increased credit risk) ...............................................
(19)
19
0
Transfer to Stage 3 ‐ (credit impaired) ...........................................................................
(3)
3
0
Net remeasurement of loss allowance .................................................................................
(16,419)
(178)
464
(16,132)
New financial assets, originated or purchased .....................................................................
1,617
472
2,089
Derecognitions and maturities ..............................................................................................
(6,558)
(2,291)
(1,761)
(10,609)
Balance as at 31 December 2021
4,940
130
1,649
6,720
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
45
Notes to the Consolidated Financial Statements
50.
Loan‐to‐value
a.
General
The loan‐to‐value ratio (LTV) is the ratio of the gross amount of the loan to the value of the collateral, if any. The general creditworthiness of a
customer is viewed as the most reliable indicator of credit quality of a loan. Besides collateral included in the LTV ratios the Group uses other
risk mitigation measures, such as guarantees, negative pledge, cross‐collateral and collateralization of non‐quantifiable assets.
b.
Breakdown
The breakdown of loans to customers by LTV is specified as follows:
Less than 50% ..................................................................................................................
51‐70% .............................................................................................................................
71‐90% .............................................................................................................................
91‐100% ...........................................................................................................................
100‐125% .........................................................................................................................
125‐200% .........................................................................................................................
Greater than 200% ..........................................................................................................
No or negligible collateral:
Other loans with no collateral ...................................................................................
31.12.2022 % 31.12.2021 %
29,001,396 27.1% 20,182,991 28.2%
36,654,281 34.2% 18,411,393 25.7%
22,168,930 20.7% 18,175,877 25.4%
3,027,670 2.8% 3,063,469 4.3%
3,880,228 3.6% 2,706,342 3.8%
511,406 0.5% 201,953 0.3%
2,704,141 2.5% 670,667 0.9%
9,191,175 8.6% 8,174,954 11.4%
Total 107,139,227 100.0% 71,587,646 100.0%
51.
Collateral against exposures to derivatives
The Group applies the same valuation methods to collateral held as other comparable assets held by the Group. Haircuts are applied to account
for liquidity and other factors which may affect the collateral value of the asset.
Deposits
Fixed
income
securities
Variable
income
securities
Real
estate
Other
fixed
assets
Other
31.12.2022
Financial institutions ...............................
2,984,076
8,498
2,992,574
Corporate customers ..............................
2,078,835
347,669
1,666,005
4,092,509
Individuals ................................................
61,211
34,926
47,221
143,357
Total
5,124,122
391,093
1,713,226
0
0
0
7,228,441
Fixed
income
Variable
income
Real
Other
fixed
Deposits
securities
securities
estate
assets
Other
31.12.2021
Financial institutions ...............................
2,201,519
118,222
737,598
3,057,340
Corporate customers ..............................
715,724
19,382
907,511
1,642,617
Individuals ................................................
79,757
5,307
22,613
107,678
Total
2,997,001
142,911
1,667,723
0
0
0
4,807,635
Amounts have been adjusted to exclude collateral in excess of claim value, i.e. overcollateralisation.
52.
Large exposures
In accordance with regulation no. 575/2013 of the European Union on prudential requirements for credit institutions, which was incorporated
into Icelandic law with Act No. 38/2022, total exposure towards a customer is classified as a large exposure if it exceeds 10% of the financial
institution's Tier 1 capital (see note 43).
According to the regulation a single exposure, net of risk adjusted mitigation, cannot exceed 25% of the eligible Tier 1 capital. Where the
exposure is towards a financial institution the value shall not exceed 25% of the eligible Tier 1 capital or EUR 150 million, whichever is higher.
Single large exposures net of risk adjusted mitigation take into account the effects of collateral and other credit enhancements held by the
financial institution, and other credit enhancements, in accordance with regulation no. 575/2013.
Large exposures before risk adjusted mitigation
Number
31.12.2022
Amount
Number
31.12.2021
Amount
10‐20% of capital base ..........................................................................................................
2
7,009,093
2
8,732,707
20‐25% of capital base ..........................................................................................................
0
0
0
0
Exceeding 25% of capital base ..............................................................................................
0
0
0
0
Total
2
7,009,093
2
8,732,707
Thereof nostro accounts with other banks which are part of
the Group's liquidity management ....................................................................................
0
0
2
8,732,707
Large exposures net of risk adjusted mitigation ...................................................................
1
2,980,320
2
8,732,707
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
46
Notes to the Consolidated Financial Statements
53.
Insurance risk
Insurance risk is a risk, other than financial risk, transferred from the holder of a contract to the issuer, such as financial loss due to accident,
damage, theft, illness, disability or death. The Group compensates certain losses of customers against payment of a premium. A premium is
paid at the beginning of the period covered by the insurance protection, the loss is incurred at a later point and settlement can then take some
time, which varies based on the nature of the loss and the circumstances. Premium and estimated indemnity must be secured until payment
takes place. Premiums must cover all claim cost, operating cost and reasonable mark‐up taking into account yield. Specific risk arises as
premiums are predetermined but the service is provided at a later point and is undefined at the beginning. This risk is specific for insurance
operation and is defined as insurance risk.
Insurance risk is divided into two groups, premium risk and risk of claims outstanding in order to segregate between incurred and future claims.
Premium risk is the risk that future claims, in addition to related expenses, will be higher than anticipated at the time premiums for current
insurance contracts were decided and the insurance cover the Group guaranteed thus underestimated. The risk consists in main respect in that
the frequency or severity of claims and benefits are greater than estimated. This may be caused by inaccurate assumptions but also temporary
effect from individual large claims. Nature of claims can be different from expected or have changed due to developments in society.
The Group monitors frequency of claims and distribution of single claims amounts within each category and responds to changes in pricing or
product development if necessary. Premium risk is reduced by distributing the risk between insurance groups and by making reinsurance
contracts for significant claims.
Outstanding claim risk is the risk that existing but not settled claims will be higher than estimated. Negative development can be caused by the
fact that notified but unsettled claims have been undervalued and that claims not yet notified prove to be higher or more than estimated. This
applies to both actual indemnification to the claimant and related expenses, such as clearance of ruins and cost of expert services in evaluations
and settlements of claims.
The Group's outstanding claims is based on the evaluation of final cost of all unsettled claims. Significant uncertainty in that evaluation is
inevitable. A period of time can pass from when a loss incurs until a claim is notified to the Group as the loss had not been discovered or the
claimant was not aware of its right to compensation. Though a damage is known its consequences can remain unknown until later, it is not
completely clear what is damaged in an asset damage until repair has begun and permanent consequences of accidents are unclear until long
after the accident. Consequences of a damage may at first have been under or overestimated. There are also some cases where notified claims
do not end in compensation by the Group, either because no loss was incurred, the claim did not fall under the terms of the insurance contract
or that the claim did not reach the minimum own risk of the insured.
Own technical provision classified to line of insurance operations 31.12.2022 31.12.2021
Fire and other damage to property insurance .................................................................................................................
Marine, aviation and transport insurance ........................................................................................................................
Motor vehicle liability insurance ......................................................................................................................................
Other motor insurance .....................................................................................................................................................
General liability, credit and suretyship insurance ............................................................................................................
Income Protection Insurance ............................................................................................................................................
Workers' compensation insurance ...................................................................................................................................
Medical Expense Insurance ..............................................................................................................................................
Life insurance ....................................................................................................................................................................
Sold reinsurances ..............................................................................................................................................................
2,253,810 2,105,022
708,136 847,645
11,836,142 10,639,438
1,528,020 1,199,425
2,935,360 2,701,425
1,267,286 1,058,845
2,713,813 2,717,221
4,541 6,104
450,549 360,402
37,156 49,539
Own technical provision total 23,734,811
21,685,065
54.
Liquidity risk
a.
Definition
Liquidity risk is the risk that the Group will encounter difficulty in meeting contractual payment obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. This risk mainly arises from mismatches in the timing of cash flows. The Group has
internal rules that require certain matching of the maturities of assets and liabilities. Furthermore, to ensure the ability to meet liquidity needs,
the Group maintains a stock of highly liquid unencumbered assets, e.g. cash, treasury bills and treasury bonds.
b.
Management
Liquidity is managed by treasury and monitored by risk management. Liquidity position is reported to the ALCO committee. The Central Bank of
Iceland sets minimum requirements for the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). The minimum 30 day LCR
regulatory requirement is 100% for both LCR total and LCR in foreign currencies and 40% for LCR in ISK as at 31. December 2022. The minimum
regulatory requirement for NSFR total is 100%.
New liquidity rules no. 1520/2022, set by The Central Bank of Iceland, took effect on 1 January 2023 and repealed rules no. 266/2017. The new
liquidity rules set a 100% minimum requirement for LCR total, 50% minimum requirement for LCR in ISK and 80% minimum requirement for LCR
in EUR. The minimimum requirement for LCR EUR only applies when the Group‘s commitments in EUR represent 10% or more of the Group´s
total commitments.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
47
Notes to the Consolidated Financial Statements
54.
Liquidity risk (cont.)
b. Management (cont.)
The FME has designated the Group as a financial conglomerate. LCR is not calculated for a financial conglomerate, instead the Group calculates
LCR based on the Consolidated Statement of Financial Position excluding the insurance operations of TM tryggingar hf. The Group was in
compliance with internal and external liquidity requirements throughout the year 2022 and during the year 2021.
ISK Foreign currency Total
31.12.2022
Unweighted
Weighted
Unweighted
Weighted
Unweighted
Weighted
Liquid assets level 1 ..................................................................
75,123,792
75,123,792
2,835,959
2,835,959
77,959,751
77,959,751
Liquid assets level 2 ..................................................................
1,149,243
976,856
1,149,243
976,856
Total liquid assets .................................................................
76,273,034
76,100,648
2,835,959
2,835,959
79,108,993
78,936,607
Deposits* ..................................................................................
85,058,224
27,084,330
8,978,550
4,289,645
94,036,775
31,373,975
Other borrowings ......................................................................
315,021
315,021
11,080
11,080
326,101
326,101
Other outflows ..........................................................................
5,008,349
3,358,604
3,473,773
275,923
8,482,123
3,634,527
Total outflows (0‐30 days) ....................................................
90,381,595
30,757,955
12,463,404
4,576,647
102,844,999
35,334,602
Short‐term deposits with other banks .....................................
114,113
114,113
3,483,111
3,483,111
3,597,224
3,597,224
Other inflows ............................................................................
12,762,268
6,379,561
1,157,700
678,050
13,919,968
7,057,612
Restrictions on inflows ..............................................................
(728,675)
Total inflows (0‐30 days) ......................................................
12,876,381
6,493,675
4,640,811
3,432,486
17,517,192
10,654,835
Liquidity coverage ratio .......................................................
314%
248%
320%
ISK Foreign currency Total
31.12.2021
Unweighted
Weighted
Unweighted
Weighted
Unweighted
Weighted
Liquid assets level 1 ..................................................................
41,530,667
41,530,667
2,569,231
2,569,231
44,099,899
44,099,899
Liquid assets level 2 ..................................................................
1,164,431
989,767
1,164,431
989,767
Total liquid assets .................................................................
42,695,099
42,520,434
2,569,231
2,569,231
45,264,330
45,089,665
Deposits* ..................................................................................
52,057,101
20,349,887
9,827,926
4,621,220
61,885,027
24,971,107
Other borrowings .....................................................................
264,524
264,524
264,524
264,524
Other outflows .........................................................................
10,409,313
7,030,901
227,546
73,102
10,636,859
7,104,003
Total outflows (0‐30 days) ....................................................
62,730,938
27,645,312
10,055,472
4,694,321
72,786,410
32,339,633
Short‐term deposits with other banks .....................................
1,522,565
1,522,565
12,577,893
12,577,893
14,100,458
14,100,458
Other inflows ............................................................................
10,272,154
2,702,012
626,670
8,659
10,898,823
2,710,671
Restrictions on inflows .............................................................
(9,065,811)
Total inflows (0‐30 days) ......................................................
11,794,719
4,224,577
13,204,563
3,520,741
24,999,282
16,811,129
Liquidity coverage ratio .......................................................
182%
219%
290%
* Deposits include Money market deposits which are classified as Borrowings in the Consolidated Statement of Financial Position.
31.12.2022
31.12.2021
NSFR total .......................................................................................................................................................................
140%
130%
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
48
Notes to the Consolidated Financial Statements
54.
Liquidity risk (cont.)
c.
Maturity analysis of financial assets and financial liabilities
31.12.2022 Up to 1
1‐3
3‐12
1‐5
Over 5
Gross inflow/
Carrying
Financial assets by type month
months
months
years
years
(outflow)
amount
Non‐derivative assets
Cash and balances with Central Bank ……….. 34,556,826
2,121,760
36,678,586
36,670,586
Fixed income securities ……………………………… 14,752,525
27,873,149
3,907,528
18,627,205
65,160,407
65,160,407
Shares and other variable income securities 11,424,516
2,702,765
5,283,228
19,410,508
19,410,508
Securities used for hedging ……………………….. 13,841,853
13,841,853
13,841,853
Loans to customers ……………………………………. 7,224,508
8,148,187
32,600,452
73,801,224
6,773,201
128,547,573
107,139,227
Reinsurance assets …...................................... 64,890
70,733
203,334
281,020
7,492
627,469
627,469
Other assets ………………………………………………. 6,003,861
4,511,616
3,218,110
33,776
121,906
13,889,268
15,465,850
87,868,980
45,428,209
45,212,653
92,743,224
6,902,599
278,155,665
258,315,901
Derivative assets
Inflow ………………………………………………..… 25,202,434
2,962,372
6,485,242
2,981,751
37,631,799
Outflow ………………………………………………… (22,308,183)
(2,829,323)
(5,401,381)
(2,215,601)
(32,754,488)
2,894,251
133,049
1,083,861
766,150
0
4,877,311
4,940,738
Up to 1
1‐3
3‐12
1‐5
Over 5
Gross inflow/
Carrying
Financial liabilities by type month
months
months
years
years
(outflow)
amount
Non‐derivative liabilities
Deposits ……………………………………………………… (94,506,439)
(8,882,306)
(5,198,432)
(4,121,200)
(225,740)
(112,934,118)
112,245,198
Technical provision ……………………………………. (2,446,797)
(2,667,094)
(7,667,022)
(10,596,292)
(985,076)
(24,362,281)
24,362,281
Borrowings ………………………………………………… (6,725,800)
(2,647,846)
(1,735,135)
(18,759,487)
(29,868,267)
28,120,009
Issued bonds ……………………………………………… (315,021)
(3,088,061)
(11,577,901)
(24,716,516)
(2,320,710)
(42,018,209)
38,103,414
Subordinated liabilities ..................................
(212,271)
(916,053)
(6,571,430)
(7,699,754)
3,686,451
Short positions held for trading ………………… (1,486,107)
(1,486,107)
1,486,107
Short positions used for hedging ………………. (1,343,186)
(1,343,186)
1,343,186
Other liabilities ………………………………………….. (3,475,187)
(3,584,999)
(2,213,814)
(527,067)
(121,906)
(9,922,973)
9,894,650
(110,298,538)
(20,870,306)
(28,604,574) (59,636,615) (10,224,861)
(229,634,895)
219,241,297
Derivative liabilities
Inflow .........................................................
(123,731)
1,629,989
3,340,763
6,866,708
11,713,728
Outflow ......................................................
(526,350)
(1,761,200)
(3,394,813)
(7,649,561)
(13,331,924)
(650,081)
(131,212)
(54,050)
(782,853)
0
(1,618,196)
1,609,537
Unrecognised financial items
Loan commitments
Inflow .........................................................
192,918
247,571
1,188,493
1,284,906
2,913,888
Outflow ......................................................
(2,681,375)
(2,681,375)
Financial guarantee contracts
Inflow .........................................................
5,800
87,750
102,186
66,126
261,861
Outflow ......................................................
(261,861)
(261,861)
Summary
(2,750,318)
253,371
1,276,243
1,387,091
66,126
232,513
Non‐derivative assets .....................................
87,868,980
45,428,209
45,212,653
92,743,224
6,902,599
278,155,665
Derivative assets .............................................
2,894,251
133,049
1,083,861
766,150
4,877,311
Non‐derivative liabilities ................................. (110,298,538) (20,870,306) (28,604,574) (59,636,615) (10,224,861) (229,634,895)
Derivative liabilities ......................................... (650,081) (131,212) (54,050) (782,853) (1,618,196)
Net assets (liabilities) excluding
unrecognised items …................................
(20,185,389)
24,559,741
17,637,889
33,089,905
(3,322,262)
51,779,885
Net unrecognised items ...................................
(2,750,318)
253,371
1,276,243
1,387,091
66,126
232,513
Net assets (liabilities) ....................................
(22,935,707)
24,813,112
18,914,133
34,476,996
(3,256,137)
52,012,398
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
49
Notes to the Consolidated Financial Statements
Non‐derivative liabilities
Maturity analysis of financial assets and financial liabilities is based on contractual cash flows or, in the case of held for trading securities,
expected cash flows. If an amount receivable or payable is not fixed, e.g. for inflation indexed assets and liabilities, the maturity analysis uses
estimates based on current conditions.
Cash flows relating to unrecognised balance sheet items (unused loan commitments and financial guarantee contracts) are presented separately
from financial assets and financial liabilities. Both contractual outflows and inflows are shown, to fully reflect the nature of these items.
It should be noted that the Group's expected cash flows sometimes vary considerably from the contractual cash flows, most significantly in that
demand deposits from customers are expected to remain stable or increase in the long term. In this case the presentation used reflects the worst
case scenario from the Group's perspective. Furthermore, the analysis does not consider any measures that could be taken to convert long‐term
assets to cash through sale.
54.
Liquidity risk (cont.)
31.12.2021
Up to 1
1‐3
3‐12
1‐5
Over 5
Gross inflow/
Carrying
Financial assets by type
Non‐derivative assets
Cash and balances with Central Bank .............
month
36,735,621
months
1,173,420
months
738,000
years
years
(outflow)
38,647,041
amount
38,645,894
Fixed income securities ....................................
18,391,127
3,115,221
10,453,037
7,127,439
959,827
40,046,651
40,046,651
Shares and other variable income securities
15,278,393
2,948,677
4,230,156
226,069
22,683,295
22,683,295
Securities used for hedging .............................
22,085,696
22,085,696
22,085,696
Loans to customers ..........................................
5,009,571
5,730,923
27,168,009
39,368,877
5,872,898
83,150,279
71,587,646
Reinsurance assets ...........................................
66,660
78,751
240,729
351,169
12,073
749,383
749,383
Other assets ......................................................
3,546,888
4,508,101
1,830,359
157,206
10,042,553
10,042,553
101,113,957
17,555,093
44,660,289
47,230,760
6,844,798
217,404,897
205,841,117
Derivative assets
Inflow ...........................................................
8,495,539
1,340,505
3,001,987
8,957,388
21,795,420
Outflow ........................................................
(8,151,488)
(1,350,233)
(1,162,801)
(8,648,207)
(19,312,729)
344,052
(9,728)
1,839,186
309,181
0
2,482,690
2,734,216
Up to 1
1‐3
3‐12
1‐5
Over 5
Gross inflow/
Carrying
Financial liabilities by type month
months
months
years
years
(outflow)
amount
Deposits …………………………………….…………….…… (65,385,245)
(6,620,835)
(5,409,417)
(1,369,701)
(58,840)
(78,844,038)
78,669,807
Technical provision ..........................................
(2,569,878)
(2,291,356)
(7,004,287)
(10,217,641)
(351,284)
(22,434,447)
22,434,447
Borrowings ........................................................
(2,975,625)
(9,783,251)
(2,955,884)
(1,619,785)
(17,334,545)
17,261,048
Issued bonds .....................................................
(264,524)
(989,290)
(3,810,121)
(25,064,483)
(5,611,362)
(35,739,780)
32,597,716
Subordinated liabilities ....................................
(194,143)
(813,627)
(6,228,579)
(7,236,350)
3,371,766
Short positions held for trading ......................
(1,323,631)
(1,323,631)
1,323,631
Short positions used for hedging ....................
(1,280,868)
(1,280,868)
1,280,868
Other liabilities ..................................................
(1,773,454)
(2,538,572)
(741,858)
(1,511,952)
(111,672)
(6,677,507)
6,677,507
(75,573,225)
(22,223,304)
(20,115,711) (40,597,189) (12,361,737)
(170,871,167)
163,616,790
Derivative liabilities
Inflow ...........................................................
12,935,075
3,788,518
3,167,699
19,891,293
Outflow ........................................................
(15,073,201)
(4,594,592)
(3,233,330)
(22,901,123)
(2,138,125)
(806,074)
0
(65,631)
0
(3,009,830)
3,008,401
Unrecognised financial items by type
Loan commitments
Inflow ...........................................................
265,888
621,243
1,958,828
369,626
3,215,585
Outflow ........................................................
(3,152,788)
(3,152,788)
Financial guarantee contracts
Inflow ...........................................................
49,798
87,475
316,571
59,057
512,901
Outflow ........................................................
(512,901)
(512,901)
(3,399,800)
671,041
2,046,302
686,196
59,057
62,797
Summary
Non‐derivative assets ......................................
101,113,957
17,555,093
44,660,289
47,230,760
6,844,798
217,404,897
Derivative assets ..............................................
344,052
(9,728)
1,839,186
309,181
2,482,690
Non‐derivative liabilities ..................................
(75,573,225)
(22,223,304)
(20,115,711) (40,597,189) (12,361,737)
(170,871,167)
Derivative liabilities ..........................................
(2,138,125)
(806,074)
(65,631)
(3,009,830)
Net assets (liabilities) excluding
unrecognised items ....................................
23,746,658
(5,484,014)
26,383,765
6,877,120
(5,516,939)
46,006,589
Net unrecognised items ...................................
(3,399,800)
671,041
2,046,302
686,196
59,057
62,797
Net assets (liabilities) ....................................
20,346,858
(4,812,972)
28,430,067
7,563,316
(5,457,882)
46,069,386
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
50
Notes to the Consolidated Financial Statements
55.
Market risk
a.
Definition
Market risk constitutes risk due to changes in the market prices of financial instruments and comprises interest rate risk, currency risk and other
price risk. Notes 56‐61 relate to market risk exposure.
b.
Management
The Group has a strict policy on controlling market risk and to keep the exposure within set limits. The risk management unit monitors market risk
limits on a daily basis and reports regularly to the ALCO committee and to the CEO.
56.
Interest rate risk
a.
Definition
The Group's exposure to interest rate risk is twofold. On the one hand, the Group has a proprietary portfolio of bonds, where market rates affect
prices and any fluctuations are recognised in the income statement. On the other hand, the Group has mismatch in assets and liabilities with
fixed interest terms. These include loans and swap contracts for securities on the asset side and borrowings and deposits on the liability side. This
mismatch does not create an immediate effect on the income statement but nevertheless affects the Group's economic value.
Proprietary positions which are subject to interest rate risk fall under the scope of the Group's market risk management.
b.
Management
The Group takes measures to minimise interest rate risk by matching the interest rate profile and duration of assets with the Group's liabilities as
well as using derivative and non‐derivative financial instruments to manage effectively the risk of an adverse impact on the Group's earnings.
57.
Interest rate risk associated with trading portfolios
a.
Breakdown
The breakdown of financial assets and liabilities in trading portfolios by the earlier of interest repricing time or maturity is specified as follows:
Up to 1
month
1‐3
months
3‐12
months
1‐5
years
Over 5
years
31.12.2022
Fixed income securities ......................................................
3,782
39,690
181,326
1,921,871
677,057
2,823,726
Short positions ‐ fixed income securities .......................... (9,447) (37,185) (1,656,872) 1,204,062 (986,665) (1,486,107)
Net imbalance
(5,665)
2,505
(1,475,545)
3,125,932
(309,608)
1,337,619
Up to 1
month
1‐3
months
3‐12
months
1‐5
years
Over 5
years
31.12.2021
Fixed income securities ......................................................
91,531
894,288
1,446,062
2,431,880
Short positions ‐ fixed income securities ..........................
(24,979)
(514,176)
(784,475)
(1,323,631)
Net imbalance
0
0
66,552
380,111
661,587
1,108,250
b.
Sensitivity analysis
The Group performs monthly sensitivity analysis on financial assets and liabilities in trading portfolios that are subject to interest rate risk. The
sensitivity analysis assumes a shift in the yield curves for all currencies. A parallel shift in yield curves would have the following impact on the
Group's pre‐tax profit and equity, assuming all other risk factors remain constant:
Shift in
basis points
Downward
31.12.2022
Upward
Downward
31.12.2021
Upward
Indexed ..............................................................................................
50
17,328
(17,206)
42,091
(42,091)
Non‐indexed ...........................................................................................
100
(65,251)
54,360
(35,656)
35,656
Total
(47,923)
37,154
6,436
(6,436)
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
51
Notes to the Consolidated Financial Statements
58.
Interest rate risk associated with non‐trading portfolios
a.
Breakdown
The breakdown of financial assets and liabilities in non‐trading portfolios by the earlier of interest repricing time or maturity is specified as
follows:
31.12.2022
Financial assets
Up to 1
month
1‐3
months
3‐12
months
1‐5
years
Over 5
years
Total
Cash and balances with Central Bank ..................................
33,839,478
2,831,108
36,670,586
Fixed income securities ........................................................
4,853,617
11,997,237
20,978,404
19,745,282
4,762,141
62,336,681
Loans to customers ..............................................................
77,638,422
6,912,847
8,579,333
13,522,931
485,694
107,139,227
Financial assets excluding derivatives
116,331,518
21,741,191
29,557,737
33,268,213
5,247,836
206,146,495
Effect of derivatives ..............................................................
27,714,400
3,350,170
3,650,430
5,583,880
40,298,880
Total
144,045,918
25,091,361
33,208,167
38,852,093
5,247,836
246,445,375
Financial liabilities
Up to 1
month
1‐3
months
3‐12
months
1‐5
years
Over 5
years
Total
Deposits ................................................................................
94,808,020
8,818,784
4,896,286
3,579,710
142,397
112,245,198
Borrowings ............................................................................
9,620,237
16,891,542
815,369
792,861
28,120,009
Issued bonds .........................................................................
11,554,059
17,595,928
517,012
6,373,228
2,063,188
38,103,414
Subordinated liabilities .........................................................
206,026
766,468
2,713,957
3,686,451
Financial liabilities excluding derivatives
115,982,317
43,306,254
6,434,693
11,512,266
4,919,542
182,155,072
Effect of derivatives ..............................................................
14,399,102
10,483,122
1,168
24,883,392
Total
130,381,419
53,789,376
6,435,861
11,512,266
4,919,542
207,038,464
Total interest repricing gap
13,664,499
(28,698,015)
26,772,306
27,339,827
328,293
39,406,911
31.12.2021
Financial assets
Up to 1
1‐3
3‐12
1‐5
Over 5
Cash and balances with Central Bank ..................................
month
36,081,053
months
2,564,841
months
years
years
Total
38,645,894
Fixed income securities ........................................................
4,059,204
317,875
15,430,656
9,986,479
7,820,556
37,614,770
Loans to customers ..............................................................
59,696,220
2,603,372
4,651,287
4,285,008
351,759
71,587,646
Financial assets excluding derivatives
99,836,478
5,486,088
20,081,943
14,271,487
8,172,316
147,848,311
Effect of derivatives ..............................................................
23,328,516
15,129,226
38,457,742
Total
123,164,994
5,486,088
20,081,943
29,400,713
8,172,316
186,306,053
Financial liabilities
Up to 1
month
1‐3
months
3‐12
months
1‐5
years
Over 5
years
Total
Deposits ................................................................................
78,669,807
78,669,807
Borrowings ............................................................................
3,431,363
10,955,347
2,861,690
12,648
17,261,048
Issued bills ............................................................................
0
Issued bonds .........................................................................
264,089
983,646
3,707,789
22,324,381
5,317,811
32,597,716
Subordinated liabilities .........................................................
174,493
1,245,104
1,952,168
3,371,766
Financial liabilities excluding derivatives
82,365,260
11,938,993
6,743,972
23,582,133
7,269,979
131,900,336
Effect of derivatives ..............................................................
12,339,360
12,339,360
Total
82,365,260
24,278,353
6,743,972
23,582,133
7,269,979
144,239,696
Total interest repricing gap
40,799,734
(18,792,265)
13,337,971
5,818,580
902,337
42,066,357
b.
Sensitivity analysis
The Group performs monthly sensitivity analysis on financial assets and liabilities in non‐trading portfolios subject to interest rate risk. The
sensitivity analysis assumes a shift in the yield curves for all currencies. A parallel shift in yield curves would have the following impact on the
Group's pre‐tax profit and equity, assuming all other risk factors remain constant:
Currency
Shift in
basis points
Downward
31.12.2022
Upward
Downward
31.12.2021
Upward
ISK, indexed ...................................................................................................
50
(102,436)
90,744
222,350
(216,040)
ISK, non‐indexed ...........................................................................................
100
322,905
(313,948)
85,251
(92,544)
Other currencies ...........................................................................................
20
28,068
(27,866)
(7,936)
7,901
Total
248,537
(251,070)
299,665
(300,683)
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
52
Notes to the Consolidated Financial Statements
59.
Exposure towards changes in the CPI
a.
Definition
Exposure towards changes in CPI is the risk that fluctuations in the Icelandic Consumer Price Index (CPI) will affect the balance and cash flow of
indexed financial instruments.
The Group is exposed to inflation indexation of assets and liabilities denominated in ISK. All indexed assets and liabilities are valued according to
the CPI measure at any given time and changes in CPI are recognised in the income statement.
b.
Management
The Group controls its indexation risk through derivatives contracts and sales and purchases of indexed bonds, mostly government bonds, and
thus keeps its exposure to the CPI within the limits set by the ALCO committee.
c.
Balance of CPI linked assets and liabilities
The net balance of CPI linked assets and liabilities is specified as follows:
Assets ..........................................................................................................................................................................
31.12.2022 31.12.2021
30,670,482 36,414,405
Liabilities ..................................................................................................................................................................... (19,761,069) (18,295,156)
Total 10,909,412 18,119,249
d.
Sensitivity to changes in CPI
Given the net balance of CPI linked assets and liabilities, a 1% change in the CPI would, with other things constant, result in the following changes
to the Group's pre‐tax profit.
31.12.2022
31.12.2021
‐1%
1%
‐1%
1%
Government bonds .........................................................................................................
(74,357)
74,357
(97,037)
97,037
Other fixed income securities .........................................................................................
(42,622)
42,622
(87,163)
87,163
Loans to customers .........................................................................................................
(95,730)
95,730
(81,424)
81,424
Derivatives .......................................................................................................................
(93,995)
93,995
(98,520)
98,520
Short positions ................................................................................................................
4,064
(4,064)
8,476
(8,476)
Deposits ...........................................................................................................................
73,605
(73,605)
58,158
(58,158)
Issued bonds ...................................................................................................................
109,538
(109,538)
88,317
(88,317)
Subordinated liabilities ...................................................................................................
10,403
(10,403)
28,000
(28,000)
(109,094)
109,094
(181,192)
181,192
The effect on equity would be the same.
60.
Currency risk
a.
Definition
Currency risk arises when financial instruments are not denominated in the functional currency of the respective Group entity and can affect both
the Group's income statement and statement of financial position. A part of the Group's financial assets and liabilities is denominated in foreign
currencies.
b.
Management
Currency positions are monitored by risk management and reported to the ALCO committee. Any mismatch between assets and liabilities in each
currency is monitored closely and managed within limits.
The Group is subject to limits set by the Central Bank of Iceland regarding the maximum open currency position. At 31 December 2022 and 31
December 2021 the Group's position in foreign currencies was within those limits.
c.
Exchange rates
The following exchange rates have been used by the Group in the preparation of these financial statements:
Closing
Average
Closing
Average
31.12.2022
2022
31.12.2021
2021
EUR/ISK ............................................................................................................................
151.5
142.3
147.6
150.2
USD/ISK ............................................................................................................................
142.0
135.5
130.4
127.1
GBP/ISK ............................................................................................................................
170.8
166.9
175.7
174.7
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
53
Notes to the Consolidated Financial Statements
60.
Currency risk (cont.)
d.
Breakdown of financial assets and financial liabilities denominated in foreign currencies
31.12.2022
Financial assets
EUR
USD
GBP
SEK
Other
currencies
Total
Cash and balances with Central Bank ........................................
374,239
2,088,077
2,898,400
65,546
427,832
5,854,094
Fixed income securities ..............................................................
0
3,080,348
3,080,348
Shares and other variable income securities .............................
217
2,543,043
1,201,003
28,692
88,988
3,861,943
Securities used for hedging ........................................................
290,170
195,634
887
16,111
78,795
581,598
Loans to customers ....................................................................
1,359,546
28,619,678
69,092
30,048,316
Intangible assets .........................................................................
2,611,243
2,611,243
Other assets ................................................................................
738,049
792,841
794,141
30
54,986
2,380,047
Financial assets excluding derivatives
2,762,221
8,699,943
36,125,352
110,379
719,692
48,417,587
Derivatives ..................................................................................
7,720,865
3,154,406
1,252
6,866,708
127,232
17,870,463
Total
10,483,086
11,854,349
36,126,604
6,977,087
846,924
66,288,050
Financial liabilities
Other
EUR
USD
GBP
SEK
currencies
Total
Deposits ......................................................................................
3,525,844
8,044,039
1,189,823
169,010
329,463
13,258,178
Borrowings ..................................................................................
120,959
718,232
15,674,280
16,513,471
Issued bonds ...............................................................................
1,296,978
4,026,488
6,866,708
12,190,174
Technical provision .....................................................................
68,475
119,567
1,258
3,945
83,301
276,547
Other liabilities ............................................................................
234,879
1,030,777
1,182,692
28,925
82,961
2,560,234
Financial liabilities excluding derivatives
5,247,135
9,912,615
22,074,541
7,068,588
495,726
44,798,604
Derivatives ..................................................................................
5,709,257
73,919
14,749,424
5,657
248,976
20,787,234
Total
10,956,393
9,986,534
36,823,965
7,074,245
744,701
65,585,838
Net currency position
Other
EUR
USD
GBP
SEK
currencies
Total
Financial assets ...........................................................................
10,483,086
11,854,349
36,126,604
6,977,087
846,924
66,288,050
Financial liabilities .......................................................................
(10,956,393)
(9,986,534)
(36,823,965)
(7,074,245)
(744,701)
(65,585,838)
Financial guarantee contracts ....................................................
119,564
119,564
Total
(353,743)
1,867,815
(697,361)
(97,159)
102,223
821,776
31.12.2021
Financial assets
Other
EUR
USD
GBP
DKK
currencies
Total
Cash and balances with Central Bank ........................................
2,277,825
5,680,299
3,146,054
1,241,355
340,352
12,685,883
Fixed income securities ..............................................................
739,569
1,825,272
247,114
2,811,955
Shares and other variable income securities .............................
1,670
1,907,258
2,368,725
834
101,149
4,379,636
Securities used for hedging .........................................................
560,656
32,740
1,563
200,745
795,704
Loans to customers .....................................................................
1,432,801
64,955
1,886,376
23,274
132,863
3,540,269
Other assets .................................................................................
285,729
59,975
33,389
50,984
33,663
463,739
Financial assets excluding derivatives
5,298,251
9,570,499
7,683,221
1,316,446
808,771
24,677,187
Derivatives ...................................................................................
3,764,406
491,375
422,187
19,266
4,697,234
Total
9,062,656
10,061,875
8,105,408
1,316,446
828,037
29,374,421
Financial liabilities
Other
EUR
USD
GBP
DKK
currencies
Total
Deposits .......................................................................................
3,330,163
7,437,554
1,320,108
1,201,927
246,671
13,536,423
Borrowings ..................................................................................
43,260
652,726
695,986
Issued bonds ...............................................................................
4,124,798
4,124,798
Technical provision .....................................................................
88,442
133,707
1,298
32,113
82,004
337,563
Other liabilities ............................................................................
383,973
96,248
49,046
1,754
98,030
629,052
Financial liabilities excluding derivatives
3,845,838
8,320,236
5,495,250
1,235,793
426,705
19,323,822
Derivatives ..................................................................................
5,657,882
1,172,600
2,135,377
8,965,859
Total
9,503,721
9,492,836
7,630,627
1,235,793
426,705
28,289,682
Net currency position
Other
EUR
USD
GBP
DKK
currencies
Total
Financial assets ...........................................................................
9,062,656
10,061,875
8,105,408
1,316,446
828,037
29,374,421
Financial liabilities .......................................................................
(9,503,721)
(9,492,836)
(7,630,627)
(1,235,793)
(426,705)
(28,289,682)
Financial guarantee contracts ....................................................
116,486
116,486
Total
(324,579)
569,039
474,781
80,652
401,332
1,201,226
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
54
Notes to the Consolidated Financial Statements
60.
Currency risk (cont.)
e.
Sensitivity to currency risk
Given the net currency position, a 10% change in the value of the ISK would, with other things constant, result in the following changes to the
Group's Consolidated Income Statement or equity.
31.12.2022
31.12.2021
Assets and liabilities denominated in foreign currencies
‐10%
+10%
‐10%
+10%
EUR .........................................................................................................................................
(35,374)
35,374
(32,458)
32,458
USD .........................................................................................................................................
186,782
(186,782)
56,904
(56,904)
GBP .........................................................................................................................................
(69,736)
69,736
47,478
(47,478)
SEK ..........................................................................................................................................
(9,716)
9,716
(7,631)
7,631
DKK .........................................................................................................................................
7,644
(7,644)
8,065
(8,065)
Other currencies ....................................................................................................................
2,579
(2,579)
47,764
(47,764)
Total
82,178
(82,178)
120,123
(120,123)
61.
Equity risk
a.
Definition
Equity risk is the risk that the fair value of equties decreases as the result of changes in the value of shares and other variable income securities in
the Group’s portfolio.
b.
Sesitivity analysis of equity risk
The analysis below calculates the effect of possible movements in equity prices that affect the Consolidated Financial Statements. A negative
amount in the table reflects a potential net reduction in the Consolidated Income Statement or equity, while a positive amount reflects a
potential net increase. Investments in associates are excluded.
31.12.2022 31.12.2021
Listed shares ..........................................................................................................................
Unlisted shares ......................................................................................................................
Unlisted unit shares in funds .................................................................................................
‐10% +10% ‐10% +10%
(487,926) 487,926 (552,391) 552,391
(732,521) 732,521 (890,709) 890,709
(720,604) 720,604 (825,229) 825,229
Total (1,941,051)
1,941,051 (2,268,329) 2,268,329
62.
Operational risk
a.
Definition
Operational risk is the risk of direct or indirect loss from inadequate or failed internal processes or systems, from human error or external events
that affect the Group's reputation and operational earnings.
b.
Management
The individual business units within the Group are primarily responsible for managing their respective operational risk. The risk management unit
is furthermore responsible for identifying, monitoring and reporting the Group's operational risk. Operational risk can be reduced through staff
training, process re‐design and enhancement of the control environment. The risk management unit monitors operational risk by tracking loss
events, quality deficiencies, potential risk indicators and other early‐warning signals. The unit takes an active role in internal control and quality
management.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
55
Notes to the Consolidated Financial Statements
Financial assets and financial liabilities
63.
Accounting classification of financial assets and financial liabilities
The accounting classification of financial assets and financial liabilities is specified as follows:
31.12.2022
Fair value
Manda‐
torily at
Total
Financial assets Amortised
cost
through
OCI
fair value
through P/L
carrying
amount
Cash and balances with Central Bank …………………………………………………………………………….. 36,670,586
36,670,586
Fixed income securities ..........................................................................................................
54,934,612
10,225,796
65,160,407
Shares and other variable income securities .........................................................................
19,410,508
19,410,508
Securities used for hedging ....................................................................................................
13,841,853
13,841,853
Loans to customers ……………………………………………………………………………………………………….. 105,928,837
1,210,390
107,139,227
Derivatives ..............................................................................................................................
4,940,738
4,940,738
Other assets ………………………………………………………………………………………………………………….. 15,465,850
15,465,850
Total 158,065,273
54,934,612
49,629,285
262,629,170
Fair value
Manda‐
torily at
Total
Financial liabilities Amortised
cost
through
OCI
fair value
through P/L
carrying
amount
Deposits …………………………………………………………………………………………………………………………. 112,245,198
112,245,198
Borrowings …………………………………………………………………………………………………………………….. 28,120,009
28,120,009
Issued bonds ………………………………………………………………………………………………………………….. 38,103,414
38,103,414
Subordinated liabilities ........................................................................................................... 3,686,451
3,686,451
Short positions held for trading ..............................................................................................
1,486,107
1,486,107
Short positions used for hedging ............................................................................................
1,343,186
1,343,186
Derivatives ...............................................................................................................................
1,609,537
1,609,537
Other liabilities ………………………………………………………………………………………………………………. 9,520,935
373,715
9,894,650
Total 191,676,008
0
4,812,545
196,488,553
31.12.2021
Fair value
Manda‐
torily at
Total
Financial assets Amortised
cost
through
OCI
fair value
through P/L
carrying
amount
Cash and balances with Central Bank ……………………………………………………………………………… 38,645,894
38,645,894
Fixed income securities ...........................................................................................................
21,303,362
18,743,288
40,046,651
Shares and other variable income securities ..........................................................................
22,683,295
22,683,295
Securities used for hedging .....................................................................................................
22,085,696
22,085,696
Loans to customers ………………………………………………………………………………………………………… 69,063,377
2,524,269
71,587,646
Derivatives ................................................................................................................................
2,734,216
2,734,216
Other assets …………………………………………………………………………………………………………………… 10,012,351
30,202
10,042,553
Total 117,721,622
21,303,362
68,800,966
207,825,950
Fair value
Manda‐
torily at
Total
Financial liabilities Amortised
cost
through
OCI
fair value
through P/L
carrying
amount
Deposits …………………………………………………………………………………………………………………………. 78,669,807
78,669,807
Borrowings …………………………………………………………………………………………………………………….. 17,261,048
17,261,048
Issued bonds ………………………………………………………………………………………………………………….. 32,597,716
32,597,716
Subordinated liabilities ............................................................................................................ 3,371,766
3,371,766
Short positions held for trading ...............................................................................................
1,323,631
1,323,631
Short positions used for hedging .............................................................................................
1,280,868
1,280,868
Derivatives ................................................................................................................................
3,008,401
3,008,401
Other liabilities ……………………………………………………………………………………………………………….. 6,194,021
483,486
6,677,507
Total 138,094,357
0
6,096,387
144,190,744
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
56
Notes to the Consolidated Financial Statements
64.
Financial assets and financial liabilities measured at fair value
a.
Fair value hierarchy
The fair value of financial assets and liabilities that are traded in active markets are based on quoted market prices. For other financial instruments
the Group determines fair value using various valuation techniques. IFRS 13 specifies a fair value hierarchy based on whether the inputs to those
valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources whereas
unobservable inputs reflect the Group's market assumptions. These two types of inputs result in the following fair value hierarchy:
‐ Level 1
Inputs are quoted market prices (unadjusted) in active markets for identical instruments.
‐ Level 2
Inputs are not quoted market prices but are observable either directly, i.e. as prices, or indirectly, i.e. derived from prices. This category
includes financial instruments valued using quoted prices in active markets for similar instruments, quoted prices for similar or identical
instruments in markets that are considered less than active and other instruments which are valued using techniques which rely primarily on
inputs that are directly or indirectly observable from market data.
‐ Level 3
Inputs are not observable or unobservable inputs have a significant effect on the valuation. This category includes instruments that are valued
based on quoted prices for similar instruments for which significant unobservable adjustments are required to reflect the differences between
the instruments.
b.
Valuation process
The Bank's Credit committee is responsible for fair value measurements of financial assets and financial liabilities classified as level 2 or level 3
instruments. The valuation is carried out by personnel from respective departments under supervision from Risk. The valuations are revised at
least quarterly, or when there are indications of significant changes in the underlying inputs.
c.
Valuation techniques
The Group uses widely recognised valuation techniques, including net present value and discounted cash flow models, comparison with similar
instruments for which market observable prices exist, Black‐Scholes and other valuation models.
Valuation techniques include recent arm's length transactions between knowledgeable, willing parties, if available, reference to the current fair
value of other instruments that are substantially the same, the discounted cash flow analysis and option pricing models. Valuation techniques
incorporate all factors that market participants would consider in setting a price and are consistent with accepted methodologies for pricing
financial instruments. Periodically, the Group calibrates the valuation technique and tests it for validity using prices from any observable current
market transactions in the same instrument, without modification or repackaging, or based on any available observable market data.
For more complex instruments, the Group uses proprietary models, which usually are developed from recognised valuation models. Some or all of
the inputs into these models may not be market observable, and are derived from market prices or rates or are estimated based on assumptions.
When entering into a transaction, the financial instrument is recognised initially at the transaction price, which is the best indicator of fair value,
although the value obtained from the valuation model may differ from the transaction price. This initial difference, usually an increase in fair
value, indicated by valuation techniques is recognised in income depending upon the individual facts and circumstances of each transaction and
no later than when the market data becomes observable.
The value produced by a model or other valuation technique is adjusted to allow for a number of factors as appropriate, because valuation
techniques cannot appropriately reflect all factors market participants take into account when entering into a transaction. Valuation adjustments
are recorded to allow for model risks, bid‐ask spreads, liquidity risks, as well as other factors. Management believes that these valuation
adjustments are necessary and appropriate to fairly state financial instruments carried at fair value in the statement of financial position.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
57
Notes to the Consolidated Financial Statements
64.
Financial assets and financial liabilities measured at fair value (cont.)
d.
Fair value hierarchy classification
The fair value of financial assets and financial liabilities measured at fair value in the statement of financial position is classified into the fair value
hierarchy as follows:
31.12.2022
Financial assets
Level 1
Level 2
Level 3
Carrying
amount
Mandatorily measured at fair value through profit and loss
Fixed income securities ..........................................................................................................
5,524,639
4,085,852
615,304
10,225,796
Shares and other variable income securities .........................................................................
8,723,913
3,249,312
7,437,283
19,410,508
Securities used for hedging ....................................................................................................
13,841,853
13,841,853
Loans to customers .................................................................................................................
1,210,390
1,210,390
Derivatives ..............................................................................................................................
4,940,738
4,940,738
Other assets ............................................................................................................................
Measured at fair value through other comprehensive income
Fixed income securities ...........................................................................................................
54,934,612
0
54,934,612
Total
83,025,017
12,275,902
9,262,978
104,563,897
Financial liabilities
Mandatorily measured at fair value through profit and loss
Level 1
Level 2
Level 3
Carrying
amount
Short positions held for trading ..............................................................................................
1,486,107
1,486,107
Short positions used for hedging ............................................................................................
1,343,186
1,343,186
Derivatives ..............................................................................................................................
917,824
691,713
1,609,537
Other liabilities .......................................................................................................................
373,715
373,715
Total
2,829,293
917,824
1,065,428
4,812,545
Shares and other variable income securities amounting to ISK 692 million were reclassified from Level 3 following the acquisition of a majority
shareholding in Ortus Secured Finance ltd. during the year in 2022.
31.12.2021
Financial assets
Level 1
Level 2
Level 3
Carrying
amount
Mandatorily measured at fair value through profit and loss
Fixed income securities ...........................................................................................................
13,186,221
4,762,529
794,538
18,743,288
Shares and other variable income securities .........................................................................
10,222,396
4,077,480
8,383,419
22,683,295
Securities used for hedging ....................................................................................................
22,085,696
22,085,696
Loans to customers .................................................................................................................
2,524,269
2,524,269
Derivatives ..............................................................................................................................
2,734,216
2,734,216
Other assets ............................................................................................................................
Measured at fair value through other comprehensive income
Fixed income securities ...........................................................................................................
21,303,362
30,202
30,202
21,303,362
Total
66,797,675
11,574,225
11,732,428
90,104,329
Financial liabilities
Mandatorily measured at fair value through profit and loss
Level 1
Level 2
Level 3
Carrying
amount
Short positions held for trading ..............................................................................................
1,323,631
1,323,631
Short positions used for hedging ............................................................................................
1,280,868
1,280,868
Derivatives ..............................................................................................................................
3,008,401
3,008,401
Other liabilities .......................................................................................................................
483,486
483,486
Total
2,604,499
3,008,401
483,486
6,096,387
Transfers of fixed income securities and transfer of shares and other variable income securities from Level 1 to level 3 amounted to ISK 247 million
and ISK 735 million, respectively, during the year 2021.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
58
Notes to the Consolidated Financial Statements
64.
Financial assets and financial liabilities measured at fair value (cont.)
f.
Reconciliation of changes in Level 3 fair value measurements
31.12.2022
Fixed
income
securities
Shares and
other var.
income
securities
Loans to
customers
Other
assets
Derivatives
Other
liabilities
Total
Balance as at 1 January 2022
794,538
8,383,419
2,524,269
30,202
0
(483,486)
11,248,942
Total gains and losses in profit or loss ............
(33,760)
1,979,597
208,872
1,939
(4,532)
(17,646)
2,134,470
Additions ..........................................................
581,656
1,096,404
245,626
(687,181)
1,236,505
Repayments .....................................................
0
0
(1,768,377)
(29,480)
127,417
(1,670,440)
Disposals ..........................................................
(864,483)
(3,193,004)
(2,661)
(4,060,148)
Reclassifacation ...............................................
137,353
(137,353)
(0)
Transfers in (out) of Level 3 .............................
(691,779)
(691,779)
Balance as at 31 December 2022
615,304
7,437,283
1,210,390
0
(691,713)
(373,715)
8,197,550
Shares and
Fixed
other var.
income
income
Loans to
Other
Other
31.12.2021
securities
securities
customers
assets
Derivatives
liabilities
Total
Balance as at 1 January 2021
200,799
2,281,174
2,743,851
327,210
0
(386,001)
5,167,034
Total gains and losses in profit or loss ............
(361,080)
1,570,435
185,667
(97,548)
1,297,473
Additions through a business combination ….
290,553
4,357,464
0
0
4,648,017
Additions ..........................................................
417,151
698,907
1,889,964
0
3,006,022
Repayments .....................................................
0
(2,295,212)
(297,008)
63
(2,592,157)
Disposals ..........................................................
(1,259,488)
(1,259,488)
Transfers in (out) Level 3 .................................
247,114
734,927
982,041
Balance as at 31 December 2021
794,538
8,383,419
2,524,269
30,202
0
(483,486)
11,248,942
g.
Fair value measurements for Level 3 financial assets
Level 3 assets consist primarily of unlisted bonds, shares and share certificates and loans measured at fair value. Each asset is evaluated separately
but assets within an asset group share a valuation method. The following valuation methods are in use:
Book value
Asset class
Method
Significant unobservable input
Range
31.12.2022
Unlisted bonds
Expected recovery
Value of assets
0‐95%
615,304
Unlisted variable income securities
Market price
Recent trades
‐
7,437,283
Loans to customers
Expert model
Value of assets and collateral
‐
1,210,390
Receivables at fair value
Expert model
Information on turnover
‐
0
Total
9,262,978
Book value
Asset class
Method
Significant unobservable input
Range
31.12.2021
Unlisted bonds
Expected recovery
Value of assets
0‐95%
794,538
Unlisted variable income securities
Market price
Recent trades
‐
8,383,419
Loan to customers
Expert model
Value of assets and collateral
‐
2,524,269
Receivables at fair value
Expert model
Information on turnover
‐
30,202
Total
11,732,428
Given the methods used, the possible range of the significant unobservable inputs is wide. When determining the values used the Group considers
the financial strength of the entity in question, recent trades if any and multipliers for comparable instruments.
h.
The effect of unobservable inputs in Level 3 fair value measurements
The Group believes its estimates represent appropriate approximations of fair value and that the use of different valuation methodologies and
reasonable changes in assumptions or unobservable inputs would not significantly change the estimates.
A 10% change in the estimates would have the following effect on profit before taxes:
+10%
‐10%
Fixed income securities ..............................................................................................................................................................
61,530
(61,530)
Shares and other variable income securities .............................................................................................................................
743,728
(743,728)
Loans to customers .....................................................................................................................................................................
121,039
(121,039)
Receivables at fair value .............................................................................................................................................................
0
0
Total
926,298
(926,298)
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
59
Notes to the Consolidated Financial Statements
65.
Financial assets and financial liabilities not measured at fair value
The Group holds financial instruments which are not measured at fair value. Except for loans to customers, the Group believes that the best
estimate of the fair value of these financial instruments is equal to the carrying amount at the reporting date and does therefore not report a fair
value for these financial instruments. Loans to customers measured at amortised cost are classified as level 3, in the fair value hierarchy, and have
a book value of ISK 105,929 million at end of December 2022. The estimated fair value of loans to customers measured at amortised cost at end of
December 2022 is ISK 104,917 million.
Cash and balances with Central Bank includes several components as detailed in note 19. These assets are either balances available on‐demand or
on very short notice, or other assets easily converted to cash. Other financial assets consist primarily of short‐term receivables. The carrying
amount of these assets is therefore a reasonable approximation of their fair value.
Deposits and other borrowings are typically either short‐term or have variable interest rates. Other liabilities consist primarily of accounts
payables, withholding taxes and other short‐term payables. The carrying amount of these liabilities is therefore considered a reasonable
approximation of their fair value.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
60
Notes to the Consolidated Financial Statements
Other information
66.
Pledged assets
Settlement and
Securities
Asset backed
31.12.2022 committed facilities
borrowing
securities
Total
Cash and balances with Central Bank ................................................................................... 144,695
1,041,158
0
1,185,853
Fixed income securities …………………………………………………………………………………..……………. 4,215,900
469,862
0
4,685,761
Loans to customers ……………………………………………………………………………………..……………….. 20,691,396
0
2,519,168
23,210,564
Other assets ........................................................................................................................... 0
0
0
0
Total 25,051,992
1,511,020
2,519,168
29,082,179
Settlement and
Securities
Asset backed
31.12.2021 committed facilities
borrowing
securities
Total
Cash and balances with Central Bank ................................................................................... 1
2,126,209
1,409
2,127,620
Fixed income securities ……………………………………………………………………………………….……….. 4,088,885
1,454,453
0
5,543,338
Loans to customers …………………………………………………………………………………………..………….. 6,498,490
0
9,372,337
15,870,827
Other assets ........................................................................................................................... 0
46,704
0
46,704
Total 10,587,377
3,627,366
9,373,746
23,588,489
The Group has pledged assets, in the ordinary course of banking business, to the Central Bank of Iceland to secure general settlement in the
Icelandic clearing system. Cash pledged to secure the borrowing of securities from other counterparties than the Central Bank of Iceland is
classified as other assets. Furthermore, the Group has pledged loans to customers as collateral against asset backed bonds that it has issued.
67.
Related parties
a.
Definition of related parties
The Group has a related party relationship with the board members of the Bank, the CEO of the Bank and key employees (together referred to as
management), associates as disclosed in note 26, shareholders with significant influence over the Bank, close family members of individuals
identified as related parties and entities under the control or joint control of related parties.
b.
Arm's length
Transactions with related parties are carried out at arm's length and subject to an annual review by the Bank's internal auditor.
c.
Balances with related parties
31.12.2022 Assets Liabilities
Management .....................................................................................................................................................................
Associates ..........................................................................................................................................................................
0 44,424
0 7,408
Total 0 51,832
31.12.2021 Assets Liabilities
Management .....................................................................................................................................................................
Associates ..........................................................................................................................................................................
0 128,067
0 0
Total 0 128,067
d.
Transactions with related parties
Interest Interest Other Other
2022 income expense income expense
Management ...................................................................................................................
Associates ........................................................................................................................
0 1,857 2,285 447
0 0 0 90,896
Total 0 1,857 2,285 91,343
Interest Interest Other Other
2021 income expense income expense
Management ...................................................................................................................
Associates ........................................................................................................................
60 281 3,870 3,395
0 0 0 0
Total 60 281 3,870 3,395
Further information about salaries and benefits paid to the Board of Directors, the CEO and Managing Directors is provided in note 12.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
61
Notes to the Consolidated Financial Statements
68.
Remuneration policy
The Board of Directors has adopted a remuneration policy at the proposal of the Remuneration Committee. The Bank's Annual General Meeting
approved the Bank's current remuneration policy in March 2022. The Board of Directors will submit an updated remuneration policy for approval
at the Bank's Annual General Meeting in 2023.
The remuneration policy conforms to Articles 57 a and 57 b of Act No. 161/2002 on Financial Undertakings, Act No. 2/1995 on Public Limited
Companies and the Icelandic FSA's rules No. 388/2016 on Incentive Schemes. A more detailed description of the policy can be found on the
Bank's website, www.kvika.is.
69.
Incentive scheme
The Board of Directors has approved a performance based incentive scheme at the proposal of the Remuneration Committee. The scheme forms
a part of the remuneration policy adopted by the Bank.
a.
Description
The incentive scheme is set forth in accordance with Article 57 b of Act No. 161/2002 on Financial Undertakings and the Icelandic FSA's rules No.
388/2016 on Incentive Schemes. Performance based payments may consist, in part or in full, of shares or sharelinked instruments, such as
warrants or stock options for shares in the Company. Payments according to the scheme are based on key performance indicators (KPIs) that
reflect the goals of the Bank, the division and the employee. The basis for performance based pay reflects sound risk management and does not
induce excessive risk taking. Performance based pay to individual employees shall not exceed 25% of their annual salary and 40% of the
performance based pay shall be deferred for three years. Performance based pay that does not exceed 10% of annual salary is not subject to
deferral. A more detailed description of the scheme can be found in the Bank's remuneration policy on it's website, www.kvika.is.
b.
Performance based payments through profit and loss
Non‐deferred .....................................................................................................................................................................
Deferred ............................................................................................................................................................................
Salary related expenses .....................................................................................................................................................
2022 2021
Cash Cash
143,294 189,506
5,769 86,324
42,636 77,849
Total 191,699 353,679
c.
On‐balance sheet deferred performance based payments
Deferred cash payments ...................................................................................................................................................
Deferred cash payments, acquired via business combinations .......................................................................................
31.12.2022 31.12.2021
72,867 158,540
0 87,017
Total 72,867 245,556
70.
Share‐based payments
a.
Description
The Bank has issued share options in accordance with authorisations of its annual general meeting, the Group's remuneration policy and
incentive scheme. There are two share option plans in effect at year end 2022, a general share option plan, cf. Art. 10 of Act No. 90/2003, and a
share option plan based on the Bank's incentive shceme.
General share option plan, cf. Art. 10 of Act No. 90/2003
On 21 April 2021 the Annual General Meeting of the Bank authorised the Board of Directors to approve a general share option plan in accordance
with Article 10 of the Income Tax Act No. 90/2003 for all employees of Kvika and its subsidiaries. On 10 November 2021 the Bank’s Board of
Directors approved a share option plan which was approved by Iceland Revenue and Customs on 9 December 2021.
The objective of the share‐based payments is to integrate the interests of employees with the long‐term goals of the Group. The calculation of
the purchase price was based on weighted average price in transactions with shares of the Bank for ten whole business days prior to each
contract date. The options do not allow for cash settlement. Furthermore, the options are conditional on the employee remaining employed by
the Bank, or its subsidiaries, and various other conditions.
The plan was implemented on 15 December 2021 and on that date each eligible employee was offered a stock option for up to ISK 1,500,000 per
year the following three years, in total for up to ISK 4,500,000. The first year of the stock option plan has now expired but employees hired in
2022 were on 15 December 2022 invited to enter the stock options for the remaining two years in accordance with the plan.
The cost of the stock option agreements was calculated using the Black‐Scholes calculation model and amounted to ISK 175 million for those
issued in the year 2021 and ISK 35 million for those issued in the year 2022.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
62
Notes to the Consolidated Financial Statements
70.
Share‐based payments (cont.)
Other share options, cf. the Bank´s incentive scheme
The Bank has, on the basis of an authorisation by the Annual General Meeting of Kvika banki hf., held on 31 March 2022, granted share options
to certain employees of the Group on the basis of the Bank´s incentive scheme. The employees pay for the share options with a deferred part of
performance based payments. The share options are granted in order to align the long‐term interests of the Group and said employees. For the
share options the employees pay a total of ISK 94.5 million by using deferred performance based payments that have already been expensed.
The cost of these stock option agreements is ISK 94.5 million based on the Black‐Scholes calculation model but in return previously expensed
performance based payments are cancelled.
The main terms of the share options are as follows:
‐ The exercise price of the stock options is ISK 22.495 per share, which is equivalent to the weighted average price in transactions with shares of
the company on Nasdaq OMX Iceland for ten business days prior to the contract date, with 7.5% annual interest over the period, and the
exercise price shall be adjusted for dividends that may be decided until the exercise period begins.
‐
The options do not allow for cash settlement.
‐
The stock options may be exercised in 2025, during an exercise period of three months.
‐ In general, stock options shall lapse if the stock option holder's employment relationship with the company is terminated until the beginning
of the exercise period.
‐ The Bank's CEO, deputy CEO and the executive management of the group commit to retain, until the end of their employment, shares which
market value correspond to profit after taxes of utilised stock options until the value of the shares owned by those individuals is equivalent to
12 months’ salary for Kvika´s CEO and deputy CEO and six months’ salary for other members of the executive management.
‐ The value of the stock options was determined by an independent specialist and the value is in line with the laws and rules applicable to
bonus payments of financial undertakings.
‐
In certain instances, the Group is entitled to revoke the stock options in part or in whole in line with FME rules.
b.
The following share options are in existence at year end
Share options
Number of
shares
(in ths.) Exercise year
Exercise
price
(ISK)
Issued in 2021 (ISK 1,500,000) ‐ General share option plan, cf. Art. 10 of Act No. 90/2003 ..........................
Issued in 2022 (ISK 1,500,000) ‐ General share option plan. cf. Art. 10 of Act No. 90/2003 ..........................
36,989 2023‐2024 26.44
11,177 2023‐2024 20.13
Issued in 2022 ‐ Other share options, cf. the Bank´s incentive scheme ……………………………………………………. _____39,933
88,099
c. Movements in the number of share options outstanding and their related weighted average exercise prices
2025
22.50
At 1 January 2021 ..............................................................................................................................................................
Average
exercise price
per share
0.00
Share
options
(thousands)
0
Granted in 2021 .................................................................................................................................................................
26.44
55,484
At 31 December 2021 ........................................................................................................................................................
26.44
55,484
Granted in 2022 .................................................................................................................................................................
21.98
51,110
Forfeited in 2022 ...............................................................................................................................................................
26.44
(18,495)
At 31 December 2022 ........................................................................................................................................................
23.85
88,099
Exercisable share options at 31 December 2022 ..............................................................................................................
0
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
63
Notes to the Consolidated Financial Statements
71.
Shareholders of the Bank
Shareholder
Lífeyrissjóður verzlunarmanna ........................
Lífeyrissjóður starfsmanna ríkisins A‐deild …...
Country
Iceland
Iceland
31.12.2022 31.12.2021
% % Beneficial owners
9.13% 8.20%
7.64% 6.28%
Stoðir hf. ………………………………………………..…... Iceland
Birta lífeyrissjóður ………………………………..……… Iceland
6.59% 6.11%
4.80% 4.33%
Gildi ‐ lífeyrissjóður ...........................................
Arion banki hf. ...................................................
Iceland
Iceland
4.66% 4.61%
3.41% 4.40%
Stapi lífeyrissjóður ............................................ Iceland 3.07% 3.08%
Lífsverk lífeyrissjóður ........................................ Iceland 2.43% 2.47%
Almenni lífeyrissjóðurinn …………………………….. Iceland
Brú Lífeyrissjóður starfsmanna sveitarfélaga Iceland
2.23% 1.90%
2.13% 2.14%
Lífeyrissjóður starfsmanna ríkis B‐deild ..........
Stefnir ‐ Innlend hlutabréf hs. ..........................
Iceland
Iceland
1.78% 1.57%
1.68% 1.68% Investement fund managed by Stefnir hf.
Frjálsi lífeyrissjóðurinn ………………………………... Iceland
Landsbankinn hf. …………………………………………. Iceland
Landsbréf ‐ Úrvalsbréf hs. …………………….……… Iceland
Attis ehf. …………………………………………………….. Iceland
1.58% 1.22%
1.49% 1.02%
1.48% 1.51% Investement fund managed by Landsbréf hf.
1.35% 1.36% Guðmundur Örn Þórðarson (100%)
Sigla ehf. ...........................................................
SNV Holding ehf. ..............................................
Others, each less than 1% ................................
Treasury shares ................................................
Iceland
Iceland
1.32% 1.19% Tómas Kristjánsson (100%)
1.29% 1.36% Svanhildur Nanna Vigfúsdóttir (100%)
38.93% 43.18% 2022: 2974, 2021: 2802
97.00% 97.61%
3.00% 2.39%
Total 100.00% 100.00%
Beneficial owners are defined as owners holding a share of 10% or greater, directly or indirectly. The information presented is, among other
things, based on publicly available information.
72.
Other matters
Acquisition of a merchant agreements
In May 2022, it was announced that the Group had signed an asset purchase agreement stating that Group will acquire part of Valitor hf.'s
merchant agreements. According to the agreement it is envisaged that the Group will become a Payment Facilitator and will, in the coming
months, acquire agreements with the relevant merchants according to provisions of the agreement, which from that point will become
customers of the Group. The Group will capitalize the merchant agreements concurrent to the handover of the agreements to the Group. The
Group expects that the handover will begin during the first half of 2023 and will place in steps until completed. The purchase price for the
merchant agreements is based on turnover over a certain point in time. The Group will utilise judgement when estimating the purchase price of
the agreements, and record subsequent fair value adjustments of the contingent consideration in the Consolidated Income Statement.
73.
Events after the reporting date
Merger discussions with Íslandsbanki hf.
In February 2023 the board of directors of Kvika and Íslandsbanki hf. decided to commence discussions on the merger of the two companies.
Kvika’s board of directors believes that merging the companies would create a strong financial institution with an optimal revenue combination.
The merged company could provide its customers with diversified services and would contribute to increased competition in the financial market
through fintech and other solutions, as well as being an interesting investment opportunity. At the signing date of the Consolidated Financial
Statements the discussion had recently commenced and had therefore not yet yielded any results.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
64
Notes to the Consolidated Financial Statements
Significant accounting policies Page
74
Basis of consolidation ..................................................................................... 65
75
Foreign currency ............................................................................................. 66
76
Interest income and expense......................................................................... 66
77
Fee and commission income and expense .................................................... 66
78
Net earned premiums and net incurred claims ............................................ 67
79
Insurance Contracts ........................................................................................ 67
80
Net financial income ...................................................................................... 67
81
Dividend income ............................................................................................ 67
82
Administrative expenses ................................................................................ 67
83
Employee benefits .......................................................................................... 68
84
Income tax ...................................................................................................... 68
85
Financial assets and financial liabilities ......................................................... 68
86
Offsetting ........................................................................................................ 70
87
Determination of fair value ........................................................................... 70
88
Impairment ..................................................................................................... 70
89
Cash and balances with Central Bank ............................................................ 73
90
Fixed income securities .................................................................................. 73
91
Shares and other variable income securities ................................................ 73
92
Securities used for hedging ............................................................................ 73
93
Loans to customers ........................................................................................ 74
94
Derivatives ...................................................................................................... 74
95
Investments in associates .............................................................................. 74
96
Investment properties .................................................................................... 74
97
Intangible assets ............................................................................................. 75
98
Operating lease assets ................................................................................... 75
99
Property and equipment ................................................................................ 76
100
Reinsurance assets ......................................................................................... 76
101
Other assets .................................................................................................... 76
102
Deposits .......................................................................................................... 76
103
Technical provision ......................................................................................... 77
104
Borrowings ...................................................................................................... 77
105
Issued bills ...................................................................................................... 77
106
Issued bonds ................................................................................................... 77
107
Subordinated liabilities ................................................................................... 77
108
Short positions held for trading ..................................................................... 77
109
Short positions used for hedging ................................................................... 77
110
Other liabilities ............................................................................................... 77
111
Right of use asset and lease liability .............................................................. 78
112
Financial guarantees ....................................................................................... 78
113
Share capital ................................................................................................... 78
114
Nature and purpose of equity reserves ......................................................... 78
115
Earnings per share .......................................................................................... 78
116
New standards and interpretations ............................................................... 79
117
Use of estimates and judgements ................................................................. 79
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
65
Notes to the Consolidated Financial Statements
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these Consolidated Financial Statements, and
have been applied consistently by Group entities.
74.
Basis of consolidation
a.
Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses its relationship
with an entity when there is a change in one or more of the elements of control.
b.
Business combinations
The Group uses the acquisition method to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value, at
the date of exchange, of the assets given, liabilities incurred or assumed and equity instruments issued. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest.
The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recognised as goodwill. If
the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised immediately in the
income statement.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the
definition of a financial instrument is classified as equity, then it is not remeasured and settlement is account for within equity. Otherwise, other
contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent
consideration are recognised in profit and loss.
c.
Non‐controlling interest
Non‐controlling interest represent the portion of profit or loss and equity not owned, directly or indirectly, by the Bank. Non‐controlling interest
is presented separately in the income statement and is included in equity in the statement of financial position, separately from equity
attributable to owners of the Bank.
The Group chooses on an acquisition‐by‐acquisition basis whether to measure non‐controlling interest in an acquiree at fair value or according
to the proportion of non‐controlling interests in the acquiree's net assets. Changes in the Bank's ownership interest in a subsidiary that do not
result in a loss of control are accounted for as equity transactions. In such circumstances the carrying amounts of the controlling and non‐
controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which
the non‐controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to
the owners of the Bank.
d.
Fiduciary services
The Group provides custody services, fund management and discretionary and advisory investment management services which require the
Group to make decisions on the handling, acquisition or disposal of financial instruments on behalf of its clients.
The financial statements of managed funds and investment portfolios managed by the Group on behalf of customers are not included in the
financial statements, as they do not constitute assets or liabilities of the Group.
e.
Transactions eliminated on consolidation
Intra‐group balances, income and expenses, and unrealised gains and losses arising from intra‐group transactions, are eliminated in preparing
the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the
extent of the Group's interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that
there is no evidence of impairment.
f.
Structured entities
Structured entities are entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual
arrangements.
The Group acts as investment manager or investment advisor, for example, to a number of investment funds operated by the fund management
companies Kvika eignastýring hf. and Gamma Capital Management hf. The purpose of these fund management companies is to generate fees
from managing assets on behalf of third‐party investors by providing investment strategies. These investment funds are financed through the
issue of units to investors. The Group has no contractual obligation to provide financial support to these structured entities.
From time to time, the Group makes seed capital investments in certain fund products in order to establish track records for new products, to
test new investment strategies or to launch new products at a viable minimum size.
The Group has set up a formal procedure to assess whether or not to consolidate investment funds managed and administered by the Group on
behalf of its customers and other investors in the consolidated financial statements. As part of this assessment, the Group reviews all facts and
circumstances including the purpose and design of the investment fund, to determine whether the Group, as fund manager, is acting as agent or
principal. The Group is deemed to be a principal when the Group acts as fund manager and cannot be removed without cause, has variable
returns through significant holdings and is able to influence the returns of the funds by exercising its power.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
66
Notes to the Consolidated Financial Statements
75.
Foreign currency
a.
Foreign currency transactions
Transactions in foreign currencies are translated into the functional currency of the respective Group's entity using the exchange rate at the
date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the
exchange rate at the reporting date. Non‐monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction. Non‐monetary assets and liabilities denominated in foreign currencies that are
stated at fair value are translated using the exchange rate at the date the fair value was determined.
Foreign currency differences are posted as a separate line item under net financial income as disclosed in notes 8 and 80.
b.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into the
functional currency at spot exchange rate current at the reporting date. The income and expenses of foreign operations are translated into the
functional currency at the spot exchange rates at the dates of the transactions.
Translation differences on foreign operations are presented as a separate category in the statement of changes in equity.
76.
Interest income and expense
Effective interest rate
Interest income and expense are recognised in the income statement using the effective interest method. The effective interest rate is the rate
that exactly discounts estimated future cash flows through the expected life of the financial instrument to the gross carrying amount of the
financial asset or the amortised cost of the financial liability. When calculating the effective interest rate for financial instruments other than
purchased or originated credit‐impaired assets, the Group estimates future cash flows considering all contractual terms of the financial
instrument but not ECL. For purchased or originated credit‐impaired financial assets, a credit‐adjusted effective interest rate is calculated using
estimated future cash flows including ECL.
Amortised cost and gross carrying amount
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial
recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference
between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance. The gross
carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any expected credit loss allowance.
Presentation
Interest income and expense presented in the income statement includes interest on:
‐
financial assets and liabilities measured at amortised cost
‐
financial assets at fair value through other comprehensive income (FVOCI)
‐
financial assets at fair value through profit and loss
‐ derivatives
77.
Fee and commission income and expense
The Group earns income from providing various services to its customers. This includes fees for managing assets on behalf of customers,
commissions received for equity and bond transactions and fees and commissions for various other financial services. Fee and commission
income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the
effective interest rate.
Fee and commission income and expense are recognised in the income statement when an agreement with a customer meets all of the
following criteria:
‐
the parties to the contract have approved the contract and are committed to perform their respective obligations
‐
performance obligations have been established for services to be transferred
‐
the payment terms have been established for the services to be transferred
‐
the transaction price can be allocated to each individual service in the agreement
‐
it is probable that a consideration will be collected in exchange for the services that will be transferred to the customer
The following applies to recognition of income for various types of fees and charges:
‐ Fees that are earned gradually as the services are performed, such as management fees in asset management, are recognised as income at
the rate these services are delivered. In practice, these are on a straight line basis
‐ Fees attributable to a specific service or action are recognised as income when the service has been performed. Examples of such fees are
brokerage and payment commissions
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
67
Notes to the Consolidated Financial Statements
78.
Net earned premiums and net incurred claims
Premiums are recognised proportionally during the period in which insurance covers. Earned premiums in the income statement is written
premiums in the period in addition to the change in the premium provision in the period. Premiums written are presented less depreciated
premiums and without commissions or sales cost and the change in premium provision is presented without changes due to foreign exchange
differences. Net earned premium is obtained by subtracting written premiums for reinsurance contracts and changes in the reinsurer´s share in
premium provision in the accounting period. The definition of net earned premiums is in line with the guidelines of the Central Bank‘s Financial
Supervisory body, nr. 1/2020.
Incurred claims cost in the income statement are comprised of claims paid during the period and changes in claims provisions due to insurance
operations and changes in the risk margin in the period. The changes in the claims liability due to insurance operations include changes of
estimates of claims provision due to prior years in addition to changes in the claims provision due to the current accident year. Changes in the
claims provision for prior years is presented without the effect of unwinding, interest and exchange rate changes, which are transferred to the
investment segment. Net incurred claims are claims with the reinsurers‘ share deducted both for the paid claims and the changes in claims
provision. Definition of net incurred claims is in line with the guidelines of the Central Bank‘s Financial Supervisory body, nr. 1/2020.
79.
Insurance Contracts
As part of its insurance operations the Group's entities issue contracts that transfer insurance risk from the customers to the Group.
Insurance contracts are contracts under which the insurer accepts insurance risk from policyholders by agreeing to compensate the them if a
specified uncertain future event would occur.
The Group's insurance contracts are categorised as either non‐life insurance and life and health insurance contracts.
Non‐Life insurance
Non‐life insurance contracts are categorised as liability insurances, casualty insurance and property insurance. Liability insurance contracts
provides protection against claims resulting from injuries and damage to third parties. Casualty insurance provides protection against losses
caused by accidents. Property insurance contracts mainly compensates for material damages to insured properties. Commercial customers
could also receive compensation of loss of income caused by a fire or other covered claim events (business interruption insurance).
Life and Health insurance
These contracts are categorised as term life insurance contracts, index‐linked insurance contracts and critical illness contracts and are
associated with the event of death or critical illness of the policy owner.
80.
Net financial income
Net financial income comprises the following:
‐
Realised and unrealised gains or losses from price changes of fixed income securities measured at fair value
‐
Realised and unrealised gains or losses from price changes of variable income securities
‐ Interest income from fixed income securities carried at fair value through profit or loss
‐ Dividends
‐ Fair value changes of loans to customers held at fair value
‐ Fair value changes in derivatives
‐
Unwinding, interest and exchange rate change of technical provision
‐ Foreign exchange difference
81.
Dividend income
Dividend income is recognised when the right to receive income is established. Usually this is the ex‐dividend date for equity securities.
Dividends are presented as a component of net financial income.
82.
Administrative expenses
Administrative expenses comprise expenses other than interest expenses, fee and commission expenses and expenses related to fair value
changes. A breakdown of administrative expenses is provided in note 10.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
68
Notes to the Consolidated Financial Statements
83.
Employee benefits
a.
Short‐term employee benefits
Short‐term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability
is recognised for the amount expected to be paid under short‐term cash bonus or profit‐sharing plans if the Group has a present legal or
constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
b.
Defined contribution plans
Obligations for contributions to defined contribution plans are expensed in profit or loss as the related service is provided. The Group has no
further obligations once those contributions have been paid.
c.
Share‐based payments
Equity‐settled share‐based payments to employees are measured at the fair value of the equity instruments at grant date. The grant date fair
value of equity‐settled share‐based payment awards granted to employees is recognised as an employee expense, with a corresponding
increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is
adjusted to reflect the number of awards for which the related service and non‐market performance conditions are expected to be met, such
that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non‐market
performance conditions at the vesting date.
84.
Income tax
Income tax comprises current and deferred tax. Income tax is recognised in the income statement, except to the extent that it relates to items
recognised directly in other comprehensive income or equity, in which case it is recognised there.
Current tax liabilities include the estimated tax payable next year on current year's profit according to the tax rates prevailing at reporting date,
in addition to corrections on tax from previous years.
The deferred income tax asset and/or liability has been calculated and recognised in the statement of financial position. The calculation is based
on the difference between assets and liabilities as presented in the tax return on the one hand, and in the consolidated financial statements on
the other, taking into consideration tax losses carried forward. This difference is due to the fact that the tax assessment is based on premises
that differ from those governing the financial statements, mostly due to temporary differences arising from the recognition of revenue and
expense in the tax returns and in the financial statements.
Deferred tax assets and tax liabilities are offset in the statement of financial position when there is a legal right to settle on a net basis and they
are levied by the same taxing authority on the same entity or on different entities subject to joint taxation.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax
benefit will be realised.
85.
Financial assets and financial liabilities
a.
Recognition
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which they are
originated. All other financial assets and liabilities are initially recognised on the trade date, which is the date when the Group becomes a party
to the contractual provisions of the instrument.
b.
Classification
Financial assets
The Group's financial assets are classified into one of three measurement categories, i.e. i) at amortised cost, ii) at fair value through other
comprehensive income or iii) at fair value through profit or loss. The measurement basis of individual financial assets is determined based on an
assessment of the cash flow characteristics of the assets and the business models under which they are managed.
Financial assets at amortised cost
A financial asset is measured at amortised cost if the contractual terms of the financial asset give rise to cash flows that are solely payment of
principal and interest and the asset is held within a business model whose objective is to collect contractual cash flows, i.e. Held to collect. After
initial measurement, financial assets in this category are carried at amortised cost using the effective interest rate method. Amortisation is
included in interest income in the Consolidated Income Statement. The majority of the Group's loans to customers are carried at amortised cost
using the effective interest rate method. Interest on loans to customers is recognised as interest income.
Impairment on financial assets measured at amortised cost is calculated using the expected credit loss approach. Loans and debt securities
measured at amortised cost are presented net of allowance for credit losses in the Consolidated Statement of Financial Position.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
69
Notes to the Consolidated Financial Statements
85.
Financial assets and financial liabilities (cont.)
Financial assets at fair value through other comprehensive income (FVOCI)
Fixed income securities may be classified as financial instruments measured at fair value through other comprehensive income ("FVOCI") when
they meet the classification criteria. Interest income is calculated using the effective interest rate. Interest income and foreign exchange gains or
losses are recognised in the Consolidated Statement of Comprehensive Income. Fixed income securities classified as FVOCI are subject to
impairment measurement using the expected credit loss approach. Fair value measurements are recognised in Other Comprehensive Income
while on derecognition, cumulative gains (losses) recognised in Other Comprehensive Income are reclassified to the Consolidated Statement of
Income.
Financial assets at fair value through profit or loss (FVTPL)
Financial assets classified at fair value through profit or loss are all other financial assets which are not classified at amortised cost or at fair
value through other comprehensive income. This includes financial assets classified mandatorily at fair value through profit or loss and financial
assets which are irrevocably designated by the Group at initial recognition as at fair value through profit or loss that would otherwise meet the
requirements to be measured at amortised cost or at fair value through other comprehensive income. The Group may designate financial assets
as at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Financial assets at fair value through profit or loss are measured in the Consolidated Statement of Financial Position at fair value. Loans to
customers which are measured at fair value through profit or loss are assets whose cash flows do no represent payments that are solely
payments of principal and interest but are non‐trading assets. Interest on loans to customers measured at fair value through profit or loss is
recognised as interest income. Changes in fair value, as well as any gains or losses realised on disposal, are recognised in the line item Net
financial income (expense) in the Consolidated Income Statement.
Business model assessment
The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the
way the business is managed and information is provided to management. The information considered includes:
‐ the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management's
strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial
assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;
‐
how the performance of the portfolio is evaluated and reported to the Group's management;
‐ the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks
are managed;
‐ how managers of the business are compensated ‐ e.g. whether compensation is based on the fair value of the assets managed or the
contractual cash flows collected; and
‐ the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity.
However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group's stated
objective for managing the financial assets is achieved and how cash flows are realised.
Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at fair value
through profit or loss because they are neither held to collect contractual cash flows nor held to both collect contractual cash flows and to sell
financial assets.
Cash flow characteristics assessment
Financial assets held within the business models Held to collect and Held to collect and sell are assessed to evaluate if their contractual cash
flows are comprised of solely payments of principal and interest (SPPI). SPPI payments are those which are consistent with a basic lending
arrangement. Principal is the fair value of the financial asset at initial recognition and may change over the life of the instruments, e.g. due to
repayments. Interest relates to basic lending returns, including compensation for the time value of money and credit risk associated with the
principal amount outstanding and for other basic lending risks (expected losses, liquidity risks and administrative costs), as well as a profit
margin.
Where the contractual terms introduce exposure to other risk or variability of cash flows that are inconsistent with a basic lending arrangement,
the related financial asset is classified and measured at fair value through profit or loss.
Reclassifications
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model and
if the change is significant to the Group's operations.
Financial liabilities
The Group's financial liabilities are classified into one of two measurement categories, i.e. at amortised cost or at fair value through profit or
loss. Financial liabilities held for trading are measured at fair value through profit or loss, all other financial liabilities are measured at amortised
cost. Financial liabilities measured at amortised cost are initially recognised at fair value, which is typically equal to cost, i.e. cash advanced less
any transaction costs. They are subsequently measured at amortised cost using the effective interest method. Accrued interest, in the case of
interest bearing liabilities is included in the carrying amount. Interest expense is recognised in net interest income.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
70
Notes to the Consolidated Financial Statements
85.
Financial assets and financial liabilities (cont.)
Derecognition
Financial assets
A financial asset is derecognised when the contractual rights to the cash flows from the asset expire, or when the Group enters into a
transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred
financial assets that is created or retained by the Group is recognised as a separate asset or liability.
The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or
substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not
derecognised. Examples of such transactions are securities lending and sale and repurchase agreements.
Financial liabilities
Financial liabilities are derecognised when the obligation of the Group is discharged, cancelled or expires.
86.
Offsetting
Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, when there is a legally enforceable
right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability
simultaneously.
Income and expenses are presented on a net basis for gains and losses arising from a group of similar transactions, such as in the Group's
trading activity, or other circumstances permitted by International Financial Reporting Standards.
87.
Determination of fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair
value of a liability reflects its non‐performance risk. When available, the Group measures the fair value of an instrument using the quoted price
in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency
and volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs
and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would
take into account in pricing a transaction. For further information on valuation techniques, refer to notes 64 ‐ 65.
The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the
consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair
value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses
only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between
the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis
over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed
out.
88.
Impairment
Expected Credit Loss
The Group recognises loss allowances for ECL on the following financial instruments that are not measured at FVTPL:
‐
debt instruments measured at amortised cost;
‐
debt instruments measured at fair value through other comprehensive income;
‐
finance lease receivables measured at amortised cost;
‐ contract assets;
‐
loan commitments issued; and
‐
financial guarantee contracts issued.
The Group estimates an ECL for each of these types of assets or exposures. However, IFRS 9 specifies three different approaches depending on
the type of asset or exposure:
1.
For trade receivables and contract assets without a significant financing component a simplified (lifetime expected loss) approach can be
applied.
2.
For assets that are credit‐impaired at purchase or origination lifetime expected loss approach shall be applied.
3.
For other assets/exposures a general (or three‐stage) approach shall be applied.
The general approach
The Group measures the ECL on each balance sheet date according to a three‐stage expected credit loss impairment model.
Stage 1 covers financial assets that have not deteriorated significantly in credit quality since initial recognition or (where the optional low credit
risk simplification is applied) have low credit risk.
Stage 2 covers financial assets that have deteriorated significantly in credit quality since initial recognition (unless the low credit risk
simplification has been applied and is relevant) but that do not have objective evidence of a credit loss event.
Stage 3 covers financial assets that have objective evidence of a credit loss event at the reporting date.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
71
Notes to the Consolidated Financial Statements
88. Impairment (cont.)
12‐month expected credit losses are recognised in stage 1, while lifetime expected credit losses are recognised in stages 2 and 3. IFRS 9 draws a
distinction between financial instruments that have not deteriorated significantly in credit quality since initial recognition and those that have.
Measurement of the expected credit losses is determined by a probability‐weighted estimate of credit losses over the expected life of the
financial instrument.
An asset moves from 12‐month expected credit losses to lifetime expected credit losses when there has been a significant deterioration in credit
quality since initial recognition. Hence the ‘boundary’ between 12‐month and lifetime losses is based on the change in credit risk not the
absolute level of risk at the reporting date.
There is also an important operational simplification that permits companies to stay in ‘12‐month expected credit losses’ if the absolute level of
credit risk is ‘low’. This applies even if the level of credit risk has increased significantly.
There is also a third stage. This applies to assets for which there is objective evidence of impairment. In Stage 3 the credit loss allowance is still
based on lifetime expected losses but the calculation of interest income is different.
In the periods subsequent to initial recognition, interest is calculated based on the amortised cost net of the loss provision, whereas the
calculation is based on the gross carrying value in Stages 1 and 2.
Finally, it is possible for an instrument for which lifetime expected credit losses have been recognised to revert to 12‐month expected credit
losses should the credit risk of the instrument subsequently improve so that the requirement for recognising lifetime expected credit losses is no
longer met.
Expected credit losses
Expected credit losses are defined as the difference between all the contractual cash flows that are due to an entity and the cash flows that it
actually expects to receive (‘cash shortfalls’). This difference is discounted at the original effective interest rate (or credit‐adjusted effective
interest rate for purchased or originated credit‐impaired financial assets).
12 month expected credit losses
12‐month expected credit losses are a portion of the lifetime expected credit losses. They are calculated by multiplying the probability of a
default occurring on the instrument in the next 12 months by the total (lifetime) expected credit losses that would result from that default. They
are not the expected cash shortfalls over the next 12 months. They are also not the credit losses on financial instruments that are forecast to
actually default in the next 12 months.
Lifetime expected credit losses
Lifetime expected credit losses are the expected shortfalls in contractual cash flows, taking into account the potential for default at any point
during the life of the financial instrument.
Definition of default
The Group considers a financial asset to be in default if one of the following applies:
‐
the borrower is 90 days past due of one of his exposures with the Bank;
‐ the borrower is registered as in delinquency by Creditinfo (Icelandic: vanskilaskrá) and has payment in 30 days or longer delinquency with
the Group;
‐
the borrower is registered in public records as filed for bankruptcy, has terminated his business or is no longer a going concern;
‐ the borrower is considered to be unlikely to pay as determined by the Bank's Risk Management department. Events that are likely to lead to
default as determined by the Risk Management department include the following:
‐ breach of covenants of loan commitments;
‐ loan concessions or stressed restructuring; or
‐ High risk classification based on Risk Management's internal risk assessment.
‐
the borrower has been in default in accordance with above at any point for the previous three months.
The Risk Management department can manually override automatic default triggers if the following applies:
‐
the reason for reported default triggers is known to the Bank and not considered to be lack of willingness or ability to pay.
‐
re‐financing of borrower’s exposures is expected and has been confirmed.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
72
Notes to the Consolidated Financial Statements
88.
Impairment (cont.)
Probability of default and credit risk rating
The Group utilises an external Probability of Default model (PD model) developed and maintained by Creditinfo Iceland, an Icelandic credit
bureau, for the domestic portfolios. The PD model is based on information compiled by Creditinfo on the creditworthiness of corporates and
individuals in Iceland based both on personal and demographic factors. It predicts the probability of default in the next 12 months. The model
has been calibrated to using historical default rate information representative of the Group's domestic portfolio. The model is designed as a
point in time model and correlation between forecasted and actual default rates and macroeconomic forecasts has been identified. This enables
the Group to calculate different forward looking probabilities of default given different forecasts for changes in inflation rate and
unemployment rate. Lifetime PD for loans in stage 3 is 100% as by definition they are already in default.
The Group utilises an economic forecast and the current 12 month PD for the purpose of estimating lifetime PD for loans in stage 2. The 12
month PD is adjusted with a survival rate for each year until maturity with the following formula: PD
t
= PD
12
* SR
t
where PD
12
is the 12 month PD
from the credit rating model and SR
t
is the survival rate at time t, which is calculated recursively as SR
t
= SR
t‐1
* (1‐PD
t
). The Group monitors the
appropriateness of the assumption as a part of it’s yearly validation and monitoring process. The PD assessment for portfolios in the UK is
primarily individually assessment done by credit specialists based on payment history and general creditworthiness where performing
customers are ranked in three different risk classes.
Significant increase in credit risk
When considering whether a significant increase in credit risk (SICR) has occurred the Group considers both quantitative and qualitative factors.
In general the Group will rely on a quantitative analysis based on the PD model but will additionally consider qualitative factors based on the
information available to the Group.
Quantitative SICR assessment
The Group has defined the following criteria’s for SICR:
1.
30 days past due of any of the client's exposures
2.
Grading migrations – SICR has occurred if the current grade has increased compared to the origination grade. For the domestic portfolio,
more or equal to the following thresholds are considered to be significant increase in credit risk:
Origination grade
1
2
3
4
5
6
7
8
9
Threshold grade
7
7
7
7
7
8
8
9
10
Migration of corporations by one or two risk grades in the PD model is considered to be a significant increase in risk and therefore warrant a
transfer to stage 2, depending on the origination grade. However, the Group considers risk grades less than 5 for corporations to be low risk and
therefore excludes any movement between categories that does not result in a rating above that level. Ratings above 10 are considered to
indicative of default and therefore warrant elevation to stage 3 unless overridden based on other available information or expert judgement.
The Group doesn’t consider grading migrations for individuals but considers risk grades below certain thresholds, regardless of original score, as
significant increased risk. Migration of one risk class in the UK portfolio is indication of significant increase in credit risk.
Qualitative SICR assessment
Risk Management is responsible for managing the credit risk of the Group which includes a qualitative SICR assessment. Risk Management
reviews on a monthly basis large exposures, unsecured loans and loans that are past due on a loan by loan basis.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
73
Notes to the Consolidated Financial Statements
88.
Impairment (cont.)
Exposure at default
Lifetime definition
The Group considers the lifetime of each exposure to be the contractual maturity of each loan. The Group considers this to be the case as any
lending subsequent to that period would be based on an independent lending decision at that time based on the prevailing market terms. The
Group only considers contractual cash flows when estimating exposure at default. The average lifetime of the Group's exposures is relatively
short and it does therefore not consider the likelihood of prepayment when concluding on the lifetime of the assets.
Committed facilities
The Group considers the off‐balance portion of exposure at default to be 50% (credit conversion factor) of any facilities not drawn upon that are
considered committed. Such facilities include overdrafts, credit cards and guarantees. The credit conversion factor is subject to expert review on
a case by case basis. The Bank does not consider credit line facilities to be committed facilities as disbursements are subject to predetermined
conditions and constitute a separate credit review. These predetermined conditions will in most cases lead directly to an increase in posted
collateral and disbursements therefore stay within acceptable collateral coverage.
Expected credit loss measurement
IFRS 9 requires the Group to determine an expected credit loss (ECL) amount on a probability‐weighted basis as the difference between the cash
flows that are due to the Group in accordance with the contractual terms of a financial instrument and the cash flows that the Group expects to
receive. The Group has implemented an ECL model which is consistent with regulatory and best practices. The model is based on four
components.
Probability of Default (PD). This is an estimate of the likelihood of default over a given time horizon. The Bank uses an external PD model
developed by CreditInfo for the domestic portfolio and individual assessment done by credit specialists in special cases and for the UK portfolio.
Exposure at Default (EAD). This is an estimate of the exposure at a future date, taking into account expected changes in the exposure after the
reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities.
Loss Given Default (LGD). This is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due
and those that the lender would expect to receive, including from any collateral. It is expressed as a percentage of EAD and derived from value
of underlying collaterals.
Discount rate. This is used to discount an expected loss to present value at the reporting date using the effective interest rate (EIR) at initial
recognition.
Forward looking probability weighted scenarios
The Group's management has identified and probability weighted three macro‐economic scenarios for the purpose of calculating expected
credit loss. The medium term domestic forecasts of macro‐economic variables and scenario weights are based on the Group‘s management
judgement and are applied for the loan portfolios that are affected by the macro‐economic variables. The Group incorporates the following
forward‐looking macro‐ economic variables into its probability weighted expected credit loss calculations: (i) unemployment rate and (ii)
inflation rate. The Group has not developed macro‐economic forecasts for the UK portfolio, but macro‐economic forecasts effect the LGD
assessment.
89.
Cash and balances with Central Bank
Cash and balances with Central Bank include notes and coins on hand, balances held with the Central Bank and other financial institutions, and
highly liquid financial assets with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of
changes in their fair value, and are used by the Group in the management of its short‐term commitments.
Cash and balances with Central Bank are carried at amortised cost in the statement of financial position.
90.
Fixed income securities
Fixed income securities are initially measured at fair value and subsequently accounted for depending on their classification as discussed in note
85.
91.
Shares and other variable income securities
Shares and other variable income securities consist of equity investments and unit shares in mutual funds. Shares and other variable income
securities are initially measured at fair value and subsequently accounted for depending on their classification as discussed in note 85.
92.
Securities used for hedging
Securities used for hedging consist of non‐derivative financial assets that are used to hedge the Group's exposure arising from derivative
contracts with customers. Securities used for hedging are measured at fair value as discussed in note 85.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
74
Notes to the Consolidated Financial Statements
93.
Loans to customers
Loans are non‐derivative financial assets with fixed or determinable payments that are not quoted in an active market and include loans
provided by the Group to its customers, participation in loans from other lenders and purchased loans that are not quoted in an active market
and which the Group has no intention of selling immediately or in the near future. Finance lease receivables are a part of the line item Loans to
Customers.
Loans are initially recognised at fair value, which is the cash advanced, plus any transaction costs. Subsequently, they are measured at amortised
cost using the effective interest method. Accrued interest is included in the carrying amount of the loans and advances. The carrying amount of
impaired loans is reduced through the use of an allowance account.
When the Group purchases a financial asset and simultaneously enters into an agreement to resell the asset, or a substantially similar asset, at a
fixed price at a future date ("reverse repo" or "stock borrowing"), the arrangement is accounted for as a loan and the underlying asset is not
recognised in the Group's statement of financial position.
94.
Derivatives
A derivative is a financial instrument or another contract that falls under the scope of IFRS 9 and generally has the following three
characteristics:
‐ Its value changes due to changes in an underlying variable, such as bond price, share price, security or price index (including CPI), foreign
currency exchange rate or interest rate
‐ The contract requires no initial investment or an initial investment that is smaller than would be required for other types of contracts that
would be expected to have a similar response to changes in market factors
‐ Settlement takes place at a future date
The Group uses derivatives for trading purposes and to hedge its exposure to market price risk, foreign exchange risk and inflation and interest
risk arising from operating, financing and investing activities. The Group does not apply hedge accounting.
Derivative assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position.
Derivatives with positive fair values are classified as financial assets and derivatives with negative fair values as financial liabilities. Revenue
from derivatives is split into interest income and net income from financial instruments at fair value and presented in the corresponding line
items in the income statement.
95.
Investments in associates
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant
influence generally exists when the Group holds between 20% and 50% of the voting power, including potential voting rights, if any.
Investments in associates are initially recognised at cost.
The Group's share of the total recognised gains and losses of associates is included in the financial statements of the Group on an equity
accounted basis, from the date the significant influence commences until the date it ceases.
If the Group's share of loss exceeds its interest in an associate, the Group's carrying amount is reduced to zero and recognition of further losses
is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
If the associate subsequently reports profits, the Group resumes recognising its share of those profits only after its share of the profits equals
the share of losses not recognised.
96.
Investment properties
An investment property is an asset which is specified for leasing to third parties, for returns or for both purposes. Investment properties are
initially recognised at cost and subsequently measured at fair value. Changes in fair value are recognised as gains or loss in the income
statement.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
75
Notes to the Consolidated Financial Statements
97.
Intangible assets
a.
Asset categories
The Group groups intangible assets into four categories:
‐ Goodwill
Goodwill arises in business combinations. It is recognised as of the acquisition date and measured as the aggregate of (a) the fair value of the
consideration transferred, (b) the recognised amount of any non‐controlling interest in the acquiree, and (c) the fair value of any previously
held equity interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities
assumed, all measured as at the acquisition date. The consideration transferred includes the fair value of assets transferred, liabilities
incurred and equity interests issued by the Group. In addition, consideration transferred includes the fair value of any contingent
consideration.
‐ Customer relationships
Customer relationships have been acquired as part of recent acquistions and are capitalised and amortised using the straight line method
over their useful life of maximum 16 years.
‐ Brands
Brands have been acquired as part of recent acquistions and are capitalised and amortised using the straight line method over their useful
life, but not exceeding 20 years.
‐ Software and other
Software comprise acquired software licences and external costs associated with the development of bespoke applications.
‐ Development cost that has been capitalised is amortized on the day that the product is launched using the straight line method over their
useful life, but not exceeding 10 years.
b.
Initial recognition
Intangible assets are initially recognised at cost.
c.
Subsequent measurement
The Group uses the cost model for measurement after recognition and intangible assets are carried at cost less any accumulated amortisation
and any accumulated impairment losses. Intangible assets are reviewed for indications of impairment or changes in estimated future economic
benefits at each reporting date. If such indications exist, then the asset's recoverable amount is estimated. Goodwill is tested annually for
impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that is
largely independent of the cash inflows of other assets or cash generating units (CGUs). Goodwill arising from a business combination is
allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the
estimated future cash flows, discounted to their present value using a pre‐tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU,
and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
d.
Amortisation
Intangible assets with finite useful life are amortised using the straight‐line method over their estimated useful economic life, with the
amortisation recognised in the income statement. The estimated useful life of intangible assets is as follows:
Customer
relationships
..............................................................................................................................................................................
Brands
.........................................................................................................................................................................................................
Software and other .....................................................................................................................................................................................
7‐16 years
4‐20 years
3‐10 years
Depreciation of property and equipment and amortisation of intangible assets are presented together as a separate line item in administrative
expenses as disclosed in note 10. Further breakdown on depreciation of intangible assets is provided in note 28.
98.
Operating lease assets
Operating lease assets are recognised at cost less depreciation and impairment. Depreciation is calculated and recognised in the income
statement on a straight‐line basis based on estimated useful life, taking into account the residual value.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
76
Notes to the Consolidated Financial Statements
99.
Property and equipment
a.
Asset categories
The Group groups tangible assets into two categories:
‐
Real estate, which includes office and residential buildings, land and building rights
‐
Other property and equipment, which includes automobiles for own use, furniture and fixtures, computers and other office equipment
b.
Initial recognition
Property and equipment is initially recognised at cost, which includes direct expenses related to the purchase.
c.
Subsequent measurement
The Group uses the cost model for the measurement after recognition and property and equipment is carried at cost less any accumulated
depreciation and any accumulated impairment losses. Property and equipment is reviewed for indications of impairment or changes in
estimated future economic benefits at each reporting date. If such indications exist, the assets are analysed to assess whether their carrying
amount is fully recoverable.
d.
Subsequent cost
The Group recognises in the carrying amount of an item of property and equipment the cost of replacing part of such an item when that cost is
incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be
measured reliably. The decision, if subsequent costs are added to the acquisition cost of property and equipment, is based on whether an
identified component, or part of such component, has been replaced or not, or if the nature of the subsequent cost means a contribution of a
new component. All other costs are expensed in the income statement when incurred.
e.
Depreciation
Depreciation is recognised in the income statement on a straight‐line basis over the estimated useful lives of each component of an item of
property and equipment. The estimated useful lives are as follows:
Real estate ...................................................................................................................................................................................................
Other property and equipment ..................................................................................................................................................................
Where parts of an item of property and equipment have different useful lives, those components are accounted for separately.
15‐50 years
3‐5 years
100.
Reinsurance assets
Reinsurance is purchased to reduce the Group´s insurance risk. The outward reinsurance contracts can be either proportional or excess of loss
contracts.
101.
Other assets
Other assets are measured at amortised cost, except for certain receivables which are measured at fair value.
Part of other assets are life‐insurance policies offered by TM líftryggingar hf. which consist of life‐insurance and contribution to investments
funds. Life‐insurance policyholder bears the investment risk.
102.
Deposits
Deposits consist of time deposits and demand deposits. Money market deposits are included in borrowings. Deposits are recognised at
amortised cost, including accrued interest.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
77
Notes to the Consolidated Financial Statements
103.
Technical provision
The technical provision in the Consolidated Financial Statements represents the Group's liability for current insurance contracts and consists of
the best estimate of the claims provision, the premium provision and the risk margin.
The claims provision is the Groups liability due to incurred claims and should cover the expected future payments due to all claims incurred,
including claims not yet reported to the Group. The core of the claims provisions is an actuarial estimate of payments of all incurred claims until
they will be settled less what has already been paid at the reporting date. According to the Act on Insurance No. 100/2016 and related
legislation the following margins are added to the core of the claim’s provision:
‐
expected settlement expenses not allocated to specific claims;
‐
future indexation of claim payments due to future inflation; and
‐ the effect of discounting the future payments using a risk‐free interest rate curve.
The expected settlement expenses are recongnized as operating expenses when they incur.
The premium provision is the provision for unearned premiums in addition to a margin for expected repayment of earned premiums. The
provision of unearned premiums is the part of written premiums relating to future exposure arising from current insurance contracts. The
premium provision is intended to cover the expected claims cost and operating expenses for future coverage of insurance contracts in force.
The risk margin represents the cost of capital that an insurance company would require to take on the insurance obligations of the Group. The
risk margin will not be paid unless the Group or part of it will be sold.
The subsidiaries in the Group have used the same method to estimate claims provision since 2014. The method is in accordance with IFRS 4 and
Act on Insurance No. 100/2016. The claims provision is the same as used for Solvency calculations, but the estimates of the premium provision
and risk margin are not.
Claims and premium provision are calculated gross and net of reinsurance.
104.
Borrowings
Borrowings are mostly comprised of money market deposits. They are initially recognised at fair value less attributable transaction costs.
Subsequently, they are measured at amortised cost using the effective interest method. Accrued interest is included in their carrying amount.
When the Group sells a financial asset and simultaneously enters into an agreement to repurchase the asset, or a substantially similar asset, at a
fixed price at a future date ("repo" or "stock lending"), the arrangement is accounted for as a borrowing and the underlying asset continues to
be recognised in the Group’s statement of financial position.
105.
Issued bills
Issued bills are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost using the
effective interest method. Accrued interest is included in their carrying amount.
106.
Issued bonds
Issued bonds are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised cost using
the effective interest method. Accrued interest is included in their carrying amount.
107.
Subordinated liabilities
Subordinated liabilities are initially recognised at fair value less attributable transaction costs. Subsequently, they are measured at amortised
cost using the effective interest method. Accrued interest is included in their carrying amount.
108.
Short positions held for trading
Short positions are obligations of the Group to deliver financial assets borrowed by the Group and sold to third parties. Short positions are
carried at fair value through profit or loss with all fair value changes recognised in the income statement under net financial income.
109.
Short positions used for hedging
Short positions used for hedging are obligations of the Group to deliver financial assets borrowed by the Group and sold to third parties. Short
positions used for hedging consist of non‐derivative financial liabilities that are used to hedge the Group's risk exposure arising from derivative
contracts with customers. Short positions used for hedging are carried at fair value through profit or loss with all fair value changes recognised
in the income statement under net financial income.
110.
Other liabilities
Other liabilities are measured at amortised cost, except for the contingent consideration which is measured at fair value.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
78
Notes to the Consolidated Financial Statements
111.
Right of use asset and lease liability
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right‐of‐use asset and a
corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short‐term leases and leases of low value
assets. For these leases, the Group recognises the lease payments as an operating expense on a straight‐line basis over the term of the lease.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by
using the Group's incremental borrowing rate. The right‐of‐use assets comprise the initial measurement of the corresponding lease liability.
They are subsequently measured at cost less accumulated depreciation.
112.
Financial guarantees
Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a
specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Financial guarantee liabilities are initially recognised at their fair value. The guarantee liability is subsequently measured at the higher of the loss
allowance determined in accordance with IFRS 9 and the amount initially recognised less, when appropriate, the cumulative amount of income
recognised in accordance with the principles of IFRS 15. Liabilities arising from financial guarantees are included with provisions.
113.
Share capital
a.
Treasury shares
Acquired own shares and other equity instruments (treasury shares) are deducted from equity. No gain or loss is recognised in income
statement on the purchase, sale, issue or cancellation of treasury shares. Consideration paid or received is recognised directly in equity.
Incremental transaction costs of treasury share transactions are accounted for as a deduction from equity, net of any related income tax
benefit.
b.
Share premium
Share premium represents excess of payment above nominal value (ISK 1 per share) that shareholders have paid for shares sold by the Group.
c.
Dividends on share capital
Dividends on share capital are deducted from equity in the period in which they are approved by the Group's shareholders meetings.
114.
Nature and purpose of equity reserves
a.
Option reserve
The option reserve represents the cumulative charge to the income statement for options to purchase shares in the Bank granted under the
Bank's Remuneration policy, which is discussed in notes 68‐70.
b.
Warrants reserve
The warrants reserve represents the consideration received for outstanding warrants, as disclosed in note 41.
c.
Deficit reduction reserve
The deficit reduction reserve was created as a part of a share capital reduction approved by the Bank's Annual General Meeting in April 2014.
The reserve has no specified purpose and can only be used with the approval of a shareholders' meeting.
d.
Fair value reserve
The fair value reserve represents fair value changes, net of tax, for assets held at fair value through other comprehensive income. The reserve is
released in correlation with realization of gains or losses of financial assets upon sale or derecognition.
e.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations,
until the operations are sold, dissolved or abandoned.
f.
Restricted retained earnings
According to the Financial Statements Act No. 3/2006 the difference between share of profit of subsidiary or associate in excess of dividend
payment or dividend payment pending, shall be transferred to a restricted retained earnings reserve, net of tax, which is not subject to dividend
payments. When shareholding in subsidiary or associate is sold or written off the restricted retained earnings reserve shall be released and the
amount transferred to retained earnings.
When development cost is capitalized a corresponding amount is transferred from retained earnings to restricted retained earnings according to
the Financial Statements Act No. 3/2006. The reserve is then transferred back to retained earnings in line with amortization of the asset through
income statement.
g.
Retained earnings ‐ accumulated deficit
Retained earnings (accumulated deficit if negative) consists of undistributed profits and losses accumulated, less transfers to other reserves.
115.
Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
that is attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential
ordinary shares, which comprise share options granted to employees and issued warrants.
Kvika banki hf.
Amounts are in ISK thousands
Consolidated Financial Statements 31 December 2022
79
Notes to the Consolidated Financial Statements
116.
New standards and interpretations
A number of new standards, amendments to standards and interpretations were not yet effective for the year ended 31 December 2022 and
have not been applied in the preparation of these financial statements. Early adoption of new standards and amendments is not planned.
IFRS 17 Insurance Contracts
In May 2017 the International Accounting Standards Board (IASB) published IFRS 17 Insurance Contracts which includes a complete review of
the requirements for accounting for companies which issue insurance contracts. The standard became effective on 1 January 2023 and replaces
IFRS 4 Insurance Contracts.
The insurance operations of the Group will report in accordance with IFRS 17 as of 1 January 2023. The Group will apply the standard using the
modified retrospective approach and will update comparison amounts in accordance with IFRS 17. The standard will have an effect on the
presentation of the insurance part of the Group’s financial statements, but the Group expects that the effects on its income statement and
equity will be limited.
Measuring insurance contracts
The standard allows for the use of Premium Allocation Approach (“PPA”) when the duration of insurance contracts is one year or less and also
when the contracts which have a longer duration have the same characteristics, e.g. through an annual review of premiums. The Group will
apply this approach as this applies to a large extent to the Group’s contracts, and the premiums for those that this does not apply to are
immaterial.
Effect on the statement of financial position
The largest change to the Group’s statement of financial position will be that instead of the current premium provision, which is a large part of
the insurance provision, there will only be a liability equal to premiums received less acquisition costs, i.e. liability for remaining coverage. The
Group has decided to charge acquisition costs as they occur instead of amortising over the contract period. The provision only applies to
premiums received and therefore no accounts receivables are formed on the asset side of the statement of financial position (a part of the
Group’s other assets) related to the premiums for the remaining period of the contracts. The effects of this are similar to the effects of
subtracting accounts receivables for premiums from the current premium reserve.
Effect on the income statement
The Group does not expect the standard to have a large effect on the presentation of the Group‘s income statement.
117.
Use of estimates and judgements
In the process of applying the Group's accounting policies, management makes use of judgements and estimates which are based on various
assumptions. These judgements and estimates can affect the reported amounts of assets and liabilities, income and expense.
Assumptions and estimates are based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances, and are reviewed on an on‐going basis. The estimates form the basis for judgements about the carrying
value of assets and liabilities that are not readily available from other sources and actual results may differ. Judgement may also be required in
circumstances not involving estimates, e.g. when determining the substance of a particular transaction, contract or relationship.
The areas where the use of judgements and estimates has the most significant effect on the amounts recognised in the statement of financial
position or the income statement are disclosed in this note.
a.
Claims provision
The estimation of claims provision is one of the Group's most critical accounting estimate as there are several sources of uncertainty that need
to be considered in the estimation procedure. The uncertainty in the estimation involves both the estimation of the ultimate claims cost of
reported claims as well as incurred but not reported claims. The Group uses standard actuarial and statistical methods to estimate the ultimate
claims cost. The uncertainty in non‐life insurance is particularly high in accidents and other long‐tailed business lines. Reference is made to note
33 and note 103 for further information.
b.
Fair value of financial instruments
The fair value of financial instruments that are not quoted in active markets is determined using valuation techniques which are reviewed
regularly as discussed in note 64.
c.
Impairment of financial assets
As outlined in note 88, the use of estimates and judgement is an important component of the calculation of impairment losses. The
methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any
differences between loss estimates and actual loss experience. Unforeseen events could, however, result in further impairment losses which
would have a material effect on the income statement and statement of financial position.
d.
Impairment of intangible assets
The carrying amount of intangible assets are reviewed annually to determine whether there is indication of impairment as disclosed in note 97.
If any such indication exists the asset's recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset
exceeds its recoverable amount.
e.
Deferred tax assets
Judgement is required to determine the extent to which deferred tax assets are recognised in the statement of financial position, based on the
likely timing and level of future taxable profits.
80
Appendix:
StatementontheCorporate
GovernanceofKvikabankihf.2022
Unaudited
Kvikabankihf. AmountsareinISKthousands
StatementontheCorporateGovernanceofKvikabankihf.2022
0
Asset Management emphasises on offering clients a broad range of services for investing in Iceland as well as in foreign markets. Its aim is to provide
the best asset and fund management services, guided by clients’ long‐term interests. Asset and fund management operations are mostly handled by
Kvika’ssubsidiary,Kvikaeignastýringhf.
Return on equity is determined by decisions made in accordance with the Company’s risk appetite, which reflects its profitability targets. Emphasis is
placed on utilising equity as efficiently a s possible with regard to risk. Consequently, decisions regarding the optimal composition of the balance sheet
togenerateincomearerestrictedbyriskappetiteandfundingatanygiventime.Kvika’stargetisareturnontangibleequityofatleast20%.
Kvika’s objective is to deliver to shareholders an annual compensation equivalent to a minimum of 25% of profit, whether in the form of dividend
payments or share repurchases, under a formal buy‐back programme, as authorised by applicable laws and decisions made at shareholders’ meetings.
When deciding on the amount of dividends or, as the case may be, the funds allocated for share buy‐backs, care is taken to maintain Kvika’s strong
financial position, bearing in mind risks in the internal and external environment and growth prospects, to ensure that the Company maintains a solid
capital ratio and liquidity for the future. Dividend payments are always subject to assessments of the opportunities offered by reinvesting profits in
Kvika’soperationsandgrowth.
Businessstrategyandvalues
Kvika banki hf. (hereinafter referred to a s “Kvika” or the “Company”) is categorized as a financial conglomerate by the Financial Supervision of the
Central Bank of Iceland (hereinafter referred to as “FME”). Kvika’s purpose is to increase competition and simplify customers’ finances by utilizing
infrastructure and financial strength. Kvika’s vision is to transform financial services in Iceland with mutual benefits in mind. On that journey, K
vika is
guided by three values that contribute to the development of robust business relationships, long‐term results, and active innovation. Kvika’s values are
long‐term thinking, simplicity, and courage. In accordance with those values the Company places emphasis on thinking of the future and contributing
to a sustainable community through a ctive participation. Emphasis is placed on putting ourselves in the customer’s shoes, rethinking things and
selectingprojectsthatprovidethemostlong‐termvalueforcustomersandtheCompany.
Kvika offers its customers diversified financial and insurance services through five business segments: Commercial Banking, Corporate Banking &
Capital Markets, Insurance, Asset Management and UK operations. The business segments Insurance, Asset Management and the UK operations are
operatedinthesubsidiariesTMtryggingarhf.Kvikaeignastýringhf.andKvikaSecuritiesLtd.
Sustainabilityandsocialresponsibility
Kvika's purpose is to increase competition and simplify customers' finances by using infrastructure and financial strength. Kvika's values are long‐term
thinking, simplicity and courage. The company emphasizes long term thinking and promoting a sustainable society through active participation, but
oneoftheguidingprinciplesofKvika'soverallstrategyfrom2021includesfocus
onsustainabilityandsocialresponsibility.
Commercial Banking provides businesses, institutions and investors with general banking services. Customers’ daily banking transactions are handled
mostly via Kvika’s online banking system. The online banking sector enables customers to handle a wide range of banking transactions and monitor
portfolios anywhere and at any time. Kvika also offers a range of restricted and unrestricted deposit accounts, both indexed and non‐indexed. Kvika
provides private customers with a wide range of financial services via its Auður, Aur, Framtíðin, Lykill and Netgíró specialised brands. Auður is an online
financial service that offers deposit accounts for individuals. Kvika also offers companies and individuals financing in the form of loan and lease
agreements for cars, machines, equipment etc. through the brand Lykill. In addition, Kvika operates Framtíðin, that is exclusively online and provides
realestateloanstoindividualswhoqualifyforadditionalhousingloans,runsthepaymentserviceNetgíróandthepaymentapplicationAur.
On the basis of Kvika's overall strategy, a new sustainability strategy was formulated and approved in 2022. The sustainability strategy was developed
with employees across the bank's units and subsidiaries. With the new strategy, four themes have been defined that the group emphasizes when
implementing sustainability. They relate to innovation and product development; sustainable business environment; internal and external
communications; wellbeing of employees and the community. Along with the formulation of the sustainability strategy, a materiality assessment was
conducted on the importance of the ESG factors for Kvika´s operation. Part of that assessment was a stakeholder survey. The results of the materiality
mappingwillbeusedwhenformulatingKvika'sfocusinsustainability.
Corporate Banking & Capital Markets provide a range of professional services in the fields of specialised financing, securities and f oreign exchange
transactions and corporate finance services. Capital Markets provide customers with comprehensive services in securities and foreign exchange
brokerage. Kvika has forged a strong position for itself in the foreign exchange market and is the only bank offering foreign exchange trading on the
new, transformational Keldan foreign exchange market. Our market trading operations also enable customers to trade stocks and bonds on all of the
world’s major markets, while experts offer professional advice and personalised services tailored to the needs of professional investors. The Corporate
Finance segment provides advice on the acquisition, sale and merger of companies and business entities, financing businesses via stock or bond
auctions, listing and delisting stocks and bonds. The Corporate Banking segment provides businesses, institutions and investors with specialised
lending to finance such things as real estate, real estate development, securities transactions and other investments. The division also uses the ba nk’s
infrastructuretodistributeloanstootherinstitutional
investors.
Kvika’s UK operations are operated through the subsidiary Kvika Securities ltd. (hereinafter referred to as “KSL”). KSL, established in 2017, is a
subsidiary regulated in the United Kingdom by the Financial Supervisory Authority. KSL’s focus is on corporate finance, as well as fund and asset
managementservices.Further,thepropertylenderOrtusSecuredFinance,isasubsidiaryofKSLandspecializesinpropertybackedlendingintheUK.
Insurance operations of Kvika are operated through its subsidiary, TM Insurance, which has a rich history and over 60 years of experience. TM
Insurance offers a universal and highly diversified product offering to commercial and private customers and its main insurance categories include
Motor, Property, Marine, Liability, Accident and Life insurance. TM Insurance operates in accordance with Act no. 100/2016 on insurance activities and
islicensedintheEuropeanEconomicAreaandintheFaroeIslands.
ConsolidatedFinancialStatements31December2022 81
Kvikabankihf. AmountsareinISKthousands
StatementontheCorporateGovernanceofKvikabankihf.2022
0
Kvika is obliged to observe recognised corporate governance guidelines, pursuant to Par. 7 of Article 54 of Act No. 161/2002, on Financial Undertakings.
The Company complies with chapter VII of Act No. 161/2002, on Financial Undertakings, and in most respects with the Guidelines on Corporate
Governance issued jointly in February 2021 by the Chamber of Commerce, NASDAQ Iceland and SA – Business Iceland. The Guidelines are available on
the website of the Chamber of Commerce www.vi.is. Kvika’s only deviation from the guidelines is that it has not appointed a nomination committee
nor decided how one should be appointed. There is currently no specific nomination procedure in p lace for b oard members. Shareholders elect board
members f rom those candidates which have announced their candidacy. If the number of candidates does not outnumber the number of seats on the
BoardofDirectors,thecandidatesareautomaticallyelectedtotheBoardofDirectors.
Regulatoryframework
Kvika is a financial undertaking subject to provisions of Act No. 161/2002, on Financial Undertakings, Act No 61/2017, on Additional Supervision of
Financial. Conglomerates, Act No. 115/2021, on The Market for Financial Instruments, Act No. 45/2020, on Alternative Investment Funds, Act No.
14/2020, on Prospectus for Public Offering or Admission to Trading on a Regulated Market, Act No. 33/2013, on Consumer Lending, Act No. 118/2016,
on mortgage lending to consumers, Act No. 100/2016 on Insurance Activity, Act No. 2/1995 on Limited Liability Companies, the Competition Act, No.
44/2005, Act No. 114/2021, on Payment Services, Act No. 3/2006, on Annual Financial Statements, Act No.140/2018, on Measures against Money
Laundering and Terrorist Financing and others. Moreover, Kvika is obliged to guarantee the safety of the personal data it processes in its activities,in
accordance with Act No. 90/2018, on the Protection of Privacy as regards the Processing of Personal Data. Kvika has an operating licence from FME,
which supervises the activities of the Company. Kvika’s activities are therefore governed by the rules and instructions of the FME and Central Bank of
Icelandaswellasotherlegalprovisionsandderivativerulesandregulationsregardingfinancialoperations.MoredetailsaboutFMEandanoverviewof
theprincipallegislationandrules
thatapplytotheCompanyatanygiventimecanbefoundonthewebsiteofFMEwww.en.fme.is.
Themainelementsofinternalcontrol,riskmanagementandaccounting
The Board of Directors is responsible for ensuring that an active system of internal controls is in place within the Company, based on three lines of
defence: The first line of defence consists of the management and the employees of business and principal units in charge of the Company’s daily
management and organization. Their main responsibility is to ensure the functionality and implementation of internal control measures in daily
operations. The second line of defence is comprised of the internal control units of the Company, principally the Compliance Officer, who is in charge
of ensuring that laws and regulations are observed, and Risk Management, which, among other things, measures and assesses risk according to the
Company’s criteria. Other units may also be given control functions. The third line of defence are the internal auditor and sub‐committees, which
ensure internal auditing is in place a nd functioning. Among other things, they prepare independent surveys and reports for the Board of Directors and
AuditCommittee.
At Kvika’s AGM in 2019, shareholders agreed to entrust the Board of Directors at the time with analysing the advantages and disadvantages of
appointing a nomination committee for the Company, inviting shareholders to express their views on the question and draft a proposal if this was
considered advisable. The Board subsequently examined the matter and announced the results of its assessment to shareholders at the Company’s
2020 AGM. Part of the analysis involved a review of actions taken by other companies and discussing the matter with shareholders and representatives
of companies where nomination committees operate. The conclusion at the time was to not propose to shareholders to appoint a nomination
committee. No objections were made in regard to that conclusion. In this context, it should be noted that special rules apply to financial undertakings
regarding assessment of the composition of their boards. Each year, the Board of Directors carries out a self‐assessment wi th regard to its composition,
assisted by external consultants. Bearing this in mind, the Board was of the opinion that the need for a nomination committee was not as great as
mightexistinothercompanies.
Furthermore, Kvika’s activities comply with the recognised standards and rules of the European Banking Authority (EBA), including guidelines on
internal governance (EBA/GL/2021/05), cf. Article 15 of regulation of the European Parliament and of the Council No. 1093/2010, which was
incorporatedintoIcelandiclawwithactno.24/2017aEuropeanFinancialSupervisory
System(hereinafter“EBAGuidelines”).
Kvika provides a variety of grants that have a positive social impact. In recent years, Kvika has focused on supporting UNICEF in Iceland; women and
innovation with FrumkvöðlaAuður; and industrial studies and teacher training with Kvika's Incentive Fund. Education is one of the best long‐term
investmentsforcommunitiesandindividuals,andaccordinglythebankcontributestothecause.
A more detailed discussion of the scope, position and impact of the group regarding the E, S and G factors can be f ound in Kvika's sustainability report,
which is published together with Kvika's annual financial statement. The report is based on Nasdaq's UFS guidelines (ESG Reporting Guide 2.0), but in
additiontheGRIStandardshavebeentakenintoconsiderationandrelevantindicatorsareanswered.
Compliancewithcorporategovernanceguidelines
Kvika's sustainability governance structure includes a committee on social responsibility and sustainability that follows the implementation of the issu e
on a consolidated basis, together with the sustainability project manager, who sits in the CEO's office. Kvika's CEO and managing directors are
responsible for the implementation and execution of the sustainability policy and other policies that have been adopted and support the E, S and G
factors. Furthermore, the board of Kvika has set the bank a code of conduct and rules on conflicts of interest, which are intended to promote good
working and business practices within the bank. Kvika strives to offer its employees a healthy, reliable and positive work environment that is shaped by
equal opportunities. Emphasis is placed on ensuring the professionalism of employees and that their decisions take into account the bank's values. T he
bank'spoliciesandrulescanbefoundonKvika'swebsite.
Kvika's new sustainability strategy adopts six UNDG to emphasize in the operations. They are: goal 3 on good health and wellbeing; goal 4 on quality
education; goal 5 on gender equality; goal 9 on industry innovation and infrastructure; goal 13 on climate action; and goal 17 on partnership for the
goals.
Kvika has been a member of the United Nations Principles for Responsible Investments (UN PRI) since autumn 2020, and participates in various
collaborations in the field of sustainability, such as being a founding member of IcelandSIF, an association for responsible investments, a member of
the Festa Center for Sustainability, since 2017, and a supporter of Grænvangur, a cooperation platform between industry and government on climate
issuesandgreensolutions,since2021.InNovember2022,KvikabecameamemberofPCAF(e.PartnershipforCarbonAccountingFinancials).
ConsolidatedFinancialStatements31December2022 82
Kvikabankihf. AmountsareinISKthousands
StatementontheCorporateGovernanceofKvikabankihf.2022
0
TheCEOreportstotheBoardandverifiestheeffectivenessofinternalcontrolsandriskmanagementintheConsolidatedFinancialStatements.Internal
controls and risk management applied in the preparation of the Consolidated Financial Statements are organised with a view to preventing any
significantdeficienciesintheaccountingprocess.
Kvika’s Finance division prepares annual f inancial statements in accordance with International Financial Reporting Standards (IFRS) as adopted bythe
EU, and additional requirements, as applicable, in the Act. on Annual Accounts no. 3/2006, the Act on Financial Undertakings no. 161/2002 and rules
onaccountingforcreditinstitutionsno.834/2003.TheannualfinancialstatementsareauditedbyKvika’sexternalauditors,Deloitte.
The implementation and functioning of internal controls is the responsibility of the management of the Company and its control units. Internal control
is founded on risk assessment and control measures intended to reduce risk factors in the operations of the Company. Internal control includes
documented
andformalprocedureswhichKvika’semployeesfollowintheirdailyworkandwhichareexaminedbythecontrolunits.
The Board of Directors determines the risk policy and risk appetite of the consolidation with rules on risk management of the financial conglomerate of
Kvika, which define risk factors in Kvika’s operations, including their nature and acceptable volume. The Board hires an Internal Auditor, signs his/her
formal statement of duties and annually approves the audit plan. The CEO appoints the Compliance Officer with the approval of the Board and signs
his/herformalstatementofduties.ThereportsandfindingsoftheInternalAuditorandComplianceOfficerarepresenteddirectlytotheBoard.
The Board has established rules on risk management of the financial conglomerate of Kvika which are rules on risk and apply to Kvika as a financial
conglomerate in whole. The purpose of the rules is to harmonize risk management within the consolidation to ensure it is systematic and effective and
geared to enhance transparency within the consolidation’s risk taking at all levels of management, from the Board of Directors of Kvika to Boards of
subsidiaries, the operating units and individuals who directly participate in daily management and decision‐making regarding risk. The rules on risk of
the financial conglomerate of Kvika stipulate that the Company and its subsidiaries shall establish a risk policy. The risk policy of the Company and each
subsidiary shall implement what is stated in the rules on risk and further define risk‐taking within Kvika and each subsidiary. The Board of Directors has
establishedariskpolicy
fortheCompany.
The members of the Remuneration Committee are Guðjón Reynisson, who is chairperson, Sigurður Hannesson and Helga Kristín Auðunsdóttir. The
committee has an advisory and supervisory role for the Company’s Board of Directors regarding salaries and other remuneration, ensuring that this
supportsitsobjectivesandinterests.Thecommitteemeteighttimesin2022.
All the Board’s sub‐committees have established rules of procedure prescribing the implementation of their tasks in detail and endorsed by the Board.
The Board appoints sub‐committee members by majority vote from its own ranks and nominates the chairpersons. Because of the nature of the
committees, neither the CEO nor other employees can serve on them. The rules of procedure of the committees and the Board are accessible on
Kvika’swebsitewww.kvika.is.
Kvika’sBoardofDirectorsandcontrolunitsregularlyverifytheeffectivenessofinternalcontrolsandriskmanagement.
CompositionandactivitiesoftheBoardofDirectors,ExecutiveCommitteeandsub‐committees
EachyearKvika’sAGMelectsaBoardofDirectorsconsistingoffiveboardmembersandtwoalternatesforaone‐yearterm.
Directors come from varied backgrounds and all possess extensive experience and expertise. In accordance with the Company’s gender equality policy
and the Act on Limited Liability Companies, care is taken to ensure at least 40% representation of each gender on the Board, which is currently
comprised of three men and two women. The CEO is appointed by the Board of Directors. Board meetings are generally held once a month. In 2022, 20
board meetings were held and all board members attended all board meetings, except for two meetings where one board member was absent in each
instance.TheChairmanoftheBoardattendedallmeetingsoftheBoardofDirectors.
The Board of Directors is the supreme authority in the affairs of the Company between shareholders’ meetings. Its main duties are to supervise all
Kvika’s operations and ensure that they are in good order at all times. The Board is responsible for Kvika’s policy making and shall ensure that the
accounting and handling of the Company’s assets are properly supervised. The Board prepares p lans for Kvika in line with its objectives and in
accordance with its Articles of Association and determines the strategies to be followed to a chieve the objectives set. The Board appoints the CEO and
supervises his work, e.g., by receiving regular reports from him at board meetings. The Board annually evaluates the CEO’s work in a documented
manner. The Board also represents the Company before courts and government authorities and allocates authority to sign and to commit the
Company.
The members of Kvika’s Executive Committee, in addition to the CEO are the following employees: Sigurður Viðarsson, Deputy CEO, Eiríkur Magnús
Jensson, Managing Director of Finance, Anna Rut Ágústsdóttir, Managing Director of Operations and Development, Thomas Skov Jensen, Managing
Director of Risk Management, Bjarni Eyvinds, Managing Director of Corporate Banking and Capital Markets and Lilja Jensen, General Counsel.
Additionally in the Group´s Executive Committee are Hannes Frímann Hrólfsson, CEO of Kvika Asset Management hf., Hjálmar Sigurþórsson, acting CEO
of TM Tryggingar hf. and Gunnar Sigurðsson, Managing Director of Kvika Securities Ltd. More details about the Executive Committee are accessible on
Kvika’swebsitewww.kvika.is.
Kvika’sBoardofDirectorshasthreesub‐committees,the
AuditCommittee,RiskCommitteeandRemunerationCommittee.
The members of the Audit Committee are Ingunn Svala Leifsdóttir, as chairperson, Helga Kristín Auðunsdóttir and Margrét G. Flóvenz. The committee
operates on a consolidated basis and is intended to play an advisory and supervisory role for Kvika’s Board of Directors by, among other things,
ensuring the quality of financial statements and other financial information from the Company and the independence of its auditors. The committee
supervises accounting procedures and the effectiveness of internal controls as well as internal and external auditing. The committee met eight timesin
2022.
The members of the Risk Committee are Guðmundur Þórðarson, who is chairperson, Ingunn Svala Leifsdóttir and Sigurður Hannesson. The
committee’s role has an advisory and supervisory role f or the Company’s Board of Directors, among other things, in determining its risk policy and risk
appetite. The committee also monitors the organisation and effectiveness of risk management, management of credit risk, market risk, liquidity risk,
operatingrisk,reputationalriskandotherrisks,asthecasemaybe.Thecommitteemet11timesin2022.
ConsolidatedFinancialStatements31December2022 83
Kvikabankihf. AmountsareinISKthousands
StatementontheCorporateGovernanceofKvikabankihf.2022
0
Helga Kristín Auðunsdóttir was born in 1980. Helga Kristín holds a doctor’s degree in Law from Fordham University in New York. Helga Kristín
graduated with a BS degree in Business Law from Bifröst University in 2004 and with a Master’s degree in Law from the same university in 2006. She
graduated with an LL.M degree in Law from the University of Miami, with a focus on international business law and contracts. Helga Kristín also studied
law at University of Thessaloniki, in Greece. In her doctoral studies at Fordham University she researched hedge fund investments and what factors
influence how they act as shareholders in listed companies. Helga Kristín has worked as a director and lecturer at Bifröst University for the past ten
years. Prior to that, she worked as a lawyer at FGM/Auðkenni, now part of the Central Bank of Iceland, as a lawyer at Stoðir hf., prior FL Group, and as a
lecturer at the faculty of law at University of Miami in 2010‐2011. Helga Kristín was a board member of TM hf. from 2020 and was an appointed
alternate on the Board of Directors of Tryggingamiðstöðin hf. in 2012‐2015. Helga Kristín does not own shares in the Company and does not have
interestlinkswithmajorclients,competitorsorbigshareholdersininthesenseoftheCorporateGovernanceguidelines.
Ingunn Svala Leifsdóttir was appointed to Kvika’s Board of Directors in September 2021. Ingunn was born in 1976. She graduated with a BS degree in
Business from the University of Iceland in 1999, with a focus on accounting and finance, and with a Cand. Oecon business degree from the same
University in 2001, with a focus on accounting and management. Ingunn Svala completed the Advanced Management program (AMP) from the IESE
Business School in New York in 2018. Ingunn Svala currently works as a chief operationg officer for Dohop, before that she worked as a executive
director of operations at Reykjavík University. Ingunn Svala has extensive experience of serving as a board member. She has served as a board member
of Slippurinn Akureyri ehf. since 2015, as a board member of the logistics company Parlogis ehf. since 2014 and as a board member of Ósar – lifeline of
health hf. since 2021. Ingunn Svala sat on the Audit Committee of VÍS in 2019 to 2021 and was a board member of Líftryggingafélags Íslands (Lífís) from
2017 to 2021. Ingunn Svala has also established and operated her own business, including in accounting and real estate. Ingunn Svala also has
extensive experience from the financial sector. She worked for the Kaupthing´s Resolution Committee as Chief Financial Officer from 2009 to 2011 as
well as working as a Global Business Controller in Investment Banking at Kaupþing bank in 2007 to 2009. Ingunn Svala also worked within the Actavis
Group PTC consolidation in 2006 to 2007 as a CFO for four subsidiaries, namely Actavis hf., Medís ehf., Actavis Group hf. and Actavis Group PTC ehf.
Ingunn Svala does not own shares in the Company and does not have interest links with major clients, competitors or big shareholders in in the sense
oftheCorporateGovernanceguidelines.
Sigurgeir Guðlaugsson and Helga Jóhanna Oddsdóttir are alternate members of Kvika’s Board of Directors. In the opinion of the Board, they are also
independentmembersoftheBoardofDirectorswithinthemeaningoftheCorporateGovernanceGuidelines.
TheBoardofDirectorsconsiders
allboardmemberstobeindependentdirectorsasdefinedbytheCorporateGovernanceGuidelines.
TheCEOcanprovidemoredetailedinformationontherulesofprocedureandtheoperationsoftheboardandsub‐committees.
InformationonBoardmembers
Sigurður Hannesson is the chairman of the Board. He was appointed to Kvika’s Board of Directors in March 2020. He was born in 1980 and is currently
the Director General of the Federation of Icelandic Industries. From 2013‐2017, Sigurdur worked as a managing director of Kvika asset management
(previously MP Bank). In 2015, Sigurdur was the Vice‐Chairman of the Government Task Force on lifting of capital controls and in 2013 the Chairman of
the Expert Group on household debt relief. From 2010‐2013, Sigurdur worked as CEO of Jupiter fund management company, now Kvika Asset
Management, and in Capital Markets at Straumur Investment Bank from 2007‐2010. Sigurdur holds a DPhil degree in mathematics from the University
of Oxford, a BS degree in mathematics from the University of Iceland and is a certified securities broker. Sigurður is the chairman of the board of
directors of the Iceland Symphony Orchestra and of NSA Ventures. He also sits on the board of directors of Reykjavík University, Auðna‐Tæknitorg ehf.
and the Icelandic Cancer Society. Sigurður owns 8,550,107 shares in the Company through shareholding in the private limited company BBL 39 ehf., but
doesnothaveinterest
linkswithmajorclients,competitorsorbigshareholdersinthesenseoftheCorporateGovernanceGuidelines.
Guðmundur Þórðarson is the deputy chairperson of the Board. He was appointed to Kvika’s Board of Directors in March 2017. Guðmundur was born in
1972. He graduated from the University of Iceland with a Cand. oecon business degree in 1997. He has also completed a securities brokerage and asset
management exam in the UK. Guðmundur’s main focus is on managing his own investments. From 1997 to 2000 he worked in Asset Management at
Landsbréf hf. From 2000 to 2003, he worked as a specialist in the development and corporate advisory division of Íslandsbanki hf. From 2003 to 2007
he worked as Managing Director of Corporate Finance at Straumur fjárfestingarbanki hf. Guðmundur also sits on the boards of Hedda eignarhaldsfélag
ehf., Skel Investments ehf., Flóka Capital ehf and Attis ehf., as well as serving as an alternate in the board of Bílaleiga BTF ehf. Guðmundur holds
66,750,000 shares in the Company through the private limited company Attis ehf. Guðmundur does not have interest links with major clients,
competitorsorbigshareholdersinthesenseoftheCorporateGovernanceGuidelines.
Kvika has adopted a policy for assessing the eligibility of its directors and CEO as provided for in EBA guidelines and pursuant to Art. 52 of Act No.
161/2002, on Financial Undertakings, provisions of Rules No. 150/2017, on assessment of eligibility of managing directors and directors of financial
undertakings and the guidelines. It addresses, inter alia, Kvika´s policy on the diversity of its Board of Directors, Executive Committee and senior
management with regard to age, gender and educational and professional background. The composition of the Board is also dealt with in Kvika's
Articles of Association, which state, among other things, that its Board shall be so comprised that its members jointly p ossess adequate expertise, skills
and experience to understand the activities of the Company, including key risk factors. The Articles also state that the proportion of each gender on the
Board and among alternates shall not be lower than 40%. Kvika has also adopted a Human Resources and Equality Policy. According to the Company’s
equality policy, non‐discrimination and diversity shall characterise all its operations. All employees should have the opportunity to make good use of
their abilities at work and be valued on their own merit, have equal opportunities and enjoy the same rights in their work and for career advancement,
regardlessofgender,ageandorigin.
Guðjón Reynisson was appointed to Kvika’s Board of Directors in March 2018. He was born in 1963 and works as an independent investor and board
member. Between 2008 and 2017 he served as CEO of Hamleys of London. From 2003 to 2008, he served as managing director of the 10‐11 stores.
From 1998 to 2003 he was the managing director of the sales division of Tal, an Icelandic phone company. He graduated with an MBA degree from the
University of Iceland in 2002. He graduated with an Operations and Business degree from the Continuing Education Study of the University of Iceland
in 1999 and also graduated with a degree as a licensed physical education teacher from the University of Iceland in 1986. Guðjón has been on the
board of directors of Festi hf. since 2014, of Securitas hf. since 2018 and of Dropp ehf. since 2020. Guðjón controls 10,410,789 shares in Kvika through
his private limited company, Hakk ehf., but does not have interest links with major clients, competitors or b ig shareholders in the sense of the
CorporateGovernanceGuidelines.
ConsolidatedFinancialStatements31December2022 84
Kvikabankihf. AmountsareinISKthousands
StatementontheCorporateGovernanceofKvikabankihf.2022
0
CommunicationsbetweenshareholdersandtheBoard
Information is provided to shareholders on a non‐discriminatory basis and is mainly limited to shareholders’ meetings or the communication of
harmonised information to all shareholders simultaneously. News of the Company’s operations are posted on Kvika’s website and press releases are
issued when newsworthy events in the Company’s operations take place. A detailed presentation of the Company’s operations over the past year is
alsoprovidedatitsAGMandinformationontheCompany’soperationsispublishedinKvika’sannualreportandfinancialstatements.
ThisstatementonthecorporategovernancepracticesofKvikabankihf.wasreviewedandapprovedbytheBoardofDirectorson15February
2023.
The Board of Kvika annually evaluates its performance. It evaluates the performance of tasks and work of the Board for the previous year. The focus of
the assessment is on strategic planning, disclosure and future vision, the size and composition of the Board, performance of Board members, the work
of su b‐committees and performance of the CEO, the internal auditor and the secretary of the Board. The development of the Company is examined
with a view to assessing whether it is line with objectives. Following the annual performance assessment, the Board defines tasks in areas where
improvements are needed. The last performance assessment was conducted in January 2023. The Board also regularly conducts special self‐
assessmentsonitscompositioninaccordancewiththeguidelinesoftheEuropeanBankingAuthority(EBA),andlastdidsoinJanuary2023.
InformationontheCEOofKvikaandhismainduties
Marinó Örn Tryggvason became CEO of Kvika in May 2019. Marinó was born in 1978 and from August 2017 acted as Kvika’s Deputy CEO. Prior to this,
Marinó worked in asset management at Arion banki and the bank's forerunner from 2002. Between 2014‐2017, Marinó was the Deputy Managing
Director of Asset Management at Arion banki and between 2007 and 2014 was the head of institutional asset management. Marinó sat on the board of
the Vörður insurance company between 2016‐2017. Marinó holds a BSc in business studies from the University of Iceland and possesses a diploma in
securities trading. Marinó controls 7,459,892 shares in Kvika and has also entered into call option agreements with Kvika in accordance with Kvika´s
remuneration policy and incentive scheme as well as the employees’ general stock option plan. He does not have interest links with major clients,
competitorsormajorshareholdersasdefinedbytheCorporateGovernanceGuidelines.
The CEO oversees the daily operations of Kvika and in so doing follows the policies and instructions which have been laid down by the Company’s
Board of Directors. Daily operations do not include unusual or major arrangements. The CEO shall ensure that Kvika’s accounts are kept in accordance
with laws and customs and that the Company’s assets are handled in a secure manner. The CEO appoints and dismisses employees of the Company.
Furthermore,heisobligedtofollowalloftheBoard’sinstructions.TheCEOshallprovideKvika’sexternalauditorswithallrequestedinformation.
Informationonviolationsoflawsandregulations,determinedbytherelevantsupervisorybodyoradjudicatingentity
Kvika has not been subject to withdrawal, revocation or dismissal of registration, authorization, membership or permissions to perform certain trades,
operations or work. Kvika has not been fined by any supervisory body in the year 2022. No legal or arbitration proceedings which may have significant
effectsontheCompanyortheGroupwereongoingorpending
attheendoftheyear.
MainfactorsintheBoard’sperformanceevaluation
ConsolidatedFinancialStatements31December2022 85
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