Consolidated
Financial
Statements
2022
Íslandsbanki
Contents
2
3 - 8
9 - 13
14
15
16
17
18 - 19
20 - 87
88 - 95
Appendix - unaudited
Íslandsbanki's Corporate Governance Statement 2022 .............................................................................
Notes to the Consolidated Financial Statements ........................................................................................
Factsheet - unaudited .................................................................................................................................
Directors' Report .........................................................................................................................................
Consolidated Income Statement ................................................................................................................
Consolidated Statement of Comprehensive Income ..................................................................................
Consolidated Statement of Cash Flows .....................................................................................................
Consolidated Statement of Changes in Equity ...........................................................................................
Consolidated Statement of Financial Position ............................................................................................
Independent Auditor's Report .....................................................................................................................
The ratio of ESG risk-
assessed credit risk has
increased from 34% to
76% during 2022
7,092
5,187
5,880
7,486
5,982
4Q21 1Q22 2Q22 3Q22 4Q22
Mortgages to
individuals
43%
Other loans to
individuals
5%
Seafood
9%
Commerce
and services
15%
Real estate
11%
Industrial and
transportation
8%
Construction
5%
Other
4%
156%
195%
147%
371%
205%
122%
123%
118%
127%
118%
31.12.21 31.3.22 30.6.22 30.9.22 31.12.22
Net stable funding ratio (NSFR)
25.3%
22.5%
21.5%
21.4%
22.2%
21.3%
18.8%
18.2% 18.2%
18.8%
31.12.21 31.3.22 30.6.22 30.9.22 31.12.22
CET 1 ratio
13.6%
12.4%
12.5%
11.9%
12.1%
31.12.21 31.3.22 30.6.22 30.9.22 31.12.22
Profit after tax
(ISKm)
Loans to customers
(Sector split as of 31.12.22)
Total assets
(ISKbn)
Leverage ratio
2
45.3%
47.6%
42.7%
36.3%
42.5%
4Q21 1Q22 2Q22 3Q22 4Q22
Loans to customers
(ISKbn)
Total capital ratio
2
Cost-to-income ratio
14.2%
10.2%
11.7%
14.4%
11.1%
4Q21 1Q22 2Q22 3Q22 4Q22
ISK
1,187bn
Factsheet 4Q22
1,086
1,108
1,154
1,153
1,187
146%
145%
152%
148%
150%
31.12.21 31.3.22 30.6.22 30.9.22 31.12.22
Customer loans / customer deposits ratio
The information above has not been reviewedor auditedby the Group's auditor 1. Based on
Gallup surveys regarding primary bank. 6 months rolling average for retail customers, December 2022 survey for SMEs and 2022 average for large companies.
2. Including quarter profit for 31.3.22 and 30.9.22.
31%
36%
35%
retail
customers
SMEs
large
companies
12
branches
700
number of FTEs
at Íslandsbanki
at year-end
Return on equity
Our profile
With a history that dates from 1875, Íslandsbanki is an
Icelandic universal bank with a strong customer focus. The
Bank believes in moving Iceland forward by empowering its
customers to succeed - reflecting a commitment to run a
solid business that is a force for good in society.
Driven by the ambition to be #1 for service, Íslandsbanki's
banking model is led by three business divisions that build
and manage relationships with its customers. Íslandsbanki
maintains a strong market share with the most efficient
branch network in the country, supporting at the same time
its customers' move to more digital services.
The Bank operates in a highly attractive market and, with its
technically strong foundations and robust balance sheet, is
well positioned for the opportunities that lie ahead.
Íslandsbanki has a BBB/A-2 rating from S&P Global Ratings.
The Bank's shares are listed on the Nasdaq Iceland Main
Market.
BBB/A-2
Stable outlook
Total liquidity coverage ratio
The Bank
Market share
1
Sustainability 4Q22
Ratings and certifications
Digital milestones 4Q22
Íslandsban
ki
Published Road to net-
zero emissions report and
sector-specific reduction
targets
95% of new private
pension savings
registrations done
digitally
Car lending process
streamlined with
electronic notarisation
now available
Íslandsbanki awarded
ISK 40m in grants to
15 innovation projects
1,429
1,446
1,437
1,549
1,566
63.1%
65.4%
69.1%
65.4%
63.8%
31.12.21 31.3.22 30.6.22 30.9.22 31.12.22
REA / total assets
Increase in personalised
targeting of relevant
products and services
for customers
The information above has not been reviewed or audited by the Group's auditor.
1. Based on Gallup surveys regarding primary bank. 6 months rolling average for retail customers, December 2022 survey for SMEs and 2022 average for large companies.
2. Including first quarter profit for 31.3.22 and third quarter profit for 30.9.22.
Íslandsbanki hf. Consolidated Financial Statements 2022
2
Directors' Report
Íslandsbanki hf. Consolidated Financial Statements 2022
3
The Board of Directors and the CEO of Íslandsbanki hf. ("the Bank" or "Íslandsbanki") present this report together with the audited
Consolidated Financial Statements of Íslandsbanki hf. and its subsidiaries (together referred to as "the Group") for the year 2022.
Íslandsbanki is a universal bank offering comprehensive financial services to households, corporations, and institutional investors in
Iceland. The Group is one of Iceland's largest banking and financial services groups, with a strong domestic market share.
Operations in 2022
The Group's profit from operations for the year 2022 amounted to ISK 24,535 million and the return on equity was 11.8%, surpassing the
Bank's target of over 10% ROE. At year-end, the Group employed 739 full-time members of staff, including 700 within the Bank itself, 57%
female and 43% male, and operated 12 branches.
Operations in 2022 were impacted by the substantial volatility in the global economy and capital markets, growing inflation and rising
interest rates, both domestically and internationally. This volatility has however so far had limited observable impact on delinquency rates
and at the same time, the tourism industry has been recovering steadily from the COVID-19 pandemic and earnings and the financial
standing in that industry have improved considerably.
The Government's sale of a 22.5% stake in the Bank in March 2022 has come under considerable public scrutiny. At year-end 2022, the
Bank received the preliminary findings from the Financial Supervisory Authority of the Central Bank of Iceland (FSA), resulting from its
inspection of the Bank's execution of the sale. In its findings, the FSA states, subject to the Bank's response, that the Bank may have
violated certain laws and regulations applicable to the Bank's operations. The management of the Bank takes the FSA findings seriously
and has already made relevant changes to its internal rules and procedures and will, subject to the outcome of its internal review and
discussions with the FSA, continue to make appropriate changes. The amount of the potential administrative fine has not been decided
and is therefore uncertain. The Bank has, however, recognised a provision based on its own internal estimate. For further information on
this matter see Note 43.
Net interest income rose by 26.7% from the previous year, supported by balance sheet growth and a rising interest rate environment. As
a result, the net interest margin increased from 2.4% to 2.9%. Net fee and commission income rose by 9.4%, with a strong performance
in Allianz Ísland hf. and good growth in fees from cards and payment processing. Net financial income was adversely affected by the rising
rates environment and a drop in the equities markets and was negative by ISK 1,257 million. Salaries and related expenses increased by
only 0.4% between years due to a 2.7% reduction in the number of FTEs. Other operating expenses increased by 6.8%. The Group's cost-
to-income ratio fell from 46.2% to 42.1% between years and was well below the 45% target. Net impairment reversals amounted to ISK
1,576 million, of which approximately ISK 750 million was a result of a favourable court ruling regarding a fully impaired loan, coupled with
the outlook for the tourism sector continuing to improve and outweighing the negative impact from increased inflation and international
economic volatility.
The Group's loan book grew by 9.2% during the year due to continued strong growth in mortgages and loans to SMEs. At the same time,
growth in loans to larger corporates was kept at a more moderate pace of 2.3%. The Group's ratio of non-performing loans decreased
from 2.0% at year-end 2021 to 1.8% at the end of 2022. Stage 2 loans under IFRS 9 have come down to 2.5% of the loan book, compared
with 9.6% at year-end 2021, as the credit risk relating to loans to the tourism industry and related industries has come down substantially.
Capital and funding
Deposits from customers remain the Bank's largest source of funding and rose by 6.2% during the year. The largest increase came from
deposits in Corporate and Investment Banking, while deposits in Personal Banking increased at a healthy 5.0% pace. The Bank was quite
active in debt issuance during the year, although turbulence in the international funding markets had a considerable impact on the pricing
and availability of funding. In the foreign markets the Bank issued its second sustainable note in the first quarter, followed by its inaugural
FX Covered Bond transaction in September in the amount of EUR 300 million, which was successfully placed with investors in quite
turbulent markets. In early October, the Bank issued ISK 10,520 million of Tier 2 bonds, the Bank's first of its kind in the domestic market.
The liquidity position of the Bank remains robust with all liquidity ratios well above both internal targets and regulatory requirements.
The Bank paid ISK 11.9 billion in dividends to its shareholders in March 2022 in line with its dividend policy of 50% of the previous year
earnings. The Group is well capitalised, with a total capital ratio of 22.2% and is well above the regulatory requirement of 19.9%, which
increased from 17.8% during the year, mainly as a result of the countercyclical buffer increasing from zero to 2.0%. The CET1 capital ratio
was 18.8% at the end of 2022, which is well above the Bank's financial target of approximately 16.5%. The capital ratios take into account
the previously planned share buyback of ISK 15 billion. Due to volatility in the global economy and capital markets, the Central Bank of
Iceland has asked the Icelandic banks to be careful in terms of capital distributions in the near term. The Bank is therefore planning to start
its share buybacks with a standard ISK 5 billion buyback program, to be conducted over the next few months. The remaining ISK 10 billion
will be added back to the Bank's capital buffers. The Bank will seek a renewed approval for share buybacks from the Bank's annual general
meeting in March and is planning to optimise its capital structure before year-end 2024, in line with its target of approximately 16.5% CET1
capital ratio.
Directors' Report
Íslandsbanki hf. Consolidated Financial Statements 2022
4
Outlook
The Icelandic economy has broadly recovered from the COVID-19 induced recession at the start of the decade. GDP growth measured
7.3% year-on-year in the third quarter of 2022 and the 7.4% average growth for the year to September is the strongest reading for this
period since 2007. Growth in the third quarter of 2022 was led by private consumption and exports, the latter largely due to a robust high
season in tourism.
Recent economic trends in the fourth quarter of 2022 and timely indicators point to a slower growth in consumption and investment than
in previous quarters. Card turnover figures and other data indicate a slowdown in consumption growth in November and December in
particular, most likely affected by a drop in real wages, higher interest rates and dwindling impact from pent-up travel demand during the
pandemic. On the other hand, tourism continued its upward trajectory in the fourth quarter and arrivals in that quarter were broadly on par
with 2019 numbers. At just under 1.7 million, foreign tourist arrivals in 2022 were equal to 85% of arrivals in 2019. For the year 2022, the
Bank's Chief Economist estimates GDP growth at 7.0%.
The economy has proven more resilient than European peers to impact from the war in Ukraine, as domestic renewable energy supplies
most of households' energy needs and rising seafood prices have partly offset an increase in import prices.
Inflation rose back to 9.9% in January 2023 following a decline from 9.9% in July 2022 to a temporary nadir of 9.3% in November 2022.
Despite the temporary setback in headline inflation, some factors in the high inflation in recent quarters show signs of abating. This holds
true for the residential real estate market, where prices fell modestly both in November and December among signs that supply is increasing
while demand is cooling. The Central Bank increased its policy rate by a total of 50 basis points in the fourth quarter and thereby its main
policy rate was 6.0% at the end of 2022.
For 2023, the Bank's Chief Economist expects GDP growth to measure 3.4%. Exports will remain the main catalyst of growth this year
due to continued growth in tourism and a moderate increase in other exports. Domestic demand, on the other hand, looks likely to grow
at a more moderate pace compared to the two previous years.
On balance, the outlook for the Bank's operations in 2023 is favourable. Unemployment remains low in Iceland, with a good outlook for
economic growth and a strong recovery in the tourism industry. Inflation however remains a challenge, impacting both the Bank's own cost
base and that of its customers. The Bank expects profitability to be in line with its 10% target in 2023, assuming normalised impairments
and the cost-to-income ratio is expected to be in the range of 40-45%, below the Bank's target to be below 45%. Furthermore, the Bank
plans to optimise its capital structure before year-end 2024, subject to market conditions and the economic environment.
Risk management
The Bank is exposed to various risks. The management of these risks is an integral part of the Bank's operations, and the Bank has
focused on building up a responsible internal risk culture among the Bank's employees. The ultimate responsibility for ensuring an adequate
risk management framework lies with the Board of Directors. The Board defines and communicates the acceptable level of risk through
the Bank's risk management policies and the CEO is responsible for ensuring that risks are managed within those limits.
The Board and the CEO hereby declare that Íslandsbanki has an overall satisfactory risk management in relation to the Bank's profile and
strategy.
The Bank's risk management framework and policies are discussed under Notes 45-60 to the consolidated financial statements and in the
unaudited Pillar 3 Report.
Ownership
The shares of Íslandsbanki are listed on the Nasdaq Iceland stock exchange and the Bank has the second largest shareholder base of
any listed company in Iceland. The Icelandic Government sold a 22.5% stake in the Bank in an accelerated book building process at the
end of March 2022 and as a result, the Government has now become a minority shareholder with a 42.5% stake. Shares held by the
Government are administered by the Icelandic State Financial Investments (ISFI) in accordance with Act no. 88/2009.
At the end of 2022 the Bank had over 13 thousand shareholders, 91% of the Bank's shares were owned by domestic parties and 9% by
international investors. Apart from the Government, pension funds and insurance companies were the largest investor group, owning
35.0% of the outstanding shares, where the largest pension funds have been gradually increasing their shareholding. Fund companies
owned 10.9% of the shares and individuals 6.8%. The global index provider FTSE Russell upgraded Iceland to Secondary Emerging
Market status on 19 September 2022 and Íslandsbanki's securities are now eligible for the FTSE Total Cap Index.
The Bank's shares outperformed the domestic stock market and were down by 5.1% in 2022, while the OMX10 index was down by 26.5%.
Taking into account the dividend paid, the shareholder return was -0.4% for the year.
For further information on the Bank's shareholders see Note 41.
Directors' Report
Íslandsbanki hf. Consolidated Financial Statements 2022
5
Sustainability
Íslandsbanki aims to be a leader in the area of sustainable development and a force for good. Alongside its vision of being a leader in
service to customers, the Bank will focus on integrating sustainability considerations into its activities, in addition to its profit objectives.
The Bank takes account of ESG criteria in its risk management and actively explores business opportunities related to sustainability.
Íslandsbanki aims to increase the general public's financial knowledge and interest in the subject and, to this end, offers interesting and
accessible seminars on finance and economics.
The Board of Directors approves the Sustainability Policy and sets the Bank's strategy and risk appetite in terms of sustainability risk.
The Board is regularly updated on corporate sustainability matters and the usage of the Bank's Sustainable Financing Framework. The
Corporate Governance and Human Resource subcommittee of the Board assists the Board in fulfilling its oversight responsibilities
concerning sustainability.
The CEO is responsible for executing the strategy and has appointed a Sustainability Committee as a main building block of the governance
structure. The Committee is the formal forum for discussions on all issues related to sustainability risk, sustainable procurement, and
business opportunities. The Committee is independent from credit committees and needs to approve proposals for credit cases before
they are included in the Sustainable Financing Framework. The Committee is chaired by the CEO and has senior representatives from the
business units, Finance, Risk Management, and Strategy and Sustainability.
The Sustainability Policy creates a comprehensive framework for its activities in the area of environmental affairs, respect for human rights,
responsible lending, investments, purchasing, and grants, as well as integrating with and supporting the Bank's other policies. In line with
the Sustainability Policy, the Board of Directors has approved seven sustainability goals for its operations, to be completed by 2025. The
goals are based on ESG criteria and supported by annual targets set by business units as part of their five-year planning process.
The Sustainability Report for the year 2022 includes key information on the environmental, social and governance criteria for Íslandsbanki
in accordance with the Nasdaq ESG guidelines from 2019. The Bank puts emphasis on an increased flow of transparent information on
sustainability. Auditing firm Ernst & Young was engaged to review and confirm with limited assurance the Bank's sustainability information
disclosure in the Annual and Sustainability report for 2022.
Sustainability risk has been more effectively integrated into key processes relating to lending, investments, and product development
during the year. At year-end, 76% of all credit risk exposure (excluding individual banking and small enterprises which are not in scope)
has been assessed with respect to ESG risk related factors. More detailed coverage can be found in the Bank's Pillar 3 Report for 2022
which contains a separate chapter on sustainability risk and climate risk in compliance with TCDF (Task Force on Climate-related Financial
Disclosures) criteria.
Collaboration with international and local partners with regards to sustainability is highly important. Over the years, Íslandsbanki has
participated in international commitments and supported domestic cooperative efforts on sustainability. Being a part of international
collaborations such as the UN Principles for Responsible Banking (UN PRB), the Nordic CEOs for a Sustainable Future and most recently
being a founding member of the Net-Zero Banking Alliance (NZBA) is particularly valuable and informative for a relatively small bank. On
the other hand, being one of the largest companies in Iceland means that the Bank can contribute significantly towards domestic
partnerships such as Festa - Center for Sustainability, IcelandSif and the Green Building Council Iceland, to name a few.
Environment
Íslandsbanki is committed to supporting Iceland's ambitious Climate Action Plan and the Paris Agreement Goals. To that end, the Bank
announced in April 2021 its commitment to become net zero on financed emissions by 2040. The Bank's own operations have been carbon
neutral for the past three years, and with this decision, its commitment will also extend to financed emissions which includes the carbon
footprint of Íslandsbanki's entire loan and asset portfolio.
In 2022 Íslandsbanki published its first carbon neutrality report, On the Road to Net-Zero, which outlines the Bank's financed emissions (in
accordance with the Partnership for Carbon Accounting Financials (PCAF) standard), objectives and performance in connection with
climate issues. Íslandsbanki published its targets for specific sectors in the report, which account for 61% of total lending and 71% of total
emissions from the loan portfolio. The Bank expects its financed emissions to shrink by 60% by 2030 and 85% by 2040. Furthermore, the
activities of Íslandssjóðir (Iceland Funds), the fund management company owned by Íslandsbanki, are included for the first time in
measurements of financed emissions. The Bank's objective of having a net-zero loan portfolio by 2040 is an ambitious but achievable goal
in most sectors, although it is clear that transitioning to clean energy in air transport and cargo shipping by sea will probably take longer.
Directors' Report
Íslandsbanki hf. Consolidated Financial Statements 2022
6
Social
Íslandsbanki strongly emphasises creating a constructive and healthy work environment with passion, professionalism, and collaboration
as guideposts. Because its human resources are its biggest resource, the Bank places strong emphasis on fostering employees' growth
and development and contributing to their health and well-being.
As before, equal rights are uppermost in our minds, and we want Íslandsbanki to be a desirable workplace for people from wide-ranging
backgrounds. One of Íslandsbanki's most important sustainability targets is to ensure that no single gender accounts for more than 60%
of the Bank's management team. This ratio is considered in the hiring of management-level employees. As in previous years, the Bank
received equal pay certification and was awarded professional certification under the ÍST 85:2012 standard for 2022. According to the
most recent equal pay appraisal, the unexplained pay gap for jobs of equal value is 0.2%.
Governance
The regulatory framework for corporate governance practices within Íslandsbanki consists of the law applicable to its operations, including
those imposed by the Central Bank of Iceland and Nasdaq Iceland. The Bank's governance practices derive, inter alia, from the laws and
regulations applicable to financial institutions and the financial market. The Bank complies with the Guidelines on Corporate Governance
in accordance with paragraph 7 of article 54 of the Act on Financial Undertakings no. 161/2002. Each year the Bank conducts an appraisal
to ensure that they remain consistent with the Guidelines. The Board of Directors follows the Corporate Governance Guidelines (6th ed.)
issued by the Iceland Chamber of Commerce, Nasdaq Iceland, and SA-Business Iceland, available on www.corporategovernance.is.
Moreover, the Bank's governance practices are based on the European Banking Authority's Guidelines on Internal Governance for
Financial Undertakings (EBA/GL/2021/05), cf. article 16 of regulation (EC) no. 1093/2010, transposed into Icelandic law with Act no.
24/2017, on European Control Systems in the Financial Market.
Íslandsbanki has a Code of Conduct in place for employees and the Board of Directors which is available on the Bank's website. In addition,
the Bank's Sustainability Policy emphasises these matters. The aim of the Code is to promote good operational practices, reporting of
misconduct and actions to prevent conflict of interest. Employees confirm annually that they have read and understood the rules and
commit their adherence to the rules. At the end of 2022, more than 99% of employees had confirmed the rules. The Bank emphasises
respect for human rights and avoids business transactions where human rights are violated, including discrimination on the basis of gender,
religion, or race according to the Sustainability Policy and the Suppliers' Code of Conduct. The Bank is committed to continue its active
dialogue with suppliers on sustainability issues. In 2022, the Bank set up ten meetings with key suppliers to discuss enhancing sustainable
and environmental business practices in the value chain.
The Bank makes every effort to combat bribery and corruption. For that purpose, the Bank has e.g. implemented a policy on conflict of
interest and rules on measures against conflict of interest in which there is a chapter on gifts and complimentary trips. The rules are
intended to ensure that the impartiality and credibility of employees cannot be brought into question with respect to the treatment and
handling of individual matters. Moreover, the Bank has a policy in place on actions against money laundering and terrorist financing. The
Bank's policy on anti-money laundering takes a clear stance against payments on bribery and corruption. In practice, the Bank emphasises
on being compliant with Act no. 140/2018 on measures against money laundering and financing of terrorism which involves combating
bribery and corruption.
The Board of Directors of Íslandsbanki is committed to excellence in its governance framework so that it complies with the best corporate
governance practices in the financial market at all times.
At each Annual General Meeting (AGM) seven nonexecutive directors, and two alternate members, are elected to the Board for a term of
one year. The Board undertakes the Bank's affairs and is responsible for setting the Bank's general strategy as well as instructing the CEO
on its further implementation and execution. The Board has a supervisory role overseeing that the Bank's organisation and activities are
at all times in accordance with relevant laws, regulations and good business practices. Furthermore, the Board shall monitor the execution
of its policies, the sound control of accounting and financial management, and ensure that group internal audit, compliance, risk
management and internal controls are effective at all times.
In accordance with the Bank's Articles of Association the Bank operates a Nomination Committee whose role is to nominate individuals to
the Bank's Board of Directors at the AGM, or as the case may be at a shareholders' meeting where Board elections are on the agenda.
The members of the Nomination Committee shall be three and they shall be elected for one year at a time by the Board of Directors. The
Committee shall be independent in its work and the majority of the Committee's members shall be independent of the Bank and its
management. Along with the Bank's Nomination Committee, the ISFI operates a special three-member Selection Committee which, on
behalf of the State, nominates candidates for the supervisory boards or boards of directors of banks or undertakings that are managed by
ISFI.
Directors' Report
Íslandsbanki hf. Consolidated Financial Statements 2022
7
The Board has approved a policy on the suitability of the Board of Directors, the CEO and key function holders. The objective of the policy
is that the Bank's Board of Directors, CEO, and key employees meet the relevant suitability requirements at all times and the framework
for their appointment and/or employment is in accordance with the applicable legal requirements for the Bank's operation. The policy
states, among other things, that the composition of the Board shall at any time be diverse, with regard to educational and professional
background, gender and age. Human Resources reports annually to the Board on the Bank's actions in implementing the policy. Currently
the Board consists of seven members, four female and three male. Board members are of various ages, born in the years 1960-1982.
Board members have a broad range of education, e.g. in the fields of economics, law, computer science, nursing, engineering, auditing,
business administration, and securities trading. Board members also have extensive industry experience in the areas of operations,
management, and consulting.
The Board appoints three subcommittees, each one comprising Board members and operating under the terms of a mandate letter from
the Board as well as the Rules of Procedure of the Board. The mandate letters of Board subcommittees are available on the Bank's
website.
The CEO is responsible for the day-to-day operations of the Bank and that the Bank's business is, at all times, in accordance with the
Bank's Articles of Association, policies of the Board and the relevant law. The CEO engages the Bank's Compliance Officer and appoints
members of the Executive Committee and other Senior Management Committees.
The Executive Committee, comprising seven members, including the CEO, is composed of three women and four men. Members of the
Executive Committee were born in the years 1961-1976 and possess diverse education and extensive experience. The role of the
Executive Committee is to maintain an overall view of the Bank's operations and to coordinate key aspects of its activities. The CEO
ensures that the Board is regularly provided with accurate information on the Bank's finances, development, and operations.
The Bank's Finance division is responsible for the preparation of the consolidated financial statements which are prepared in accordance
with the International Financial Reporting Standards (IFRS). The Board's Audit Committee reviews the Group's annual and interim
consolidated financial statements before their submission for Board approval and endorsement. The Board's Audit Committee regularly
discusses the Bank's financial statements and evaluates its internal control processes. Management reporting is generally presented to
the Board 10 times a year. The external auditors review the second quarter interim consolidated financial statements and audit the annual
consolidated financial statements.
A more detailed description of Íslandsbanki's governance framework and associated practices can be found in the Bank's Corporate
Governance Statement enclosed in an unaudited appendix to the consolidated financial statements and on the Bank's website,
www.islandsbanki.is.
Other matters
On 2 February 2023, Íslandsbanki received a letter from the Board of Directors of Kvika banki hf. requesting the Board of Directors of
Íslandsbanki's position on commencing merger discussions between the two companies.
Directors' Report
Íslandsbanki hf. Consolidated Financial Statements 2022
8
Statement by the Board of Directors and the CEO
The audited consolidated financial statements for the year ended 31 December 2022 have been prepared on a going concern basis in
accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union and additional requirements
in the Act on Annual Accounts, no. 3/2006; the Act on Financial Undertakings, no. 161/2002; and rules on accounting for credit institutions,
where applicable.
To the best of our knowledge, these consolidated financial statements provide a true and fair view of the Group's operating profits and
cash flows in 2022 and its financial position as of 31 December 2022. Furthermore, in our opinion the financial statements and the Directors'
report give fair view of the main operational developments and achievements and describe the principal risks and uncertainties that the
Group faces in its operations.
In our opinion, the Consolidated Financial Statements of Íslandsbanki hf. for the year 2022 identified as "549300PZMFIQR79Q0T97-2022-
12-31-en.zip" are prepared in all material respects, in compliance with the European Single Electronic Format Regulation (ESEF).
The Board of Directors and the CEO have today discussed and approved the 2022 Consolidated Financial Statements of Íslandsbanki.
K
ópavogur, 9 February 2023
Board of Directors:
Finnur Árnason, Chairman
Guðrún Þorgeirsdóttir, Vice-Chairman
Anna Þórðardóttir
Ari Daníelsson
Frosti Ólafsson
Herdís Gunnarsdóttir
Tanya Zharov
Ch
ief Executive Officer:
Birna Einarsdóttir
Íslandsbanki hf. Consolidated Financial Statements 2022 9
Independent Auditor's Report
To the Board of Directors and shareholders of Íslandsbanki hf.
Opinion
We have audited the consolidated financial statements of Íslandsbanki hf. and its subsidiaries (the Group) which comprise the
consolidated statement of financial position as at 31 December 2022 and the consolidated income statement, consolidated statement
of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flow for the year then
ended and a summary of significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of
the Group as at 31 December 2022, and its consolidated financial performance and its consolidated cash flows for the year then
ended, in accordance with the International Financial Reporting Standards, as adopted by the European Union and additional
requirements in the Icelandic Act on Annual Accounts, Act on Financial Undertakings and rules on accounting for credit institutions,
where applicable.
Our opinion in this report on the consolidated accounts are consistent with the content of the additional report that has been submitted
to the parent company's audit committee in accordance with the Audit Regulation (537/2014) Article 11.
Basis for Opinion
We conducted our audit in accordance with the International Standards on Auditing (ISAs). Our responsibilities are further described
in the Auditor's Responsibilities for the Audit of the financial statements section of our report. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group 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 consolidated
financial statements in Iceland, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the
IESBA Code.
To the best of our knowledge, we have not provided any prohibited non-audit services as described in article 5(1) of Regulation (EU)
no. 537/2014.
Appointment of auditor
We were initially appointed as auditor of Íslandsbanki hf. on 25 March 2015 for the financial year 2015 and we have been reappointed
every year since then.
Key Audit Matters
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 opinion thereon. We do not provide a separate opinion on these matters.
We have fulfilled our responsibilities described in the ''Auditor's responsibilities for the audit of the financial statements'' section,
including in relation to the key audit matters below. Accordingly, our audit included the design and performance of procedures to
respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures,
including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements.
Íslandsbanki hf. Consolidated Financial Statements 2022 10
Why significant How our audit addressed the Key Audit Matter
Provision for expected credit losses (ECL)
Loans to customers represent ISK 1,186,639 million or 76%
of total assets at 31 December 2022, thereof expected credit
losses (ECL) of ISK 11,132 million have been recorded.
The determination of the provision for credit impairment is
based on estimates and judgement by management. Key
areas of judgement include:
• the interpretation of the requirements to determine
impairment under application of IFRS 9, which is
reflected in the Group's expected credit loss model;
• the identification of loans with significant deterioration
in credit quality;
• assumptions used in the expected credit loss model
such as the financial condition of the counterparty,
expected future cash flows and forward-looking
macroeconomic factors.
Due to the use of judgement and estimates and the relative
size of loans to customers on the balance sheet, we consider
the provision for expected credit losses (ECL) a Key Audit
Matter.
Our procedures focused on the following to respond to the Key
Audit Matter, among others:
• Assessing the Group's expected credit loss model, focusing
on the following areas:
• alignment of the expected credit loss model and its
underlying methodology with the requirements of
IFRS 9;
• approach to the incorporation of forward-looking
macroeconomic factors;
• Testing
the effectiveness of relevant controls relating,
among others, to the:
•
data used to determine the provision for credit
impairment, including transactional data captured at
loan origination and ongoing internal credit quality
assessment;
• expected credit loss model, including model build and
approval, ongoing monitoring/validation, model
governance and mathematical accuracy;
• review and approval of forward-looking macro-
economic factors; and
• registration and valuation of collateral used in the
calculation of expected credit loss.
• Testing of a sample of loans and procedures to evaluate
among others:
• timely identification of loa
ns with significant
deterioration in credit quality;
• expected loss calculation by re-
performing and
assessing the
reasonableness of the ECL model
calculations;
• appropriateness of forward-looking macroeconomic
factors; and
• COVID-19 pandemic effects of a sample of borrowers
in the tourism and related industries and impact on
collateral.
In addition, we assessed the disclosures in the consolidated
financial statements. Refer to Notes 3 and 61.4
for credit
impairment.
Íslandsbanki hf. Consolidated Financial Statements 2022 11
Other information
This document also contains other information than the consolidated financial statements and our auditor's report thereon. The other
information is: The unaudited highlights, Directors' Report, and unaudited Íslandsbanki's Corporate Governance Statement 2022 in
appendix. Management and Board of Directors are responsible for the other information.
Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any
form of assurance conclusion thereon except for confirmation regarding Directors' Report as stated below.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing
so, consider whether it is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we, based on the work we have performed concerning this other information, conclude
that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this
regard.
Responsibilities of CEO and Board of Directors for the consolidated financial statements
The Chief Executive Officer (CEO) and Board of Directors are responsible for the preparation and fair presentation of the consolidated
financial statements in accordance with International Financial Reporting Standards, as adopted by the European Union and additional
requirements in the Icelandic Act on Annual Accounts, Act on Financial Undertakings and rules on accounting for credit institutions,
where applicable.
The CEO and Board of Directors are responsible for such internal control that management determines is necessary to enable the
preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group'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
management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The Board of Directors is responsible for overseeing the Group's consolidated financial reporting process.
Why significant How our audit addressed the Key Audit Matter
Reliability of information from IT systems relevant to financial reporting
The Group is highly dependent on IT systems due to the
significant number of transactions that are processed daily
and due to the complexity of the various systems needed to
support the Group's operations.
In the process of preparing the consolidated financial
statements the Group uses data from many complex IT
systems. To ensure complete and accurate processing and
reporting of financial data it is important that controls over
appropriate access rights and system changes are designed
and operate effectively. Als
processing need to be designed and operate effectively.
Because of the importance of the data from the IT systems
supporting the financial reporting we consider their reliability
a Key Audit Matter.
Our procedures focused on the following to respond to the Key
Audit Matter, among others:
• Obtained an understanding of the Group's IT systems and
the IT-environment relevant for financial reporting.
• Reviewed the design, implementation and effectiveness of
control activities, as appropriate, related to change
management, access management and computer
operations for the systems
considered important for the
audit.
EY IT specialists were involved in the audit.
Íslandsbanki hf. Consolidated Financial Statements 2022 12
Auditor's Responsibilities for the Audit of the consolidated financial statements
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 International Standards on Auditing
(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 influence the economic decisions of users taken on
the basis of these consolidated financial statements.
As part of an audit in accordance with the International Standards on Auditing (ISAs), we exercise professional judgement and maintain
professional skepticism throughout the audit. We also:
• 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 for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
• 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 Group'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 Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision
and performance of the group audit. We remain solely responsible for our audit opinion
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance 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 where applicable, related safeguards.
From the matters communicated with those charged with governance, 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 interest benefits of such communication.
Íslandsbanki hf. Consolidated Financial Statements 2022 13
Report on other legal and regulatory requirements
Report on European single electronic format (ESEF Regulation)
As part of our audit of the consolidated financial statements of Íslandsbanki hf. we performed procedures to be able to issue an opinion
on whether the consolidated financial statements of Íslandsbanki hf. for the year 2022 with the file name "549300PZMFIQR79Q0T97-
2022-12-31-en.zip" is prepared, in all material respects, in compliance with act no. 20/2021 on disclosure obligation of issuers of
securities and the obligation to flag relating to requirements regarding European single electronic format regulation EU 2019/815
which include requirements related to the preparation of the consolidated financial statements in XHTML format and iXBRL markup.
The Board of Directors and CEO are responsible for preparing the consolidated financial statements in compliance with act no.
20/2021 disclosure obligation of issuers of securities and the obligation to flag. This responsibility includes preparing the consolidated
financial statements in a XHTML format in accordance with EU regulation 2019/815 on the ESEF regulation.
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 from the requirement set out in the ESEF regulation, whether due to fraud or error.
In our opinion, consolidated financial statements of Íslandsbanki hf. for the 2022 with the file name "549300PZMFIQR79Q0T97-2022-
12-31-en.zip" is prepared, in all material respects, in compliance with the ESEF Regulation.
Report on the Board of Directors Report
Pursuant to the legal requirements of Article 104, Paragraph 2 of the Icelandic Financial Statement Act no. 3/2006, we confirm that,
to the best of our knowledge, the report of the Board of Directors accompanying the consolidated financial statements includes all
information required by the Icelandic Financial Statement Act.
Reykjavík, 9 February 2023
__________________________
Geir Steindórsson
State Authorised Public Accountant
Ernst & Young ehf.
Borgartúni 30
105 Reykjavík
Notes 2022 2021
87,671 56,220
6,342 2,405
( 50,887) ( 24,582)
6 43,126 34,043
17,630 15,167
( 3,577) ( 2,318)
7 14,053 12,849
8 ( 1,257) 2,499
9 881 479
10 433 302
57 3,280
57,236 50,172
11 ( 13,452) ( 13,397)
12 ( 10,466) ( 9,799)
( 165) ( 688)
( 1,858) ( 1,683)
( 25,941) ( 25,567)
31,295 24,605
13 1,576 3,018
32,871 27,623
14 ( 8,485) ( 5,119)
24,386 22,504
15 149 1,221
24,535 23,725
24,535 23,732
- ( 7
)
24,535 23,725
Earnings per share from continuing operations
Basic and diluted earnings per share attributable to
16 12.19 11.26
The notes on pages 20 to 87 are an integral part of these Consolidated Financial Statements.
Consolidated Income Statement
Other net operating income
Fee and commission income .................................................................................................................
Interest income calculated using the effective interest rate method .......................................................
Profit before tax
Net impairment on financial assets ........................................................................................................
Other interest income ............................................................................................................................
Fee and commission expense ...............................................................................................................
Net fee and commission income
Bank tax ................................................................................................................................................
Interest expense ....................................................................................................................................
Net interest income
Total operating expenses
Profit before net impairment on financial assets
Net financial income (expense) .............................................................................................................
Net foreign exchange gain .....................................................................................................................
Other operating income .........................................................................................................................
Salaries and related expenses ..............................................................................................................
Other operating expenses .....................................................................................................................
Contribution to the Depositors' and Investors' Guarantee Fund .............................................................
Total operating income
Income tax expense ..............................................................................................................................
Profit for the year
Profit for the year from continuing operations
Discontinued operations held for sale, net of income tax .......................................................................
Profit attributable to shareholders of Íslandsbanki hf. ............................................................................
Loss attributable to non-controlling interests ..........................................................................................
Profit for the year
shareholders of Íslandsbanki hf. ............................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 14 Amounts are in ISK million
2022
2021
24,535 23,725
- ( 39)
2,527 ( 816)
2,527 ( 855)
2 329
2 329
2,529 ( 526)
27,064 23,199
27,064 23,453
- ( 254)
27,064 23,199
The notes on pages 20 to 87 are an integral part of these Consolidated Financial Statements.
Items that may subsequently be reclassified to the income statement
Foreign currency translation ..................................................................................................................
Net gain (loss) on financial liabilities ......................................................................................................
Other comprehensive income (expense) for the year, net of tax
Comprehensive income for the year
Comprehensive income attributable to shareholders of Íslandsbanki hf. ................................................
Comprehensive income (expense) attributable to non-controlling interests ...........................................
Comprehensive income for the year
Profit for the year ...................................................................................................................................
Net loss on financial assets ...................................................................................................................
Items that will not be reclassified to the income statement
Consolidated Statement of Comprehensive Income
Íslandsbanki hf. Consolidated Financial Statements 2022 15 Amounts are in ISK million
Notes 31.12.2022 31.12.2021
21 94,424 113,667
22 110,364 43,988
17 130,804 132,289
23 7,461 2,445
24 1,186,639 1,086,327
17 15,868 31,677
26 3,844 939
27 6,752 7,010
28 3,279 3,351
29 6,072 5,784
30 728 1,344
1,566,235 1,428,821
31 15,269 13,384
32 789,897 744,036
23 10,804 9,467
34 468,270 402,226
35 34,392 35,762
37 12,128 6,432
38 16,601 12,848
30 - 956
1,347,361 1,225,111
10,000 10,000
55,000 55,000
9,158 6,086
144,716 132,624
218,874 203,710
1,566,235 1,428,821
The notes on pages 20 to 87 are an integral part of these Consolidated Financial Statements.
Consolidated Statement of Financial Position
Cash and balances with Central Bank .............................................................
Assets
Bonds and debt instruments ...........................................................................
Loans to customers .........................................................................................
Derivatives ......................................................................................................
Loans to credit institutions ...............................................................................
Total Liabilities and Equity
Total Equity
Share capital ...................................................................................................
Share premium ...............................................................................................
Reserves .........................................................................................................
Retained earnings ...........................................................................................
Equity
Tax liabilities ...................................................................................................
Subordinated loans .........................................................................................
Non-current liabilities and disposal groups held for sale ..................................
Other assets ...................................................................................................
Non-current assets and disposal groups held for sale .....................................
Derivative instruments and short positions ......................................................
Deposits from customers ................................................................................
Total Assets
Deposits from Central Bank and credit institutions ..........................................
Other liabilities ................................................................................................
Debt issued and other borrowed funds ............................................................
Total Liabilities
Liabilities
Investments in associates ...............................................................................
Property and equipment ..................................................................................
Intangible assets .............................................................................................
Shares and equity instruments ........................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 16 Amounts are in ISK million
Foreign
Liability currency
Total Non-
Share Share Statutory Restricted Fair value credit translation Retained
shareholders' controlling Total
capital premium reserve reserves reserve reserve reserve earnings
equity interests equity
Equity as at 1 January 2021 10,000 55,000 2,500 3,556 572 ( 238) ( 209) 113,529 184,710 1,494 186,204
Profit (loss) for the year ................................................. 23,732 23,732 ( 7) 23,725
Net gain (loss) on financial assets ................................. ( 572) 900 328 ( 367) ( 39)
Net loss on financial liabilities ........................................ ( 816) ( 816) ( 816)
Foreign currency translation .......................................... 209 209 120 329
Comprehensive income (expense) for the year - - - - ( 572) ( 816) 209 24,632 23,453 ( 254) 23,199
Dividends paid ............................................................... ( 3,400) ( 3,400) ( 3,400)
Restricted due to capitalised development costs ........... ( 291) 291 - -
Restricted due to fair value changes ............................. 1,318 ( 1,318) - -
Restricted due to associates ......................................... 57 ( 57) - -
Dissolution of a subsidiary ............................................. (1,053) (1,053) (1,240) ( 2,293)
Equity as at 31 December 2021 10,000 55,000 2,500 4,640 - ( 1,054) - 132,624 203,710 - 203,710
Equity as at 1 January 2022 10,000 55,000 2,500 4,640 - ( 1,054) - 132,624 203,710 - 203,710
Profit for the year ........................................................... 24,535 24,535 24,535
Net gain (loss) on financial liabilities .............................. 2,840 ( 313) 2,527 2,527
Foreign currency translation .......................................... 2 2 2
Comprehensive income for the year - - - - - 2,840 2 24,222 27,064 - 27,064
Dividends paid ............................................................... ( 11,900) ( 11,900) ( 11,900)
Restricted due to capitalised development costs ........... ( 292) 292 - -
Restricted due to fair value changes ............................. 424 ( 424) - -
Restricted due to associates ......................................... 98 ( 98)
- -
Equity as at 31 December 2022 10,000 55,000 2,500 4,870 - 1,786 2 144,716 218,874 - 218,874
The notes on pages 20 to 87 are an integral part of these Consolidated Financial Statements.
Consolidated Statement of Changes in Equity
Authorised and issued share capital of the Bank is 2,000 million ordinary shares of ISK 5 each. At 31 December 2022 paid up share capital totalled ISK 65,000 million which is the total stated share capital of
the Bank. The Bank has one class of ordinary shares which carry no right to fixed income. The Annual General Meeting (AGM) for the operating year 2021 was held on 17 March 2022. At the AGM
shareholders approved the Board's proposal to pay dividends to shareholders amounting to ISK 11,900 million which is equivalent to ISK 5.95 per share (2021: ISK 1.70 per share). The dividends were paid on
28 March 2022.
Íslandsbanki hf. Consolidated Financial Statements 2022 17 Amounts are in ISK million
Consolidated Statement of Cash Flows
2022 2021
24,535 23,725
( 39,076) ( 32,764)
( 57,031) ( 38,778)
78,521 58,936
( 42,172) ( 18,691)
1,049 54
( 1,683) ( 1,588)
( 3,582) ( 3,794)
Net cash used in operating activities ( 39,439) ( 12,900)
( 1,103) 2,727
35 29
( 273) ( 206)
( 470) ( 442)
Net cash provided by (used in) investing activities ( 1,811) 2,108
191,503 86,048
( 129,448) ( 55,332)
( 472) ( 425)
( 11,900) ( 3,400)
- ( 1,130)
Net cash provided by financing activities 49,683 25,761
8,433 14,969
5 ( 40)
130,597 115,668
Cash and cash equivalents at year-end 139,035 130,597
Reconciliation of cash and cash equivalents
Notes
21 3,563 3,882
21 80,866 100,528
22 54,606 26,187
Cash and cash equivalents at year-end 139,035 130,597
The notes on pages 20 to 87 are an integral part of these Consolidated Financial Statements.
Dividends received .................................................................................................................................
Paid bank tax ..........................................................................................................................................
Paid income tax and special financial activities tax .................................................................................
Profit for the year ....................................................................................................................................
Non-cash items included in profit for the year* .......................................................................................
Changes in operating assets and liabilities* ............................................................................................
Interest received .....................................................................................................................................
Interest paid** .........................................................................................................................................
Bank accounts .....................................................................................................................
Net investment in subsidiaries and associates .......................................................................................
Repayment of lease liabilities .................................................................................................................
Proceeds from sales of property and equipment .....................................................................................
Purchase of property and equipment ......................................................................................................
Purchase of intangible assets .................................................................................................................
Proceeds from borrowings ......................................................................................................................
Repayment and repurchases of borrowings ............................................................................................
Cash and cash equivalents at the beginning of the year .........................................................................
Cash on hand ......................................................................................................................
Unrestricted balances with Central Bank .............................................................................
Dividends paid ........................................................................................................................................
Subsidiary's capital decrease and share buyback paid to non-controlling interests .................................
Net increase in cash and cash equivalents .............................................................................................
Effects of foreign exchange rate changes ...............................................................................................
*For further breakdown see the following page.
Presentation of interest received and interest paid has been changed, comparative figures have therefore been restated.
The Group has prepared its consolidated statement of cash flows using the indirect method. The statement is based on the net profit
after tax for the year and shows the cash flows from operating, investing and financing activities and the increase or decrease in cash
and cash equivalents during the year.
**Interest is defined as having been paid when it has been deposited into the customer account and is available for the customer's
disposal.
Íslandsbanki hf. Consolidated Financial Statements 2022 18 Amounts are in ISK million
Consolidated Statement of Cash Flows
Non-cash items included in profit for the year
2022 2021
( 43,126) ( 34,032)
1,400 1,395
( 198) ( 133)
( 1,430) ( 2,723)
( 881) ( 479)
( 19) ( 18)
( 5,115) ( 2,371)
( 149) ( 1,221)
1,858 1,683
8,485 5,119
99 16
Total ( 39,076) ( 32,764)
Changes in operating assets and liabilities
2022 2021
( 738) 292
( 32,284) 25,827
4,557 ( 7,914)
( 78,415) ( 81,116)
13,313 ( 15,272)
( 293) ( 2,411)
( 182) 1,380
1,546 ( 25,941)
41,048 66,551
( 9,207) ( 1,055)
3,624 881
Total ( 57,031) ( 38,778)
Significant non-cash transactions
Significant non-cash transactions 2022
The notes on pages 20 to 87 are an integral part of these Consolidated Financial Statements.
Net impairment on financial assets .........................................................................................................
Net interest income ................................................................................................................................
Depreciation, amortisation, and write-offs ...............................................................................................
Share of profit, gain from sale, and reversal of impairment of associates ...............................................
Other liabilities ........................................................................................................................................
During the year the Group repurchased own debt securites amounting to ISK 8,094 million by issuing new debt.
Loans to credit institutions ......................................................................................................................
Foreign exchange gain ...........................................................................................................................
Net gain from sales of property and equipment ......................................................................................
Unrealised fair value gain recognised in profit or loss .............................................................................
Discontinued operations held for sale, net of income tax ........................................................................
Bank tax .................................................................................................................................................
Income tax expense ...............................................................................................................................
Other changes ........................................................................................................................................
Mandatory reserve and pledged balances with Central Bank ..................................................................
Significant non-cash transactions 2021
During the year the Group repurchased own debt securites amounting to ISK 1,511 million by issuing new debt.
Derivative instruments and short positions .............................................................................................
Bonds and debt instruments ...................................................................................................................
Loans to customers ................................................................................................................................
Shares and equity instruments ...............................................................................................................
Other assets ...........................................................................................................................................
Non-current assets and liabilities held for sale ........................................................................................
Deposits from Central Bank and credit institutions .................................................................................
Deposits from customers ........................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 19 Amounts are in ISK million
Notes Page
Notes
Page
General information
1 Corporate information ................................................. 21 28 Intangible assets ........................................................ 43
2 Basis of preparation .................................................... 21 29 Other assets ............................................................... 43
3 Significant accounting estimates and judgements ....... 21 30 Non-current assets and disposal groups held for sale 43
4 Changes to accounting policies ................................... 22 31 Deposits from Central Bank and credit institutions ...... 44
5 Operating segments .................................................... 23 32 Deposits from customers ............................................ 44
33 Pledged assets ........................................................... 44
Notes to the Consolidated Income Statement 34 Debt issued and other borrowed funds ....................... 45
6 Net interest income ..................................................... 27 35 Subordinated loans ..................................................... 46
7 Net fee and commission income ................................. 27 36 Changes in liabilities arising from
8 Net financial income (expense) ................................... 28 financing activities ...................................................... 46
9 Net foreign exchange gain .......................................... 28 37 Tax assets and tax liabilities ....................................... 47
10 Other operating income ............................................... 28 38 Other liabilities ............................................................ 48
11 Personnel and salaries ................................................ 29
12 Other operating expenses ........................................... 30 Other Notes
13 Net impairment on financial assets ............................. 30 39 Custody assets ........................................................... 48
14 Income tax expense .................................................... 31 40 Leases ........................................................................ 48
15 Discontinued operations held for sale, 41 Íslandsbanki's shareholders ........................................ 49
net of income tax ........................................................ 31 42 Related party .............................................................. 49
16 Earnings per share ...................................................... 31 43 Provision and contingencies ....................................... 50
44 Events after the reporting period ................................. 52
Notes to the Consolidated Statement of Financial Position
17 Classification of financial assets and Risk Management
financial liabilities ........................................................ 32 45 Risk management ...................................................... 52
18-19 Fair value information for financial instruments ........... 33
46-50
Credit risk ................................................................... 54
20 Offsetting financial assets and financial liabilities ........ 36
51-53
Liquidity risk ................................................................ 60
21 Cash and balances with Central Bank ......................... 37
54-58
Market risk .................................................................. 65
22 Loans to credit institutions .......................................... 37 59 Capital management .................................................. 70
23 Derivative instruments and short positions .................. 38 60 Operational risk .......................................................... 71
24 Loans to customers .................................................... 39
25 Expected credit losses ................................................ 39 Accounting policies
26 Investments in associates ........................................... 41 61 Significant accounting policies .................................... 72
27 Property and equipment .............................................. 42
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 20
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 21
1.
Corporate information
Íslandsbanki hf., the parent company, was incorporated on 8 October 2008 and is a limited liability company domiciled in Iceland. The
registered office is at Hagasmári 3, 201 Kópavogur, Iceland.
The consolidated financial statements for the year ended 31 December 2022 ("the consolidated financial statements") comprise the
financial statements of Íslandsbanki hf. ("the Bank" or "Íslandsbanki") and its subsidiaries together referred to as "the Group". The Bank's
main subsidiaries are Íslandssjóðir hf. (Iceland Funds) and Allianz Ísland hf., additionally Íslandsbanki has control over nine other non-
significant subsidiaries. All of the Bank's subsidiaries are wholly-owned.
The Group provides a wide range of financial services such as retail banking, corporate banking, investment banking, wealth
management and asset financing. The Group operates mainly in the Icelandic market.
The consolidated financial statements were written in English and approved and authorised for issue by the Board of Directors and the
CEO of Íslandsbanki hf. on 9 February 2023. In case of discrepancy between the English version and the Icelandic translation, the
English original will prevail.
2.
Basis of preparation
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS)
as adopted by the European Union and additional requirements in the Act on Annual Accounts no. 3/2006, the Act on Financial
Undertakings no. 161/2002 and rules on accounting for credit institutions.
The consolidated financial statements are presented in Icelandic króna (ISK), which is the functional currency of Íslandsbanki hf. All
amounts presented in ISK have been rounded to the nearest million, except where otherwise indicated. At 31 December 2022 the
exchange rate of the ISK against the USD was 142.04 and for the EUR 151.50 (at year-end 2021: USD 130.38 and EUR 147.60).
The Group's management has made an assessment of the Group's ability to continue as a going concern and is satisfied that the Group
has the resources to continue in business for the foreseeable future. Therefore, the consolidated financial statements have been prepared
on a going concern basis.
Basis of measurement
The consolidated financial statements are prepared on a historical cost basis, except for the following assets and liabilities, which are
measured at fair value: bonds and debt instruments, shares and equity instruments, short positions in listed bonds, derivative financial
instruments, and certain bonds issued by the Group.
Recognised financial liabilities designated as hedged items in qualifying fair value hedge relationships are measured at amortised cost
adjusted for changes in fair value attributable to the risk being hedged.
Non-current assets and disposal groups held for sale are measured at the lower of its carrying amount and fair value less costs to sell.
3.
Significant accounting estimates and judgements
In preparing these consolidated financial statements management has made judgements, estimates, and assumptions that affect the
application of accounting policies and the reported amounts of assets, liabilities, income, and expenses. Management bases its
judgements on previous experience and other factors that are considered reasonable under the circumstances, but actual results may
differ from those estimates.
Management continuously evaluates these judgements, estimates, and assumptions. Changes in accounting estimates are recognised
when they occur.
Key sources of estimation uncertainty include the allowance for credit losses and the determination of fair value of financial instruments.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 22
3.
Significant accounting estimates and judgements (continued)
Impairment of financial assets
The main assumptions used for calculating the allowance for credit losses that are subject to significant judgement include the following:
• Probability of default (PD), loss given default (LGD) and exposure at default (EAD)
• Macroeconomic variables for multiple scenarios built on available information
• Assessment of significant increase in credit risk (SIRC)
The PD, LGD and EAD inputs used to estimate expected credit losses are modelled based on variables that are most closely related
with credit losses in the relevant portfolio. This includes macroeconomic variables, demographic variables, variables related to past
payment history among other variables. These variables are sourced both internally and externally. Significant judgements required for
measuring expected credit loss (ECL) include the following:
• Determining criteria for assessing what constitutes a significant increase in credit risk
• Establishing the forward-looking scenarios and their relative weightings
• Choosing appropriate models and assumptions for the measurement of ECL
For the first half of 2022 the Group made temporary changes to the impairment model due to the COVID-19 pandemic. The Group's
impairment process allows for temporary changes to the impairment model to account for circumstances when it becomes evident that
existing or expected risk factors have not been appropriately considered in the credit risk rating or modelling process. The COVID-19
pandemic created such circumstances for the tourism industry and therefore an adjustment was warranted.
Due to the general uncertainty in the operating environment of companies in the tourism industry, exposures were transferred to Stage
2 where the increase was estimated to be significant. At the end of the third quarter, however, the Group found that the uncertainty with
regards to the impact of the COVID-19 pandemic on the credit quality of the Group's credit exposures had greatly reduced following a
strong tourist season. Now that three years have passed since the pandemic started, all of these companies have received an updated
risk assessment and the general uncertainty no longer applies. It was therefore decided to remove the general overlay factor and the
transfer to Stage 2 in cases where no other indicators had been activated. For significant exposures where an increase in ECL was
deemed to be appropriate, the added impairment allowance is accounted for through individual assessment in a manual process.
The All Risk Committee has determined it to be appropriate to adjust the weights of the scenarios following the COVID-19 pandemic and
more recently the unrest following the war in Ukraine. Generally the scenarios are weighted 25%-50%-25% (good, base, bad) but the
current weights are 20%-50%-30%. When deciding on the appropriate weights for the three scenarios, management used sensitivity
analysis that indicated that a shift of 5% weight from the baseline to the pessimistic scenario would increase the impairment allowance
by ISK 300 million while a 5% shift from the baseline to the optimistic scenario would decrease the allowance by ISK 160 million.
The allowance for credit losses is further discussed in Notes 24-25, in Notes 46-50 on risk management and in Note 61.4.
Fair value of financial instruments
The objective of the fair value measurement is to arrive at the price at which an orderly transaction would take place between market
participants at the measurement date under current market conditions. The best evidence of fair value is a quoted price for the instrument
being measured in an actively traded market. Where an active market or quoted prices are not available the fair value of financial
instruments are decided upon by using valuation techniques. Financial instruments measured at fair value are classified using a fair
value hierarchy that reflects the significance of the inputs used in making the measurements. Level 3 financial assets are measured at
fair value using valuation techniques based on significant unobservable inputs. The valuation of Level 3 financial assets is a subjective
area as the assumption on which the valuation is based on is not easily observable and subject to management's assessment. Changes
made to the evaluation criteria could have a significant impact on the Group's results and financial position. The valuation methods are
discussed in Notes 18-19 and in Note 61.4.
4.
Changes to accounting policies
Amendments to IFRS standards that became effective from 1 January 2022 did not have a material impact on the consolidated financial
statements.
Changes to IFRS standards issued but not effective at the reporting date
A new IFRS standard and amendments to several IFRS standards have been issued but are not yet effective. The Group did not early
adopt any of them and intends to adopt them when they become effective. The Group currently does not expect a material impact on its
future consolidated financial statements as a result of these changes.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 23
5. Operating segments
Segment information is presented in accordance with the Group's management and internal reporting structure. The segments' operating
results are reported to the Board of Directors and the Chief Executive Officer, who are responsible for allocating resources to the
reportable segments and assessing their financial performance.
An operating segment is a distinguishable component of the Group, for which discrete financial information is available, that engages in
business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions
with any of the Group's other components. Each operating segment is engaged in providing products or services which are subject to
risk and return that are different from those of other operating segments. The accounting policies for the reportable segments are in
accordance with the Group's accounting policies. The Group operates mainly in the Icelandic market.
The Bank has three main business segments: Personal Banking, Business Banking, and Corporate & Investment Banking. Operating
segments pay and receive interest to and from Treasury to reflect the allocation of capital, funding costs, and the relevant risk premium.
Capital allocation to the business units is based on the Pillar 1 regulatory capital requirement, the Pillar 2-R capital requirement calculated
according to the Bank's Internal Capital Adequacy Assessment Process (ICAAP) and the combined buffer requirement as stipulated in
the Act on Financial Undertakings no. 161/2002. Income tax and bank tax with breakdown for each segment is according to the current
tax rates.
The Group comprises the following operating segments:
Personal Banking
Personal Banking provides comprehensive financial services to individuals, such as lending, savings and payments. Íslandsbanki's
customers are increasingly taking care of their day-to-day banking via digital solutions such as apps, the online bank and the secure web
chat. Customers can also visit the Bank's efficient branch network for comprehensive consultancy services and contact the advisory
centre.
Business Banking
Business Banking provides small and medium-sized enterprises (SMEs) with comprehensive financial services and Ergo, the Bank's
asset financing service, is also part of the division. Business Banking serves customers in business centres and branches close to their
business. Via online banking and the app, customers have full overview of their business and day-to-day operations are easy to manage.
Corporate & Investment Banking
Corporate & Investment Banking provides universal banking services to large companies, municipalities, institutional investors, and
affluent individuals. Services include customised products and services to customers including lending and advisory, risk management,
brokerage, and private banking services. The division is sector-focused, building and maintaining relationships with key customer
segments within Iceland. Outside of Iceland, Íslandsbanki has a special focus on the North Atlantic seafood industry, leveraging its
expertise in the domestic market and global contacts.
Treasury and Proprietary Trading
Treasury is responsible for funding the Bank's operations and for managing the internal pricing framework. It is also responsible for the
Bank's balance sheet management and for relations with investors, financial institutions, stock exchanges, and rating agencies. Equity
that is not allocated to business units sits within Treasury. Proprietary Trading includes equity and debt investments in the trading book
and the banking book.
Cost centres
Cost centres comprise the CEO's office (Human Resources, Marketing & Communications, Strategy & Sustainability, and Legal), IT,
Risk Management, Compliance, and Finance excluding Treasury and Proprietary Trading. Group Internal Audit is also included in cost
centres, however, it is independent from the Bank and the Chief Audit Executive reports directly to the Bank's Board of Directors.
Subsidiaries, eliminations and adjustments
Subsidiaries include Íslandssjóðir hf. (Iceland Funds), Allianz Ísland hf. and other less significant subsidiaries. Assets and liabilities of
subsidiaries, that are classified as non-current assets and disposal groups held for sale, are included in the column "Other subsidiaries".
All inter-company eliminations are included in the column "Eliminations & adjustments".
Following is an overview showing the Group's performance with a breakdown by operating segments.
5.
Corporate & Treasury & Subsidiaries,
2022 Personal Business Investment Proprietary Cost The Bank eliminations & The Group
Banking Banking Banking Trading centres total adjustments total
Net interest income (expense) ...................................................................... 15,065 14,493 11,108 2,673 ( 260) 43,079 47 43,126
Net fee and commission income (expense) .................................................. 4,334 2,174 4,557 ( 55) ( 1) 11,009 3,044 14,053
Other net operating income ........................................................................... 342 90 1,301 398 149 2,280 ( 2,223) 57
19,741 16,757 16,966 3,016 ( 112) 56,368 868 57,236
Salaries and related expenses ...................................................................... ( 2,355) ( 1,900) ( 1,819) ( 289) ( 6,253) ( 12,616) ( 836) ( 13,452)
Other operating expenses ............................................................................. ( 2,446) ( 1,072) ( 971) ( 467) ( 4,898) ( 9,854) ( 612) ( 10,466)
Contribution to the Depositors' and Investors' Guarantee Fund ..................... ( 129) ( 33) ( 3) - - ( 165) - ( 165)
Bank tax ........................................................................................................ ( 801) ( 407) ( 520) ( 116) ( 14) ( 1,858) - ( 1,858)
Net impairment on financial assets ............................................................... ( 300) 796 395 683 - 1,574 2 1,576
Cost allocation .............................................................................................. ( 4,792) ( 3,431) ( 3,237) 551 10,909 - - -
8,918 10,710 10,811 3,378 ( 368) 33,449 ( 578) 32,871
Income tax income (expense) ....................................................................... ( 2,528) ( 2,891) ( 2,946) 108 92 ( 8,165) ( 320) ( 8,485)
Profit (loss) for the year from continuing operations 6,390 7,819 7,865 3,486 ( 276) 25,284 ( 898) 24,386
Net segment revenue from external customers ............................................. 33,261
18,158 23,790 ( 18,922) 81 56,368 868 57,236
Net segment revenue from other segments .................................................. ( 13,520) ( 1,401) ( 6,824) 21,938 ( 193) - - -
Fee and commission income ........................................................................ 7,282 2,223 4,709 367 - 14,581 3,049 17,630
Depreciation, amortisation, and write-offs ..................................................... ( 172) ( 57) ( 1) - ( 1,155) ( 1,385) ( 15) ( 1,400)
At 31 December 2022
Loans to customers ...................................................................................... 552,181 278,823 354,787 848 - 1,186,639 - 1,186,639
Other assets ................................................................................................. 3,158 2,100 3,859 360,594 9,387 379,098 498 379,596
Total segment assets 555,339 280,923 358,646 361,442 9,387 1,565,737 498 1,566,235
Deposits from customers .............................................................................. 361,994 244,645 164,390 21,529 - 792,558 ( 2,661) 789,897
Other liabilities .............................................................................................. 2,597 2,054 5,565 540,189 5,785 556,190 1,274 557,464
Total segment liabilities 364,591 246,699 169,955 561,718 5,785 1,348,748 ( 1,387) 1,347,361
Allocated equity ............................................................................................ 39,228 40,433 62,400 73,966 962 216,989 1,885 218,874
Risk exposure amount .................................................................................. 255,938 263,011 404,917 67,970 6,107 997,943 1,548 999,491
The individual segment balance sheet positions are with external customers, and exclude internal transactions thus explaining the differences in total assets, and total liabilities and equity.
Operating segments (continued)
Notes to the Consolidated Financial Statements
Total operating income
Profit (loss) before tax
Íslandsbanki hf. Consolidated Financial Statements 2022 24 Amounts are in ISK million
5.
Corporate & Treasury & Subsidiaries,
2021 Personal Business Investment Proprietary Cost The Bank eliminations & The Group
Banking Banking Banking Trading centres total adjustments total
Net interest income (expense) ...................................................................... 12,027 10,867 9,282 2,034 ( 178) 34,032 11 34,043
Net fee and commission income (expense) .................................................. 3,850 2,111 4,384 ( 72) ( 62) 10,211 2,638 12,849
Other net operating income ........................................................................... 189 61 759 2,694 203 3,906 ( 626) 3,280
16,066 13,039 14,425 4,656 ( 37) 48,149 2,023 50,172
Salaries and related expenses ...................................................................... ( 2,388) ( 1,815) ( 1,689) ( 256) ( 6,465) ( 12,613) ( 784) ( 13,397)
Other operating expenses ............................................................................. ( 2,354) ( 1,037) ( 797) ( 235) ( 4,854) ( 9,277) ( 522) ( 9,799)
Contribution to the Depositors' and Investors' Guarantee Fund ..................... ( 538) ( 135) ( 15) - - ( 688) - ( 688)
Bank tax ........................................................................................................ ( 723) ( 344) ( 516) ( 86) ( 14) ( 1,683) - ( 1,683)
Net impairment on financial assets ............................................................... 318 2,401 121 94 4 2,938 80 3,018
Cost allocation .............................................................................................. ( 4,539) ( 3,113) ( 3,170) 320 10,502 - - -
5,842 8,996 8,359 4,493 ( 864) 26,826 797 27,623
Income tax income (expense) ....................................................................... ( 1,707) ( 2,428) ( 2,308) 1,421 221 ( 4,801) ( 318) ( 5,119)
Profit (loss) for the year from continuing operations 4,135 6,568 6,051 5,914 ( 643) 22,025 479 22,504
Net segment revenue from external customers ............................................. 26,175
14,806 19,843 ( 12,748) 73 48,149 2,023 50,172
Net segment revenue from other segments .................................................. ( 10,109) ( 1,767) ( 5,418) 17,404 ( 110) - - -
Fee and commission income ........................................................................ 5,669 2,136 4,486 231 2 12,524 2,643 15,167
Depreciation, amortisation, and write-offs ..................................................... ( 166) ( 58) ( 15) - ( 1,145) ( 1,384) ( 11) ( 1,395)
At 31 December 2021
Loans to customers ...................................................................................... 502,354 237,388 346,835 59 - 1,086,636 ( 309) 1,086,327
Other assets ................................................................................................. 3,609 2,004 1,335 325,158 9,108 341,214 1,280 342,494
Total segment assets 505,963 239,392 348,170 325,217 9,108 1,427,850 971 1,428,821
Deposits from customers .............................................................................. 344,776 239,871 141,204 21,477 - 747,328 ( 3,292) 744,036
Other liabilities .............................................................................................. 1,603 1,630 4,728 465,397 5,711 479,069 2,006 481,075
Total segment liabilities 346,379 241,501 145,932 486,874 5,711 1,226,397 ( 1,286) 1,225,111
Allocated equity ............................................................................................ 37,549 33,738 59,055 70,217 894 201,453 2,257 203,710
Risk exposure amount .................................................................................. 247,970 211,814 376,896 56,983 5,903 899,566 2,080 901,646
Notes to the Consolidated Financial Statements
Operating segments (continued)
Total operating income
Profit (loss) before tax
Íslandsbanki hf. Consolidated Financial Statements 2022 25 Amounts are in ISK million
5.
Subsidiaries, eliminations & adjustments
2022 Íslands- Allianz Other Eliminations
sjóðir hf. Ísland hf. subsidiaries & adjustments Total
Net interest income (expense) ................................................... 9 34 52 ( 48) 47
Net fee and commission income (expense) ............................... 1,627 1,561 ( 30) ( 114) 3,044
Other net operating income ....................................................... ( 55) 11 270 ( 2,449) ( 2,223)
Total operating income 1,581 1,606 292 ( 2,611) 868
Salaries and related expenses ................................................... ( 562) ( 209) ( 65) - ( 836)
Other operating expenses .......................................................... ( 218) ( 602) ( 214) 422 ( 612)
Net impairment on financial assets ............................................ 2 - - - 2
Profit (loss) before tax 803 795 13 ( 2,189) ( 578)
Income tax expense ................................................................... ( 178) ( 142) - - ( 320)
Profit (loss) for the year from continuing operations 625 653 13 ( 2,189) ( 898)
Net segment revenue from external customers .......................... 1,855 1,479 11 ( 2,477) 868
Net segment revenue from other segments ............................... ( 274) 127 281 ( 134) -
Fee and commission income ..................................................... 2,171 1,561 - ( 683) 3,049
Depreciation, amortisation, and write-offs .................................. - - ( 6) ( 9) ( 15)
At 31 December 2022
Total assets ............................................................................... 2,472 1,926 5,469 ( 9,369) 498
Total liabilities ............................................................................ 354 714 134 ( 2,589) ( 1,387)
Total equity ................................................................................ 2,118 1,212 5,335 ( 6,780) 1,885
2021 Íslands- Allianz Other Eliminations
sjóðir hf. Ísland hf. subsidiaries & adjustments Total
Net interest income (expense) ................................................... 1 6 15 ( 11) 11
Net fee and commission income (expense) ............................... 1,733 938 ( 30) ( 3)
2,638
Other net operating income ....................................................... 338 16 38 ( 1,018) ( 626)
Total operating income 2,072 960 23 ( 1,032) 2,023
Salaries and related expenses ................................................... ( 590) ( 191) ( 3) - ( 784)
Other operating expenses .......................................................... ( 197) ( 455) ( 40) 170 ( 522)
Net impairment on financial assets ............................................ - - - 80 80
Profit (loss) before tax 1,285 314 ( 20) ( 782) 797
Income tax expense ................................................................... ( 256) ( 62) - - ( 318)
Profit (loss) for the year from continuing operations 1,029 252 ( 20) ( 782) 479
Net segment revenue from external customers .......................... 2,332 952 - ( 1,261) 2,023
Net segment revenue from other segments ............................... ( 260) 8 23 229 -
Fee and commission income ..................................................... 2,226 938 - ( 521) 2,643
Depreciation, amortisation, and write-offs .................................. - ( 1) ( 1) ( 9) ( 11)
At 31 December 2021
Total assets ............................................................................... 2,926 1,333 7,285 ( 10,573) 971
Total liabilities ............................................................................ 401 716 1,386 ( 3,789) ( 1,286)
Total equity ................................................................................ 2,525 617 5,899 ( 6,784) 2,257
Notes to the Consolidated Financial Statements
Operating segments (continued)
Íslandsbanki hf. Consolidated Financial Statements 2022 26 Amounts are in ISK million
6. Net interest income
2022 2021
2,791 948
757 128
84,123 55,144
6,335 2,388
7 17
Interest income 94,013 58,625
( 364) ( 306)
( 23,049) ( 6,815)
( 578) ( 729)
( 21,709) ( 14,104)
( 1,538) ( 829)
( 82) ( 84)
( 3,567) ( 1,715)
Interest expense ( 50,887) ( 24,582)
Net interest income 43,126 34,043
Net interest margin on total assets 2.9% (2021: 2.4%)
7. Net fee and commission income
2022 2021
3,154 3,100
3,627 3,544
6,774 4,979
2,350 2,212
1,725 1,332
Fee and commission income 17,630 15,167
( 484) ( 471)
( 2,999) ( 1,834)
( 94) ( 13)
Fee and commission expense ( 3,577) ( 2,318)
Net fee and commission income 14,053 12,849
Fee and commission income by segment is disclosed in Note 5.
Notes to the Consolidated Financial Statements
Brokerage ...........................................................................................................................................................
Investment banking and brokerage .....................................................................................................................
Payment processing ...........................................................................................................................................
Cash and balances with Central Bank ................................................................................................................
Loans to credit institutions ..................................................................................................................................
Loans to customers ............................................................................................................................................
Financial assets mandatorily at fair value through profit or loss ..........................................................................
Other assets .......................................................................................................................................................
Deposits from Central Bank and credit institutions ..............................................................................................
Deposits from customers ....................................................................................................................................
Debt issued and other borrowed funds designated as at fair value through profit or loss ....................................
Debt issued and other borrowed funds at amortised cost ...................................................................................
Asset management .............................................................................................................................................
Subordinated loans .............................................................................................................................................
Other liabilities ....................................................................................................................................................
Lease liabilities ...................................................................................................................................................
Loans and guarantees ........................................................................................................................................
Other fee and commission income .....................................................................................................................
Other fee and commission expense ....................................................................................................................
Clearing and settlement ......................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 27 Amounts are in ISK million
Notes to the Consolidated Financial Statements
8. Net financial income (expense)
2022 2021
( 6,121) 1,641
4,512 845
( 56) 13
408 -
Net financial income (expense) ( 1,257) 2,499
The following table shows the categorisation of the net financial income (expense) by type.
2022 2021
( 2,735) 56
( 1,051) 1,086
1,049 54
754 913
726 390
Net financial income (expense) ( 1,257) 2,499
9. Net foreign exchange gain
2022 2021
5 ( 40)
11,647 ( 6,515)
( 1,078) ( 7,435)
( 11) ( 8)
Net foreign exchange gain (loss) for assets 10,563 ( 13,998)
( 4,782) 2,273
( 1,317) 5,148
( 5,677) 4,695
2,094 2,361
Net foreign exchange gain (loss) for liabilities ( 9,682) 14,477
Net foreign exchange gain 881 479
10.
Other operating income
2022 2021
158 -
40 73
- 60
45 69
44 41
146 59
Other operating income 433 302
Deposits .............................................................................................................................................................
Debt issued and other borrowed funds designated as at fair value through profit or loss ....................................
Debt issued and other borrowed funds at amortised cost ...................................................................................
Subordinated loans .............................................................................................................................................
Net gain from sale of associates .........................................................................................................................
Share of profit of associates, net of income tax ..................................................................................................
Reversal of impairment for an associate .............................................................................................................
Net gain (loss) on financial assets and financial liabilities mandatorily at fair value through profit or loss ...........
Net gain on financial liabilities designated as at fair value through profit or loss .................................................
Net gain on derecognition of financial liabilities measured at amortised cost ......................................................
Net gain (loss) on fair value hedges ....................................................................................................................
Net gain on debt issued and related derivatives ..................................................................................................
Net gain on other derivatives ..............................................................................................................................
Net gain (loss) on bonds and related derivatives ................................................................................................
Dividend income .................................................................................................................................................
Cash and balances with Central Bank ................................................................................................................
Other net operating income ................................................................................................................................
Loans at amortised cost .....................................................................................................................................
Financial assets mandatorily at fair value through profit or loss ..........................................................................
Other assets .......................................................................................................................................................
Net gain (loss) on shares and related derivatives ...............................................................................................
Legal fees ...........................................................................................................................................................
Rental income ....................................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 28 Amounts are in ISK million
Notes to the Consolidated Financial Statements
11. Personnel and salaries
2022 2021
10,332 10,307
1,594 1,605
1,423 1,382
103 103
Salaries and related expenses 13,452 13,397
The Bank The Group The Bank The Group
730 772 759 794
700 739 702 735
9.5 -
8.9 8.0
9.0 8.5
6.4 -
8.9 8.0
2.5 4.5
6.4 -
3.6 11.9
7.6 9.8
2.2 8.5
2.3 6.1
0.6 0.6
Total salaries 67.9 65.9
*Financial activities tax calculated on salaries is 5.5% in 2022 (2021: 5.5%).
Salaries ..............................................................................................................................................................
Contributions to pension funds ...........................................................................................................................
Social security charges and financial activities tax* ............................................................................................
Other salary-related expenses ............................................................................................................................
Frosti Ólafsson, member of the Board ................................................................................................................
Jökull H. Úlfsson, former member of the Board ..................................................................................................
Total amount of compensation to the Board of Directors, the CEO, and Executive Board are specified as follows:
Árni Stefánsson, former member of the Board ....................................................................................................
Average number of employees ...................................................................................
Positions at year-end .................................................................................................
Finnur Árnason, Chairman of the Board ..............................................................................................................
Guðrún Þorgeirsdóttir, Vice-Chairman of the Board ............................................................................................
Ari Daníelsson, member of the Board .................................................................................................................
Herdís Gunnarsdóttir, member of the Board* ......................................................................................................
Tanya Sharov, member of the Board ..................................................................................................................
2022
2021
2022
2021
Alternate board members ...................................................................................................................................
Contribution to pension funds for the Board of Directors amounted to ISK 9.2 million in 2022 (2021: ISK 8.5 million).
*Member of the Board since October 2022 (2021: January - March).
Hallgrímur Snorrason, former Chairman of the Board .........................................................................................
Heiðrún Jónsdóttir, former Vice-Chairman of the Board ......................................................................................
Anna Þórðardóttir, member of the Board ............................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 29 Amounts are in ISK million
Notes to the Consolidated Financial Statements
11.
Personnel and salaries (continued)
Fixed
salaries &
benefits
Pension
funds
contrib.
Fixed
salaries &
benefits*
Pension
funds
contrib.
48.3 11.5 46.1 11.6
47.0 6.7 40.1 6.1
39.8 5.6 36.7 5.3
46.9 6.6 38.9 6.2
42.7 6.4 39.4 6.1
41.1 5.7 37.9 5.2
42.9 6.1 39.5 5.5
Total 308.7 48.6 278.6 46.0
12. Other operating expenses
2022 2021
1,986 2,153
4,389 4,214
565 556
1,400 1,395
2,126 1,481
Other operating expenses 10,466 9,799
Auditors' fees
81 95
20 31
7 8
Auditors' fees 108 134
13. Net impairment on financial assets
2022 2021
1,837 2,964
( 336) 54
75 -
Net impairment on financial assets 1,576 3,018
Review of interim financial statements ................................................................................................................
Net change in expected credit losses, off-balance sheet items ...........................................................................
Professional services ..........................................................................................................................................
**Included in salaries for the year 2022 are employment anniversary payments. The payments are in accordance with the collective
agreement of the Confederation of Icelandic Bank and Finance Employees (SSF).
Benefits are non-monetary benefits such as the use of cars owned by the Group.
As of 1 January 2017, the Bank has not had an active remuneration policy in place as stated in the Bank's compensation policy. In 2022
there were no paid performance-based salaries (2021: none) and there were no unpaid performance-based salaries at year-end 2022.
There were no share-based payments in the years 2022 and 2021.
*Many employees of the Bank were subject to additional workload during 2021 because of the Bank's IPO and listing of shares on
Nasdaq Iceland. In total, the Bank paid ISK 110.3 million to employees for overtime, of which the Bank's CEO received a payment of ISK
10.9 million and other members of the executive board received ISK 30.3 million. Contributions to pension funds for overtime payments
amounted to ISK 1.7 million for the Bank's CEO and ISK 3.4 million for other members of the executive board. The overtime payments
are not included in the table above.
Birna Einarsdóttir, CEO ..............................................................................................
Ásmundur Tryggvason, Managing Director of Corporate & Investment Banking** ......
Guðmundur Kristinn Birgisson, Chief Risk Officer ......................................................
Jón Guðni Ómarsson, Chief Financial Officer** ..........................................................
Riaan Dreyer, Managing Director of Information Technology .....................................
Sigríður Hrefna Hrafnkelsdóttir, Managing Director of Personal Banking ....................
Una Steinsdóttir, Managing Director of Business Banking ..........................................
2022
2021
Software and IT expenses ..................................................................................................................................
Real estate and office equipment .......................................................................................................................
Depreciation, amortisation, and write-offs ...........................................................................................................
Other administrative expenses ...........................................................................................................................
Net change in expected credit losses, on-balance sheet items ...........................................................................
Changes in provision due to court rulings ...........................................................................................................
Other services ....................................................................................................................................................
Audit of the financial statements .........................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 30 Amounts are in ISK million
Notes to the Consolidated Financial Statements
14. Income tax expense
2022
2021
5,659 3,339
1,396 853
( 472) 24
1,902 903
Income tax recognised in the income statement 8,485 5,119
Income tax recognised in other comprehensive income ( 110) -
2022 2021
32,871 27,623
6,574 20.0% 5,525 20.0%
1,396 4.2% 853 3.1%
150 0.5% - 0.0%
( 472) ( 1.4%) - 0.0%
( 386) ( 1.2%) ( 1,611) ( 5.8%)
1,210 3.7% 338 1.2%
13 0.0% 14 0.00%
Effective income tax expense 8,485 25.8% 5,119 18.5%
15. Discontinued operations held for sale, net of income tax
2022 2021
45 191
( 1) 473
114 687
( 9) ( 130)
Discontinued operations held for sale, net of income tax 149 1,221
16. Earnings per share
2022 2021 2022 2021 2022 2021
24,386 22,511 149 1,221 24,535 23,732
2,000 2,000 2,000 2,000 2,000 2,000
Basic earnings per share 12.19 11.26 0.07 0.61 12.27 11.87
Other differences .......................................................................................................
Recognised income tax is based on applicable tax laws. The income tax rate for legal entities in 2022 is 20% (2021: 20%). Special
financial activities tax is calculated as 6% of the Bank's taxable profit exceeding ISK 1 billion in accordance with the Act on Financial
Activities Tax no. 165/2011. The effective income tax rate in the Group's income statement for the year 2022 is 25.8% (2021: 18.5%).
The Group's basic and diluted earnings per share are equal as the Group has not issued any options, warrants, convertibles, or other
financial instruments that dilute earnings per share (2021: none).
Profit for the year
The Bank is taxed jointly with its subsidiary Íslandssjóðir hf. (Iceland Funds).
Discontinued operations
Net gain from foreclosed assets .........................................................................................................................
Profit attributable to shareholders of the Bank .........................
Weighted average number of outstanding shares ....................
Special financial activities tax .....................................................................................
Share in taxes of non-independent taxpayers .............................................................
Adjustments in prior year's calculated income tax ......................................................
Income not subject to tax ...........................................................................................
Non-deductible expenses ...........................................................................................
20% income tax calculated on the profit for the year ..................................................
Profit before tax ..........................................................................................................
Continued operations
Net gain (loss) from disposal groups held for sale ..............................................................................................
Income tax expense ............................................................................................................................................
Current tax expense excluding discontinued operations ......................................................................................
Special financial activities tax .............................................................................................................................
Adjustments in prior year's calculated income tax ...............................................................................................
Changes in deferred tax assets and deferred tax liabilities .................................................................................
Net gain from sale or dissolution of subsidiaries .................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 31 Amounts are in ISK million
17.
Classification of financial assets and financial liabilities
At 31 December 2022 Mandatorily Hedge Designated Amortised
Carrying
at FVTPL accounting
as at FVTPL
cost amount
- - - 94,424 94,424
- - -
110,364 110,364
125,318 - - - 125,318
3,454 - - - 3,454
2,032 - - - 2,032
7,461 - - - 7,461
-
-
- 1,186,639
1,186,639
3,221 - - - 3,221
10,401 - - - 10,401
2,246 - - - 2,246
- - - 5,411 5,411
Total financial assets 154,133 - - 1,396,838 1,550,971
- - - 15,269 15,269
- - - 789,897 789,897
9,208 1,596 - - 10,804
- 49,579 83,437 335,254 468,270
- - - 34,392 34,392
- - - 11,329 11,329
Total financial liabilities 9,208 51,175 83,437 1,186,141 1,329,961
At 31 December 2021 Mandatorily Hedge Designated Amortised Carrying
at FVTPL accounting
as at FVTPL
cost amount
- - - 113,667 113,667
- - - 43,988 43,988
96,343 - - - 96,343
35,896 - - - 35,896
50 - - - 50
1,900 545 - - 2,445
- - - 1,086,327 1,086,327
3,246 - - - 3,246
24,406 - - - 24,406
4,025 - - - 4,025
- - - 5,241 5,241
Total financial assets 165,866 545 - 1,249,223 1,415,634
- - - 13,384 13,384
- - - 744,036 744,036
9,467 - - - 9,467
- 45,036 89,460 267,730 402,226
- - - 35,762 35,762
- - - 9,681 9,681
Total financial liabilities 9,467 45,036 89,460 1,070,593 1,214,556
Unlisted shares and equity instruments .......................................................
Other financial assets .................................................................................
Subordinated loans .....................................................................................
Other financial liabilities ..............................................................................
Deposits from Central Bank and credit institutions ......................................
Deposits from customers ............................................................................
Derivative instruments and short positions ..................................................
Debt issued and other borrowed funds ........................................................
Subordinated loans .....................................................................................
Deposits from Central Bank and credit institutions ......................................
Deposits from customers ............................................................................
Derivative instruments and short positions ..................................................
Debt issued and other borrowed funds ........................................................
Derivatives ..................................................................................................
Loans to customers .....................................................................................
Listed shares and equity instruments ..........................................................
Listed shares and equity instruments used for economic hedging ...............
Unlisted shares and equity instruments .......................................................
Other financial assets .................................................................................
Notes to the Consolidated Financial Statements
Loans to customers .....................................................................................
Listed shares and equity instruments ..........................................................
Listed shares and equity instruments used for economic hedging ...............
Cash and balances with Central Bank .........................................................
Loans to credit institutions ...........................................................................
Listed bonds and debt instruments .............................................................
Listed bonds and debt instruments used for economic hedging ..................
Cash and balances with Central Bank .........................................................
Loans to credit institutions ...........................................................................
Listed bonds and debt instruments .............................................................
Listed bonds and debt instruments used for economic hedging ..................
Unlisted bonds and debt instruments ..........................................................
Other financial liabilities ..............................................................................
Unlisted bonds and debt instruments ..........................................................
Derivatives ..................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 32 Amounts are in ISK million
Notes to the Consolidated Financial Statements
18. Fair value information for financial instruments
At 31 December 2022 Level 1 Level 2 Level 3 Total
128,772 - 2,032 130,804
- 7,461 - 7,461
13,623 - 2,245 15,868
142,395 7,461 4,277 154,133
285 - - 285
- 10,519 - 10,519
83,437 - - 83,437
83,722 10,519 - 94,241
At 31 December 2021 Level 1 Level 2 Level 3 Total
132,239 - 50 132,289
- 2,445 - 2,445
27,625 - 4,052 31,677
159,864 2,445 4,102 166,411
1,951 - - 1,951
- 7,516 - 7,516
89,460 - - 89,460
91,411 7,516 - 98,927
Bonds and
debt
instruments
Shares and
equity
instruments
50 4,052
2,000 38
( 22) ( 454)
4 347
- ( 27)
- ( 1,711)
2,032 2,245
*For further information on investments in associates see Note 26.
Debt issued and other borrowed funds designated as at FVTPL .....................................
Level 3: Valuation techniques based on significant unobservable inputs, e.g. internal assumptions.
Bonds and debt instruments ............................................................................................
Derivatives ......................................................................................................................
Bonds and debt instruments ............................................................................................
Derivatives ......................................................................................................................
Shares and equity instruments ........................................................................................
Total financial assets
Total financial assets
Short positions ................................................................................................................
Derivative instruments .....................................................................................................
Total financial liabilities
Transfers to associates* ...........................................................................................................................................
Purchases .................................................................................................................................................................
Sales and share capital reduction .............................................................................................................................
Net gain on financial instruments recognised in profit or loss ....................................................................................
Short positions ................................................................................................................
Shares and equity instruments ........................................................................................
Level 2: Valuation techniques based on observable inputs other than the quoted prices included in Level 1, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
Debt issued and other borrowed funds designated as at FVTPL .....................................
Financial instruments carried at fair value
The fair value of a financial instrument is the transaction 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. Where a market price is not readily available, the Group applies valuation
techniques based on estimates and assumptions that are consistent with that which market participants would use in setting a price for the
financial instrument.
The following table shows financial instruments carried at fair value at 31 December 2022 categorised into three levels of fair value hierarchy
that reflect the type of inputs used in making the fair value measurements. The different levels have been defined as follows:
Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the
measurement date.
Changes in Level 3 assets measured at fair value
Fair value at 1 January 2022 .....................................................................................................................................
Total financial liabilities
Derivative instruments .....................................................................................................
Transfers to Level 1 or 2 ...........................................................................................................................................
Fair value at 31 December 2022
Íslandsbanki hf. Consolidated Financial Statements 2022 33 Amounts are in ISK million
Notes to the Consolidated Financial Statements
18.
Bonds and
debt
instruments
Shares and
equity
instruments
Non-
current
assets
145 2,890 1,266
32 178 -
( 116) ( 186) ( 1,201)
( 11) 1,170 -
- - ( 65)
50 4,052 -
Fair value at 1 January 2021 ...............................................................................................................
Purchases ...........................................................................................................................................
Level 3: Fair value established using valuation techniques using significant unobservable market information
Level 2: Fair value established using valuation techniques with observable market information
Financial instruments at this level are assets and liabilities containing domestic bonds, shares as well as derivatives. For interest rate
derivatives contracts such as interest rate swaps (IRS) and cross-currency interest rate swaps (CIRS) the Group calculates the net present
value of estimated future cash flows based on yield curves with key inputs such as interest swap rates and forward-rate agreements (FRAs)
rates. Foreign-currency forwards and foreign-currency swaps are valued using the FX spot rate adjusted for forward pricing points that can be
obtained from market sources. These products are classified as Level 2. Bond forwards and equity forwards are also classified as Level 2 as
they are valued using standard models with key inputs observed from stock prices, estimated dividend rates and funding rates.
Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in
estimating discount rates, bond and equity prices, foreign currency exchange rates, and expected price volatilities and correlations. Fair
values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group and the counterparty
where appropriate. In some cases, where significant inputs into these models are not observable, expert judgement and estimation for these
inputs are required.
Level 1: Fair value established from quoted market prices
Financial instruments at this level are financial assets and financial liabilities containing actively traded bonds and shares that are listed either
domestically or abroad.
Sales and share capital reduction ........................................................................................................
Net gain (loss) on financial instruments recognised in profit or loss .....................................................
Where applicable, fair values are determined using quoted prices in active markets for identical assets and liabilities. If a market for a
financial instrument is not active, the Group establishes its fair value using valuation techniques. Valuation techniques include net present
value and discounted cash flow models, comparison with similar instruments for which observable market prices exist, net asset value (NAV)
for investment fund units, expected recovery for distressed bonds, Black-Scholes option pricing model and other valuation models.
At 31 December 2022 the Group's Level 3 shares amounted to ISK 2,245 million:
Net loss on financial instruments recognised in other comprehensive income .....................................
Valuation process
The responsibility for the valuation of the fair value of financial instruments lies with the relevant business units. Each quarter, the business
units present a valuation report to the Investment Committee for approval. The report and its assumptions are reviewed by Risk
Management.
Valuation techniques
At the end of each reporting period the Group determines whether transfers have occurred between levels in the hierarchy, by reassessing
categorisation based on the lowest level input that is significant to the fair value measurement as a whole.
Fair value at 31 December 2021
- Other Level 3 shares amount to ISK 222 million.
At 31 December 2022 the Group's Level 3 bonds amounted to ISK 2,032 million:
- The majority of the amount in Level 3 bonds is estimated by discounting cash flow where the yield is the contractual currency's base rate
with a premium that is decided by expert judgement on projected risk and financing cost.
- These include shares in seven professional investment funds and investment companies investing in unlisted shares and specialised
investments in Iceland totalling ISK 2,023 million. The Group receives information from fund managers who use valuation models for the
valuation of these shares.
Financial instruments at this level contain primarily unlisted and illiquid shares and bonds. Unlisted shares and bonds are initially recorded at
their transaction price but are revalued each quarter based on the models as described above.
Fair value information for financial instruments (continued)
Íslandsbanki hf. Consolidated Financial Statements 2022 34 Amounts are in ISK million
Notes to the Consolidated Financial Statements
18.
Very
Carrying
amount
Very
favourable
Favourable
Unfavourable
unfavour-
able
2,032 14 4 ( 4) ( 7)
2,245 1,936 1,119 ( 109) ( 224)
Very
Carrying
amount
Very
favourable
Favourable
Unfavourable
unfavour-
able
50 89 24 ( 21) ( 50)
4,052 3,415 1,475 ( 975) ( 1,676)
19.
Effect on profit:
Level 3 bonds and debt instruments ............................................................
Level 3 shares and equity instruments ........................................................
Sensitivity analysis for Level 3 assets
The valuations of Level 3 assets are in general uncertain and subject to various factors. The favourable and unfavourable scenarios can be
considered as being likely movements in valuation within a year. The very favourable and very unfavourable scenarios are considered less
likely, but not impossible and are not worst-case scenarios for some of the assets.
The following table shows how profit before tax would have been affected if one or more of the inputs for the fair value measurement in Level
3 were changed.
At 31 December 2022
Fair value information for financial instruments (continued)
At 31 December 2021
Observed market value is used for the fair value of "Debt issued and other borrowed funds" where it is available. Issued bonds and bills with
quoted market prices are classified as Level 1. If there is no quoted market price the fair value of the debt is valued in the same manner as
deposits if it carries a fixed rate. If the debt carries a floating rate its fair value is estimated by comparing the margin with the Group's current
funding premium on similar debt. These liabilities are classified as Level 2. The funding premium is based on the interest margin in the
Group's issued papers including covered bonds, commercial papers as well as foreign currency denominated bonds.
Other financial liabilities mainly include unsettled securities transactions and payments due to leasing contracts and they are classified as
Level 2 since their value is not observable from active market prices. Due to the short-term nature of these liabilities their carrying amount is
considered a good approximation of their fair value.
For "Cash and balances with Central Bank", "Loans to credit institutions" and "Other financial assets" the fair value is adequately
approximated by the carrying amount as they are short-term in nature. They are thus classified as Level 2.
Liabilities
Level 3 bonds and debt instruments ............................................................
The following table shows the fair value measurement and classification of the Group's assets and liabilities not carried at fair value. The
different levels are defined in Note 18.
The fair value of a financial liability with a demand feature, such as a demand deposit, is not less than the amount payable on demand,
discounted from the first date that the amount could be required to be paid. Most deposits are on demand or carry floating interest rates and
as such their carrying amount is considered a good approximation of their fair value. The fair value for longer term fixed rate deposits is
calculated with a duration approach, using the difference in each liability's current interest rate from the rate that a similar deposit would carry
today. All deposits are classified as Level 2 based on the use of observable market interest rates to estimate the fair value.
Effect on profit:
The fair value of "Loans to customers" may differ from their net carrying amount because the interest rates they carry may not reflect the
interest rates that similar new loans would carry. The fair value is estimated by subtracting from or adding to the net carrying amount of the
loans the discounted interest rate difference calculated from the reporting date until the next interest reset or maturity, whichever comes first.
Since the interest rate difference is estimated using internal models these assets are classified as Level 3.
Financial instruments not carried at fair value
Level 3 shares and equity instruments ........................................................
Assets
Íslandsbanki hf. Consolidated Financial Statements 2022 35 Amounts are in ISK million
Notes to the Consolidated Financial Statements
19.
Total fair Carrying
At 31 December 2022 Level 1 Level 2 Level 3 value amount
- 94,424 - 94,424 94,424
- 110,364 - 110,364 110,364
- - 1,171,380 1,171,380 1,186,639
- 5,411 - 5,411 5,411
Total financial assets - 210,199 1,171,380 1,381,579 1,396,838
- 15,108 - 15,108 15,269
- 789,938 - 789,938 789,897
215,189 163,529 - 378,718 384,833
- 36,070 - 36,070 34,392
- 11,329 - 11,329 11,329
Total financial liabilities 215,189 1,015,974 - 1,231,163 1,235,720
Total fair Carrying
At 31 December 2021 Level 1 Level 2 Level 3 value amount
- 113,667 - 113,667 113,667
- 43,988 - 43,988 43,988
- - 1,089,920 1,089,920 1,086,327
- 5,241 - 5,241 5,241
Total financial assets - 162,896 1,089,920 1,252,816 1,249,223
- 13,441 - 13,441 13,384
- 744,098 - 744,098 744,036
225,763 97,311 - 323,074 312,766
- 37,581 - 37,581 35,762
- 9,681 - 9,681 9,681
Total financial liabilities 225,763 902,112 - 1,127,875 1,115,629
20. Offsetting financial assets and financial liabilities
At 31 December 2022
Financial
assets
before
netting
Netting
with
financial
liabilities
Net financial
assets
Financial
liabilities
Cash
collateral
received
Financial
instruments
collateral
received
Net amount after
consideration of
potential effect of
netting
arrangements
Assets outside
the scope of
offsetting
disclosure
requirements
Total financial
assets
recognised in
the balance
sheet
7,461 - 7,461 ( 856) ( 4,962) ( 564) 1,079 - 7,461
Other financial liabilities ..............................................................................
Amounts not set off but subject to
master netting arrangements and similar
agreements
Debt issued and other borrowed funds ........................................................
Subordinated loans .....................................................................................
Financial instruments not carried at fair value (continued)
Loans to credit institutions ...........................................................................
Cash and balances with Central Bank .........................................................
Cash and balances with Central Bank .........................................................
Loans to credit institutions ...........................................................................
Financial assets subject to
netting arrangements
Subordinated loans .....................................................................................
Derivatives ...................................
Loans to customers .....................................................................................
Other financial assets .................................................................................
Deposits from customers ............................................................................
Debt issued and other borrowed funds ........................................................
Deposits from Central Bank and credit institutions ......................................
Other financial liabilities ..............................................................................
Deposits from customers ............................................................................
Other financial assets .................................................................................
Loans to customers .....................................................................................
The following tables show reconciliation to the net amounts of financial assets and financial liabilities which are subject to offsetting,
enforceable master netting agreements and similar agreements.
Deposits from Central Bank and credit institutions ......................................
Íslandsbanki hf. Consolidated Financial Statements 2022 36 Amounts are in ISK million
Notes to the Consolidated Financial Statements
20.
At 31 December 2021
Financial
assets
before
netting
Netting
with
financial
liabilities
Net financial
assets
Financial
liabilities
Cash
collateral
received
Financial
instruments
collateral
received
Net amount after
consideration of
potential effect of
netting
arrangements
Assets outside
the scope of
offsetting
disclosure
requirements
Total financial
assets
recognised in
the balance
sheet
100 - 100 - - - 100 - 100
2,445 - 2,445 ( 927) ( 885) ( 73) 560 - 2,445
2,545 - 2,545 ( 927) ( 885) ( 73) 660 - 2,545
At 31 December 2022
Financial
liabilities
before
netting
Netting
with
financial
assets
Net financial
liabilities
Financial
assets
Cash
collateral
pledged
Financial
instruments
collateral
pledged
Net amount after
consideration of
potential effect of
netting
arrangements
Liabilities
outside the
scope of
offsetting
disclosure
requirements
Total financial
liabilities
recognised in
the balance
sheet
Derivative instruments and
10,804 - 10,804 ( 856) ( 6,630) - 3,318 - 10,804
At 31 December 2021
Derivative instruments and
9,467 - 9,467 ( 927) ( 945) - 7,595 - 9,467
21. Cash and balances with Central Bank
31.12.2022 31.12.2021
3,563 3,882
80,866 100,528
Cash and unrestricted balances with Central Bank
84,429 104,410
483 589
9,512 8,668
Cash and balances with Central Bank 94,424 113,667
22. Loans to credit institutions
31.12.2022 31.12.2021
55,742 17,759
54,606 26,187
16 42
Loans to credit institutions 110,364 43,988
Bank accounts ..........................................................................................................................................................
Other loans ...............................................................................................................................................................
Financial liabilities subject to
netting arrangements
Amounts not set off but subject to
master netting arrangements and similar
agreements
Total assets
Unrestricted balances with Central Bank ...................................................................................................................
Mandatory reserve deposits with Central Bank .........................................................................................................
Money market loans ..................................................................................................................................................
Balances pledged as collateral to Central Bank ........................................................................................................
Financial assets subject to
netting arrangements
Offsetting financial assets and financial liabilities (continued)
short positions ..............................
Cash on hand ...........................................................................................................................................................
short positions ..............................
Amounts not set off but subject to
master netting arrangements and similar
agreements
Reverse repurchase agreements ..
Derivatives ...................................
Íslandsbanki hf. Consolidated Financial Statements 2022 37 Amounts are in ISK million
Notes to the Consolidated Financial Statements
23. Derivative instruments and short positions
At 31 December 2022
Assets Liabilities
3,953 50,399 9,403 225,817
637 17,028 353 11,818
765 8,389 130 3,486
750 20,437 95 9,944
1,221 38,733 537 46,487
135 3,834 1 286
Derivatives 7,461 138,820 10,519 297,838
- - 285 332
Total 7,461 138,820 10,804 298,170
At 31 December 2021
Assets Liabilities
1,253 131,732 3,182 88,920
157 14,392 473 16,587
126 5,693 2,958 16,591
97 15,719 278 12,674
359 33,914 599 42,795
453 34,594 26 7,043
Derivatives 2,445 236,044 7,516 184,610
- - 1,951 1,447
Total 2,445 236,044 9,467 186,057
Notional
values
related to
liabilities
Cross-currency interest rate swaps .................................................................................
Equity forwards ...............................................................................................................
Foreign exchange forwards .............................................................................................
Foreign exchange swaps .................................................................................................
Notional
values
related to
assets
Interest rate swaps ..........................................................................................................
The Group applies hedge accounting only with respect to certain EUR denominated interest rate swaps, whereby the Group pays floating rate
interest and receives fixed rate interest. The interest rate swaps are hedging the exposure of changes in the fair value of certain fixed-rate
EUR denominated bonds (see Note 34) arising from changes in EURIBOR benchmark interest rates. The Group applies fair value hedge
accounting to the hedging relationships and for the purpose of evaluating whether the hedging relationship is expected to be highly effective,
the Group assumes that the benchmark interest rate is not altered as a result of IBOR reform. At 31 December 2022 the total fair value of the
interest rate swaps was negative and amounted to ISK 1,596 million (2021: positive ISK 545 million) and their total notional amount was ISK
90,900 million (2021: ISK 44,280 million).
Bond forwards .................................................................................................................
Short positions in listed bonds .........................................................................................
Notional
values
related to
assets
Foreign exchange swaps .................................................................................................
Notional
values
related to
liabilities
Short positions in listed bonds .........................................................................................
Cross-currency interest rate swaps .................................................................................
Equity forwards ...............................................................................................................
Bond forwards .................................................................................................................
Foreign exchange forwards .............................................................................................
The Group uses derivatives to hedge currency exposure, interest rate risk in the banking book as well as inflation risk. The Group carries
relatively low indirect exposure due to margin trading with clients and the Group holds collaterals for possible losses. Other derivatives in the
Group held for trading or for other purposes are insignificant.
Short positions are in Icelandic Government bonds and bonds issued by municipalities, banks, and public companies. As a primary dealer the
Group has access to securities lending facilities provided by the Central Bank and other issuers. Majority of the securities lending facilities
have a maturity of less than a year.
Interest rate swaps ..........................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 38 Amounts are in ISK million
Notes to the Consolidated Financial Statements
24. Loans to customers
Net
At 31 December 2022 carrying
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 amount
562,460 5,134 5,256 ( 1,607) ( 175) ( 546) 570,522
154,413 17,491 3,836 ( 974) ( 1,703) ( 841) 172,222
57,885 2,285 402 ( 654) ( 66) ( 37) 59,815
10,456 - - ( 45) - - 10,411
2,641 1 - ( 20) - - 2,622
84,369 670 8,885 ( 303) ( 19) ( 2,524) 91,078
38,712 1,577 732 ( 409) ( 210) ( 66) 40,336
10,857 219 1 ( 29) ( 2) - 11,046
123,589 1,544 1,948 ( 493) ( 57) ( 234) 126,297
101,491 854 63 ( 102) ( 3) ( 13) 102,290
Loans to customers 1,146,873 29,775 21,123 ( 4,636) ( 2,235) ( 4,261) 1,186,639
Net
At 31 December 2021 carrying
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 amount
510,024 7,197 5,704 ( 1,368) ( 199) ( 625) 520,733
110,618 55,299 5,252 ( 844) ( 2,696) ( 2,407) 165,222
34,238 1,704 1,298 ( 341) ( 72) ( 54) 36,773
9,529 - - ( 36) - - 9,493
1,980 1 - ( 3) - - 1,978
61,386 24,593 6,481 ( 281) ( 292) ( 2,260) 89,627
21,066 2,636 606 ( 295) ( 297) ( 39) 23,677
9,862 144 1 ( 18) ( 1) ( 1) 9,987
97,395 10,989 2,177 ( 485) ( 225) ( 537) 109,314
116,451 3,204 57 ( 159) ( 22) ( 8) 119,523
Loans to customers 972,549 105,767 21,576 ( 3,830) ( 3,804) ( 5,931) 1,086,327
25. Expected credit losses
Total allowances for expected credit losses
Stage 1 Stage 2 Stage 3 Total
3 - - 3
152 - - 152
4,636 2,235 4,261 11,132
9 4 - 13
869 242 227 1,338
At 31 December 2022 5,669 2,481 4,488 12,638
3 - - 3
89 - - 89
3,830 3,804 5,931 13,565
18 6 - 24
545 298 158 1,001
At 31 December 2021 4,485 4,108 6,089 14,682
Real estate ................................................................
Real estate ................................................................
Loans to customers .........................................................................................................
Other financial assets ......................................................................................................
Cash and balances with Central Bank .............................................................................
Loans to credit institutions ...............................................................................................
Public sector and non-profit organisations .................
Cash and balances with Central Bank .............................................................................
Off-balance sheet loan commitments and financial guarantees .......................................
Industrial and transportation .......................................
Investment companies ...............................................
Public sector and non-profit organisations .................
Individuals ..................................................................
Commerce and services ............................................
Construction ..............................................................
Energy .......................................................................
Expected credit losses
Gross carrying amount
Financial services ......................................................
Seafood .....................................................................
Loans to customers .........................................................................................................
Other financial assets ......................................................................................................
Energy .......................................................................
Financial services ......................................................
Industrial and transportation .......................................
Gross carrying amount
Expected credit losses
Individuals ..................................................................
Seafood .....................................................................
Investment companies ...............................................
Loans to credit institutions ...............................................................................................
Commerce and services ............................................
Construction ..............................................................
Off-balance sheet loan commitments and financial guarantees .......................................
Íslandsbanki hf. Consolidated Financial Statements 2022 39 Amounts are in ISK million
Notes to the Consolidated Financial Statements
25.
Loans to customers
Stage 1 Stage 2 Stage 3 Total
3,830 3,804 5,931 13,565
2,028 ( 1,743) ( 285) -
( 491) 936 ( 445) -
( 117) ( 460) 577 -
( 3,196) ( 308) ( 1,436) ( 4,940)
3,425 1,742 3,849 9,016
( 842) ( 1,736) ( 3,292) ( 5,870)
( 1) - ( 1,079) ( 1,080)
- - 146 146
- - ( 115) ( 115)
- - 410 410
At 31 December 2022 4,636 2,235 4,261 11,132
Stage 1 Stage 2 Stage 3 Total
3,645 6,482 7,387 17,514
1,995 ( 1,780) ( 215) -
( 476) 1,650 ( 1,174) -
( 48) ( 1,259) 1,307 -
( 3,550) ( 2,254) ( 779) ( 6,583)
2,759 1,497 3,645 7,901
( 495) ( 529) ( 3,695) ( 4,719)
- ( 3) ( 1,206) ( 1,209)
- - 293 293
- - ( 44) ( 44)
- - 412 412
At 31 December 2021 3,830 3,804 5,931 13,565
Off-balance sheet loan commitments and financial guarantees
Stage 1 Stage 2 Stage 3 Total
545 298 158 1,001
207 ( 158) ( 49) -
( 21) 68 ( 47) -
( 7) ( 32) 39 -
( 424) ( 185) ( 91) ( 700)
702 288
282 1,272
( 133) ( 37) ( 65) ( 235)
At 31 December 2022 869 242 227 1,338
347 483 225 1,055
132 ( 114) ( 18) -
( 28) 92 ( 64) -
( 4) ( 16) 20 -
( 491) ( 292) 2 ( 781)
673 242 29 944
( 84) ( 97) ( 36) ( 217)
At 31 December 2021 545 298 158 1,001
Derecognitions and maturities .........................................................................................
New financial assets originated or purchased ..................................................................
Expected credit losses (continued)
The following tables reconcile the opening and closing balances for accumulated expected credit losses for loans to customers, and off-
balance sheet loan commitments and financial guarantees.
At 1 January 2022 ...........................................................................................................
Transfer to Stage 1 .........................................................................................................
Transfer to Stage 2 .........................................................................................................
Transfer to Stage 3 .........................................................................................................
At 1 January 2022 ...........................................................................................................
At 1 January 2021 ...........................................................................................................
Transfer to Stage 1 .........................................................................................................
Derecognitions and maturities .........................................................................................
Transfer to Stage 2 .........................................................................................................
Write-offs* .......................................................................................................................
Unwinding of interest .......................................................................................................
Net remeasurement of loss allowance .............................................................................
Transfer to Stage 1 .........................................................................................................
Foreign exchange ............................................................................................................
Foreign exchange ............................................................................................................
Recoveries of amounts previously written off ...................................................................
Transfer to Stage 2 .........................................................................................................
Unwinding of interest .......................................................................................................
At 1 January 2021 ...........................................................................................................
Transfer to Stage 3 .........................................................................................................
Net remeasurement of loss allowance .............................................................................
Net remeasurement of loss allowance .............................................................................
Transfer to Stage 1 .........................................................................................................
Transfer to Stage 3 .........................................................................................................
Transfer to Stage 2 .........................................................................................................
Transfer to Stage 3 .........................................................................................................
Net remeasurement of loss allowance .............................................................................
New loan commitments and financial guarantees ............................................................
New financial assets originated or purchased ..................................................................
Derecognitions and maturities .........................................................................................
Write-offs* .......................................................................................................................
Recoveries of amounts previously written off ...................................................................
*During the year financial assets amounting to ISK 570 million were written off but are still subject to enforcement activity.
*During the year financial assets amounting to ISK 759 million were written off but are still subject to enforcement activity.
New loan commitments and financial guarantees ............................................................
Derecognitions and maturities .........................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 40 Amounts are in ISK million
Notes to the Consolidated Financial Statements
26. Investments in associates
31.12.2022 31.12.2021
Iceland 30.1% 30.1%
Iceland 43.3% 12.2%
Iceland 0.0% 23.8%
Iceland 0.0% 33.3%
2022 2021
939 775
1,328 31
1,711 -
( 174)
-
40 73
- 60
I
nvestments in associates at year-end 3,844 939
Summarised financial information in respect of the Group's associates is set out below:
7,088 5,
661
360 286
16,
921 5,522
( 8,397) ( 2,590)
8,524 2,932
Group's share of net assets of associates 3,844 939
Share of profit of associates .....................................................................................................................................
JCC ehf., a cash centre service company, Sundaborg 15, 108 Reykjavík ...........................................
Norðurturninn hf., a rental company of commercial real estate, Borgartún 26, 105 Reykjavík ..............
At year-end 2021 Íslandsbanki owned shares in Norðurturninn hf. which were classified as shares and equity instruments (see Note 18).
During the year Íslandsbanki increased its share in Norðurturninn and subsequently obtained significant influence over the company. The
company has since been classified as an associate. The company's shares are divided into two categories, Class A shares and Class B
shares. Class B shares hold all the voting rights and receive all dividends up to ISK 3,327 million (CPI-linked, based on the CPI in December
2022). After Class B shareholders have received that amount the class is then suspended, and Class A shares receive all the voting rights
and the rights to dividend payments. Íslandsbanki owns 43.3% of Class B shares and 65.0% of Class A shares. Norðurturninn owns the real
estate Hagasmári 3, where the Bank is the principal lessee and rents over half the building for its headquarters.
Transfer from shares and equity instruments to associates ......................................................................................
Investments in associates at the beginning of the year .............................................................................................
Additions during the year ..........................................................................................................................................
Sales of shares in associates ...................................................................................................................................
Reversal of impairment .............................................................................................................................................
Net assets .................................................................................................................................................................
Revenue ...................................................................................................................................................................
Profit .........................................................................................................................................................................
Assets .......................................................................................................................................................................
Liabilities ...................................................................................................................................................................
Reiknistofa bankanna hf., an IT service centre company, Katrínartún 2, 105 Reykjavík ......................
Auðkenni ehf., an information security company, Borgartún 31, 105 Reykjavík ...................................
Íslandsbanki hf. Consolidated Financial Statements 2022 41 Amounts are in ISK million
Notes to the Consolidated Financial Statements
27. Property and equipment
Right-of-use
Fixtures,
At 31 December 2022
Land and assets: equipment
buildings Buildings & vehicles Total
3,101 4,921 2,996 11,018
112 8 161 281
- - ( 45) ( 45)
- 334 - 334
H
istorical cost 3,213 5,263 3,112 11,588
( 1,360) ( 1,234) ( 1,414) ( 4,008)
( 18) ( 478) ( 362) ( 858)
- - 30 30
Accumulated depreciation ( 1,378) ( 1,712) ( 1,746) ( 4,836)
Carrying amount 1,835 3,551 1,366 6,752
0-2% 8-26% 8-33%
1,884
2,752
2,038
Right-of-use Fixtures,
At 31 December 2021 Land and assets: equipment
buildings Buildings & vehicles Total
3,058 4,729 3,119 10,906
43 133 163 339
- (
110) ( 286) ( 396)
- 169 - 169
H
istorical cost 3,101 4,921 2,996 11,018
( 1,340) ( 906) ( 1,319) ( 3,565)
( 20) ( 438) ( 370) ( 828)
- 110 275 385
A
ccumulated depreciation ( 1,360) ( 1,234) ( 1,414) ( 4,008)
Carrying amount 1,741 3,687 1,582 7,010
0-2% 8-32% 8-33%
1,589
2,486
1,985
Depreciation during the year ............................................................................................
Balance at the beginning of the year ...............................................................................
Balance at the beginning of the year ...............................................................................
Insurance value of buildings ............................................................................................
Annual depreciation rates ................................................................................................
Official real estate value of land and buildings .................................................................
Insurance value of buildings ............................................................................................
Disposals and write-offs during the year ..........................................................................
Disposals and write-offs during the year ..........................................................................
Remeasurement ..............................................................................................................
Additions during the year .................................................................................................
Insurance value of fixtures, equipment and vehicles ........................................................
Insurance value of fixtures, equipment and vehicles ........................................................
Disposals and write-offs during the year ..........................................................................
Balance at the beginning of the year ...............................................................................
Depreciation during the year ............................................................................................
Disposals and write-offs during the year ..........................................................................
Remeasurement ..............................................................................................................
Balance at the beginning of the year ...............................................................................
Additions during the year .................................................................................................
Annual depreciation rates ................................................................................................
Official real estate value of land and buildings .................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 42 Amounts are in ISK million
Notes to the Consolidated Financial Statements
28. Intangible assets
Purchased Developed
At 31 December 2022 software software Total
1,579 3,383 4,962
470
- 470
H
istorical cost 2,049 3,383 5,432
( 359) ( 1,252) ( 1,611)
( 232) ( 310) ( 542)
Accumulated amortisation ( 591) ( 1,562) ( 2,153)
Carrying amount 1,458 1,821 3,279
10-25% 10%
Purchased Developed
At 31 December 2021 software software Total
1,623 3,383 5,006
442 - 442
(
486)
- (
486)
Historical cost 1,579 3,383 4,962
( 636) ( 892) ( 1,528)
( 190) ( 360) ( 550)
467 -
467
A
ccumulated amortisation ( 359) ( 1,252) ( 1,611)
Carrying amount 1,220 2,131 3,351
10-25% 10%
29.
Other assets
1,682 1,582
3,591 3,412
166 252
400 332
116 94
117 112
Other assets 6,072 5,784
30. Non-current assets and disposal groups held for sale
31.12.2022 31.12.2021
723 269
5 -
- 1,075
Non-current assets and disposal groups held for sale 728 1,344
Land and buildings ...............................................................................................................................................
Receivables ..............................................................................................................................................................
Unsettled securities transactions ..............................................................................................................................
Accruals ....................................................................................................................................................................
Repossessed collateral:
Assets of disposal groups held for sale .....................................................................................................................
At year-end 2021 the Group classified the assets and liabilities of Miðengi ehf. (100%) and Reykjavík DC hf. (100%) as assets and liabilities
of disposal groups held for sale. In 2022 the group sold Reykjavík DC hf. and reclassified Miðengi ehf. as a subsidiary.
Balance at the beginning of the year ....................................................................................................
Amortisation rates ...............................................................................................................................
Additions during the year .....................................................................................................................
Balance at the beginning of the year ....................................................................................................
Amortisation during the year ................................................................................................................
Deferred tax assets ...................................................................................................................................................
31.12.2021
Prepaid expenses .....................................................................................................................................................
Balance at the beginning of the year ....................................................................................................
Balance at the beginning of the year ....................................................................................................
Amortisation rates ...............................................................................................................................
Additions during the year .....................................................................................................................
Write-offs during the year ....................................................................................................................
Amortisation during the year ................................................................................................................
Write-offs during the year ....................................................................................................................
Other assets .............................................................................................................................................................
Industrial equipment and vehicles ........................................................................................................................
31.12.2022
Íslandsbanki hf. Consolidated Financial Statements 2022 43 Amounts are in ISK million
Notes to the Consolidated Financial Statements
31. Deposits from Central Bank and credit institutions
31.12.2022
31.12.2021
15,105 13,233
164 151
Deposits from Central Bank and credit institutions 15,269 13,384
32. Deposits from customers
31.12.2022
31.12.2021
697,025 658,543
92,872 85,493
Deposits from customers 789,897 744,036
Deposits from customers specified by owners
Amount % of total Amount % of total
8,791 1% 10,750 1%
9,412 1% 7,125 1%
400,329 51% 371,893 50%
371,365 47% 354,268 48%
Deposits from customers 789,897 100% 744,036 100%
33. Pledged assets
31.12.2022 31.12.2021
402,958 289,544
5,723 7,440
7,813 1,861
19,477 2,200
Pledged assets against liabilities 435,971 301,045
Cash and balances pledged against Covered Bonds ................................................................................................
Loans to credit institutions ........................................................................................................................................
31.12.2021
Demand deposits and deposits with maturity up to 3 months ....................................................................................
Term deposits with maturity of more than 3 months ..................................................................................................
31.12.2022
The Group has also pledged assets with the Central Bank to ensure the clearing of the Icelandic payment system as well as other contracts
with the Central Bank. Moreover, it has pledged cash in foreign banks and financial institutions, mainly as collateral for trades under ISDA
agreements to hedge market risk.
Deposits from credit institutions ................................................................................................................................
Repurchase agreements with Central Bank ..............................................................................................................
The Group has pledged assets against the issuance of covered bonds under Icelandic law, which are pledged on a pool of consumer
mortgage loans. The Group owns covered bonds for its own use which accounts for a portion of the pledged assets. The carrying amount of
these bonds at 31 December 2022 was ISK 24,682 million (year-end 2021: ISK 23,650 million).
Municipalities ...................................................................................................................
Companies ......................................................................................................................
Individuals .......................................................................................................................
Financial assets pledged as collateral with Central Bank ..........................................................................................
Loans to customers ..................................................................................................................................................
Central government and state-owned enterprises ...........................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 44 Amounts are in ISK million
Notes to the Consolidated Financial Statements
34. Debt issued and other borrowed funds
First Maturity
issued Maturity type Interest 31.12.2022 31.12.2021
2015 2023 Bullet Fixed rates
38,970 39,020
2020 2027 Amortising Fixed rates 26,992 25,750
2022 2027 Bullet Floating rates 3,311 -
2015 2022 Bullet Fixed rates - 18,722
2012 2024 Bullet Fixed rates 41,346 38,231
2015 2026 Bullet Fixed rates 32,555 29,833
2019 2028 Amortising Fixed rates 33,456 25,902
2017 2030 Bullet Fixed rates
29,812 27,363
2022 2027 Bullet Fixed rates 43,875 -
Covered bonds 250,317 204,821
2019 2022 Bullet Floating rates
- 14,841
2019 2022 Bullet Fixed rates - 44,803
2020 2023 Bullet Fixed rates
43,876 44,657
2018 2024 Bullet Fixed rates 5,704 45,036
2019 2024 Bullet Fixed rates
5,972 6,122
2019 2024 Amortising Floating rates 282 2,100
2021 2024 Bullet Floating rates 2,157 2,211
2021 2024 Bullet Floating rates 3,406 3,597
2021 2024 Bullet Floating rates
6,903 7,037
2021 2024 Bullet Floating rates 2,739 2,882
2022 2024 Bullet Floating rates 10,957 -
2020 2025 Bullet Fixed rates 1,228 6,603
2021 2025 Bullet Floating rates 6,130 6,472
2021 2025 Bullet Floating rates 10,778 11,044
2022 2025 Bullet Fixed rates
39,561 -
2022 2025 Bullet Floating rates
20,318 -
2022 2027 Amortising Floating rates
3,763 -
2022 2027 Bullet Fixed rates 5,301 -
Unsecured bonds 169,075 197,405
36,650 -
12,228 -
Other borrowed funds 48,878 -
Debt issued and other borrowed funds 468,270 402,226
Covered bonds in ISK - CPI-linked ...............................................
Covered bonds in ISK - CPI-linked ...............................................
Senior unsecured bonds in SEK ..................................................
Senior unsecured bonds in NOK ..................................................
Covered bonds in EUR* ...............................................................
The Group repurchased own bonds during the year amounting to ISK 79,026 million (2021: ISK 16,384 million).
Senior unsecured bonds in ISK ....................................................
Senior unsecured bonds in ISK ....................................................
**These bond issuances are classified as being designated as at fair value through profit or loss. At 31 December 2022 the total carrying
amount of the bonds amounted to ISK 83,437 million; included in the amount are negative fair value changes amounting to ISK 7,733 million.
The carrying amount of the bonds at 31 December 2022 was ISK 8,031 million lower than the contractual amount due at maturity.
The Group has issued additional bonds for its own use, e.g. for the purpose of securities lending and repurchase agreements. These bond
amounts are not included in the total.
Senior unsecured bonds in NOK ..................................................
Senior unsecured bonds in EUR (callable 2023)* .........................
Senior unsecured bonds in NOK ..................................................
Senior unsecured bonds in SEK ..................................................
Senior unsecured bonds in NOK ..................................................
Senior unsecured bonds in SEK ..................................................
*The Group applies hedge accounting to these bond issuances and uses certain EUR denominated interest rate swaps as hedging
instruments (see Note 23). The interest rate swaps are hedging the exposure of the Group's changes in the fair value of this fixed-rate EUR
denominated bond arising from changes in EURIBOR benchmark interest rates. The Group applies fair value hedge accounting to the
hedging relationships and for the purpose of evaluating whether the hedging relationship is expected to be highly effective, the Group
assumes that the benchmark interest rate is not altered as a result of IBOR reform. At 31 December 2022 the total carrying amount of the
bond issuance amounted to ISK 49,579 million and included in the amount are fair value changes amounting to ISK 1,810 million.
Other unsecured loans ..............................................................................................................................................
Other secured loans ..................................................................................................................................................
Senior unsecured bonds in EUR** ...............................................
Senior unsecured bonds in NOK ..................................................
Senior unsecured bonds in NOK ..................................................
Covered bonds in ISK - CPI-linked ...............................................
Covered bonds in ISK - CPI-linked ...............................................
Covered bonds in ISK ..................................................................
Covered bonds in ISK ..................................................................
Covered bonds in ISK ..................................................................
Covered bonds in ISK - CPI-linked ...............................................
Senior unsecured bonds in ISK ....................................................
Senior unsecured bonds in EUR** ...............................................
Senior unsecured bonds in ISK ....................................................
Senior unsecured bonds in EUR** ...............................................
Senior unsecured bonds in SEK ..................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 45 Amounts are in ISK million
Notes to the Consolidated Financial Statements
35. Subordinated loans
Issued Maturity Callable 31.12.2022 31.12.2021
2017 2027 2022 - 10,786
2018 2028 2023 6,820 7,187
2019 2029 2024 6,785 7,163
2022 2033 2028 1,526 -
2022 2033 2028 9,199 -
Tier 2 subordinated loans 24,330 25,136
2021 Perpetual 2026 10,062 10,626
Additional Tier 1 subordinated loans 10,062 10,626
Subordinated loans 34,392 35,762
36. Changes in liabilities arising from financing activities
1.1.2022
Cash flows
Interest
expense
Foreign
exchange
Fair value
changes
31.12.2022
64,770 1,855 2,609
- 39 69,
273
140,051 ( 19,021) 16,109
- 30 137,
169
8,703 1,950 398 - ( 477) 10,574
54,206 15,284 1,258 ( 1,388)
- 69,360
89,
460 ( 279)
578 1,
317 ( 7,639) 83,
437
-
42,125 370 3,
184 ( 1,804) 43,
875
45,
036 ( 39,992)
515 504 (
359) 5,
704
- 45,051 450 3,377 - 48,878
35,762 ( 814) 1,538 ( 2,094) - 34,392
Total 437,988 46,159 23,825 4,900 ( 10,210) 502,662
1.1.2021
Cash flows
Interest
expense
Foreign
exchange
Fair value
changes
31.12.2021
39,958 22,380 2,432 - - 64,770
136,487 ( 6,467) 10,031 - - 140,051
5,373 3,202 128 - - 8,703
61,553 ( 6,158) 960 ( 2,149)
- 54,206
94,
438 ( 734)
729 (
5,148) 175 89,460
48,032 ( 525)
545 (
2,546) ( 470) 45,
036
1,433 ( 1,441) 8 - - -
27,194 10,100 829 ( 2,361) - 35,762
Total 414,468 20,357 15,662 ( 12,204) ( 295) 437,988
Subordinated loans in SEK ........................................
Floating, STIBOR + 4.75%
Subordinated loans in ISK .........................................
Fixed, 8,62%
Subordinated loans in ISK .........................................
Fixed CPI, 4,86%
Floating, STIBOR + 2.5%
Subordinated loans in SEK ........................................
Floating, STIBOR + 3.9%
Subordinated loans in SEK ........................................
Interest
Subordinated loans in SEK ........................................
Non-cash changes
Covered bonds in ISK ..................................................................
Covered bonds in ISK - CPI-linked ...............................................
Senior unsecured bonds in ISK ....................................................
Senior unsecured bonds FX .........................................................
Floating, STIBOR + 2.0%
Senior unsecured bonds FX at fair value ......................................
Senior unsecured bonds in hedge accounting ..............................
Other borrowed funds ..................................................................
Subordinated loans ......................................................................
Non-cash changes
Covered bonds in ISK ..................................................................
Covered bonds in ISK - CPI-linked ...............................................
Senior unsecured bonds in ISK ....................................................
Senior unsecured bonds FX .........................................................
Covered bonds in hedge accounting ............................................
Senior unsecured bonds in hedge accounting ..............................
Senior unsecured bonds FX at fair value ......................................
Other borrowed funds ..................................................................
Subordinated loans ......................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 46 Amounts are in ISK million
Notes to the Consolidated Financial Statements
37.
Tax assets and tax liabilities
Assets Liabilities Assets Liabilities
- 9,042 - 5,896
116 3,086 94 536
Tax in the balance sheet 116 12,128 94 6,432
Assets Liabilities
259 2
( 165) 4,099
- ( 3,361)
- ( 204)
Deferred tax assets and tax liabilities 31.12.2021 94 536
22 7,593
- ( 5,668)
- 110
- 625
Deferred tax assets and tax liabilities 31.12.2022 116 3,086
Net Recognised
2022 balance at in profit or Recognised Deferred Deferred
1 January (loss) in equity Net tax assets tax liabilities
( 930) 54 - ( 876) - ( 876)
( 484) 28 - ( 456) - ( 456)
( 376) ( 103) - ( 479) - ( 479)
( 275) ( 562) - ( 837) - ( 837)
595 155 - 750 750 -
758 ( 25) - 733 733 -
176 ( 1,472) ( 625) ( 1,921) - ( 1,921)
94 22 - 116 116 -
( 442) ( 1,903) ( 625) ( 2,970) 1,599 ( 4,569)
Set-off of deferred tax assets together
( 1,483) 1,483
Tax assets (liabilities) ( 442) ( 1,903) ( 625) ( 2,970) 116 ( 3,086)
Net Recognised
2021 balance at in profit or Recognised Deferred Deferred
1 January (loss) in equity Net tax assets tax liabilities
( 978) 48 - ( 930) - ( 930)
( 490) 6 - ( 484) - ( 484)
( 420) 44 - ( 376) - ( 376)
1,105 ( 1,380) - ( 275) - ( 275)
( 90) 685 - 595 595 -
797 ( 39) - 758 758 -
240 ( 268) 204 176 176 -
93 1 - 94 94 -
257 ( 903) 204 ( 442) 1,623 ( 2,065)
Set-off of deferred tax assets together
( 1,529) 1,529
Tax assets (liabilities) 257 ( 903) 204 ( 442) 94 ( 536)
31.12.2022
31.12.2021
Current tax ......................................................................................................................
Intangible assets ..........................................................................
Assets and liabilities in foreign currency ......................................
Income tax payable in 2022 ......................................................................................................................................
Changes in deferred tax assets and deferred tax liabilities due to equity ...................................................................
Calculated income tax for 2022 .................................................................................................................................
Income tax payable in 2023 ......................................................................................................................................
Derivatives ...................................................................................
Lease liabilities ............................................................................
Deferred foreign exchange difference ..........................................
Derivatives ...................................................................................
Debt issued and other borrowed funds .........................................
with liabilities of the same taxable entities ..................................
Other items ..................................................................................
Debt issued and other borrowed funds .........................................
with liabilities of the same taxable entities ..................................
Balance at 31 December
Other items ..................................................................................
- thereof income tax recognised in other comprehensive income ..............................................................................
Changes in deferred tax assets and deferred tax liabilities due to equity ...................................................................
Balance at 31 December
Property and equipment ...............................................................
Intangible assets ..........................................................................
Assets and liabilities in foreign currency ......................................
Deferred foreign exchange difference ..........................................
Calculated income tax for 2021 .................................................................................................................................
Property and equipment ...............................................................
Lease liabilities ............................................................................
Deferred tax assets and tax liabilities ..............................................................................
Deferred tax assets and tax liabilities 1.1.2021 .........................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 47 Amounts are in ISK million
Notes to the Consolidated Financial Statements
38.
Other liabilities
31.12.2022 31.12.2021
2,448 2,463
3,708 3,838
1,338 1,001
2,921 1,288
3,805 2,005
2,381 2,253
Other liabilities 16,601 12,848
39.
Custody assets
31.12.2022 31.12.2021
3,278,816 3,411,059
40.
Leases
31.12.2022 31.12.2021
20,263 14,680
43,929 32,954
2,636 2,512
Total gross investment in the lease 66,828 50,146
15,942 12,562
37,729 29,738
2,341 2,279
Total present value of lease payments* 56,012 44,579
Unearned interest income 10,816 5,567
260 424
3,769 2,191
Interest income from finance lease receivables during the year ................................................................................
The Group as a lessee
The Group's significant leases are leases for offices, branches, and storage. Most leases are CPI-linked real estate leases with duration of 5-
10 years with extension options. Lease commitments are recognised on-balance sheet except for short-term leases and leases of low-value
assets. During the year 2022 the total expense for leases of low-value assets and short-term leases amounted to ISK 36 million (2021: ISK
22 million), the total cash outflow for leases amounted to ISK 584 million (2021: ISK 536 million) and total interest expense from lease
liabilities amounted to ISK 82 million (2021: ISK 84 million).
At year-end 2022 the Group recognised ISK 3,551 million in right-of-use assets which are presented in the line item "Property and equipment"
and lease liabilities amounting to ISK 3,708 million which are presented in the line item "Other liabilities".
The Group as a lessor
Net investment in finance lease receivables
Due within 1 year ......................................................................................................................................................
Due in 1-5 years ........................................................................................................................................................
Due in more than 5 years ..........................................................................................................................................
Due within 1 year ......................................................................................................................................................
Expected credit loss allowance .................................................................................................................................
Due in more than 5 years ..........................................................................................................................................
*The Group presents finance lease receivables in the line item "Loans to customers".
Custody assets - not managed by the Group ............................................................................................................
Accruals ....................................................................................................................................................................
Expected credit losses for off-balance sheet loan commitments and financial guarantees ........................................
Withholding tax .........................................................................................................................................................
Lease liabilities .........................................................................................................................................................
Unsettled securities transactions ..............................................................................................................................
Sundry liabilities ........................................................................................................................................................
Due in 1-5 years ........................................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 48 Amounts are in ISK million
Notes to the Consolidated Financial Statements
41. Íslandsbanki's shareholders
The following table shows the largest shareholders of Íslandsbanki. 31.12.2022 31.12.2021
Iceland 42.5% 65.0%
Iceland 7.5% 4.1%
Iceland 6.8% 3.1%
Iceland 6.3% 3.7%
USA 4.9% 4.4%
Iceland 3.1% 0.8%
Iceland 2.4% 1.0%
Iceland 1.6% 0.6%
Iceland 1.3% 0.9%
USA 1.3% 0.0%
UK 1.2% 0.8%
Iceland 1.2% 0.3%
Iceland 1.2% 0.1%
Iceland 1.0% 0.8%
17.7% 14.4%
Total 100.0% 100.0%
42. Related party
Guarantees
Right of use Other Net & loan com-
At 31 December 2022 asset assets Liabilities balance mitments
- - - - 2
- 450 415 35 72
3,157 5,074 4,028 4,203 9
Balances with related parties
3,157 5,524 4,443 4,238 83
All loans to employees are provided on general business terms of the Group.
The following tables show the Group's balances and transactions with related parties.
The Group's products and services are offered to the Icelandic Government and government-related entities in competition with other vendors
and under generally accepted commercial terms. In a similar manner the Group entities purchase products and services from government-
related entities under generally accepted commercial terms. Transactions with related parties were made in the ordinary course of business
on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third
party counterparties.
Íslandssjóðir hf. (Iceland Funds) ..........................................................................................................
Board of Directors, key management personnel and other related parties ..
Associated companies ................................................................................
RWC Asset Management LLP .............................................................................................................
Other shareholders ..............................................................................................................................
The Icelandic Government is the largest shareholder of Íslandsbanki and has significant influence over the Group. The shares are
administered by the Icelandic State Financial Investments (ISFI). As a result, the Icelandic Government and the ISFI are defined as related
parties. The Group has applied the partial exemption for government-related entities, as described in IAS 24.
The Group's associates are also defined as related parties.
The Board of Directors and key management personnel of the Bank, ISFI and subsidiaries of the Bank, close family members of individuals
referred to herein and legal entities controlled by them, are defined as related parties.
Shareholders with significant influence over the Group ...............................
At 31 December 2022 the Bank's employees and related parties of the employees, not including board members, held 0.18% of shares in the
Bank (year-end 2021: 0.22%).
Capital Group ......................................................................................................................................
LSR Pension Fund ..............................................................................................................................
Gildi Pension Fund ..............................................................................................................................
Stapi Pension Fund .............................................................................................................................
Vanguard .............................................................................................................................................
Frjálsi Pension Fund ............................................................................................................................
Lífsverk Pension Fund .........................................................................................................................
At 31 December 2022 the number of shareholders of the Bank were 13,079 (year-end 2021: 15,676). At 31 December 2022, 91.0% of the
Bank's shares were owned by domestic parties and 9.0% by international investors (year-end 2021: 92.2% domestic parties and 7.8%
international investors).
Brú Pension Fund ................................................................................................................................
Almenni Pension Fund ........................................................................................................................
Birta Pension Fund ..............................................................................................................................
The Icelandic Government ...................................................................................................................
Live Pension Fund ...............................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 49 Amounts are in ISK million
Notes to the Consolidated Financial Statements
42.
Interest Interest Other
Other
1 January - 31 December 2022 income expense income expense
34 219 4 -
326 81 26 1,993
Transactions with related parties 360 300 30 1,993
Guarantees
& loan com-
At 31 December 2021 Assets Liabilities Net balance mitments
- - - 2
356 413 ( 57) 57
3 478 ( 475) 206
Balances with related parties 359 891 ( 532) 265
Interest Interest Other Other
1 January - 31 December 2021 income expense income expense
- - 281 -
23 10 2 7
1 - 2 1,468
Transactions with related parties 24 10 285 1,475
43.
Provision and contingencies
Provision
Initial Findings of the Financial Supervisory Authority of the Central Bank of Iceland
On 9 January 2023 the Bank announced that it had received the preliminary findings from the Financial Supervisory Authority of the Central
Bank of Iceland's (FSA) inspection into the Bank's execution of the offering by the Icelandic State of a 22.5% stake in the Bank's share
capital that took place in March 2022 (the Offering). In the findings the FSA indicates its view that the Bank may have violated certain laws
and regulations applicable to its operations. The FSA pointed out its powers to impose administrative fines and to conclude cases with a
settlement. The Bank has requested that the case be concluded with a settlement. The management of the Bank takes the FSA's findings
seriously. The Bank has responded to certain sections in the preliminary findings and will complete a response to the FSA by mid-February
and expects the FSA's response in due course. Following the Offering, the Bank has made changes to its internal rules and procedures and
will, subject to the outcome of its internal review and discussions with the FSA, continue to implement appropriate measures. The amount of
the potential administrative fine has not been decided and is therefore uncertain. The Bank has, however, recognised an undisclosed
provision based on its own internal estimate.
Associated companies ....................................................................................................
Shareholders with control over the Group ........................................................................
Associated companies ....................................................................................................
At 31 December 2022 a total of ISK 3 million (at year-end 2021: ISK 1 million) were recognised as Stage 1 expected credit losses of balances
with related parties. No share option programmes were operated during the year. For related party remuneration see Note 11.
Board of Directors, key management personnel and other related parties .......................
Board of Directors, key management personnel and other related parties .......................
Board of Directors, key management personnel and other related parties .......................
Shareholders with control over the Group ........................................................................
Associated companies ....................................................................................................
Related party (continued)
Íslandsbanki hf. Consolidated Financial Statements 2022 50 Amounts are in ISK million
Notes to the Consolidated Financial Statements
43.
Contingent liabilities
Borgun hf. – Landsbankinn hf.
105 Miðborg slhf. – ÍAV hf.
The Consumers' Association of Iceland
Provision and contingencies (continued)
In December 2021 three customers, sponsored by the Consumers' Association of Iceland, commenced litigation against the Bank,
demanding that certain provisions of their residential mortgages, governing variable interest rates, be deemed illegal and unenforceable and
demand the repayment of any overpaid interest.
It is disputed in the three cases whether the terms of the Bank's mortgages, and the method used by the Bank to set variable interest rates, is
in compliance with the Act on Mortgage Lending to Consumers no. 118/2016. That act is in this respect similar to the terms of Act no.
33/2013 on Consumer Credit. An unfavourable finding could therefore affect other loans to consumers bearing variable interest rates.
Furthermore, the Bank has received information requests from a legal firm representing over 1,200 customers of Icelandic commercial banks
and loan institutions, they deem to have a comparable right.
On 11 March 2020, the Bank signed an agreement to sell its 63.47% stake in Borgun hf. to SaltPay Co Ltd. and concluded the sale on 7 July
2020. In the agreement the Bank undertook to reimburse 63.47% of losses incurred by Borgun or the buyer as a result of an unfavourable
outcome in the Landsbankinn case, however such reimbursement was never to exceed the Bank's share in the purchase price. The Group
has not recognised a provision in relation to this matter.
In April 2022, the plaintiffs in two of the cases submitted claims that an advisory opinion by the EFTA Court should be requested on the
interpretation of certain provisions in directives incorporated into the EEA Agreement. On 13 December 2022, the District Court issued its
rulings. In the case involving a CPI linked mortgage, the Court rejected the plaintiff's request. In the case involving a non-indexed linked
mortgage, the District Court decided to request an advisory opinion from the EFTA Court on part of the issues raised by the plaintiff. The
timing of the EFTA Court's advisory opinion is uncertain, as well as its impact on the case.
Secondly, a case has been brought against the Bank by a customer owing a non-index linked mortgage bearing variable interest rates. The
plaintiff maintains that the terms governing the variable interest rates are invalid and may not be used by the Bank as basis for setting interest
rates, and that therefore the originally agreed interest rate should remain fixed during the term of the loan. An unfavourable ruling in this case
may affect all indexed and non-index linked mortgages bearing variable interest rates, as well as any loans bearing fixed interest rates to be
reset on a predefined date.
Firstly, two of the cases were brought by customers owing CPI linked mortgages that contain a certain interest resetting provision that the
Supreme Court found in its ruling on case no. 623/2016 could not be used by the Bank to reset interest rates. Following that judgement, the
Bank repaid its customers any interest that the Bank had charged in excess of the originally agreed interest rate and returned the affected
loans to their original interest rates. In the suits now filed the customers maintain that instead of the originally agreed interest rates, their
loans should incur interest rates pursuant to article 4 of Act no. 38/2001 on Interest and Price Indexation. An unfavourable finding by the
courts may have an influence on the Bank's portfolio of loans and fully paid loans that contained the resetting provision, disputed in case no.
623/2016. The Bank estimates that the financial impact of an unfavourable ruling in an adverse scenario could lie in the range of ISK 4 to 6
billion.
In February 2021 the alternative investor fund 105 Miðborg slhf., operated by Íslandssjóðir hf. (Iceland Funds hf.), a wholly owned subsidiary
of the Bank, terminated its contractor agreement with ÍAV hf., a contractor that had been retained for a real estate project at Kirkjusandur in
the centre of Reykjavík. The main reason for the termination was the alleged non-performance and delays in the construction of one building
on the premises. The contractor, ÍAV, has claimed approximately ISK 3,829 million in damages plus late payment interest and legal costs
from 105 Miðborg and Iceland Funds for the alleged unlawful termination. The suit was filed on 11 May 2021 at the District Court of
Reykjavík. Additionally, 105 Miðborg has filed a case against ÍAV claiming approximately ISK 3,878 million in damages plus late payment
interest and legal costs due to alleged delays and significant breaches of contract. The Group owns an 8.25% stake in 105 Miðborg. The
Group has not recognised a provision in relation to this matter.
Borgun hf., (currently SaltPay IIB hf.) a former subsidiary of Íslandsbanki, is a payment acquirer and issuing processor. Landsbankinn hf. sold
its 31.2% stake in Borgun hf. in late 2014. Landsbankinn claims that Borgun's management did not disclose all available information that
might have affected the value of Borgun during the sales process, namely the value of its stake in Visa Europe which was sold to Visa
International shortly after the Borgun sale. In order to reclaim the alleged loss, Landsbankinn filed a lawsuit against Borgun and others on 12
January 2017, claiming the right to damages for having been deprived of the true value of the stake involved in the sale. Landsbankinn does
not quantify the claim, but its estimate of the lost profit from having sold its shares in Borgun is approximately ISK 1,930 million. Court
appointed senior assessors presented their reassessment in April 2021 which corroborates the previous assessment of Borgun's obligation to
disclose. Furthermore, the senior assessors estimated that Borgun's share in Visa as of 31 December 2013 would have amounted to at least
ISK 387 million. The hearing of the case is scheduled in the first quarter of 2023.
Íslandsbanki hf. Consolidated Financial Statements 2022 51 Amounts are in ISK million
Notes to the Consolidated Financial Statements
43.
EC Clear ehf.
44. Events after the reporting period
45. Risk management
Risk governance
Provision and contingencies (continued)
The Group is exposed to various risk factors and managing these risks is an integral part of its operations. The Bank emphasises sound
governance principles. The risk management and internal control framework of the Group is based on a three lines of defence model, as
referred to in the European Banking Authority Guidelines on Internal Governance, and aims for informed decision-making and strong risk
awareness. The framework is intended to ensure effective and efficient operations, adequate control of risks, prudent conduct of business,
reliability of financial and non-financial information reported internally and externally, and compliance with laws, regulations, supervisory
requirements and the Group’s internal rules.
In August 2021 EC Clear ehf., a former owner of a payment processing company, filed a suit jointly against the Bank and four other financial
institutions claiming damages in the amount of ISK 923 million plus interest from June 2013, resulting from a breach of competition law that
allegedly took place during the period from 2003 to 2013. This was the sixth time the case had been brought before the courts for this
purpose, after previous cases had been dismissed. On 30 September 2022 the District Court of Reykjavík dismissed the case. On 10
January 2023 the Court of Appeal partly reversed the dismissal and ordered the District Court to hear the case in substance. The hearing of
the case has not been decided. The Group has not recognised a provision in relation to this matter.
In the event of an unfavourable ruling and a subsequent finding that the affected loans should bear a fixed rate of interest instead of a
variable interest rate, the Bank's interest rate risk would rise significantly which could lead to a significant financial loss in the event of
adverse developments of interest rates in the capital markets. The Bank believes that this is a very unlikely scenario. The Bank has reviewed
the terms of its mortgages, other loan contracts and the methods used for the setting and resetting of variable interest rates in light of the
above claims. The Bank believes that the claims of the plaintiffs are unfounded and has not recognised a provision in relation to this matter.
On 2 February 2023, Íslandsbanki received a letter from the Board of Directors of Kvika banki hf. requesting the Board of Directors of
Íslandsbanki's position on commencing merger discussions between the two companies.
The first line of defence consists of the Bank's business and support units; the second line of defence comprises the Bank's internal control
units, Risk management and Compliance; and the third line of defence is Internal Audit which gives the Board an independent assessment of
the quality of corporate governance, risk management and internal controls.
The Group's management body has a dual structure. The Board of Directors of the Bank has a supervising role in setting and monitoring the
execution of set policies, the sound control of accounting and financial management and ensuring that Group Internal audit, Compliance and
Risk management are effective. The Chief Executive Officer (CEO), the Chief Risk Officer (CRO), other members of the senior management
and the senior management committees are responsible for implementing risk management practises and internal monitoring in accordance
with Board authorisation.
The ultimate responsibility for ensuring an adequate risk management and internal control framework at the Group lies with the Board of
Directors. The Board defines and communicates the risk governance framework and the acceptable level of risk through risk management
policies and the Risk Appetite Statement. To assist the Board in fulfilling its oversight responsibilities, the Board has appointed three board
subcommittees.
The CEO is responsible for the day-to-day operations of the Bank, pursuant to set policies and resolutions of the Board. Moreover, it is the
task of the CEO to ensure that the Group's operations are consistent with applicable legislation and the Group's Articles of Association which
includes maintaining adequate and effective risk management and internal control functions. The CEO appoints the Chief Risk Officer, the
Compliance Officer as well as other members of the Executive Board. The CEO also engages the members of the senior management
committees.
The CRO heads the Risk management function and is responsible for defining the daily tasks of the department and to assess the adequacy
of its professional skills. In addition, the CRO is responsible for monitoring the risk management framework at the Group and for verifying that
the Bank has the right resources and an appropriate organisation to manage its risks efficiently.
The CRO is selected and appointed by the CEO, subject to Board confirmation. The CRO reports directly to the Board and the Board Risk
Committee on the overall risk profile of the Group and cannot be removed without the Board's prior approval.
Íslandsbanki hf. Consolidated Financial Statements 2022 52 Amounts are in ISK million
Notes to the Consolidated Financial Statements
45. Risk management (continued)
The Chief Audit Executive (CAE) is appointed by the Board, reports directly to Board and directs Group Internal Audit with a mandate from
the Board. The CAE is responsible for internal audit matters within the Group, including internal audit tasks which have been outsourced.
The Compliance Officer heads the compliance function and is responsible for defining the daily tasks of the department and assessing the
adequacy of its professional skills. The Compliance Officer is responsible for monitoring the compliance risk management framework for the
Bank and maintaining oversight for compliance risk throughout the Bank.
The members of the senior management committees are appointed by the CEO, and their mandate and rules of procedure are documented
in a charter issued by the CEO.
More information about the Group's risk management and risk assessment processes is available in the unaudited Pillar 3 2022 Report,
which is available on the Bank's website: www.islandsbanki.is.
The Bank's Compliance Officer is selected and engaged by the CEO, subject to Board confirmation. The Compliance Officer cannot be
removed without the Board's prior approval. The Financial Supervisory Authority of the Central Bank and Chief Audit Executive shall be
notified of the dismissal or departure of the Compliance Officer. The Compliance Officer reports directly to the Board on the overall
compliance risk profile of the Bank.
Each employee is responsible for understanding the risk related to their day-to-day work, for knowing and understanding the respective
internal and external rules and procedures, for using the alert procedures in the event of possible fraudulent activities and for conducting
business in accordance with the Bank's code of conduct.
The Bank's senior management committee structure is twofold. Firstly the two executive committees, the Executive Board and the All Risk
Committee, that are responsible for the implementation of the Board approved business strategy, risk appetite and policies. Secondly the six
business committees, the Asset and Liability Committee (ALCO), the Senior Credit Committee (SCC), the Investment Committee (IC), the
Operational and Security Committee (OSC), the Sustainability Committee (SC), and the Digital Product Committee (DPC), which are
responsible for the approval of business or operational proposals subject to internal rules and guidelines issued by the executive committees
and the Board.
Risk Management provides a holistic view on risk, and compliance to limits to internal and external stakeholders, and ensures an appropriate
escalation in the event of limit breaches.
The General Counsel is appointed by and reports directly to the CEO. The General Counsel provides legal advice to the Bank's senior
management, including the Board of Directors, and manages the Bank's legal department which provides comprehensive legal advice to the
Bank's business segments and support units.
Business and support units are, however, responsible for maintaining their independent view on the risks inherent in their operations and
reporting to senior management any foreseeable breaches from limits, policies or strategic direction.
The CRO is independent from the business units, is a member of the Executive Board and reports directly to the CEO. The CRO provides an
independent view on the Group's exposure to risk. The CRO has the right but not the responsibility to veto certain risk-taking decisions of the
senior management committees if an internal control unit considers the proposal inconsistent with the Bank's risk appetite, policies or
procedures.
Risk management is mandated to identify, understand, measure and monitor the risks that the Group is exposed to. It provides independent
information, analyses and expert judgement on risk exposures, and advice on proposals and risk decisions made by the management and
business or support units as to whether they are consistent with the risk appetite and risk polices set by the Board.
Where necessary, Risk management makes recommendations to senior management and the Board to improve or clarify risk policies,
procedures and limits.
Risk management provides the senior management and the Board with all relevant risk related information to enable it to define the Bank's
risk appetite.
Íslandsbanki hf. Consolidated Financial Statements 2022 53 Amounts are in ISK million
Notes to the Consolidated Financial Statements
46.
Credit risk
47.
The following table shows the maximum exposure to credit risk by collateral held against those exposures.
The industry breakdown under loans to customers shows the credit exposure by industry classification. The breakdown follows an internal
industry classification which is based on the Icelandic ISAT2008 that derives from the European NACE Rev. 2 classification standard.
Valuation of collateral is based on market price, official valuation for tax purposes or expert opinion of the Group's employees, depending on
availability. In the case of fishing vessels the associated fishing quota is included in the valuation. The total value of pledged assets can thus
be higher than the cover indicates. For capital leases the Group remains the owner of the leased object.
In some cases the Group uses guarantees as a credit enhancement but since guarantees effectively transfer credit risk from one
counterparty to another they do not represent a reduction in maximum exposure to credit risk. Exempt from this are Government guarantees
issued in response to the COVID-19 pandemic which are shown under other collateral. Of these, ISK 1,838 million are subject to 100%
Government guarantee, ISK 901 million to 85% Government guarantee and ISK 376 million to 70% Government guarantee. Covenants in
loan agreements are also an important credit enhancement but do not reduce maximum credit exposure.
Collateral and other credit mitigants vary between types of obligors and credit facilities. For loans to individuals the principal collateral taken is
residential property against mortgages. In the case of corporate entities the Group takes a charge over assets such as real estate, vessels,
cash, and securities as well as other collateral including accounts receivables, inventory, vehicles, and equipment. Loans to government
entities and to municipalities are more often than not unsecured. Derivative exposures are generally made under ISDA master agreements
with Credit Support Annex or corresponding terms with pledged collateral in the form of cash and government bonds.
The Group's credit risk exposure comprises both on-balance sheet and off-balance sheet items. Maximum exposure to credit risk for on-
balance sheet assets is the net carrying amount as reported in the statement of financial position. The maximum exposure for off-balance
sheet items is the amount that the Group might have to pay out against financial guarantees and credit commitments, less provisions that
have been made because of these items. The maximum credit exposure for a derivative contract is calculated according to the original
exposure method as described in CRR II.
Maximum credit exposure and collateral
Credit concentration risk is the significantly increased risk that is driven by common underlying factors, e.g. industrial sector, economy,
geographical location, type of financial instrument, or due to connections or relations among counterparties. This includes exposures to
parties under common control and significant exposures to groups of counterparties whose likelihood of default is driven by common
underlying factors. Credit risk arises principally from loans and advances to customers and other banks but also from balances with the
Central Bank and off-balance sheet items such as financial guarantees, loan commitments and derivatives.
The Group has policies and procedures dedicated to accepting, measuring, and managing credit risk. The objective of the Group's credit risk
management is to achieve an appropriate balance between risk and return and to minimise potential adverse effects of credit risk on the
Group's financial performance.
A thorough analysis of the counterparty's financial standing, analysis of past and estimated future cash flows as well as the borrower's
general ability to repay its obligations forms the basis for all credit decisions. The Group structures the levels of credit risk it undertakes by
placing limits on the amount of risk accepted in relation to one borrower, groups of borrowers, countries and industry segments. The Group
measures and consolidates its credit risk for each counterparty or group of connected clients in accordance with internal and external criteria
of connection between parties.
The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security in borrower's
assets. The principal collateral types for loans are properties, vehicles, equipment, vessels and securities. When applicable, other credit risk
mitigants are employed.
Credit risk is defined as current or prospective risk to earnings and capital arising from an obligor's potential failure to meet the terms of any
financial contract with the Group.
Íslandsbanki hf. Consolidated Financial Statements 2022 54 Amounts are in ISK million
47.
Total credit Total credit
Maximum exposure exposure
exposure to Residential Commercial Cash & Vehicles & Other covered by not covered by Associated
Collateral held against credit exposure credit risk real estate real estate Vessels securities equipment collateral collateral collateral ECL
94,424 - - - - - - - 94,424 3
110,364 - - - - - - - 110,364 152
130,804 - - - - - - - 130,804 -
25,264 - - - 11,733 - - 11,733 13,531 -
Loans to customers: 1,186,639 557,263 306,469 82,645 20,744 63,889 69,383 1,100,393 86,246 11,132
570,522 509,638 9,988 3 177 15,767 170 535,743 34,779 2,328
507,969 504,654 2,514 - 168 - - 507,336 633 894
172,222 8,356 76,739 788 2,932 37,908 32,473 159,196 13,026 3,518
59,815 14,395 35,787 1 186 2,911 2,298 55,578 4,237 757
10,411 57 8,862 - 9 5 25 8,958 1,453 45
2,622 - 595 - - - 1,149 1,744 878 20
91,078 1,954 48,834 2,203 109 6,660 13,147 72,907 18,171 2,846
40,336 3,006 10,432 - 16,975 102 9,226 39,741 595 685
11,046 49 740 - - 31 19 839 10,207 31
126,297 19,349 103,126 - 265 427 671 123,838 2,459 784
102,290 459 11,366 79,650 91 78 10,205 101,849 441 118
5,411 - - - - - - - 5,411 13
Off-balance sheet items: 203,145 8,303 32,714 13,136 2,318 - 24,344 80,815 122,330 1,338
18,385 - 6,556 104 1,403 - 1,837 9,900 8,485 413
184,760 8,303 26,158 13,032 915 - 22,507 70,915 113,845 925
Total 1,756,051 565,566 339,183 95,781 34,795 63,889 93,727 1,192,941 563,110 12,638
Construction .................................................................................
Bonds and debt instruments ............................................................
Derivatives ......................................................................................
Individuals ....................................................................................
- Thereof mortgages .................................................................
Commerce and services ..............................................................
Notes to the Consolidated Financial Statements
Maximum credit exposure and collateral (continued)
At 31 December 2022
Cash and balances with Central Bank .............................................
Loans to credit institutions ...............................................................
Seafood .......................................................................................
Other financial assets ......................................................................
Financial guarantees ....................................................................
Loan commitments ......................................................................
Energy .........................................................................................
Financial services ........................................................................
Industrial and transportation .........................................................
Investment companies .................................................................
Public sector and non-profit organisations ...................................
Real estate ..................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 55 Amounts are in ISK million
47.
Notes to the Consolidated Financial Statements
Maximum credit exposure and collateral (continued)
Total credit Total credit
Maximum exposure exposure
exposure to Residential Commercial Cash & Vehicles & Other covered by not covered by Associated
Collateral held against credit exposure credit risk real estate real estate Vessels securities equipment collateral collateral collateral ECL
113,667 - - - - - - - 113,667 3
43,988 - - - - - - - 43,988 89
132,289 - - - - - - - 132,289 -
21,547 - - - 9,722 - - 9,722 11,825 -
Loans to customers: 1,086,327 510,100 250,581 86,387 6,664 50,536 72,774 977,042 109,285 13,565
520,733 460,898 9,317 21 205 15,756 198 486,395 34,338 2,192
457,800 454,684 1,417 - 194 - - 456,295 1,505 1,023
165,222 16,083 66,667 721 262 25,422 20,997 130,152 35,070 5,947
36,773 12,619 15,532 7 118 2,605 2,621 33,502 3,271 467
9,493 27 7,638 - 2 6 13 7,686 1,807 36
1,978 - 475 - - - 1,472 1,947 31 3
89,627 1,511 46,292 2,375 104 6,268 13,578 70,128 19,499 2,833
23,677 1,328 4,637 - 5,421 72 11,720 23,178 499 631
9,987 85 738 - - 45 3 871 9,116 20
109,314 16,715 87,266 - 480 264 2,655 107,380 1,934 1,247
119,523 834 12,019 83,263 72 98 19,517 115,803 3,720 189
5,241 - - - - - - - 5,241 24
Off-balance sheet items: 164,262 4,230 32,611 12,306 1,902 - 20,515 71,564 92,698 1,001
18,830 - 6,614 370 1,434 - 1,503 9,921 8,909 453
145,432 4,230 25,997 11,936 468 - 19,012 61,643 83,789 548
Total 1,567,321 514,330 283,192 98,693 18,288 50,536 93,289 1,058,328 508,993 14,682
Public sector and non-profit organisations ...................................
Real estate ..................................................................................
Seafood .......................................................................................
Other financial assets ......................................................................
Commerce and services ..............................................................
Construction .................................................................................
Energy .........................................................................................
Financial services ........................................................................
Industrial and transportation .........................................................
At 31 December 2021
Financial guarantees ....................................................................
Loan commitments ......................................................................
Investment companies .................................................................
Cash and balances with Central Bank .............................................
Loans to credit institutions ...............................................................
Bonds and debt instruments ............................................................
Derivatives ......................................................................................
Individuals ....................................................................................
- Thereof mortgages .................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 56 Amounts are in ISK million
48.
At 31 December 2022
Loans to customers: Stage 1 Stage 2 Stage 3 Total
478,439 524 - 478,963
473,451 14,804 - 488,255
177,477 10,372 - 187,849
17,425 4,035 - 21,460
- - 21,123 21,123
81 40 - 121
1,146,873 29,775 21,123 1,197,771
( 4,636) ( 2,235) ( 4,261) ( 11,132)
Net carrying amount 1,142,237 27,540 16,862 1,186,639
Off-balance sheet loan commitments and financial guarantees: Stage 1 Stage 2 Stage 3 Total
99,648 2 - 99,650
66,519 328 - 66,847
28,039 5,464 - 33,503
706 428 - 1,134
- - 1,640 1,640
1,484 180 45 1,709
196,396 6,402 1,685 204,483
( 869) ( 242) ( 227) ( 1,338)
Total 195,527 6,160 1,458 203,145
Risk classes 1-4 represent low risk, risk classes 5-6 moderate risk, risk classes 7-8 increased risk, risk class 9 high risk, and risk class 10
represents customers that are in default. Unrated are loans that are yet to be rated.
Further information on the risk classes, including the mapping from risk classes to the probability of default, can be found in Section 4.2.2 of
the unaudited Pillar 3 2022 Report.
The same customer can have loans and off-balance sheet commitments in Stages 1 and 2 simultaneously. However, if a customer has an
exposure in Stage 3 then all other loans and commitments are classified as Stage 3 as well.
Risk class 1-4 .........................................................................................................................
Risk class 5-6 .........................................................................................................................
Risk class 7-8 .........................................................................................................................
Notes to the Consolidated Financial Statements
Credit quality of financial assets
The following tables provide the gross carrying amount of loans and credit risk exposure on loan commitments and financial guarantees.
Amounts are broken down by risk class and the method by which their respective credit loss allowances (ECL) are calculated, i.e. Stage 1, 2
and 3.
The Group uses internal rating models to assess the default probability of corporate and retail customers. The models assign each customer
to one of ten risk classes. One risk class is for customers in default (risk class 10), and nine risk classes are for performing customers (risk
classes 1-9). Risk classes are assigned on customer level and not facility level.
The rating of corporate customers is based on a company's most recent financial statements, together with a qualitative assessment of its
management, market position and industry sector.
For retail customers the Group uses two different statistical rating models. One model is for individuals and another is for small companies
with a total exposure to the Group of less than ISK 150 million. These models are behavioural scoring models and use information about a
customer's payment history, amount of debt and deposits, and demographic variables to assess the probability that a customer will default
on any of his obligations within 12 months of the rating assessment.
Risk class 7-8 .........................................................................................................................
Risk class 9 ............................................................................................................................
Risk class 10 ...........................................................................................................................
Unrated ...................................................................................................................................
Expected credit losses ............................................................................................................
Risk class 9 ............................................................................................................................
Risk class 10 ...........................................................................................................................
Unrated ...................................................................................................................................
Expected credit losses ............................................................................................................
Risk class 1-4 .........................................................................................................................
Risk class 5-6 .........................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 57 Amounts are in ISK million
Notes to the Consolidated Financial Statements
48.
At 31 December 2021
Loans to customers: Stage 1 Stage 2 Stage 3 Total
398,524 1,775 - 400,299
377,063 42,650 - 419,713
180,421 53,444 - 233,865
16,445 7,889 - 24,334
- - 21,576 21,576
96 9 - 105
972,549 105,767 21,576 1,099,892
( 3,830) ( 3,804) ( 5,931) ( 13,565)
Net carrying amount 968,719 101,963 15,645 1,086,327
Off-balance sheet loan commitments and financial guarantees: Stage 1 Stage 2 Stage 3 Total
77,769 1,065 - 78,834
43,831 4,550 - 48,381
21,854 14,446 - 36,300
472 690 - 1,162
- - 544 544
38 4 - 42
143,964 20,755 544 165,263
( 545) ( 298) ( 158) ( 1,001)
Total 143,419 20,457 386 164,262
49.
period.
Credit quality of financial assets (continued)
Expected credit losses ............................................................................................................
Risk class 1-4 .........................................................................................................................
Risk class 5-6 .........................................................................................................................
Risk class 7-8 .........................................................................................................................
Risk class 9 ............................................................................................................................
Risk class 10 ...........................................................................................................................
Risk class 1-4 .........................................................................................................................
Risk class 5-6 .........................................................................................................................
Risk class 7-8 .........................................................................................................................
Risk class 9 ............................................................................................................................
Risk class 10 ...........................................................................................................................
Unrated ...................................................................................................................................
Unrated ...................................................................................................................................
Expected credit losses ............................................................................................................
Forbearance
When restructuring or modification measures are believed to be more appropriate than collection procedures, the Group offers several debt
relief measures and restructuring frameworks for customers in financial difficulties. These forbearance measures include temporary payment
holidays, extension of loan terms, capitalisation of arrears, and waiving of covenants.
The relationship between forbearance and stages is discussed in Note 61.4.
Once an asset has been classified as forborne, it will remain forborne for a minimum 24-month probation period. In order for a loan to be
reclassified out of the forborne category, the customer has to meet all of the following criteria:
- All of the customer's facilities have to be considered performing during the probation period; and
- The customer does not have any contract that is more than 30 days past due; and
- The probation period of two years has passed from the date of the forbearance event; and
- Regular payments of more than an insignificant amount of principal or interest have been made during at least half of the probation
Íslandsbanki hf. Consolidated Financial Statements 2022 58 Amounts are in ISK million
Notes to the Consolidated Financial Statements
49.
At 31 December 2022
Gross carrying amount
Stage 1 Stage 2 Stage 3 Total
3,232 2,422 1,264 6,918
23,662 17,596 9,189 50,447
Total 26,894 20,018 10,453 57,365
Expected credit losses
Stage 1 Stage 2 Stage 3 Total
( 20) ( 46) ( 98) ( 164)
( 86) ( 1,783) ( 2,766) ( 4,635)
Total ( 106) ( 1,829) ( 2,864) ( 4,799)
At 31 December 2021
Gross carrying amount
Stage 1
Stage 2 Stage 3 Total
3,920 3,989 1,453 9,362
17,500 68,081 9,076 94,657
Total 21,420 72,070 10,529 104,019
Expected credit losses
Stage 1 Stage 2 Stage 3 Total
( 25) ( 78) ( 135) ( 238)
( 102) ( 2,719) ( 3,543) ( 6,364)
Total ( 127) ( 2,797) ( 3,678) ( 6,602)
Forbearance (continued)
The following table provides a summary of the Group's forborne assets.
Individuals ...............................................................................................................................
Companies ..............................................................................................................................
Companies ..............................................................................................................................
Individuals ...............................................................................................................................
Companies ..............................................................................................................................
Individuals ...............................................................................................................................
Companies ..............................................................................................................................
Individuals ...............................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 59 Amounts are in ISK million
Notes to the Consolidated Financial Statements
50.
At 31 December 2022
Groups of connected clients:
Before
After
87% 9%
13% 13%
12% 12%
11% 11%
11% 11%
11% 11%
At 31 December 2021
Group of connected clients:
Before After
100% 7%
51. Liquidity risk
Group 1 .......................................................................................................................................................................
Group 2 .......................................................................................................................................................................
Group 6 .......................................................................................................................................................................
Group 1 .......................................................................................................................................................................
Large exposures disclosure
When the Group's total exposure to a group of connected clients is 10% or higher of the Group's Tier 1 capital it is considered a large
exposure. Both on-balance sheet and off-balance sheet items from all types of financial instruments are included in the exposure as defined
by EU regulation no. 575/2013 on prudential requirements for financial undertakings. The Group has internal criteria that define connections
between clients. These criteria reflect the Group's interpretation of article (1)(a) of the Act on Financial Undertakings no. 161/2002, where
groups of connected clients are defined.
The exposure is evaluated both before and after credit risk mitigating effects according to the aforementioned regulation. After mitigating
effects, the Group currently has five large exposures. No large exposure is above the maximum 25% large exposure limit set by the law.
Group 3 .......................................................................................................................................................................
Group 4 .......................................................................................................................................................................
Group 5 .......................................................................................................................................................................
The Group's largest exposure before eligible credit risk mitigating effects is the Icelandic Government. Biggest part of the exposure is due to
Icelandic Government Bonds in the Group's liquidity portfolio.
The Group defines liquidity risk as the risk of not being able to fund its financial obligations or planned growth, or only being able to do so
substantially above the prevailing market cost of funds.
The Group's main source of funding is customer deposits. Treasury is responsible for the Bank's funding and liquidity management in line
with internal and regulatory limits and policies. Treasury manages the Bank's intraday liquidity. Risk Management, as the second line of
defence, is responsible for independent reporting on the liquidity position to internal and external stakeholders and providing a holistic view
on liquidity risk on a consolidated basis.
Íslandsbanki hf. Consolidated Financial Statements 2022 60 Amounts are in ISK million
Notes to the Consolidated Financial Statements
52.
Liquidity coverage and net stable funding ratio
Net stable funding ratio 31.12.2022 31.12.2021
118% 122%
198% 157%
Liquidity coverage ratio 31.12.2022 31.12.2021
205% 156%
109% 141%
492% 235%
Unweighted Weighted Unweighted Weighted Unweighted Weighted
198,074 198,074 143,077 143,077 54,997 54,997
24,398 19,474 24,370 19,474 28 -
222,472 217,548 167,447 162,551 55,025 54,997
656,669 180,302 561,212 142,739 95,457 37,563
6,157 6,157 294 294 5,863 5,863
64,880 35,224 59,652 33,932 5,228 1,292
727,706 221,683 621,158 176,965 106,548 44,718
89,820 82,008 1,028 5 88,792 82,003
56,075 33,702 46,668 27,287 9,407 6,415
- - - - - ( 54,878)
145,895 115,710 47,696 27,292 98,199 33,540
205% 109% 492%
214,480 214,480 184,282 184,282 30,198 30,198
45,559 16,404 41,415 16,404 4,144 -
260,039 230,884 225,697 200,686 34,342 30,198
618,940 173,789 542,616 145,478 76,324 28,311
15,464 15,464 66 66 15,398 15,398
99,162 37,587 69,796 29,940 29,366 7,647
733,566 226,840 612,478 175,484 121,088 51,356
43,997
42,135 3,040 2,118 40,957 40,017
51,161 36,692 43,385 30,540 7,776 6,152
- - - - - ( 7,653)
95,158 78,827 46,425 32,658 48,733 38,516
156% 141% 235%
For all currencies ........................................................................................................................................................
Foreign currencies ......................................................................................................................................................
For all currencies ........................................................................................................................................................
ISK ..............................................................................................................................................................................
Foreign currencies ......................................................................................................................................................
Key measures for the assessment of liquidity risk are the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The Central
Bank of Iceland, which is the main supervisory authority regarding liquidity risk, has incorporated the LCR and the NSFR based on the CRD
IV standards into the rules on liquidity ratios and the rules on funding ratios. In addition, the Group complies with the Financial Supervisory
Authority of the Central Bank's guidelines no. 2/2010 on best practices in liquidity management and liquidity coverage ratio rules no.
266/2017.
The minimum LCR ratio that the Group is required to maintain is 100% for the total LCR and LCR in foreign currencies. For LCR in ISK, the
requirement is 40% in 2022 and 50% as of 2023. The Group is required to maintain a 100% minimum NSFR ratio.
The following tables show the NSFR and the LCR for the Group at 31 December 2022 and at year-end 2021.
Total liquid assets
Deposits ..............................................................................................
Debt issued .........................................................................................
Other outflows .....................................................................................
Total outflows
Short-term deposits with other banks** ................................................
For all currencies
ISK
Foreign currencies
At 31 December 2022
Liquid assets level 1* ...........................................................................
Liquid assets level 2 ............................................................................
Liquid assets level 2 ............................................................................
Total liquid assets
Deposits ..............................................................................................
Debt issued .........................................................................................
Other outflows .....................................................................................
Total outflows
Other inflows ........................................................................................
Restrictions on inflows .........................................................................
Total inflows
Liquidity coverage ratio
At 31 December 2021
Liquid assets level 1* ...........................................................................
with rules no. 266/2017 on liquidity ratio.
**Short-term deposits with other banks with maturity less than 30 days.
Short-term deposits with other banks** ................................................
Other inflows ........................................................................................
Restrictions on inflows .........................................................................
Total inflows
Liquidity coverage ratio
*Level 1 liquid assets include cash and balances with the Central Bank, domestic bonds and foreign government bonds in accordance *
Íslandsbanki hf. Consolidated Financial Statements 2022 61 Amounts are in ISK million
Notes to the Consolidated Financial Statements
52.
Deposits by liquidity coverage ratio category
Less
stable
Weight
(%)
Stable
Weight
(%)
Term
deposits
Total
deposits
86,621 13% 205,538 5% 79,206 371,365
59,495 13% 59,942 5% 8,614 128,051
4,133 25% - 5% - 4,133
140,039 40% 3,242 20% 30,526 173,807
10,805 40% 1,116 20% 777 12,698
35,662 100% - - 16,398 52,060
41,830 100% - - 5,177 47,007
8,246 100% - - 7,799 16,045
Total 386,831 269,838 148,497 805,166
At 31 December 2021
Less
stable
Weight
(%)
Stable
Weight
(%)
Term
deposits
Total
deposits
78,319 13% 204,340 5% 66,643 349,302
58,774 12% 57,685 5% 6,185 122,644
3,260 25% - 5% - 3,260
110,682 40% 2,913 20% 29,279 142,874
8,168 40% 1,115 20% 559 9,842
45,346 100% - - 18,269 63,615
41,894 100% - - 12,522 54,416
6,444 100% - - 5,023 11,467
Total 352,887 266,053 138,480 757,420
Liquidity coverage and net stable funding ratio (continued)
The Group's deposits are categorised by counterparty according to the Liquidity Coverage Ratio (LCR) standard. The groups are listed in
order of estimated stability and the respective LCR outflow weight. Deposits are also classified as stable if the customer has an established
business relationship with the Bank and is covered by an effective insurance scheme.
Deposits maturing within 30 days
At 31 December 2022
Domestic financial entities ...................................................................
Foreign financial entities ......................................................................
Deposits maturing within 30 days
Individuals ...........................................................................................
Small and medium enterprises ............................................................
Operational relationships .....................................................................
Individuals ...........................................................................................
Small and medium enterprises ............................................................
Operational relationships .....................................................................
Corporations ........................................................................................
Sovereigns, Central Bank, and public sector entities ...........................
Pension funds ......................................................................................
Corporations ........................................................................................
Sovereigns, Central Bank, and public sector entities ...........................
Pension funds ......................................................................................
Domestic financial entities ...................................................................
Foreign financial entities ......................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 62 Amounts are in ISK million
Notes to the Consolidated Financial Statements
53.
Maturity analysis of financial assets and financial liabilities
On Up to 3 3-12 1-5 Over No Carrying
demand months months years 5 years maturity Total
amount
41,518 52,906 - - - - 94,424 94,424
46,761 63,587 16 - - - 110,364 110,364
- 50,429 46,570 28,940 4,865 - 130,804 130,804
- 3,062 1,619 2,260 - - 6,941 7,461
- 897 - - - - 897 897
- 41,940 24,587 29,827 - - 96,354 81,324
- ( 39,775) ( 22,968) ( 27,567) - - ( 90,310) ( 74,760)
- 80,768 129,442 326,017 650,412 - 1,186,639 1,186,639
- - - - - 15,868 15,868 15,868
4,968 288 155 - - - 5,411 5,411
Total financial assets 93,247 251,040 177,802 357,217 655,277 15,868 1,550,451 1,550,971
5,015 2,998 4,269 3,387 - - 15,669 15,269
668,869 66,203 52,453 23,018 33,858 - 844,401 789,897
- 1,366 4,220 4,504 509 - 10,599 10,804
- 134 - - - - 134 134
- ( 51,316) ( 20,748) ( 19,479) - - ( 91,543) ( 77,250)
- 52,533 24,968 23,923 -
- 101,424 87,635
- 15 - 60 509 - 584 285
- 12,384 111,618 465,372 50,404 - 639,778 468,270
- 529 1,427 20,516 35,530 - 58,002 34,392
5,356 1,271 1,486 1,911 1,634 - 11,658 11,329
- 141 396 1,866 1,634 - 4,037 3,708
5,356 1,130 1,090 45 - - 7,621 7,621
Total financial liabilities 679,240 84,751 175,473 518,708 121,935 - 1,580,107 1,329,961
Total net financial assets and financial liab.
( 585,993) 166,289 2,329 ( 161,491) 533,342 15,868 ( 29,656) 221,010
Bonds and debt instruments are based on contractual maturity and therefore do not represent the estimated liquidation time of the trading
book.
The tables show undiscounted contractual payments of principal and interest for the Group's financial liabilities. Thus, the total figures for
each liability class are higher than the respective balance sheet amount. Cash flows for payments of unknown nature, such as for floating
rate, CPI-linked or foreign currency denominated instruments, are based on internal yield curves and forecasts.
For dated financial liabilities the amounts are grouped into maturity buckets according to contractual maturities of principal and estimated
contractual payments of interest. For demand deposits or other non-dated liabilities, the figures are grouped according to the first possible
required payment date.
The following tables also show the contractual cash flow of the Group's derivative liabilities, i.e. derivatives that have a negative and a
positive carrying amount at the reporting date. For derivatives settled on a gross basis, the cash flow for both legs of the derivative is shown,
since netting cannot be applied upon settlement.
At 31 December 2022
The following tables show the maturity profile of the Group's financial assets and the undiscounted cash flows of its financial liabilities.
Maturity classification of assets is based on contractual maturity.
- Inflow ...........................................................
- Outflow .........................................................
Loans to customers .........................................
Shares and equity instruments ........................
Other financial assets ......................................
Deposits from CB and credit institutions ..........
Cash and balances with Central Bank .............
Loans to credit institutions ...............................
Bonds and debt instruments ............................
Derivatives ......................................................
- Net settled derivatives ..................................
Debt issued and other borrowed funds ............
Subordinated loans .........................................
Other financial liabilities ..................................
- Lease liabilities ............................................
- Other liabilities .............................................
Deposits from customers ................................
Derivatives instrument and short positions ......
- Net settled derivatives ..................................
- Inflow ...........................................................
- Outflow .........................................................
- Short positions .............................................
Íslandsbanki hf. Consolidated Financial Statements 2022 63 Amounts are in ISK million
Notes to the Consolidated Financial Statements
53.
On Up to 3 3-12 1-5 Over No Carrying
demand months months years 5 years maturity Total amount
39,278 74,389 - - - - 113,667 113,667
24,327 19,661 - - - - 43,988 43,988
- 25,420 38,495 63,315 5,059 - 132,289 132,289
- ( 1,737) 1,227 2,497 - - 1,987 2,445
- 579 - - - - 579 579
- 40,945 6,895 29,424 - - 77,264 67,150
- ( 43,261) ( 5,668) ( 26,927) - - ( 75,856) ( 65,284)
1,153 89,452 114,436 304,623 576,663 - 1,086,327 1,086,327
- - - - - 31,677 31,677 31,677
4,712 373 156 - - - 5,241 5,241
Total financial assets 69,470 207,558 154,314 370,435 581,722 31,677 1,415,176 1,415,634
5,403 4,022 - 4,101 - - 13,526 13,384
621,391 62,356 43,950 25,254 28,357 - 781,308 744,036
- 5,682 1,429 5,368 1,454 - 13,933 9,467
- 2,985 - - - - 2,985 2,985
- ( 55,405) ( 18,216) ( 33,280) - - ( 106,901) ( 85,961)
- 58,086 19,486 36,950 -
- 114,522 90,492
- 16 159 1,698 1,454 - 3,327 1,951
- 22,948 78,045 315,021 54,676 - 470,690 402,226
- 292 732 16,784 27,285 - 45,093 35,762
3,434 1,739 1,157 1,858 2,047 - 10,235 9,681
- 129 387 1,829 2,047 - 4,392 3,838
3,434 1,610 770 29 - - 5,843 5,843
Total financial liabilities 630,228 97,039 125,313 368,386 113,819 - 1,334,785 1,214,556
Total net financial assets and financial liab. ( 560,758) 110,519 29,001 2,049 467,903 31,677 80,391 201,078
Off-balance sheet liabilities
Bonds and debt instruments ............................
Derivatives ......................................................
- Net settled derivatives ..................................
- Inflow ...........................................................
- Outflow .........................................................
Loans to customers .........................................
Maturity analysis of financial assets and financial liabilities (continued)
At 31 December 2021
Cash and balances with Central Bank .............
Loans to credit institutions ...............................
- Inflow ...........................................................
- Outflow .........................................................
- Short positions .............................................
Debt issued and other borrowed funds ............
Subordinated loans .........................................
Other financial liabilities ..................................
Shares and equity instruments ........................
Other financial assets ......................................
Deposits from CB and credit institutions ..........
Deposits from customers ................................
Derivatives instrument and short positions ......
- Net settled derivatives ..................................
- Lease liabilities ............................................
- Other liabilities .............................................
Note 47 Maximum Credit Exposure and Collateral shows the amount of contractual obligations of off-balance sheet liabilities that the Group
has taken towards customers, either by committing to lend out money in the future or as third party guarantees. The amounts shown reflect
the maximum amount, not taking into account the Group's ability to reduce overdraft or credit card limits before the current undrawn amount
is fully utilised by the customer. These obligations are all categorised as on demand since contractually, on a case-by-case basis, the Group
could be required to fulfil these obligations instantaneously.
Íslandsbanki hf. Consolidated Financial Statements 2022 64 Amounts are in ISK million
Notes to the Consolidated Financial Statements
54.
Market risk
55. Interest rate risk
Interest rate risk in the trading book
MV Duration BPV MV Duration BPV
3,446 6.39 ( 2.20) 548 6.59 ( 0.36)
124,065 0.58 ( 7.17) 95,996 0.91 ( 8.75)
Total 127,511 0.74 ( 9.37) 96,544 0.94 ( 9.11)
- - - 215 9.00 0.20
282 5.04 0.14 148 1.00 0.02
Total 282 5.04 0.14 363 5.74 0.22
127,229 0.73 ( 9.23) 96,181 0.92 ( 8.89)
222 ( 222) 57 ( 57)
601 ( 601) 781 ( 781)
87 ( 87) 35 ( 35)
4 ( 4) 15 ( 15)
39 ( 39) 46 ( 46)
953 ( 953) 934 ( 934)
The Group defines market risk as the current or prospective risk to earnings and capital arising from adverse movements in the level or
volatility of prices of market instruments, such as those that arise from changes in interest rates, foreign exchange rates, equity prices, CPI-
indexation, and commodity prices. Sources of market risk are imbalances in the Group's balance sheet and open positions in bonds,
currencies, and equities. Derivative contracts are also potential sources of market risk (see Note 23).
Market risk within the Group can broadly be split into two categories, trading book and banking book. The trading book includes market risk
exposures related, directly or indirectly, to the Group's short- and medium-term trading in securities, currencies and other capital market
instruments and derivatives. All financial assets and liabilities in the trading portfolio are recognised at fair value and all resulting changes
are immediately reflected in the income statement. The banking book includes market risk exposures related to securities held for long-term
investment purposes, unlisted securities or holdings in subsidiaries or affiliates. A large part of the banking book market risk is due to
mismatches in the composition of assets and liabilities, for example with respect to currencies, interest rates, CPI-indexation or other factors
that can affect the Group's earnings or earnings volatility. These mismatches are reported to management and are subject to internal and
regulatory limits.
Interest rate risk is defined as the current or prospective risk to earnings or capital arising from adverse movements in interest rates.
Sensitivity measures like Basis Point Value (BPV) are used to measure and manage risk arising from its fixed income exposures. The BPV
measures the effect of a 0.01 percentage point upward parallel shift in the yield curve on the fair value of these exposures.
The fixed income trading unit invests mainly in government bonds, bonds issued by the Housing and Construction Authority which are
guaranteed by the Icelandic Government, domestic municipality bonds, and covered bonds issued by other Icelandic banks. Bonds and bills
in the Group's liquidity portfolio are also categorised in the trading book. In the following table the total market value (MV) of long and short
positions may not be the same as reported in Note 17 since netting between short and long positions is not applied here.
Trading bonds and debt instruments, short positions
Indexed ................................................................................................
Non-indexed ........................................................................................
Net position of trading bonds and debt instruments
31.12.2022 31.12.2021
Trading bonds and debt instruments, long positions
Indexed ................................................................................................
Non-indexed ........................................................................................
The following table shows the interest rate sensitivity of the Group's trading book from a parallel 100 basis points change in all yield curves.
31.12.2022
31.12.2021
Sensitivity analysis for trading bonds and debt instruments
Effect on profit or (loss)
Parallel shift in yield
curve (basis points)
Downward
shift
Upward
shift
Downward
shift
Upward
shift
USD .....................................................................................................
100
Other total ............................................................................................
100
Total
Currency
ISK, indexed ........................................................................................ 100
ISK, non-indexed .................................................................................
100
EUR .....................................................................................................
100
Íslandsbanki hf. Consolidated Financial Statements 2022 65 Amounts are in ISK million
Notes to the Consolidated Financial Statements
55.
At 31 December 2022
0-3 3-12 1-2 2-5 5-10
Over 10
months months years years years years Total
12 ( 12) 220 ( 4,195) 2,860 ( 80)
(1,195)
23 232 ( 517) ( 740) 1 46
(955)
103 218 ( 15) ( 132) - -
174
51 - - - - -
51
39 - - - - -
39
79 - 3 ( 5) - -
77
Total 307 438 ( 309) ( 5,072) 2,861 ( 34) ( 1,809)
At 31 December 2021
0-3 3-12 1-2 2-5
5-10
Over 10
months months years years years years Total
6 121 ( 117) ( 2,428) 2,858 ( 670)
(230)
( 34) 2 502 ( 2,071) 745 -
(856)
( 18) 25 ( 518) 582 - -
71
64 - - - - -
64
- ( 10) - - - -
(10)
39 ( 12) - ( 5) - -
22
Total 57 126 ( 133) ( 3,922) 3,603 ( 670) ( 939)
Interest rate risk in the banking book
Interest rate risk (continued)
Currency
ISK, indexed ......................................................................
ISK, non-indexed ...............................................................
EUR ...................................................................................
SEK ...................................................................................
USD ...................................................................................
Interest rate risk in the banking book arises from the Group's core banking activities. The main source of this type of interest rate risk is the
risk of loss from fluctuations in future cash flows or fair value of financial instruments as interest rates change over time, reflecting the fact
that the Group's assets and liabilities are of different maturities and are priced relative to different interest rates.
The following table shows the interest sensitivity of the Group's banking book from a parallel 100 basis points change in all yield curves, with
all other variables held constant, categorised by the date of next interest rate reset.
Sensitivity analysis for interest rate risk in the banking book*
SEK ...................................................................................
USD ...................................................................................
Other ..................................................................................
*Comparative figures have been changed with immaterial effects.
Other ..................................................................................
Currency
ISK, indexed ......................................................................
ISK, non-indexed ...............................................................
EUR ...................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2022 66 Amounts are in ISK million
56. Currency risk
At 31 December 2022
EUR USD GBP CHF JPY SEK NOK DKK CAD
Other foreign
currencies
Total foreign
currencies
Cash and balances with Central Bank ..................... 462 284 126 36 7 43 47 78 31 139 1,253
Loans to credit institutions ....................................... 35,515 37,533 2,565 534 816 5,220 20,790 4,855 1,321 146 109,295
Bonds and debt instruments .................................... 34,693 5,666 7 - - 3,393 9,996 - - - 53,755
Loans to customers ................................................. 127,658 25,155 348 657 2,193 40 2,946 140 7,073 - 166,210
Shares and equity instruments ................................ 127 350 78 - - 1,025 - - - - 1,580
Other assets ............................................................ 344 243 7 - - 46 - 1 - - 641
Total assets 198,799 69,231 3,131 1,227 3,016 9,767 33,779 5,074 8,425 285 332,734
Deposits from credit institutions .............................. 8,657 1,869 17 - - - 7 - - - 10,550
Deposits from customers ........................................ 35,002 42,694 4,988 641 683 910 3,891 10,011 322 12 99,154
Debt issued and other borrowed funds .................... 179,456 12,228 - - - 23,231 46,128 - - - 261,043
Subordinated loans ................................................. - - - - - 23,667 - - - - 23,667
Other liabilities ......................................................... 254
200 7 - - 1 - 1 - - 463
Total liabilities 223,369 56,991 5,012 641 683 47,809 50,026 10,012 322 12 394,877
Net on-balance sheet position ( 24,570) 12,240 ( 1,881) 586 2,333 ( 38,042) ( 16,247) ( 4,938) 8,103 273 ( 62,143)
Net off-balance sheet position 22,616 ( 11,542) 1,766 ( 576) ( 2,394) 38,117 16,233 4,953 ( 8,244) ( 377) 60,552
Net position ( 1,954) 698 ( 115) 10 ( 61) 75 ( 14) 15 ( 141) ( 104) ( 1,591)
Notes to the Consolidated Financial Statements
Currency risk is the risk that earnings or capital may be negatively affected from the fluctuations of foreign exchange rates, due to transactions in foreign currencies or due to a mismatch in the currency
composition of assets or liabilities.
The analysis of the Group's foreign currency exposure presented below is based on the contractual currency of the underlying balance sheet items. Additionally, there are off-balance sheet items that carry
currency risk and are included in the total currency imbalance. The off-balance sheet amounts below represent the notional amounts of derivatives and unsettled spot agreements.
Debt issued is presented in the analysis of the Group's foreign currency exposure as the nominal amount plus accrued interest. Some debt issues are measured at fair value in the consolidated financial
statements. Therefore, the net position presented below does not match the book value net position thus affecting the foreign exchange difference recognised in the consolidated income statement.
Íslandsbanki hf. Consolidated Financial Statements 2022 67
Amounts are in ISK million
Notes to the Consolidated Financial Statements
56.
Currency risk (continued)
At 31 December 2021
EUR USD GBP CHF JPY SEK NOK DKK CAD
Other foreign
currencies
Total foreign
currencies
Cash and balances with Central Bank ..................... 659 350 183 43 15 47 65 89 26 164 1,641
Loans to credit institutions ....................................... 12,297 15,080 967 400 724 261 10,095 331 586 189 40,930
Bonds and debt instruments .................................... 9,612 3,910 32 - - 5,040 10,320 - - - 28,914
Loans to customers ................................................. 124,674 41,409 1,071 994 2,903 59 3,263 3,011 3,863 20 181,267
Shares and equity instruments ................................ 2,311 386 343 - - 1,881 - - - - 4,921
Other assets ............................................................ 13 390 - - - 4 - 1 - - 408
Total assets 149,566 61,525 2,596 1,437 3,642 7,292 23,743 3,432 4,475 373 258,081
Deposits from credit institutions .............................. 7,802 336 15 - - - 8 2 - - 8,163
Deposits from customers ........................................ 38,846 29,637 3,763 442 708 831 2,813 2,258 340 29 79,667
Debt issued and other borrowed funds .................... 133,709 - - - - 12,951 41,255 - - - 187,915
Subordinated loans ................................................. - - - - - 35,762 - - - - 35,762
Other liabilities ......................................................... 629
226 - - - 3 - 43 - - 901
Total liabilities 180,986 30,199 3,778 442 708 49,547 44,076 2,303 340 29 312,408
Net on-balance sheet position ( 31,420) 31,326 ( 1,182) 995 2,934 ( 42,255) ( 20,333) 1,129 4,135 344 ( 54,327)
Net off-balance sheet position 31,200 ( 30,849) 893 ( 990) ( 2,924) 42,157 20,148 ( 1,114) ( 4,113) ( 408) 54,000
Net position
( 220) 477 ( 289) 5 10 ( 98) ( 185) 15 22 ( 64) ( 327)
Íslandsbanki hf. Consolidated Financial Statements 2022 68
Amounts are in ISK million
56.
-10% 10% -10% 10%
195 ( 195) 22 ( 22)
( 70)
70 (
48)
48
12 (
12)
29 (
29)
( 1)
1 ( 1
)
1
6 ( 6
) ( 1)
1
( 8) 8 10 ( 10)
1 ( 1)
19 (
19)
( 2)
2 ( 2
)
2
14 (
14) ( 2)
2
10 (
10)
6 (
6)
Total 157 ( 157)
32 (
32)
57. Shares and equity instruments
Upward Upward
shift shift
( 135)
135 (
123)
123
( 413) 413 ( 605) 605
To
tal ( 548)
548 (
728)
728
58.
Inflation risk
31.12.2022 31.12.2021
4,148 1,169
282,521 247,426
Total CPI-linked assets 286,669 248,595
Change in
equity prices
Effect on profit or (loss)
Downward
shift Downward shift
Portfolio
Trading book ....................................................................... 10%
Banking book ......................................................................
10%
The Group is exposed to inflation risk since the value of CPI-linked assets exceeds CPI-linked liabilities. The value of these assets
and liabilities changes according to changes in the CPI at any given time and all changes in the CPI affect profit and loss. A 1%
increase in the index would lead to an ISK
277 million increase in the balance sheet and a 1% decrease would lead to a
corresponding decrease, other risk factors held constant.
Bonds and debt instruments .............................................................................................................
Loans to customers ..........................................................................................................................
Other foreign currencies ............................................................................
The Group's equity exposure in the trading book arises from flow trading and market making with shares listed on the Nasdaq
Iceland Stock Exchange. Shares and equity instruments in the banking book are classified as mandatorily at fair value through profit
or loss or are classified as held for sale.
The following table shows how a 10% shift in equity prices would affect the Group's equity and net financial income. Securities used
for hedging are excluded.
Sensitivity analysis for shares and equity instruments
31.12.2022
31.12.2021
CAD ..........................................................................................................
Effect on profit or (loss)
Currency
EUR ..........................................................................................................
USD ..........................................................................................................
GBP ..........................................................................................................
CHF ..........................................................................................................
JPY ...........................................................................................................
SEK ..........................................................................................................
NOK ..........................................................................................................
DKK ..........................................................................................................
Notes to the Consolidated Financial Statements
Currency risk (continued)
The following table shows the effect of a 10% depreciation or appreciation of foreign exchange rates where the Group had positions
at year-end, with all other variables held constant.
Sensitivity analysis for currency risk
31.12.2022
31.12.2021
Íslandsbanki hf. Consolidated Financial Statements 2022 69 Amounts are in ISK million
Notes to the Consolidated Financial Statements
58.
31.12.2022 31.12.2021
107,684 93,806
146,368 140,051
4,912 14,697
Total CPI-linked liabilities 258,964 248,554
CPI imbalance 27,705 41
59. Capital management
31.12.2022 31.12.2021
Own funds
10,000 10,000
55,000 55,000
9,158 6,086
144,716 132,624
1,301 2,768
( 1,786) 1,054
( 27,267) ( 11,863)
( 116) ( 94)
( 3,279) ( 3,351)
CET1 capital 187,727 192,224
10,062 10,626
Tier 1 capital 197,789 202,850
24,330 25,136
Total capital base 222,119 227,986
Retained earnings ............................................................................................................................
IFRS 9 reversal due to transitional rules ...........................................................................................
Fair value changes due to own credit standing .................................................................................
Foreseeable dividend payment and approved buyback* ...................................................................
Tax assets ........................................................................................................................................
Intangible assets ..............................................................................................................................
Additional Tier 1 capital ....................................................................................................................
Tier 2 capital .....................................................................................................................................
Reserves ..........................................................................................................................................
Inflation risk (continued)
Deposits from customers ..................................................................................................................
Debt issued and other borrowed funds .............................................................................................
Off-balance sheet exposures ............................................................................................................
The following tables show the capital base, the risk exposure amount (REA), the resulting capital ratios, and the leverage ratio for
the Group at 31 December 2022 and 31 December 2021.
The Group's regulatory capital requirement is calculated according to EU regulation no. 575/2013 as implemented through the Act
on Financial Undertakings no. 161/2002. Capital requirement calculations for credit risk, market risk and operational risk are based
on the standardised approach.
The Group aims at managing its capital position and the corresponding capital ratios above the overall regulatory capital
requirement. According to the latest SREP report from the Financial Supervisory Authority of the Central Bank, the Bank shall as of
1 July 2022 maintain an additional capital requirement of 2.6% of risk exposure amount. In September 2022 a countercyclical
capital buffer of 2% was reintroduced in Iceland. The Group's overall capital requirement, taking into account capital buffers, is
19.9%. The Group's capital target includes a 0.5-2.0% management buffer on top of the overall capital requirement.
The minimum leverage ratio for Icelandic financial institutions is 3%.
Ordinary share capital .......................................................................................................................
Share premium .................................................................................................................................
In December 2021, the Icelandic Resolution Authority published its MREL policy for Icelandic banks and in September 2022 the
Resolution Authority announced that a resolution plan had been approved for Íslandsbanki and thereby the MREL requirement
based on the MREL policy. Further information on MREL can be found in Section 3.7 of the unaudited Pillar 3 2022 Report.
Íslandsbanki hf. Consolidated Financial Statements 2022 70 Amounts are in ISK million
Notes to the Consolidated Financial Statements
59.
31.12.2022 31.12.2021
Risk exposure amount
893,110 802,147
15,417 17,100
2,756 1,829
88,208 80,570
Total risk exposure amount 999,491 901,646
Capital ratios
18.8% 21.3%
19.8% 22.5%
22.2% 25.3%
Leverage ratio
Exposure amount
1,541,738 1,422,930
68,702 49,220
30,596 21,615
Leverage ratio total exposure measure 1,641,036 1,493,765
197,789 202,850
Leverage ratio 12.1% 13.6%
60.
Operational risk
The ultimate responsibility for ensuring an adequate operational risk management and internal control framework at Íslandsbanki
lies with the Board of Directors. The Board has approved an Operational Risk Policy which outlines the Bank's framework for
operational risk management. Risk Management is responsible for implementing the Bank's operational risk framework, for
developing, maintaining the Operational Risk Policy, and for communicating the policy to the Bank's employees.
On-balance sheet exposures ............................................................................................................
Off-balance sheet exposures ............................................................................................................
Derivative exposures ........................................................................................................................
Tier 1 capital .....................................................................................................................................
*The Annual General Meeting of Íslandsbanki hf. held on 17 March 2022 authorises the Board of Directors to acquire on behalf of
the Bank up to 10% of issued share capital of the Bank. The Central Bank has furthermore granted a permission for the Bank to
acquire, through buyback, share capital of the Bank equivalent to ISK 15 billion, which is within the 10% authorisation from the
AGM. The approved amount of ISK 15 billion is subtracted from the capital base. The capital distribution is subject to market
conditions. The target dividend payment amounting to 50% of the Group's profit for 2022 is also deducted.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external
events. The Group's definition of operational risk includes reputational risk, legal risk, model risk, conduct risk, and compliance risk
among other risk factors.
Due to credit risk ..............................................................................................................................
Due to market risk ............................................................................................................................
Due to credit valuation adjustment ....................................................................................................
Due to operational risk ......................................................................................................................
CET 1 ratio .......................................................................................................................................
Tier 1 ratio ........................................................................................................................................
Total capital ratio ..............................................................................................................................
Capital management (continued)
Íslandsbanki hf. Consolidated Financial Statements 2022 71 Amounts are in ISK million
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 72
61.
Significant accounting policies
The accounting policies set out below have been applied consistently by the Group for the periods presented in these consolidated
financial statements.
Contents
61.1 Basis of consolidation ............................................................................................................................................................................... 73
61.2 Investments in associates ......................................................................................................................................................................... 74
61.3 Foreign currencies .................................................................................................................................................................................... 74
61.4 Financial assets and financial liabilities ..................................................................................................................................................... 75
61.5 Cash and cash equivalents ....................................................................................................................................................................... 80
61.6 Derivative financial instruments ................................................................................................................................................................ 80
61.7 Hedge accounting ..................................................................................................................................................................................... 81
61.8 Property and equipment ............................................................................................................................................................................ 81
61.9 Intangible assets ....................................................................................................................................................................................... 82
61.10 Leases ...................................................................................................................................................................................................... 82
61.11 Non-current assets and disposal groups held for sale ............................................................................................................................. 83
61.12 Loan commitments and financial guarantees ........................................................................................................................................... 83
61.13 Provisions ................................................................................................................................................................................................. 84
61.14 Employee benefits .................................................................................................................................................................................... 84
61.15 Equity ....................................................................................................................................................................................................... 84
61.16 Interest income and interest expense ...................................................................................................................................................... 85
61.17 Net fee and commission income .............................................................................................................................................................. 85
61.18 Net financial income (expense) ................................................................................................................................................................ 86
61.19 Impairment of non-financial assets .......................................................................................................................................................... 86
61.20 Taxes ........................................................................................................................................................................................................ 87
61.21 Discontinued operations held for sale, net of income tax.......................................................................................................................... 87
61.22 Offsetting ................................................................................................................................................................................................... 87
61.23 Earnings per share .................................................................................................................................................................................... 87
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 73
61.1 Basis of consolidation
The consolidated financial statements of the Group comprise the financial statements of Íslandsbanki hf., as the parent company, and
its subsidiaries.
Consolidation
The Group consolidates its subsidiaries on the basis of control. The consolidation begins when the Group obtains control of the
subsidiary and ceases when the Group no longer has control of the subsidiary.
In preparing the consolidated financial statements, Íslandsbanki combines its financial statements with those of its subsidiaries, line
by line, by adding together like items of assets, liabilities, equity, income, expenses, and cash flows. When necessary, adjustments
are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies. All
intra-group balances, income and expenses relating to transactions between group entities are eliminated in full on consolidation. This
also applies to subsidiaries classified as disposal groups held for sale (see Note 61.11).
A change in the Group's ownership interest in a subsidiary, without a loss of control, is accounted for as an equity transaction.
Control
Subsidiaries are defined as companies in which Íslandsbanki, directly or indirectly, has control. Control over an entity is evidenced by
the Group's ability to exercise its power in order to affect any variable returns that the Group is exposed to through its involvement with
the entity. When assessing whether to consolidate an entity the Group evaluates a range of control factors, including:
• The purpose and design of the entity
• The relevant activities and how these are determined
• Whether the Group's rights result in the ability to direct the relevant activities
• Whether the Group has exposure or right to variable returns, and
• Whether the Group has the ability to use its power to affect its return
Generally, there is a presumption that a majority of voting rights results in control. However, in individual circumstances, the Group
may still exercise control with less than 50% shareholding, or may not be able to exercise control with over 50% of an entity's shares.
When assessing whether the Group has power over the investment and therefore controls the variability of this return, the Group
considers all relevant facts and circumstances, including the contractual arrangements with the other vote holders of the entity, rights
arising from other contractual arrangements, the Group's voting rights and potential voting rights.
The Group reassesses its control over subsidiaries on a regular basis.
Business combinations
The Group accounts for each business combination by applying the acquisition method. Under the acquisition method, the Group
identifies itself as the acquirer, determines the acquisition date, recognises and measures the identifiable assets acquired, the liabilities
assumed and any non-controlling interests in the acquiree, and recognises and measures any goodwill or gain from a bargain
purchase.
Non-controlling interests
Non-controlling interests represent equity in subsidiaries not attributable, directly or indirectly, to the Group.
For each business combination the Group measures non-controlling interests, at the acquisition date, at either fair value or their
proportionate share of the acquiree's identifiable net assets.
The Group presents non-controlling interests within equity in the statement of financial position, separately from the equity attributable
to equity holders of Íslandsbanki. Profit or loss and each component of other comprehensive income are attributed to equity holders
of Íslandsbanki and to non-controlling interests even if this results in the non-controlling interests having a deficit balance. This also
applies to subsidiaries classified as disposal groups held for sale.
Loss of control
If the Group loses control of a subsidiary, it derecognises the related assets, liabilities, non-controlling interests, and other components
of equity, while any resultant gain or loss is recognised in profit or loss in the line item "Other operating income", or in the line item
"Discontinued operations held for sale, net of income tax" if the subsidiary is classified as disposal group held for sale.
Any investment retained by the Group in the former subsidiary is recognised at its fair value at the date when control is lost.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 74
61.1 Basis of consolidation (continued)
Funds management
The Group acts as a manager for Undertakings for Collective Investment in Transferable Securities (UCITS) and investment funds as
well as other funds for collective investment that accept capital from investors. Such funds are financed by issuing unit share
certificates or shares. The Group does not have any contractual financial responsibility with respect to such custom units. The funds
are not consolidated unless they are under the control of the Group.
The Group reviews all the facts and circumstances in order to decide if these funds should be consolidated. The Group is deemed to
be a principal and hence controls and consolidates the funds, when it acts as fund manager and cannot be removed without cause,
has variable returns through significant unit holdings and/or guarantees, and is able to influence the returns of the funds by exercising
its power.
61.2 Investments in associates
Associates are entities over which the Group has significant influence to participate in the financial and operating policy decisions of
an entity but does not have control over those policies. It is presumed that the Group has significant influence if the Group holds 20-
50% of the voting power of an entity. Considerations made in determining significant influence are similar to those used to determine
control over subsidiaries (see Note 61.1).
The Group accounts for its investments in associates using the equity method. Under the equity method, investments in associates
are initially recognised at cost. After the acquisition date the carrying amount of each investment is adjusted to recognise changes in
the Group's share of net assets. Distributions received from an associate reduce the carrying amount of the investment. If goodwill is
in place related to acquisitions of associates then it is included in the carrying amount of the investments and is not tested for
impairment separately.
The consolidated financial statements of the Group include the Group's share of the profit or loss and other comprehensive income
of associates, from the date that significant influence commences until the date that significant influence ceases.
When the Group's share of losses of an associate exceeds its interest in the associate, the carrying amount of that associate is
reduced to nil 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 profits only after its share of profits equals the share of losses not recognised.
After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its
investments in associates. At each reporting date, the Group determines whether there is objective evidence that individual
investments in associates are impaired. If there is such evidence, the Group calculates the amount of impairment as the difference
between the recoverable amount of the associate and its carrying amount, and the impairment loss is recognised in profit or loss.
Upon loss of significant influence over an associate, the Group measures and recognises any retained investment at its fair value.
Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained
investment and proceeds from disposal is recognised in profit or loss in the line item "Other operating income".
Income and expenses from investments in associates are recognised in profit or loss in the line item "Other operating income".
61.3 Foreign currencies
The financial statements of each of the Group's entities are measured using the functional currency of the respective entity.
Foreign currency transactions
On initial recognition transactions in foreign currencies are translated into functional currencies at the spot exchange rate at the date
of the transactions. At the end of each reporting period monetary assets and liabilities denominated in foreign currencies are
retranslated into functional currencies using the closing rate. 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 measured at fair value are translated into the functional currency using the
exchange rate at the date when the fair value was determined.
All foreign currency differences arising on currency translation from one currency to another are recognised in profit or loss in the line
item "Net foreign exchange gain (loss)".
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 75
61.4 Financial assets and financial liabilities
Recognition
The Group recognises a financial asset and a financial liability in its statement of financial position on the trade date, which is the date
on which the Group becomes party to the contractual provisions of the instrument, except for loans which are recognised on the date
when cash is advanced by the Group to the borrowers. At initial recognition, the Group measures a financial asset or a financial liability
at its fair value plus, in the case of a financial asset or a financial liability not at fair value through profit or loss, transaction costs that
are directly attributable to the acquisition or issue of the financial asset or the financial liability.
Derecognition
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
The Group derecognises financial assets in the following circumstances:
• When the contractual rights to the cash flows from the financial assets expire, or
• When the Group transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which:
- The Group transfers substantially all the risks and rewards of ownership of the financial assets, or
- The Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial assets and it does not
retain control of the financial assets.
Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Group is recognised as a
separate asset or liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the
carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (including any new
asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive
income is recognised in profit or loss.
The Group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all
or substantially all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are
retained, then the transferred assets are not derecognised from the statement of financial position of the Group. Transfers of assets
with retention of all or substantially all risks and rewards include, for example, repurchase transactions and securities lending.
The Group does not derecognise from its statement of financial position securities which the Group sells under agreements to
repurchase at a specified future date ("repos") at a fixed price or at the sale price plus a lender's return. The Group recognises the
cash received as a liability in its statement of financial position. The difference between the sale and repurchase prices is recognised
as interest expense over the life of the agreement using the effective interest method.
Securities lending and borrowing transactions are usually collateralised by securities or cash. The transfer of securities to
counterparties is only reflected in the statement of financial position if the risks and rewards of ownership are also transferred. Cash
advanced or received as collateral is recorded as an asset or liability.
In transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset
and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined
by the extent to which it is exposed to changes in the value of the transferred asset.
Modifications
Substantial modifications of terms of existing financial assets, or replacements with new ones with significantly different terms, result
in the Group derecognising the original financial assets and recognising new financial assets at fair value.
Classification and measurement of financial assets
For the purpose of measuring its financial assets, the Group classifies them at inception in one of the following categories:
• Financial assets at amortised cost
• Financial assets at fair value through other comprehensive income
• Financial assets at fair value through profit or loss
• Derivative assets in hedge accounting
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.
The business models
The business models are determined by the Group's key management personnel in the way that assets are managed and their
performance is reported to them. The Group determines its business models at a level that reflects the way groups of financial assets
are managed together to achieve a particular business objective. This condition is not an instrument-by-instrument approach to
classification, but is determined at a higher level of aggregation. The Group's business models fall into the following three categories:
Held to collect, Held to collect and for sale, and Other fair value business models, where assets are held for trading or managed on a
fair value basis and are neither Held to collect nor Held to collect and for sale.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 76
61.4 Financial assets and financial liabilities (continued)
Solely payments of principal and interest (SPPI)
Financial assets held within the business models Held to collect and Held to collect and for sale, are assessed to evaluate if their
contractual cash flows are comprised of solely payments of principal and interest. 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 changes over the life of the
financial asset, for example if there are repayments of principal. Interest relates to basic lending returns, including compensation for
the time value of money and credit risk associated with the principal amount outstanding over a period of time. Interest can also
include consideration for other basic lending risks (for example, liquidity risk) and costs (for example, servicing or administrative costs),
as well as a profit margin that is consistent with a basic lending arrangement.
Where the contractual terms introduce exposure to 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.
Financial assets at amortised cost
A financial asset is classified as being subsequently measured at amortised cost if the contractual terms of the financial asset give
rise to cash flows that are solely payments 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.
Financial assets at amortised cost are measured using the effective interest method. Amortised cost is calculated by taking into
account the amount at which the assets are measured at initial recognition less principal repayments, plus or minus the cumulative
amortisation using the effective interest method of any difference between that initial amount and the maturity amount (such as due
to discounts or premiums on acquisition and fees and costs that are an integral part of the effective interest rate), and minus any
reduction for impairment. Accrued interest is included in the carrying amount of the financial asset in the statement of financial position.
Impairment losses and reversals of impairment losses are recognised in profit or loss in the line item "Net impairment on financial
assets".
Financial assets at fair value through other comprehensive income (FVOCI)
For shares and equity instruments that are not held for trading, an irrevocable election can be made at initial recognition, to recognise
unrealised and realised fair value gains and losses, including any related foreign exchange component, in other comprehensive
income rather than profit or loss. This election is made on an instrument-by-instrument basis. Shares and equity instruments at FVOCI
are not subject to an impairment assessment. Dividends are to be presented in profit or loss, as long as they represent a return on
investment. On derecognition there is no recycling of fair value gains and losses to profit or loss.
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 FVOCI. The Group designates financial assets as at
fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
During the year the Group did not classify any financial assets as designated at fair value through profit or loss.
Financial assets at fair value through profit or loss are initially recognised and subsequently measured at fair value in the statement
of financial position. Changes in fair value are recognised in profit or loss in the line item "Net financial income (expense)", except for
interest earned, which is recognised in the line item "Net interest income" and foreign exchange gains and losses, which are included
in the line item "Net foreign exchange gain (loss)".
Derivative assets in hedge accounting
Derivative assets in hedge accounting consist of derivatives with positive fair value which are designated and accounted for as
hedging instruments (see Note 61.7)
Classification and measurement of financial liabilities
For the purpose of measuring its financial liabilities, the Group classifies them at inception in one of the following categories, except
for loan commitments and financial guarantees (see Note 61.12):
• Financial liabilities at amortised cost
• Financial liabilities mandatorily at fair value through profit or loss
• Financial liabilities designated as at fair value through profit or loss
• Derivative liabilities in hedge accounting
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 77
61.4 Financial assets and financial liabilities (continued)
Financial liabilities at amortised cost
Financial liabilities at amortised cost are non-derivative financial liabilities. Financial liabilities at amortised cost include deposits, debt
issued and other borrowed funds, and subordinated loans.
Financial liabilities at amortised cost are recognised initially at fair value net of transaction costs incurred, and subsequently are carried
at amortised cost using the effective interest method. Amortised cost is calculated by taking into account the amount at which the
financial liabilities are measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the
effective interest method of any difference between that initial amount and the maturity amount (such as due to discounts or premiums
and fees and costs that are an integral part of the effective interest rate). Accrued interest is included in the carrying amount of the
liabilities in the statement of financial position.
The amortised cost of certain bonds issued by the Group, which are designated as hedged items in qualifying fair value hedge
relationships, is adjusted for changes in the fair value of the bonds attributable to interest rate risk (see Note 61.7).
Financial liabilities mandatorily at fair value through profit or loss
Financial liabilities mandatorily at fair value through profit or loss are financial liabilities incurred principally for the purpose of
generating profits from short-term price fluctuations or from the dealer's margin. Financial liabilities mandatorily at fair value through
profit or loss consist of short positions in listed bonds and derivatives with negative fair value which are not classified as financial
guarantees or are not designated as hedging instruments.
Financial liabilities mandatorily at fair value through profit or loss are initially recognised and subsequently measured at fair value in
the statement of financial position. Changes in fair value are recognised in profit or loss in the line item "Net financial income
(expense)", except for interest incurred, which is recognised in the line item "Net interest income" on an accrual basis and foreign
exchange gains and losses which are included in the line item "Net foreign exchange gain (loss)".
Financial liabilities designated as at fair value through profit or loss
Financial liabilities designated as at fair value through profit or loss are recognised at fair value and changes in fair value attributable
to changes in the credit risk of those liabilities are recognised in other comprehensive income and are not subsequently reclassified
to profit or loss. The remaining fair value changes are included in profit or loss in the line item "Net financial income (expense)", except
for interest incurred, which is recognised in the line item "Net interest income" using the contractual interest rate and foreign exchange
gains and losses which are included in the line item "Net foreign exchange gain (loss)".
The Group calculates the fair value attributable to changes in credit risk as the difference between the changes in fair value of the
financial liability and the amount of changes in fair value attributable to changes in market interest rates. The change in fair value
attributable to changes in market interest rates on financial liabilities is calculated by discounting contractual cash flows at the end of
the period with the discount rate of the appropriate market interest rate.
Upon initial recognition, the Group determines if the recognition of gains and losses in other comprehensive income creates or
enlarges an accounting mismatch in profit or loss, if applicable the whole fair value change is presented in profit or loss.
Derivative liabilities in hedge accounting
Derivative liabilities in hedge accounting consist of derivatives with negative fair value which are designated and accounted for as
hedging instruments (see Note 61.7).
Reclassification
Financial assets are reclassified between measurement categories if the objective of the business model in which the financial assets
are held changes after initial recognition and if the change is significant to the Group's operations.
Financial liabilities are not reclassified.
Determination of fair value
The fair value of a financial instrument is the transaction 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.
When available, the Group measures the fair value of financial assets and financial liabilities using quoted prices in an active market
for that instrument. A market is considered active if quoted prices are readily and regularly available and those prices represent actual
and regularly occurring transactions. The fair value is based on the most recent observed market prices at the reporting date.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 78
61.4 Financial assets and financial liabilities (continued)
If a market for a financial instrument is not active, the Group establishes its fair value using valuation techniques. Valuation techniques
include net present value and discounted cash flow models, comparison with similar instruments for which observable market prices
exist, Black-Scholes option pricing model and other valuation models. Assumptions and inputs used in valuation techniques include
risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates, bond and equity prices,
foreign currency exchange rates, and expected price volatilities and correlations. Fair values reflect the credit risk of the instrument
and include adjustments to take account of the credit risk of the Group and the counterparty where appropriate.
Periodically, the Group tests the valuation techniques and calibrates against historical data and using prices from observable current
market transactions for the same instrument, or based on other available observable market data.
Changes in the fair value of financial assets and financial liabilities are recognised in profit or loss in the line item "Net financial income
(expense)".
The Group has an established control framework with respect to the measurement of fair values. The business unit owning the
positions is responsible for their valuations and for submitting the valuation to the Bank's Investment Committee for approval. Risk
Management provides an independent review of the results, the valuation methods used and of the use of significant unobservable
inputs. The final decision on the validity of the valuation is in the hands of the Bank's Investment Committee.
Impairment of financial assets
The impairment model of IFRS 9 is forward-looking and impairment under IFRS 9 should reflect a probability weighted average of
possible outcomes. In addition, the expected credit loss model in IFRS 9 employs a dual measurement approach, under which the
loss allowance for expected credit losses (ECL) is measured at each reporting date as either 12-month expected credit losses or
lifetime expected credit losses, depending on whether there has been a significant increase in credit risk (SICR) of the financial
instrument since initial recognition. To satisfy the provisions of the IFRS 9 standard, a significant amount of modelling must be involved.
The models which the Group uses for the calculation of the impairment amount are developed according to the Group's modelling
framework. This framework imposes structure on the initial model development work, the model documentation including educational
material as needed for users, the approval process for models, the implementation of models and the lifetime support for models,
including validation and back-testing. The Group's impairment process, which encompasses all the steps needed to derive the
appropriate impairment allowance for each accounting period, is documented and approved by the All Risk Committee
Stage assignment
At each reporting date, all assets subject to the impairment methodology must be divided into three groups, termed "Stages", reflecting
the extent of credit deterioration since initial recognition. This division then influences how the impairment is measured and how
interest is recognised.
Stage 1
All assets that have not experienced a SICR are assigned to Stage 1. For these assets, an impairment allowance is recognised which
is equal to the expected credit loss arising from credit events occurring within 12 months of the reporting date (12- month ECL).
Interest is recognised on the gross carrying amount of the assets.
Stage 2
Assets that the Group determines to have experienced a SICR, but are not credit-impaired, are classified as Stage 2. For these assets,
an impairment allowance is recognised which is equal to the expected credit loss arising from all credit events occurring within the
expected lifetime of the assets (lifetime ECL). Interest is recognised on the gross carrying amount of the assets.
The Group's definition of a SICR is on the level of an individual asset. The Group assesses that there has been a significant increase
in credit risk of an asset if the probability of a credit impairment event, i.e. transfer to Stage 3, occurring over the lifetime of the asset
has increased significantly from the origination of the assets. For this purpose, origination does not refer to any modification events
which have not resulted in derecognition of the asset. The assessment is based on a defined set of triggers. This includes, as a
backstop, the trigger that the asset is more than thirty days past due. Other triggers are internal assessments of outlook, events such
as forbearance events which are less severe than a credit event, external credit related information and a significant deterioration in
risk assessment compared with the risk assessment done in relation to the origination of the asset. The definition of a SICR depends
only on the probability of a credit event occurring, it does not take into account collateralisation, or any other information related to the
expected loss arising from the event. As soon as all triggers for Stage 2 for a particular asset are no longer activated then the asset
moves back to Stage 1. Additionally, assets are classified as forborne for two years after a forbearance event has occurred, but
forbearance events only cause assets to be in Stage 2 for twelve months and then they migrate back to Stage 1 unless other triggers
apply.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 79
61.4 Financial assets and financial liabilities (continued)
The Group does not employ the low credit risk exemption in the Stage assignment process. In alignment with its operating procedures,
the Group has chosen as its accounting policy to measure the impairment allowance for lease receivables at an amount equal to the
lifetime ECL only for those assets which have a SICR or are credit impaired. For other lease receivables the impairment allowance is
equal to the 12-month ECL.
Stage 3
This Stage is for assets which are credit-impaired according to the Group's assessment. These assets are therefore experiencing an
ongoing credit event. Thus, the 12-month ECL and lifetime ECL are the same amount, and this amount is recognised as impairment
allowance. For assets in this Stage, interest is recognised on the net carrying amount of assets, i.e., net of impairment allowance.
The Group's definition of being credit-impaired is on a customer level, rather than on the level of an individual asset. According to the
definition, a customer is credit-impaired when either of the following holds:
a) The Group assesses that it is unlikely that the customer can service all of their commitments to the Group in accordance with the
terms of the agreements without recourse to default provisions in the agreements, or
b) The customer has been more than 90 days past due on material credit commitments
The assessment in point a) is made based on a defined set of triggers, which includes serious breach of covenants, serious
registrations on an internal watchlist, initiation of serious collection actions and serious external credit related information.
Furthermore, there is a defined set of conditions which must be satisfied so that customers that have been assessed as being credit-
impaired are no longer subject to this assessment. This includes probation periods and a view to the future outlook of the customer.
Expected credit loss (ECL)
The ECL for each asset is calculated using models for the probability of a credit impairment event occurring (PD), the loss percentage
expected in case of such an event (LGD) and the outstanding amount at the time of the event (EAD). In its simplest form the ECL can
be calculated as the product of these factors, however, for several reasons, the actual formula must be more complicated than this.
The PD models are either fully automated statistical models, expert models or hybrid. For the models with a component involving
expert input there is a process in place to ensure proper review of the model outcome and periodic reassessment of obligors. The
inputs into the models include demographic variables, information from financial statements and past payment behaviour, among
other variables.
The effect of the economy on the PD is accounted for with the use of scaling factors which map through-the-cycle PD values to point-
in-time PD values. The Group has a model to predict these scaling factors based on an economic forecast. The economic forecast is
provided by the Group's Chief Economist. The forecast predicts a range of macroeconomic indicators over a horizon of five years.
The model is applied to a subset of these indicators and produces a set of scaling factors. The scaling factors are then reviewed by
the All Risk Committee with respect to all of the indicators and any other relevant information available and the committee approves
their use for the calculation of the impairment. This process is carried out at least quarterly.
The Group uses three economic scenarios. In addition to the base forecast, scaling factors are produced for a good and bad case.
This is done in order to represent the whole range of possible future economic developments. The actual impairment allowance is the
weighted average of the ECL in these different scenarios.
The All Risk Committee determined that it was appropriate to adjust the weights of the scenarios due to the COVID-19 pandemic and
unrest following the war in Ukraine. Generally the scenarios are weighted 25%-50%-25% (good, base, bad) but it was determined
appropriate to set the weights at 20%-50%-30%, as this would best represent the probability-weighted average over all possible
scenarios.
The table below shows macroeconomic indicators of the Group's Chief Economist's macroeconomic forecast used in ECL calculations
31.12.2022.
Change in economic indicators %
Estimate
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Economic growth (YoY real GDP change)
7.3
2.2
2.4
2.0
2.1
Housing prices in Iceland (average YoY change)
21.1
8.1
2.9
3.5
3.5
Purchasing power (average YoY change)
-1.5
3.1
2.9
1.6
1.6
ISK exchange rate index (YoY change in average)
-3.1
3.3
-3.1
-0.3
0.0
Policy rate, Central Bank of Iceland (average per year)
4.2
5.9
5.0
4.5
4.0
Inflation (average per year)
8.3
6.3
3.9
3.3
2.8
Capital formation (YoY real change)
10.2
0.3
2.1
0.9
2.5
thereof capital formation in industry
14.6
-4.0
1.0
3.0
2.5
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 80
61.4 Financial assets and financial liabilities (continued)
The LGD model considers several scenarios for how a facility may develop once a credit event has occurred. One possibility is that
the facility cures without a loss. If not, the recoveries may be based on the seizing of collateral and to estimate such recoveries,
several scenarios for the development of the value of the collateral are considered. Finally, there may be recoveries even though a
formal collateral is not in place. These different recovery scenarios are weighted differently depending on the economic scenario under
consideration. This leads to a non-linear interaction and thus a difference between the probability weighted average ECL and the ECL
in the most likely scenario.
For EAD it is necessary to account for expected prepayments on term loans and for the expected utilisation of commitments such as
credit cards, overdrafts, financial guarantees, and credit lines. The expected lifetime of agreements may also extend beyond the
contractual lifetime for contracts which are generally extended.
Temporary changes due to COVID-19 pandemic were suspended in the third quarter of 2022 as described in Note 3.
Write-off policy
When the Group has no reasonable expectations of recovering a credit exposure or when it is uneconomical to pursue legal collection,
the financial asset is written off. A write-off does not change the debt obligation which is therefore still subject to enforcement activity.
Any recoveries of amounts previously written off are credited to the income statement.
The impairment process
In the Group's impairment framework, the Stage assignment and ECL for each financial asset is calculated from the aforementioned
models. The outcome is reviewed by the business units and they can propose changes if they provide sufficient supporting material.
The impairment and any proposals for changes are reviewed by an Impairment Council appointed by the All Risk Committee and the
impairment allowance is approved by the All Risk Committee on a quarterly basis.
The principle of materiality applies to the above discussion on impairment, whereby exceptions related to non-materiality and
immaterial adjustments are not discussed.
61.5 Cash and cash equivalents
Cash and cash equivalents are carried at amortised cost in the statement of financial position and at the reporting date the expected
credit loss is considered to be low. Impairment losses and reversals of impairment losses are recognised in profit or loss in the line
item "Net impairment on financial assets".
Cash and cash equivalents in the statement of cash flows consist of cash on hand, unrestricted balances with the Central Bank,
demand deposits with credit institutions, and short-term loans to credit institutions. Cash and cash equivalents comprise balances
with less than three months maturity from the date of acquisition.
61.6 Derivative financial instruments
Derivatives are primarily used in trading activities but are also used to manage the Group's exposure to various risks, such as interest
rate risk, inflation risk, and currency risk. Derivatives are classified as financial assets or financial liabilities, measured at fair value
and presented in the statement of financial position in separate line items as assets or liabilities, depending on whether their fair value
at the reporting date is positive (assets) or negative (liabilities).
The Group applies hedge accounting. Accordingly, some of the Group's derivative financial assets and financial liabilities are
accounted for as financial assets or financial liabilities mandatorily at fair value through profit or loss while others are accounted for
as derivative assets or liabilities in hedge accounting (see Note 61.4 and Note 61.7).
When derivatives are embedded in other financial instruments or host contracts, such combinations are known as hybrid instruments
with the effect that some of the cash flows of a hybrid instrument vary in a way similar to a stand-alone derivative. These embedded
derivatives are measured and presented in the consolidated financial statements as if they were free-standing derivatives. The Group
accounts for an embedded derivative separately from the host contract when, the host contract is not an asset in the scope of IFRS
9, is not carried at fair value through profit or loss, the terms of the embedded derivative would meet the definition of a derivative if
they were contained in a separate contract, and the economic characteristics and risks of the embedded derivative are not closely
related to the economic characteristics and risks of the host contract. When the Group is required to separate and account for
embedded derivatives as if they were stand-alone contracts, the Group presents the fair value of the embedded derivatives in the
statement of financial position in the same line items in which the Group presents the related host contracts.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 81
61.7 Hedge accounting
The Group elected, as a policy choice permitted under IFRS 9, to continue to apply hedge accounting in accordance with IAS 39.
On initial designation of the hedges, the Group formally documented the relationship between the hedging instruments and hedged
items, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to
assess the effectiveness of the hedging relationships. The Group makes an assessment, both at inception of the hedge relationships
and on an ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair
value of the hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are
within the range of 80-125%. In the assessment the Group assumes that the benchmark interest rate is not altered as result of the
transition to alternative benchmark interest rates.
The Group applies fair value hedge accounting with respect to designated hedging relationships consisting of certain fixed-rate euro
denominated bonds issued by the Group as the hedged items and certain euro denominated interest rate swaps as the hedging
instruments, whereby the Group pays floating rate interest and receives fixed rate interest. The hedging relationships are designated
and accounted for as fair value hedges because the interest rate swaps are hedging the exposure of the Group to changes in the fair
value of the bonds arising from changes in interest rates. The Group recognises the changes in the fair value of the interest rate swaps
immediately in profit or loss together with the changes in the fair value of the bonds which are attributable to the interest rate risk. The
changes in the clean fair value of the swaps and the bonds are included in the line item “Net financial income (expense)”, the accrued
interest on the bonds and the swaps is included in the line item “Net interest income” and foreign exchange gains and losses on the
bond are included in the line item "Net foreign exchange gain (loss)".
If a hedging derivative expires or is sold, terminated or exercised, or a hedge no longer meets the criteria for fair value hedge
accounting, or the hedge designation is revoked, then hedge accounting for the corresponding hedging relationship is discontinued
permanently. Any adjustment up to the point of discontinuation to a hedged item for which the effective interest method is used is
amortised to profit or loss as part of the recalculated effective interest rate of the item over its remaining life.
61.8
Property and equipment
Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation and impairment losses (see Note 61.19). Where
parts of an item of property and equipment have different useful lives, those components are accounted for and depreciated as
separate items of property and equipment.
Subsequent costs
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 go to the Group and the cost of the
item can be measured reliably. All other costs are recognised in profit or loss as incurred.
Depreciation
Items of property and equipment are depreciated from the date they are available for use, except for land, which is not depreciated.
The depreciable amount of each item of property and equipment is determined after deducting its residual value. Depreciation is
recognised in profit or loss in the line item "Other operating expenses" on a straight-line basis over the estimated useful lives of each
part of an item of property and equipment.
The depreciation method, useful lives, and residual values are reviewed at each reporting date and adjusted if appropriate.
The estimated useful lives are as follows:
Buildings ................................................................................................................. 50 years
Right-of-use-assets ................................................................................................... 1-10 years
Fixtures ................................................................................................................... 6-12 years
Equipment ............................................................................................................... 3-5 years
Vehicles .................................................................................................................. 3 years
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 82
61.9 Intangible assets
Software
Software acquired by the Group is measured at cost less accumulated amortisation and impairment losses.
Expenditure on internally developed software is recognised as an asset when the Group is able to demonstrate its intention and ability
to complete the development and use the software in a manner that will generate future economic benefits, and can reliably measure
the costs to complete the development. The capitalised costs include all costs directly attributable to developing the software and
capitalised borrowing costs. Internally developed software is carried at capitalised cost less accumulated amortisation and impairment
losses.
Subsequent expenditure on software is capitalised only when it increases the future economic benefits embodied in the specific asset
to which it relates. All other expenditure is expensed as incurred.
Software is amortised on a straight-line basis over its estimated useful life from the date that it is available for use. The amortisation
is recognised in profit or loss in the line item "Other operating expenses". The estimated useful life of software is three to ten years.
61.10 Leases
At the inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group has
elected not to separate non-lease components and account for lease and non-lease components of a contract as a single lease
component.
The Group as a lessee
The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-
value assets. The Group recognises a lease liability and a right-of-use asset at the lease commencement date. The Group has elected
not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases
of low-value assets. The Group recognises lease payments associated with these leases as an expense on a straight-line basis over
the lease term.
Lease liabilities
The lease liability is initially measured at the present value of the lease payments, both fixed and variable, discounted using the entity's
incremental borrowing rate. The incremental borrowing rate is the rate of interest the Group would have to pay to borrow over a similar
term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic
environment. The incremental borrowing rate is subject to estimation when no observable rates are available. The lease liability is
measured at amortised cost using the effective interest method and remeasured when there is a change in future payments, e.g.
arising from a change in an index or an assessment of whether extension or termination options will be exercised. After the
commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments
made.
The lease term is determined by the Group as the non-cancellable term of the lease, together with any periods covered by an option
to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised. An assessment of whether the entity will exercise an extension or termination option is made
by management annually. If the assessment of whether the Group will exercise an extension or termination option changes after the
commencement date the lease liability is remeasured and a corresponding adjustment is made to the carrying amount of the right-of-
use asset.
Right-of-use assets
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs incurred less any lease incentives received. For any
remeasurement of the lease liability a corresponding adjustment is made to the carrying amount of the right-of-use asset or recorded
in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The right-of-use-asset is subsequently
depreciated using the straight-line method from the commencement date to the end of the lease term. Right-of-use assets are subject
to impairment.
If a lease modification increases the scope of the lease by adding a right to use of one or more underlying assets and the consideration
for the lease increases by an amount commensurate with the stand-alone price for the increased scope and any adjustments to the
price that reflects the circumstances of the particular contract, then the modification is accounted for as a separate lease. For lease
modifications that are not accounted for as separate leases the lease term of the modified lease is redetermined and the lease liability
remeasured using the revised lease payments and discounted using the incremental borrowing rate at the effective date of
modification. Any adjustment of the lease liability is then correspondingly made to the right-of-use asset.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 83
61.10 Leases (continued)
The Group presents right-of-use assets in the line item "Property and equipment" and lease liabilities in the line item "Other liabilities"
in the statement of financial position. Maturity analysis of lease liabilities is disclosed in Note 53. Interest on lease liabilities is
recognised in profit or loss in the line item "Net interest income". Depreciation of right-of-use assets is recognised in profit or loss in
the line item "Other operating expenses".
The Group as a lessor
The Group classifies leases based on the substance of the arrangements and the extent of the transfer of risks and rewards incidental
to ownership of the leased asset. A lease is classified as an operating lease if the lessor does not transfer substantially all the risks
and rewards incidental to ownership. A lease is classified as a finance lease if the lessor transfers substantially all the risks and
rewards incidental to ownership.
When the Group is the lessor in a capital lease, the Group recognises a receivable equal to the net investment in the lease and
presents it in the line item "Loans to customers" in the statement of financial position. The Group applies its accounting policies for
derecognition and impairment of financial assets also to its capital lease receivables. The Group recognises the finance income from
capital lease receivables in profit or loss in the line item "Net interest income" over the period of the capital lease so as to give a
constant periodic rate of return on the net investment in the capital lease.
When the Group is a lessor in arrangements which involve the legal form of capital leases, but which in substance do not involve
leases, the Group classifies them within loans at amortised cost.
61.11 Non-current assets and disposal groups held for sale
Non-current assets and disposal groups are either classified as held for sale when the Group expects to recover their carrying amount
principally through a sale transaction rather than through continuing use or as held for distribution to owners when the Group is
committed to distribute the asset, or disposal group, to the owners.
For this to be the case, the assets, or disposal groups, must be available for immediate sale, or distribution, in their present condition
and their sale, or distribution, must be highly probable. The sale must only by subject to terms that are usual and customary for sales
of such assets, or disposal groups.
Non-current assets and disposal groups are presented in a separate line in the statement of financial position. Non-controlling interests
in a disposal group are presented within equity.
Immediately before the initial classification as held for sale or distribution the assets, or components of disposal groups, are
remeasured in accordance with applicable accounting policies. Thereafter, the non-current assets, or disposal groups, are measured
at the lower of their carrying amount and fair value less costs to sell or costs to distribute.
Income and expenses of non-current assets and disposal groups held for sale are recognised in profit or loss in the line item
"Discontinued operations held for sale, net of income tax" (see Note 61.21).
61.12 Loan commitments and financial guarantees
Loan commitments are firm commitments of the Group to provide credit under a binding agreement for the exchange of a specified
quantity of resources at a specified price on a specified future date or dates. Expected credit loss of loan commitments (see Note
61.4) is recognised in the statement of financial position in the line item "Other liabilities". Loan commitment fees received by the
Group are recognised in profit or loss in the line item "Fee and commission income".
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 payments when due, in accordance with the terms of a debt instrument. Financial guarantees
are issued by the Group to credit institutions and other parties on behalf of its customers so that they can secure loans, overdrafts,
and banking facilities.
Liabilities arising from financial guarantees issued by the Group are initially measured at their fair value, being the premium received.
Subsequently the liabilities are carried at the higher of the amount representing the initial fair value of the guarantee and the expected
credit loss allowance of the guarantee (see Note 61.4). Any changes in the liabilities arising from financial guarantees are recognised
in profit or loss. The premium received is recognised in profit or loss in the line item "Fee and commission income" over the life of the
guarantee.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 84
61.13 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, if it is probable
that the Group will be required to settle the obligation with an outflow of resources, and a reliable estimate can be made of the amount
of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting
date, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows
estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When management assesses
that disclosing all information regarding certain matters can be expected to affect their outcome, then such detailed disclosures are
not included in the consolidated financial statements.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable
is recognised as an asset if it is virtually certain that the reimbursement will be received and the amount of the receivable can be
measured reliably.
61.14 Employee benefits
All Group entities are required to pay, on a mandatory and contractual basis, contributions to public and private pension funds. The
Group has no further payment obligations once these contributions have been paid. The Group recognises these contributions as
salary related expenses when they become due.
Short-term employee benefits include salaries, cash bonuses, non-monetary benefits and compensated absences. Short-term
employee benefit obligations are expensed by the Group as the related service is provided. A liability is recognised for the amount
expected to be paid under short-term cash bonus 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.
The Group does not have a defined benefit pension plan or an active remuneration policy.
61.15 Equity
Share capital
The share capital disclosed in the consolidated financial statements represents the total nominal value of ordinary shares issued by
the Bank. Incremental costs directly attributable to the issuance of ordinary shares are recognised as a deduction from equity, net of
any tax effects.
Dividends on shares
Dividends payable to shareholders of the Bank are recognised as a liability and deducted from equity in the period in which the
dividends are approved by the shareholders at the Bank's Annual General meeting. Dividends payable to non-controlling shareholders
in subsidiaries are recognised as a liability and deducted from equity in the period in which the dividends are approved by the
shareholders' meeting of the subsidiaries. Dividends declared after the reporting date are not recognised as a liability at the reporting
date.
Statutory reserve
According to the Act on Public Limited Companies no. 2/1995 the statutory reserve shall amount to 25% of the share capital of the
Bank.
Restricted reserves
The Group is to transfer, if applicable, certain amounts from retained earnings to restricted reserves which can therefore not be
distributed as dividends to shareholders. These restricted reserves are specified as follows:
Restricted reserve due to capitalised development costs
When the Group capitalises development cost it transfers a corresponding amount from retained earnings to a restricted reserve. In
the future the restricted amount is to be transferred back to retained earnings as the capitalised development cost is amortised in
profit or loss.
Restricted reserve due to fair value changes of financial assets
The Group transfers fair value changes of financial assets at fair value through profit or loss, net of tax if applicable, from retained
earnings to a restricted reserve. Amounts recognised in the reserve are transferred back to retained earnings upon sale of the financial
asset.
Restricted reserve due to unrealised profit of associates
If share of profit of an associated company is in excess of dividend received or which can be claimed, the Group transfers the difference
to a restricted reserve in equity. If the Group's shareholding in an associate is sold or written off the applicable amount recognised in
the reserve is transferred to retained earnings.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 85
61.15 Equity (continued)
Fair value reserve
Fair value reserve comprises all unrealised gains or losses related to fair value changes of equity instruments classified at fair value
through other comprehensive income. On derecognition of the equity instruments fair value changes are not reclassified to profit and
loss.
Liability credit reserve
Changes in fair value attributable to changes in the credit risk of financial liabilities designated as at fair value through profit or loss
are recognised in liability credit reserve. On derecognition the fair value changes are not reclassified to profit or loss.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign
subsidiaries.
61.16 Interest income and interest expense
For all financial assets and financial liabilities measured at amortised cost, interest income and interest expense are recognised in
profit or loss using the effective interest method.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of
the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset or financial liability.
When calculating the effective interest rate, the Group estimates cash flows, considering all contractual terms of the financial
instrument, but does not consider future credit losses. The calculation generally includes all fees and amounts paid or received
between parties to the contract that are an integral part of the effective interest rate, as well as transaction costs and all other premiums
or discounts.
The effective interest rate is established on initial recognition of financial assets and financial liabilities and their carrying amount is
subsequently adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based
on the original effective interest rate. The change in carrying amount is recorded as interest income or interest expense. For floating
rate instruments, interest income or interest expense is generally recognised based on the current market rate plus or minus
amortisation or accretion of the discount or premium based on the original effective interest rate.
Interest on impaired financial assets is calculated by applying the original effective interest rate of the financial asset. For financial
assets in Stage 1 and Stage 2 interest is recognised on the gross carrying amount of the assets and for financial assets in Stage 3
interest is recognised on the gross carrying amount of the assets, net of impairment allowance (see Note 61.4).
For financial assets and financial liabilities at fair value through profit and loss, interest income and interest expense are recognised
through profit or loss on an accrual basis, except for financial liabilities designated as at fair value through profit or loss (see Note
61.4).
Accrued interest on interest rate swaps, which are designated and accounted for as hedging instruments in fair value hedges of the
interest rate risk arising from certain fixed-rate euro denominated bonds issued by the Group (see Note 61.7), is recognised in profit
or loss as an adjustment to the interest expense recognised for the bonds.
61.17 Net fee and commission income
Fees and commissions are recognised to reflect the transfer of services to customers at an amount that reflects the consideration that
is expected to be received for such services. Fee and commission income and expenses that are integral to the effective interest rate
on a financial asset or financial liability are included in the measurement of the effective interest rate.
Fees for loan commitments that are likely to be utilised are recognised as an adjustment to the effective interest rate of the loan. When
a loan commitment is not expected to be utilised, fees are recognised in profit or loss on a straight-line basis over the commitment
period.
Loan syndication fees are recognised as revenue in profit or loss when the syndication has been completed and the Group has
retained no part of the loan package for itself or has retained a part at the same effective interest rate as the other participants.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 86
61.17 Net fee and commission income (continued)
Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party, such as the
arrangement of the acquisition of shares or other securities, or the purchase or sale of businesses, are recognised on completion of
the underlying transaction.
Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a
time-apportioned basis.
Asset management fees related to investment funds are recognised rateably over the period in which the service is provided. The
same principle is applied for wealth management, financial planning, and custody services that are continuously provided over an
extended period of time. Performance-linked fees or fee components are recognised when the performance criteria are fulfilled.
Where it is assessed that the Group is acting as an agent, the consideration is presented on a net basis.
61.18 Net financial income (expense)
Net financial income (expense) consists of net gain (loss) on financial assets and financial liabilities mandatorily at fair value through
profit or loss, net gain (loss) on financial liabilities designated as at fair value through profit or loss, net gain (loss) on fair value hedges,
and net gain (loss) on derecognition of financial liabilities measured at amortised cost.
Net gain (loss) on financial assets and financial liabilities mandatorily at fair value through profit or loss
Net gain (loss) on financial assets and financial liabilities mandatorily at fair value through profit or loss includes all realised and
unrealised fair value changes of financial assets and financial liabilities classified by the Group as mandatorily at fair value through
profit or loss, except for interest income and interest expense, which are included in the line item "Net interest income", and foreign
exchange gains and losses, which are included in the line item "Net foreign exchange gain (loss)". Dividend income from financial
assets is recognised in the income statement when the Group's right to receive payment is established.
Net gain (loss) on financial liabilities designated as at fair value through profit or loss
Net gain (loss) on financial liabilities designated as at fair value through profit or loss includes all realised and unrealised fair value
changes of financial liabilities designated by the Group as at fair value through profit or loss, except for changes in fair value attributable
to changes in credit risk which is recognised in other comprehensive income, interests incurred which are included in the line item
"Net interest income", and foreign exchange gains and losses which are included in the line item "Net foreign exchange gain (loss)".
Net gain (loss) on fair value hedges
Net gain (loss) on fair value hedges includes the changes in the clean fair value of interest rate swaps which are accounted for as
hedging instruments in fair value hedges and the changes in the fair value of certain bonds, which are attributable to the interest rate
risk of the bonds, and are accounted for as the hedged items in fair value hedges (see Note 61.7).
Net gain (loss) on derecognition of financial liabilities measured at amortised cost
Net gain (loss) on derecognition of financial liabilities measured at amortised cost includes the difference between the buyback price
and the carrying amount of debt issued measured at amortised cost at the derecognition date.
61.19
Impairment of non-financial assets
The carrying amounts of the Group's non-financial assets, other than deferred tax assets and non-current assets and disposal groups
held for sale, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication
exists, the Group estimates the recoverable amount of the asset. If the carrying amount of an asset exceeds its estimated recoverable
amount an impairment loss is recognised in profit or loss.
An impairment loss for non-financial assets is reversed if there has been a change in the estimates used to determine the recoverable
amount. 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.
Notes to the Consolidated Financial Statements
Íslandsbanki hf. Consolidated Financial Statements 2022 87
61.20 Taxes
Income tax expense
Income tax expense comprises special financial activities tax, current tax and deferred tax and is disclosed as a separate line item in
the income statement. Income tax expense from discontinued operations is included in the income statement in the line item
"Discontinued operations held for sale, net of income tax" (see Note 61.21). Income tax is recognised in profit or loss, except to the
extent that it relates to items recognised directly in equity, consistent with the recognition of the underlying item to which it relates.
Bank tax
Bank tax is calculated as 0.145% (2021: 0.145%) of total liabilities at year-end as determined for tax purposes, in excess of ISK 50,000
million, excluding tax liabilities. The Bank tax is considered a non-deductible expense for the calculation of income tax. The Bank tax
is shown in a separate line in the income statement and is included in the statement of financial position in the line item "Tax liabilities".
Special financial activities tax
Special financial activities tax is calculated as 6% of taxable profit exceeding ISK 1,000 million. Special financial activities tax is
included in the statement of financial position in the line item "Tax liabilities".
Current tax
Current tax is the expected tax payable on the taxable income for the year using tax rates enacted at the reporting date. Current tax
also includes any adjustment to tax payable in respect of previous years. Current tax assets and current tax liabilities are offset in the
statement of financial position if the Group has a legally enforceable right to set off the recognised amounts and intends either to settle
on a net basis, or to realise the asset and settle the liability simultaneously. Current tax is included in the statement of financial position
in the line item "Tax liabilities".
Deferred tax
Deferred tax is recognised based on temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts. However, deferred taxes are not recognised if it arises from the initial recognition of an asset or liability, in a transaction
other than a business combination, that at the time of the transaction affects neither the taxable profit nor the accounting profit. In
addition, deferred taxes are not recognised if the temporary difference arises from the initial recognition of goodwill.
Deferred tax is measured using tax rates enacted at the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
deductible temporary differences can be utilised. The deferred tax asset is reviewed at each reporting date and reduced to the extent
that it is no longer probable that the related tax benefit will be realised.
Deferred tax liabilities are included in the statement of financial position in the line item "Tax liabilities" and deferred tax assets are
included in the statement of financial position in the line item "Other assets". Deferred taxes that are part of discontinued operations
(see Note 61.11) are included in the line items "Non-current assets and disposal groups held for sale" and " Non-current liabilities and
disposal groups held for sale ", respectively, in the statement of financial position.
61.21 Discontinued operations held for sale, net of income tax
Discontinued operations held for sale, net of income tax, are disclosed as a separate line item in the income statement and consist of
(i) profit or loss from foreclosed assets and disposal groups held for sale, (ii) gain or loss recognised on the measurement to fair value
less costs to sell in excess of book value of foreclosed assets, (iii) profit or loss from sales of foreclosed assets and disposal groups
held for sale, and (iv) income tax expense from discontinued operations.
61.22 Offsetting
Financial assets and financial liabilities are set off and the net amount reported in the statement of financial position when, and only
when, the Group has a legal right to offset the recognised amounts and intends either to settle on a net basis or to realise the asset
and settle the liability simultaneously.
The Group presents income and expenses on a net basis in the income statement only when required or permitted by the accounting
standards.
61.23 Earnings per share
The Group presents basic and diluted earnings per share for its ordinary shares. Basic earnings per share are calculated by dividing
the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding
during the period. Diluted earnings per share are determined by adjusting the profit or loss attributable to ordinary shareholders of the
Bank and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, if any.
Íslandsbanki's
Corporate Governance
Statement
2022
Unaudited
The regulatory framework for corporate governance
practices within Íslandsbanki consists of the law
applicable to entities subject to the supervision of the
Financial Supervisory Authority of the Central Bank
(FSA) as well as other applicable law and regulations,
including those imposed by the FSA and Nasdaq
Iceland, available at their respective websites, cb.is
and nasdaqomxnordic.com. The applicable law
includes, inter alia, the Act on Financial Undertakings
no. 161/2002, the Act on Recovery and Resolution of
Credit Institutions and Investment Firms no. 70/2020,
the Act on Markets for Financial Instruments no.
115/2021, the Act on Payment Services no. 120/2011,
the Act on Measures against Money Laundering and
the Financing of Terrorist Activities no. 140/2018, the
Act on Mortgage Credit to Consumers no. 118/2016,
the Act on Consumer Credit no. 33/2013, the Act
on Competition no. 44/2005 and the Act on Public
Limited Companies no. 2/1995, which along with the
Íslandsbanki's Articles of Association lay the foundation
for the Bank's existence and activities. The relevant
law are available on the Icelandic legislature's website,
althingi.is.
The Board of Directors of Íslandsbanki is committed
to excellence in corporate governance complying
with the applicable regulatory standards and best
international practices in the eld of corporate
governance.
The Bank's compliance with Corporate Governance
Guidelines issued by the Iceland Chamber of
Commerce, Nasdaq Iceland and SA Business Iceland
(hereinafter the Guidelines) is reviewed annually.
The Board of Directors follows the Guidelines in
accordance with paragraph 7 of article 54 of the
Act on Financial Undertakings no. 161/2002. The
Guidelines are available on corporategovernance.is.
Moreover, the Bank's governance practices are based
on the European Banking Authority's Guidelines on
Internal Governance for Financial Undertakings (EBA/
GL/2021/05), cf. Article 16 of regulation (EC) No.
1093/2010, transposed into Icelandic law with Act No.
24/2017, on European Control Systems in the Financial
Market.
The Bank's shares have been admitted to trading on the
Nasdaq Main Market in Iceland. The Bank also regularly
issues bonds on the regulated securities market in both
Iceland and Ireland. The Bank is therefore subject to the
disclosure obligation of issuers pursuant to the Act on
the Disclosure and Information requirements of Issuers
of Securities and Notications on Major Holdings no.
20/2021 and the rules of the relevant stock exchange.
The Icelandic State Financial Investments (ISFI), on
behalf of the Icelandic Government, is the largest
shareholder of the Bank and holds 42.5% of the Bank's
shares, in accordance with the Act on Icelandic State
Financial Investments no. 88/2009 and the Icelandic
State Ownership Policy for nancial undertakings.
The Icelandic State's objective as owner is that its
management of the Bank's assets and operations
promote condence in, and credibility of, the nancial
market, to promote competition in the nancial market,
and maximise long-term value for the Icelandic State
Treasury, considering risk.
Main Aspects of Risk Management and Internal
Control
Internal Control
The risk management and internal control framework of
the Bank is based on the three lines of defence model,
as referred to in the European Banking Authority's
Guidelines on Internal Governance and aims for
informed decision making and strong risk awareness
throughout the Bank. The framework is intended to
Consolidated Financial Statements
88
Board approval and endorsement. The Board's Audit
Committee regularly discusses the Group's nancial
statements and evaluates its internal control processes.
Management reporting is generally presented to the
Board 10 times a year. The external auditors review the
half year consolidated nancial statements and audit
the consolidated nancial statements.
The consolidated nancial statements are published on
an annual and quarterly basis.
The Annual General Meeting (AGM) elects an external
audit rm in accordance with the Bank's Articles of
Association. The Board's proposal to the AGM is based
on the Audit Committee's recommendation on the
selection of an audit rm. Ernst & Young ehf. has carried
out the external audit of the Group in recent years.
Group Internal Audit
The Board appoints the Chief Audit Executive, who
is responsible for internal audit of the Bank and its
subsidiaries. Group Internal Audit reports directly to
the Board and operates independently from other
departments in accordance with article 16 of the
Act on Financial Undertakings no. 161/2002. The
department evaluates and promotes improvements
to the eectiveness of governance, risk management,
and control processes. The responsibilities and
authorisations of the Chief Audit Executive and Group
Internal Audit are further outlined in the Group Internal
Audit Charter.
Compliance
The Bank's Compliance Ocer is hired by the CEO,
subject to Board conrmation. The Compliance Ocer
operates under the terms of a mandate letter approved
by the Board. The Compliance Ocer maintains an
independent position within the Bank's organisation
and is responsible for monitoring and assessing
regularly whether the Bank's operations, regarding
securities transactions, are in compliance with
applicable law. Furthermore, the Compliance Ocer
is responsible for assessing and monitoring the Bank's
compliance with the Act on Measures against Money
Laundering and Terrorist Financing no. 140/2018 and
is the Bank's responsible ocer under the US Foreign
Account Tax Compliance Act (FATCA) and the OECD
Common Reporting Standard (CRS).
Íslandsbanki Values, Sustainability and Code of
Conduct
The Bank's purpose is moving Iceland forward by
empowering its customers to succeed. Íslandsbanki's
values are the pillars of the Bank's corporate culture,
shaping the conduct and attitudes of its employees.
The values of Íslandsbanki are passion, professionalism,
and collaboration.
ensure ecient operations, adequate control of risks,
prudent conduct of business, reliability of nancial
and non-nancial information reported internally and
externally, and compliance with the applicable laws,
regulations, supervisory requirements, and the Bank's
internal rules.
The rst line of defence consists of the Bank's business
and support units; the second line of defence is
comprised of the Bank's internal control units, Risk
Management and Compliance; and the third line of
defence is Group Internal Audit which keeps the Board
informed of the quality of corporate governance,
risk management and internal controls, including by
performing independent and objective audits.
Risk Management
The Board of Directors approves the risk policy,
risk appetite statement and procedure for risk
management and ensures that internal procedures for
risk management are revised at least annually.
The All Risk Committee, a Senior Management
Committee, is comprised of the CEO, all the
managing directors of the Bank and other members of
management appointed by the CEO. The committee
takes major decisions on implementation of the Bank's
risk management and internal audit frameworks and
conducts oversight to ensure that the Bank's risk prole
is within the limits dened in the Board's risk appetite
statement. The All Risk Committee issues guidelines for
risk assessment and individual risk thresholds or limits.
Further information on the Bank's risk management
structure and internal control can be found in the
Bank's unaudited Pillar 3 Report which is available on
the Bank's website.
Audit and Accounting
The CEO ensures that Directors of the Board are
provided with accurate information on the Bank's
nances, development and operations on a regular
basis and the Board Audit Committee assists the Board
in fullling its oversight responsibilities concerning the
nancial reporting process and the system of internal
control.
The Bank's Finance division is responsible for the
preparation of the Group's consolidated nancial
statements in line with the International Financial
Reporting Standards (IFRS) as adopted by the
European Union and additional requirements in
the Act on Annual Accounts no. 3/2006, the Act on
Financial Undertakings no. 161/2002, and rules on
accounting for credit institutions. The Board's Audit
Committee reviews annual and interim consolidated
nancial statements before their submission for
89
The Board approves a Code of Conduct for the Bank's
employees. The aim of the code is to promote good
operational practices. The document is available on the
Bank's website.
The Bank has in place a Sustainability Policy which is
focused on making its operations exemplary in the
Icelandic business environment based on established
international ESG criteria. The Bank aspires to be a
leader in sustainable development.
The Bank has decided to focus particularly on four
of the UN Sustainable Development Goals (SDGs)
in its course of business: quality education; gender
equality; industry, innovation and infrastructure;
and climate action. Annually the Bank publishes an
Annual and Sustainability Report in accordance with
the Nasdaq ESG guidelines, the applicable Global
Reporting Initiative (GRI) metrics, the UN Principles for
Responsible Banking (UN PRB), and the SDGs. For the
last years Íslandsbanki has been a signatory to the UN
Global Compact on social responsibility.
Board of Directors
At each AGM seven nonexecutive directors, and two
alternate members, are elected to the Board for a term
of one year. The Chairman of the Board is elected by
the shareholders' meeting. There are no limitations on
duration of Board membership.
The Board undertakes the Bank's aairs in between
shareholders' meetings unless otherwise provided by
law or the Bank's Articles of Association. The Board is
responsible for setting the Bank's general strategy and
instructs the CEO on its further implementation and
execution. The Board has a supervisory role in that it
oversees that the Bank's organisation and activities
are at all times in accordance with the relevant law,
regulations and good business practices. The CEO and
Chief Audit Executive are hired by the Board.
The Rules of Procedure of the Board are adopted
in accordance with article 70 of the Act on Public
Limited Companies no. 2/1995 and article 54 of the
Act on Financial Undertakings no. 161/2002. The
Board's current Rules of Procedure are available on the
Bank's website. According to its Rules of Procedure,
at meetings of the Board the presence of at least
ve members of the Board is required to constitute a
quorum. The Board met 17 times in 2022, each time
constituting a quorum.
The Articles of Association of the Bank provide that the
ratio of each gender on the Board of Directors shall not
be lower than 40%, currently the Board is comprised of
four women and three men. The Board has approved a
policy on the suitability of the Board of Directors, CEO
and key function holders. The policy states, among
other things, that the composition of the Board shall
at any time be diverse, with regard to educational and
professional background, gender and age.
The Board Subcommittees
The Board subcommittees are three in total and they
operate under the terms of a mandate letter from the
Board as well as the Rules of Procedure of the Board.
The mandate letters of the Board subcommittees are
available on the Bank's website. The Board appoints
the members of the subcommittees as well as their
Chairman. When appointing the subcommittees, the
Board shall take into account the expertise, skills and
experience needed of a member to be appointed to the
relevant subcommittee. All of the subcommittees are
constituted of members of the Board.
The Board Audit Committee, comprising three
Board members, assists the Board in fullling its
oversight responsibilities concerning the nancial
reporting process, the system of internal control, the
audit process and the Bank's process for monitoring
compliance with the relevant laws and regulations and
its Code of Conduct. The committee met six times in
2022, each time constituting a quorum.
The Board Risk Management Committee, comprising
three Board members, assists the Board in providing
oversight of senior management activities in managing
risk relevant to the Bank's operations. The committee's
responsibilities include the parent company, its
subsidiaries, and the whole Group. The committee met
eight times in 2022, each time constituting a quorum.
The Board Corporate Governance and Human
Resource Committee, comprising three Board
members, assists the Board in overseeing the
development and the regular assessment of the Bank's
approach to corporate governance issues and Board
eectiveness. Furthermore, the committee assists
the Board in fullling its oversight responsibilities
concerning the Bank's Compensation Policy,
implementation of the Bank's Sustainability Policy and
issues concerning human resources. The committee
met six times in 2022, each time constituting a quorum.
Structure and composition of Board subcommittees is
illustrated below.
90
Members of the Board
Finnur Árnason
(b. 1961)
Joined the Board as a board member and
Chairman of the Board in March 2022
Main occupation: Independent consultant.
Work experience: CEO of Hagar hf. (2005-2020).
CEO of Hagkaup (2000-2005).
Anna Þórðardóttir
(b. 1960)
Joined the Board in April 2016
Main occupation: Professional director.
Work experience: Accountant at KPMG (1988-2015),
partner from 1999.
Other directorships: The Icelandic Centre for Future
Ari Daníelsson
(b. 1972)
Joined the Board in March 2022
Main occupation: Professional director and investor.
Work experience: Founder and CEO at Reviva Capital
S.A., an international asset management company
(2010-2022). General manager and board member at
Glitnir Bank Luxemburg S.A. (2008-2010). Business
development and asset nancing at Glitnir Bank hf.
(2006-2008). Software development for nancial
Other directorships: New Landspítali University
Hospital construction project, NLSH ohf. (Chairman).
Ormsson ehf. (Chairman).
Education: MBA from the University of Hartford in the
US and Cand. oecon degree from the University of
Iceland.
Shareholding and independence: Finnur holds 95,258
shares in Íslandsbanki as well as having an indirect
holding of 12,658 shares through Rekavík ehf. Finnur's
spouse holds 95,258 shares in Íslandsbanki. Finnur
is considered independent of the Bank and major
shareholders. No interest ties with main customers or
competitors of the Bank.
Subcommittees: Member of the Board Audit
Committee.
Studies (Framtíðarsetur Íslands) (Board member). The
Board Audit Committee of Hagar hf. (Chairman). The
Board Audit Committee of Reginn hf. (Chairman).
Education: Cand. oecon. in Business Administration
from the University of Iceland. Studied towards a cand.
merc in Financial studies from Handelhøjskolen in
Aarhus, Denmark. Chartered Accountant.
Shareholding and independence: Anna holds no
shares in Íslandsbanki and is considered independent
of the Bank and major shareholders. No interest ties
with main customers or competitors of the Bank.
Subcommittees: Chairman of the Board Audit
Committee.
markets, Managing Director, and board member at
Mentis hf. (1999-2006).
Other directorships: Origo hf. (Board member). Reviva
Capital S.A. (Chairman). Menntaskóli í tónlist (MÍT
Music College) (Board member).
Education: MBA from the University of Reykjavík. B.Sc.
in Computer Science from Reykjavík University. The
International Directors Programme (IDP) from INSEAD
in France.
Shareholding and independence: Ari has an indirect
holding of 469,005 shares in Íslandsbanki through
R-Holdings 1 S.a.r.l. and 37,976 shares through
the holding company MFT 1 ehf. He is considered
independent of the Bank and major shareholders. No
interest ties with main customers or competitors of the
Bank.
Subcommittees: Member of the Board Risk
Management Committee and the Board Audit
Committee.
91
Members of the Board
Frosti Ólafsson
(b. 1982)
Joined the Board in March 2020
Main occupation: CEO of Olís ehf.
Work experience: Independent consultant (2020-
2021). CEO of ORF Genetics hf. (2017-2020).
Managing Director of Iceland Chamber of Commerce
(2013-2017). Strategic consultant for McKinsey &
Company (2011-2013).
Other directorships: Controlant hf. (Board member).
Garður ehf. (Board member).
Education: MBA from London Business School. B.Sc.
in Economics from University of Iceland and Macquire
University in Sydney, Australia.
Shareholding and independence: Frosti holds 12,659
shares in Íslandsbanki as well as having an indirect
holding 12,659 shares through Óson ehf. Frosti's spouse
holds 12,659 shares in Íslandsbanki. Frosti is considered
independent of the Bank and major shareholders. No
interest ties with main customers or competitors of the
Bank.
Subcommittees: Chairman of the Board Corporate
Governance and Human Resource Committee.
Guðrún Þorgeirsdóttir
(b. 1979)
Joined the Board in March 2020 and has been the
Vice-Chairman of the Board since 2022
Main occupation: Chief Business Development Ocer
of PayAnalytics ehf. CEO of Tharsis ehf.
Work experience: Chief Financial Ocer of Skeljungur
hf. (2014-2016). Executive Director of Business
Development at Skeljungur hf. (2013-2014). Investment
manager at Klakki ehf. (2010-2013). Chief Risk Ocer
at Exista hf. (2006-2010).
Other directorships: Pavonis ehf. (alternate member).
Education: MBA from HEC School of Management
in France. B.Sc. in Industrial Engineering from the
University of Iceland. Securities broker licensed by the
Icelandic Ministry of Finance and Economic Aairs.
Shareholding and independence: Guðrún holds no
shares in Íslandsbanki and is considered independent of
the Bank and major shareholders. Jón Þór Sigurvinsson,
the spouse of Guðrún, is the head of corporate nance
and one of the founders of Arctica Finance hf., one of
the Bank's competitors. Otherwise there are no interest
ties with main customers or competitors of the Bank.
Subcommittees: Chairman of the Board Risk
Management Committee.
Herdís Gunnarsdóttir
(b. 1968)
Joined the Board in October 2022
Main occupation: Managing Director of The National
Supervisory Authority for Welfare Services.
Work experience: Director of the Social Insurance
Administration's rights division (2020-2022). CEO of
the Health Care Institute of South Iceland (2014-2019).
Nursing director and project manager at the National
University Hospital of Iceland (2000-2014).
Other directorships: None.
Education: MBA, an M.Sc. in Paediatric Nursing, and a
B.Sc. in Nursing from the University of Iceland.
Shareholding and independence: Herdís holds no
shares in Íslandsbanki and has no connections with
the Bank's key customers or competitors. Herdís is not
considered independent of the Bank and its major
shareholders on account of her employment with the
Icelandic Government which is a large shareholder of
the Bank.
Subcommittees: Member of the Board Corporate
Governance and Human Resource Committee.
92
Páll Grétar Steingrímsson is an alternate member of the Board since March 2022.
Anna Þórðardóttir
Ari Daníelsson
Finnur Árnason
Frosti Ólafsson
Guðrún Þorgeirsdóttir
Herdís Gunnarsdóttir
Tanya Zharov
Composition of Board Subcommittees
Audit
Committee
Risk Managing
Committee
Corporate Governance
and HR Committee
Chair Member
Members of the Board
Tanya Zharov
(b. 1966)
Joined the Board in March 2022
Main occupation: Deputy CEO of Alvotech hf.
Work experience: Deputy CEO of deCODE Genetics
ehf. (2016-2020). Instructor and examination proctor
for the securities brokerage licensing programme
of the Icelandic Ministry of Finance and Economic
Aairs (2009-2015). General Counsel at Auður Capital
hf., later Virðing hf. (2008-2015). VP of Corporate
Governance and Administration at deCODE genetics
ehf. (1999-2007). Partner and tax attorney at PwC
(1996-1998).
Other directorships: Reykjavík University (Board
member).
Education: Cand. jur. from the University of Iceland.
European Patent Attorney.
Shareholding and independence: Tanya has an indirect
holding of 4,408 shares in Íslandsbanki through
the holding company Tölur ehf. She is considered
independent of the Bank and major shareholders. No
interest ties with main customers or competitors of the
Bank.
Subcommittees: Member of the Board Risk
Management Committee and Board Corporate
Governance and Human Resource Committee.
Íslandsbanki's Nomination Committee and the ISFI
Selection Committee
In accordance with the Bank's Articles of Association
the Bank operates a Nomination Committee whose
role is to nominate individuals to the Bank's Board
of Directors at the AGM, or as the case may be at a
shareholders' meeting where Board elections are
on the agenda. The members of the Nomination
Committee shall be three, elected for one year at a
time by the Board of Directors. The committee shall
be independent in its work and the majority of the
committee's members shall be independent of the
Bank and its senior management.
The Nomination Committee consists of:
Helga Valfells, Chairman
Finnur Árnason, Chairman of the Board of Íslandsbanki
Tómas Már Sigurðsson
ISFI operates a special three-member Selection
Committee which, on behalf of the State, nominates
candidates for the supervisory boards or boards of
directors of banks or undertakings that are managed
by ISFI. According to the Relationship Agreement
between the Bank and the ISFI the Bank's Nomination
Committee and the ISFI Selection Committee shall
ensure that when the Board of Directors is elected,
the candidates for election to the Board of Directors
meet the requirements on composition according to
law, both as concerns breadth of experience as well as
gender representation. The Rules of Procedure of the
Bank's Nomination Committee are published on the
Bank's website.
93
Board Performance and Suitability Assessment
At least once a year, as provided for in the Board's Rules
of Procedure, the Board assesses its work, procedures
and practices as well as each of its members. This
performance assessment is intended to improve
working methods and increase the eciency of the
Board. The assessment entails an evaluation of the
strengths and weaknesses of the Board's work and
practices. This is inter alia based on the necessary
number of board directors, the board structure
in relation to knowledge and experience, board
procedure and practices. This assessment was last
performed by the Board in December 2022.
Furthermore, the Board annually assesses the
collective suitability of the Board and individual Board
members in accordance with the Board's Rules of
Procedure and the Bank's policy on the assessment of
the suitability of the Board of Directors, the CEO and
key function holders.
The Board assessed the collective suitability of the
Board as well as the suitability of individual board
members and concluded that the Board and individual
board members possess sucient experience and
knowledge to full the requirements of the Act on
Financial Undertakings and the Bank's policy on the
suitability of the Board of Directors, CEO, and key
function holders.
Birna Einarsdóttir
(b. 1961)
Birna has been the CEO since 15 October 2008
Work experience: Managing director of sales and
marketing and later retail banking at Íslandsbanki hf.
(2004-2008). Senior Product Manager at the Royal
Bank of Scotland (1998-2004). Branch manager in
Seltjarnarnes, Executive director of sales and service
at Íslandsbanki (1991-1997). Marketing manager for
the Icelandic Broadcasting Company (1989-1991).
Marketing manager at Iðnaðarbanki Íslands (1987-
1989). General manager of Íslensk getspá (1985-1987).
Education: MBA from the University of Edinburgh, UK.
Cand. oecon. from the University of Iceland.
Other directorships: None.
Shareholding and independence: The CEO holds
44,506 of the Bank's shares and is considered
independent of the Bank and major shareholders. No
interest ties with main customers or competitors of the
Bank. No call-option agreements exist between the
CEO and the Bank.
The Chief Executive Ocer
The Chief Executive Ocer (CEO) is responsible for
the day-to-day operations of the Bank and that the
Bank's business is, at all times, in accordance with the
Bank's Articles of Association, policies of the Board
and the relevant law. The CEO engages the Bank's
Compliance Ocer and appoints members of the
Executive Committee and other Senior Management
Committees.
The Executive Committee
The Executive Committee consists of seven
people, including the CEO: Birna Einarsdóttir, CEO
since October 2008, Jón Guðni Ómarsson, Chief
Financial Ocer since October 2011, Sigríður Hrefna
Hrafnkelsdóttir, Managing Director of Personal Banking
since May 2017, Riaan Dreyer, Director of Information
Technology since September 2019, Guðmundur
Kristinn Birgisson, Chief Risk Ocer since October
2018, Una Steinsdóttir, Managing Director of Business
Banking since May 2017, and Ásmundur Tryggvason
Managing Director of Corporate & Investment Banking
since January 2019.
Senior Management Committees
Senior Management Committees are advisory
committees appointed by the CEO. Senior
Management Committees are divided into Policy-
Setting Committees, which implement Board policies,
and Business Committees, which take a position
on specic business matters. The committees are
appointed by the CEO, who also approves their letter of
mandate.
94
The Executive Committee and the All Risk
Committee are considered Policy-Setting Committees
and they take major decisions on the implementation
of the policies set by the Board. Committee members
include all of the Bank's Managing Directors, as well as
other members of senior management appointed by
the CEO.
The Executive Committee oversees and coordinates
key aspects of the Bank's activities and has decision-
making authority in matters assigned to it by the CEO,
in accordance with policies, goals, and risk appetite as
dened by the Board.
The All Risk Committee takes major decisions on
implementation of the Bank's risk management and
internal audit frameworks and conducts oversight to
ensure that the Bank's risk prole is within the limits
dened in the Board's risk appetite statement.
The Business Committees decide on individual
business and operational matters in accordance with
the rules and procedures issued by the Board, the
Executive Committee and the All Risk Committee.
The Bank's Business Committees are:
The Senior Credit Committee decides on proposals
on lending and is the formal venue for discussion and
review of individual loan proposals.
The Asset and Liability Committee decides on
proposals regarding market risk, liquidity risk, funding,
capital, and internal and external pricing.
The Investment Committee decides on proposals
regarding the purchase, sale and valuation of equity
stakes and other investments of the Bank.
The Operational and Security Committee decides
on proposals regarding new products and services,
continuous operation and material changes in systems
and procedures.
The Sustainability Committee is a formal forum for
reviewing and discussing issues related to sustainability
risk, sustainable procurement, and business
opportunities.
The Digital Product Committee is a formal forum for
prioritisation of initiatives between product teams in
line with the strategy and goals of the Bank.
Arrangement of Communications Between
Shareholders and the Board
The Board communicates with shareholders in
accordance with the relevant laws, the Bank's Articles
of Association, and the Board's Rules of Procedure.
Shareholders' meetings, the supreme authority of
the Bank, are the general forum for informing and
communicating with shareholders. All information
that is dened as sensitive market information is
disclosed to the market through the relevant regulated
market's announcement system in accordance with
the Bank's Disclosure and Communication Policy. The
Bank also organises quarterly meetings for market
participants where the CEO, CFO and representatives
of investor relations present the Bank's interim nancial
statements.
The Bank's Disclosure Committee assesses the Bank's
event-specic disclosure obligations and decides on
disclosure in accordance with the Bank's Rules on
insider trading and management transactions. The
Disclosure Committee consists of the CFO, the General
Counsel, Executive Director of Treasury, and the
Compliance Ocer (without a vote).
Information on Infringements of Laws and
Regulations Determined by the Appropriate
Supervisory or Ruling Body
In the year 2022 the Financial Supervisory Authority
of the Central Bank of Iceland imposed a ne in the
amount of ISK 0.5 million for delivering an exposure
report ve days late. At the end of 2022 the Bank
received the preliminary ndings from the Financial
Supervisory Authority of the Central Bank of Iceland's
(FSA) inspection into the Bank's execution of the
oering by the Icelandic State of a 22.5% stake in
the Bank's share capital. For further information see
Note 43. No other remarks were received from an
appropriate supervisory or ruling body concerning
violations of laws or regulations. Information on legal
cases relating to Íslandsbanki can be found in the Notes
to the consolidated nancial statements.
This Corporate Governance Statement was approved
by Íslandsbanki's Board of Directors on 9 February
2023.
95
Íslandsbanki hf. Hagasmári 3 201 Kópavogur Iceland Reg.no. 491008-0160
549300PZMFIQR79Q0T972022-01-012022-12-31549300PZMFIQR79Q0T972021-01-012021-12-31549300PZMFIQR79Q0T972022-12-31549300PZMFIQR79Q0T972021-12-31549300PZMFIQR79Q0T972020-12-31ifrs-full:IssuedCapitalMember549300PZMFIQR79Q0T972021-01-012021-12-31ifrs-full:IssuedCapitalMember549300PZMFIQR79Q0T972021-12-31ifrs-full:IssuedCapitalMember549300PZMFIQR79Q0T972020-12-31ifrs-full:SharePremiumMember549300PZMFIQR79Q0T972021-01-012021-12-31ifrs-full:SharePremiumMember549300PZMFIQR79Q0T972021-12-31ifrs-full:SharePremiumMember549300PZMFIQR79Q0T972020-12-31ifrs-full:StatutoryReserveMember549300PZMFIQR79Q0T972021-01-012021-12-31ifrs-full:StatutoryReserveMember549300PZMFIQR79Q0T972021-12-31ifrs-full:StatutoryReserveMember549300PZMFIQR79Q0T972020-12-31ISL:RestrictedEquityMember549300PZMFIQR79Q0T972021-01-012021-12-31ISL:RestrictedEquityMember549300PZMFIQR79Q0T972021-12-31ISL:RestrictedEquityMember549300PZMFIQR79Q0T972020-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember549300PZMFIQR79Q0T972021-01-012021-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember549300PZMFIQR79Q0T972021-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember549300PZMFIQR79Q0T972020-12-31ifrs-full:ReserveOfChangeInFairValueOfFinancialLiabilityAttributableToChangeInCreditRiskOfLiabilityMember549300PZMFIQR79Q0T972021-01-012021-12-31ifrs-full:ReserveOfChangeInFairValueOfFinancialLiabilityAttributableToChangeInCreditRiskOfLiabilityMember549300PZMFIQR79Q0T972021-12-31ifrs-full:ReserveOfChangeInFairValueOfFinancialLiabilityAttributableToChangeInCreditRiskOfLiabilityMember549300PZMFIQR79Q0T972020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300PZMFIQR79Q0T972021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300PZMFIQR79Q0T972021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300PZMFIQR79Q0T972020-12-31ifrs-full:RetainedEarningsMember549300PZMFIQR79Q0T972021-01-012021-12-31ifrs-full:RetainedEarningsMember549300PZMFIQR79Q0T972021-12-31ifrs-full:RetainedEarningsMember549300PZMFIQR79Q0T972020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember549300PZMFIQR79Q0T972021-01-012021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember549300PZMFIQR79Q0T972021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember549300PZMFIQR79Q0T972020-12-31ifrs-full:NoncontrollingInterestsMember549300PZMFIQR79Q0T972021-01-012021-12-31ifrs-full:NoncontrollingInterestsMember549300PZMFIQR79Q0T972021-12-31ifrs-full:NoncontrollingInterestsMember549300PZMFIQR79Q0T972020-12-31549300PZMFIQR79Q0T972022-01-012022-12-31ifrs-full:IssuedCapitalMember549300PZMFIQR79Q0T972022-12-31ifrs-full:IssuedCapitalMember549300PZMFIQR79Q0T972022-01-012022-12-31ifrs-full:SharePremiumMember549300PZMFIQR79Q0T972022-12-31ifrs-full:SharePremiumMember549300PZMFIQR79Q0T972022-01-012022-12-31ifrs-full:StatutoryReserveMember549300PZMFIQR79Q0T972022-12-31ifrs-full:StatutoryReserveMember549300PZMFIQR79Q0T972022-01-012022-12-31ISL:RestrictedEquityMember549300PZMFIQR79Q0T972022-12-31ISL:RestrictedEquityMember549300PZMFIQR79Q0T972022-01-012022-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember549300PZMFIQR79Q0T972022-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember549300PZMFIQR79Q0T972022-01-012022-12-31ifrs-full:ReserveOfChangeInFairValueOfFinancialLiabilityAttributableToChangeInCreditRiskOfLiabilityMember549300PZMFIQR79Q0T972022-12-31ifrs-full:ReserveOfChangeInFairValueOfFinancialLiabilityAttributableToChangeInCreditRiskOfLiabilityMember549300PZMFIQR79Q0T972022-01-012022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300PZMFIQR79Q0T972022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember549300PZMFIQR79Q0T972022-01-012022-12-31ifrs-full:RetainedEarningsMember549300PZMFIQR79Q0T972022-12-31ifrs-full:RetainedEarningsMember549300PZMFIQR79Q0T972022-01-012022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember549300PZMFIQR79Q0T972022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember549300PZMFIQR79Q0T972022-01-012022-12-31ifrs-full:NoncontrollingInterestsMember549300PZMFIQR79Q0T972022-12-31ifrs-full:NoncontrollingInterestsMemberiso4217:ISKiso4217:ISKxbrli:shares