Consolidated
Financial
Statements
2023
Íslandsbanki
Íslandsbanki hf.
•
Hagasmári 3
•
201 Kópavogur
•
Iceland
•
Reg.no. 491008-0160
Contents
2
3 - 9
10 - 13
14
15
16
17
18 - 19
20 - 86
87 - 97
98 - 104
Appendices - unaudited
Green Asset Ratio ......................................................................................................................................
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 .....................................................................................................................
Íslandsbanki's Corporate Governance Statement 2023 .............................................................................
Profit after tax
(ISKm)
Loans to customers
(
Sector split as of 31.12.23)
Cost-to-income ratio
2
Loans to customers
(ISKbn)
Factsheet
Total assets
(ISKbn)
Total liquidity coverage ratio Leverage ratio
3
Total capital ratio
3
The information above has not been reviewed or audited by the Group's auditor.
1. Individuals and small enterprises are out of scope.
2. C/I ratio for 2Q23 and 2023 excludes a charge of ISK 860m due to an administrative fine. C/I ratio for 4Q22 excludes a charge of ISK 300m due to an administrative fine.
3. Including 1Q23 profit for 31.3.23 and 3Q23 profit for 30.9.23.
Key figures 2023
Sustainability Digital milestones
Return on equity
Net profit
ISK 24.6bn
The Bank has updated its
Sustainable Funding Framework
93% of the Bank's credit risk
exposure
1
assessed with regards
to ESG risk
77% of suppliers have signed an
updated Suppliers' Code of
Conduct
ROE 11.3%
Cost-to-income
ratio 41.6%
NIM 3.0%
Ratings and certifications
A3
Stable outlook
BBB/A-2
Positive outlook
The new digital car loan
journey improves the customer
loan process experience
Íslandsbanki's chatbot, Fróði,
can now speak to customers in
beta version of the
Íslandsbanki app
Additional step-up security has
been introduced to the app
and online bank in response to
increasing fraud risk
40.6%
42.1%
42.6%
39.0%
42.7%
4Q22 1Q23 2Q23 3Q23 4Q23
205%
171%
259%
247%
195%
118%
115%
119%
120%
124%
31.12.22 31.3.23 30.6.23 30.9.23 31.12.23
Net stable funding ratio (NSFR)
12.1%
12.9%
12.8%
12.7%
13.4%
31.12.22 31.3.23 30.6.23 30.9.23 31.12.23
Mortgages to
individuals
43%
Other loans to
individuals
5%
Seafood
6%
Commerce
and services
15%
Real estate
12%
Industrial and
transportation
6%
Construction
7%
Other
6%
ISK
1,223bn
11.1%
11.4%
11.5%
11.0%
11.2%
4Q22 1Q23 2Q23 3Q23 4Q23
5,982
6,211
6,139
6,007
6,228
4Q22 1Q23 2Q23 3Q23 4Q23
1,566
1,552
1,593
1,644
1,583
63.8%
64.8%
63.7%
60.0%
61.7%
31.12.22 31.3.23 30.6.23 30.9.23 31.12.23
REA / total assets
1,187
1,219
1,238
1,210
1,223
150%
152%
152%
140%
144%
31.12.22 31.3.23 30.6.23 30.9.23 31.12.23
Customer loans / customer deposits ratio
22.2%
23.2% 23.2%
24.6%
25.3%
18.8%
19.9%
20.0%
20.9%
21.4%
31.12.22 31.3.23 30.6.23 30.9.23 31.12.23
CET1 ratio
Íslandsbanki hf. Consolidated Financial Statements 2023
2
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 2023.
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 2023
The profit from the Group's operations for the year 2023 amounted to ISK 24,585 million and the return on equity was 11.3%, above the
Bank's target of being above 10%. At year-end the Group employed 764 full-time members of staff, including 725 within the Bank itself,
56% female and 44% male. The Group operates 12 branches.
High interest rate environment and inflation, both domestically and internationally, impacted the Group's operations in 2023, although
volatility and uncertainty in markets reduced throughout the year. As for 2023, on the whole delinquency rates have not been observably
impacted and the overall financial health of the economy is good.
Net interest income rose by 12.7% between years and the net interest margin increased year-on-year from 2.9% to 3.0% of total assets,
primarily on the back of the interest rate environment. However, the margin reduced from 3.2% in the first half of the year, compared to
2.9% in the second half of the year. This reduction is mainly on the back of loss related to higher CPI imbalance, related to a shift where
customers have refinanced their loans from non-indexed linked loans to CPI-linked loans, which yielded less return as inflation kept
reducing throughout the year. In addition, higher FX funding costs in the second half of the year also played a par. Net fee and commission
income was ISK 14,234 million in 2023 compared to ISK 14,053 in 2022, where net income on cards and payment processing showed a
healthy growth year-on-year. Further, Allianz Ísland hf. was a good contributor to the Group's net fee and commission income as revenue
generation was strong. Asset management remained pressured due to uncertainty in domestic financial markets but recovered towards
the end of the year and experienced net inflow, in line with overall market conditions. Overall, core income grew by 9.9% year-on-year.
Salaries and related expenses increased by 11.5% between years mainly due to general wage increases and redundancy costs.
Throughout the year additional employees were hired related to the Bank's commitment to further strengthen its regulatory infrastructure
and overall governance. Other operating expenses rose by ISK 1,574 million and amounted to ISK 11,740 million, or by 15.5% from 2022
to 2023, mainly related to professional services, and software and IT expenses. The cost-to-income ratio, adjusted for the administrative
fine regarding a settlement agreement with the Financial Supervisory Authority of the Central Bank of Iceland (FSA) related to the sale of
a 22.5% stake in the Bank in 2022, remained flat between 2022 and 2023 or 41.6% which is within the financial guidance of 40-45%. Net
impairments amounted to ISK 1,015 million in the year 2023, compared to impairment reversals in the previous year.
Loans to customers grew by 3.1% between years. Mortgages remain the largest part of the loan portfolio, or 43%, and LTVs remain at
healthy levels. Asset quality remains strong; at year-end 1.8% of the gross carrying amount of loans to costumers were classified in Stage
3, same as year-end 2022.
Settlement Agreement with the Financial Supervisory Authority of the Central Bank of Iceland
Following a settlement agreement with the FSA related to the FSA's inspection into the Bank's execution of the Offering by the Icelandic
State of a 22.5% stake in the share capital of Íslandsbanki, the Bank agreed to pay a fine in the amount of ISK 1,160 million and undertook
to carry out certain remedial measures. The Bank recognised a provision of ISK 300 million in connection with the preliminary findings
from the FSA's inspection in the 2022 Consolidated Financial Statements and in the second quarter of 2023 a charge of ISK 860 million
was recorded in relation to this matter. Birna Einarsdóttir and the Board of Directors of Íslandsbanki reached an agreement on the terms
of her resignation as CEO of Íslandsbanki as of 28 June 2023. Jón Guðni Ómarsson, who served as CFO from 2011, was appointed CEO.
A shareholder meeting was held on 28 July 2023 to address the Settlement Agreement and the Bank's reaction thereto. On the same
shareholder meeting, an election of members to the Board of Directors of the Bank, alternate directors, and the Chairman of the Board
was carried out, as the previous Board of Directors had stepped down, paving the way for a board election. Four new individuals were
elected to the Bank's Board of Directors at the meeting, including Linda Jónsdóttir who was elected as Chairman. The Bank has since
concluded all remedial measures related to the settlement agreement and emphasised on further strengthening its internal governance,
for example by structural changes after which the Chief Compliance Officer has taken a seat within the Executive Committee.
For further information on this matter see Note 13.
Íslandsbanki hf. Consolidated Financial Statements 2023
3
F
unding
Deposits continue to remain the Bank's largest source of funding. Deposits from customers amounted to ISK 851 billion at year-end 2023,
an increased by 7.7% year-on-year, where Personal Banking was the largest contributor. Customer loans to customer deposits ratio closed
at 144% compared to 150% year-end 2022.
On 30 August the Bank announced that Moody's Investor Services (Moody's) assigned an A3 issuer rating to Íslandsbanki. The rating has
a stable outlook and demonstrates Íslandsbanki's strong capitalisation and good recurring profitability. At the time of the announcement
the rating was the highest of the Icelandic banks. Additionally, Moody's assigned A2 long-term and P-1 short-term foreign and local
currency deposit ratings. On 17 November S&P Global Ratings (S&P) affirmed the Bank's ratings at BBB/A-2 and revised the outlook from
stable to positive, a reflection on the overall economic trends and strong position of the Bank and the banking sector as a whole.
Volatility in markets adversely affected pricing, especially in the first half of the year. The Bank remained a regular issuer of domestic
covered bonds to fund growth in the mortgage loan portfolio, issuing approximately ISK 31,000 million in the year 2023. In addition, the
Bank issued a total of ISK 6,700 million, SEK 1,000 million and EUR 300 million of senior preferred bonds. Lastly, the Bank issued ISK
9,600 million of Tier 2 notes, replacing an older SEK 500 million Tier 2 bond which was called in August 2023. During the second half of
the year, credit spreads on the Bank's outstanding bonds tightened considerably. Íslandsbanki's liquidity position is strong, well above
regulatory requirements and internal limits.
Capital
The Group's capital position remains solid and well in excess of the regulatory requirements. The total capital ratio was 25.3% at the end
of the year. According to the conclusion of the annual assessment of risk in the operations of systematically important financial institutions
by means of the Supervisory Review and Evaluation Process (SREP) carried out by the FSA, the Bank shall from 30 June 2023 maintain
an additional capital requirement of 2.4% of Risk Exposure Amount (REA), a decrease of 0.2 percentage points from the previous
assessment. The Bank's total SREP capital requirement therefore decreases from 10.6% to 10.4%. With the combined capital buffer
requirement of 9.4%, the overall capital requirement is 19.8%. The Bank has updated its CET1 target to a buffer of 100-300 basis points
on top of regulatory requirements hence the Bank's CET1 target range is 16.2-18.2% based on the size of the management buffer and will
increase by 0.5 percentage points in the first quarter of 2024 as a result of an increase in the countercyclical buffer.
On 18 October the Central Bank's Resolution Authority announced that a resolution plan had been approved for Íslandsbanki and thereby
updated the MREL-Requirement. The MREL-Requirement, including the combined buffer requirement, is 30.2% of the Bank's REA. At
year-end 2023 the MREL-ratio was 41.3%.
The Bank paid approximately ISK 12.3 billion in dividends to the Bank's shareholders in March 2023, in line with its dividend policy. During
the year, the Bank bought back shares in line with the buyback programme announced in February, amounting to ISK 5,000 million. At
year-end a total of 20.4 million shares had been purchased, or 1.02% of share capital. Total purchase price of those shares amounted to
ISK 2,310 million. Subject to market conditions, the Bank assumes that the full amount of the buyback programme will be completed by
the Bank's 2024 Annual General Meeting (AGM).
The Bank plans to continue its efforts to optimise its capital structure. At the 2024 AGM, the Bank will seek a renewed approval for a share
buyback and initiate share buybacks amounting to ISK 10,000 million, subject to market conditions. Further, the Board of Directors will
propose a dividend payment amounting to ISK 12,300 million during the same meeting. Further yet, proposals on extraordinary dividend
and/or additional share buybacks may be introduced later in the year, subject to market conditions. The capital optimisation is assumed to
be completed year-end 2025.
Outlook
The year 2023 was a pivotal year for Iceland's economy, marked by a shift in growth dynamics. Domestic demand growth moderated
throughout the year, while services exports, especially in tourism, surged. The third quarter recorded the lowest quarterly GDP growth
since early 2021 at 1.1%. This was primarily due to a 1.2% decline in domestic demand and a decrease in goods exports that weighed
against a 7.3% increase in services exports and a 3% drop in imports.
Indications for the fourth quarter suggest a further slowdown in domestic demand, evidenced by payment card turnover, import data, and
consumer and business sentiment surveys. Private consumption and investment appear to be contracting, following a 1.7% decrease in
consumption in the third quarter. However, the tourism sector continued to thrive, with over 2.2 million visitors in 2023, up 29% from the
previous year.
ISB Research estimates GDP growth of 3.0% for 2023, a significant drop from 7.2% growth in 2022, with exports overtaking domestic
demand as the main growth driver. The labour market remains robust, although there has been some reduction in excess worker demand.
A notable influx of foreign nationals was the main contributor to a 3% population growth for the second consecutive year, with
unemployment averaging 3.2% and wages increasing by over 10% on average.
Íslandsbanki hf. Consolidated Financial Statements 2023
4
I
nflation declined slightly in the fourth quarter but remained high at 7.7% by year-end. A cooling housing market and reduced imported
inflation aided this decline, while domestic cost pressures persisted. The Central Bank maintained a 9.25% interest rate in the fourth
quarter, with indications of future monetary policy tightening.
Looking ahead to 2024, ISB Research anticipates a 1.9% GDP growth, led by services exports in the first half and bolstered by gradually
increasing domestic demand growth as the year progresses. Inflation is expected to decrease throughout the year, accompanied by
cautious monetary easing, as the economy continues to rebalance and demand pressures ease.
For the next two years, GDP is forecasted
to reach 2.6% and 2.9% respectively.
Following seismic activity in Reykjanes, a volcanic eruption occurred near the town of Grindavík in early 2024. As of now, the town of
Grindavík (inhabitants approximately 3,700) remains uninhabitable, and the Government is exploring what measures will be needed to
relieve this uncertainty. Currently the economic impact related to this is uncertain. The Bank's direct exposure to Grindavík is limited; only
0.4% of the gross carrying amount of loans to customers is covered by real estate in Grindavík. Due to this uncertainty, an impairment
allowance amounting to ISK 1.7 billion has been recognised at year-end 2023.
The Bank's target of return on equity above 10% remains unchanged for the year 2024, assuming normalised through-the-cycle annual
impairment level of 25-30 basis points on the Bank's loan portfolio, given its current composition. The cost-to-income ratio is expected to
be in the range of 40-45%, in line with previous year and below the Bank's target of 45%. As the loan portfolio has shifted more towards
CPI-linked products, net interest income will become more volatile and subject to month-by-month change in inflation.
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 45-61 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 one of the largest shareholder bases of a
listed company in Iceland. At the end of 2023 the Bank had just over 11,500 shareholders, where 89.4% of the Bank's shares were owned
by domestic parties and 10.6% by international investors. The Icelandic Government is the largest shareholder with 42.9% of outstanding
shares. Shares held by the Government are administered by the Icelandic State Financial Investments (ISFI) in accordance with Act no.
88/2009. Apart from the Government, pension funds are the largest investor group, owning 36.7% of the outstanding shares, thereof
domestic pension funds 35.6%. For further information on the Bank's shareholders see Note 41.
Sustainability
Íslandsbanki aims to be a leader in the area of sustainable development and a catalyst for positive social action. Alongside its vision of
creating value for the future, with excellent service, 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 sub-committee 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 & Sustainability.
Íslandsbanki hf. Consolidated Financial Statements 2023
5
T
he Sustainability Policy creates a comprehensive framework for its activities in the area of sustainability and maps out the Bank's policy
for operations, 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 the business units as part of their five-
year planning process.
The Sustainability Report for the year 2023 includes key information on the environmental, social and governance criteria for Íslandsbanki
in accordance with the Nasdaq ESG guidelines from 2019 along with other relevant standards. The Bank emphasises increased flow of
transparent information on sustainability. Auditing firm Deloitte ehf. was engaged to review and confirm with limited assurance the Bank's
sustainability information disclosure in the Annual and Sustainability Report for 2023.
In accordance with local regulation, Íslandsbanki publishes in an unaudited appendix to the Consolidated Financial Statements information
regarding the EU taxonomy, Green Asset Ratio. In 2023, the regulation entered into force for financial institutions and other non-financial
institutions within its scope, and by that made it mandatory to publish information on the Bank's assets which meet the regulation's
requirements, and can according to the taxonomy be considered as environmentally sustainable. Íslandsbanki must obtain this information
directly from its customers or other public data sources, such as The Register of Annual Accounts, but as almost no such information has
been published during the process of this financial statement, the Bank faces an impossibility regarding data. For that reason, no assets
are defined as green or sustainable according to the EU taxonomy at year-end 2023. The Bank aims to work on data collection and
conversations with major customers in 2024, with the aim that the disclosure for 2024 better reflects the actual situation. It is clear that the
implementation into Icelandic legislation will influence the Bank's efforts in this regard.
Sustainability risk has been more effectively integrated into key processes relating to lending, investments, and product development
during the year. At year-end, 93% of all credit risk exposure (excluding individuals 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 2023 which
contains a separate chapter on sustainability risk and climate risk in compliance with TCFD (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 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 and IcelandSif, 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 four 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.
Íslandsbanki publishes information on financed emissions (in accordance with the Partnership for Carbon Accounting Financials (PCAF)
standard) for 2022 and 2023 in the Bank's Annual and Sustainability Report. The Bank publishes its objectives and performance in
connection with climate issues. This includes a new target on emission reduction within the seafood sector. With that the Bank has
published targets which account for 64% of total lending and 78% of total emissions from the loan portfolio in 2019. The Bank expects its
financed emissions to shrink by 60% by 2030 and 85% by 2040. 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.
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 2023. According to the
most recent equal pay appraisal, the unexplained pay gap for jobs of equal value is 0.2%.
Íslandsbanki hf. Consolidated Financial Statements 2023
6
G
overnance
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 Confederation of Icelandic Enterprise, 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 2023, 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.
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 Terrorist Financing 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. Following the Bank's settlement agreement with the FSA a comprehensive review
of the Bank's internal rules and procedures was carried out in connection with the Bank's remedial measures. The Board believes that the
Bank has adequately responded to the remedial requirements of the FSA according to the settlement. The actions taken are intended to
strengthen the Bank's risk culture and ensure compliance with laws and regulations in the future. The Board will emphasise the follow-up
of the effectiveness of the changes implemented and the development of a risk culture for the future so as to ensure that these aspects
take root. The Board will also make sure that issues related to governance, risk management and internal control receive appropriate
consideration in the Board.
At each AGM seven non-executive 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.
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, three women and four men. Board members are of various ages, born in the years 1960-1979.
Board members have a broad range of education, e.g. in the fields of engineering, law, finance, management, auditing, business
administration, and securities trading. Board members also have extensive industry experience in the areas of operations, finance, auditing,
management, and consulting.
Íslandsbanki hf. Consolidated Financial Statements 2023
7
The Board appoints three sub-committees, 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 sub-committees 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 Chief Compliance Officer and
appoints members of the Executive Committee and other Senior Management Committees.
The Executive Committee, comprising eight members, including the CEO, is composed of four women and four men. Members of the
Executive Committee were born in the years 1961-1982 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) 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. 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 half year Condensed Consolidated Interim 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 29 June 2023 Íslandsbanki received a letter from the Board of Directors of Kvika whereby it was announced that Kvika had decided to
end merger discussions which had been ongoing since February 2023. The Board of Directors of Íslandsbanki agreed with the conclusion
to discontinue merger discussions.
The FSA conducted an onsite inspection of the Bank's anti-money laundering (AML) measures in the third quarter of 2022 as part of its
supervision of regulatory compliance in the banking sector. The FSA identified certain shortcomings in the Bank's AML measures. The
Bank has not challenged the FSA's findings and has already made, and is continuing to make, improvements to its AML framework. Fight
against financial crime is an important part of Íslandsbanki's corporate responsibility and work to that end is a high priority within the Bank.
The matter could result in a settlement and a fine. The Bank has recognised an undisclosed provision in relation to this matter. For further
information see Note 43.
Íslandsbanki hf. Consolidated Financial Statements 2023
8
Statement by the Board of Directors and the CEO
The audited Consolidated Financial Statements for the year ended 31 December 2023 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 2023 and its financial position as of 31 December 2023. 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 2023 identified as "549300PZMFIQR79Q0T97-2023-
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 2023 Consolidated Financial Statements of Íslandsbanki.
Kópavogur, 8 February 2024
Board of Directors:
Linda Jónsdóttir, Chairman
Stefán Pétursson, Vice-Chairman
Agnar Tómas Möller
Anna Þórðardóttir
Haukur Örn Birgisson
Helga Hlín Hákonardóttir
Páll Grétar Steingrímsson
Chief Executive Officer:
Jón Guðni Ómarsson
Íslandsbanki hf. Consolidated Financial Statements 2023
9
T
o the Shareholders and the Board of Directors of Íslandsbanki hf.
Opinion
We have audited the Consolidated Financial Statements of Íslandsbanki hf. and its subsidiaries (the Group) for the year ended 31 December
2023 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the
Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows for the year then ended, and the notes to the
Consolidated Financial Statements, including a summary of material accounting policies.
In our opinion, the accompanying Consolidated Financial Statements give a true and fair view of the financial position of the Group as at 31
December 2023, and its Consolidated Financial Performance and its Consolidated Cash Flows for the year then ended in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) 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 Financial Statements is consistent with the content of the additional report that has been
submitted to the audit committee in accordance with the EU Audit Regulation no. 537/2014 Article 11.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report.
We are independent of 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.
Based on the best of our knowledge and belief, no prohibited services referred to in the EU Audit Regulation no. 537/2014 Article 5.1 has
been provided.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Íslandsbanki hf. Consolidated Financial Statements 2023
10
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, and we do not provide a separate opinion on these matters.
Key Audit Matters How the matter was addressed in the audit
Impairment charges for loans to customers
Loans to customers represent ISK 1,223,426 million or 77% of total
assets at 31 December 2023, thereof expected credit losses (ECL)
of ISK 11,728 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 interpretati
on 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, forward-
looking macroeconomic factors and
valuation of collateral.
Due t
o 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;
• Tes
ting of relevant controls relating, among others, to the:
- data used to d
etermine 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.
• Tes
ting of a sample of loans and procedures to evaluate
among others:
- timely identification of loans 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
In addition, we assessed the disclosures in the consolidated
financial statements. Refer to Notes 3 and 62.3
for credit
impairment.
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, system
changes and transaction processing are 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 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
Deloitte's IT specialists were involved in the audit.
Íslandsbanki hf. Consolidated Financial Statements 2023
11
O
ther information
The Board of Directors and CEO are responsible for the other information. The other information comprises the unaudited highlights,
Directors' Report and unaudited Íslandsbanki's Corporate Governance Statement 2023 in appendix.
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 the other information is materially inconsistent with the Consolidated Financial Statements, or our knowledge obtained
in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information; we are required to report that fact. We have nothing to report in this regard.
In accordance with Paragraph 2 article 104 of the Act on Annual Accounts no. 3/2006, we confirm to the best of our knowledge that the
accompanying report of the Board of Directors includes all information required by the Icelandic Act on Annual Accounts that is not
disclosed elsewhere in the Consolidated Financial Statements.
Responsibilities of the Board of Directors and the CEO for the Consolidated Financial Statements
The Board of Directors and the CEO are responsible for the preparation and fair presentation of the Consolidated Financial Statements in
accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and additional requirements
in the Icelandic Act on Annual Accounts, Act on Financial Undertakings and rules on accounting for credit institutions, where applicable,
and for such internal control as the Board of Directors and the CEO determines is necessary to enable the preparation of Consolidated
Financial Statements that are free from material misstatement, whether due to fraud or error.
In preparing the Consolidated Financial Statements, the Board of Directors and the CEO are 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 the Board of Directors and the CEO either intends to liquidate the company or to cease operations, or has no realistic alternative
but to do so.
The Board of Directors shall supervise the preparation and presentation of the Consolidated Financial Statements.
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 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 scepticism 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
r
esulting 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
c
ircumstances, 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
i
n 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 and separate financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
Íslandsbanki hf. Consolidated Financial Statements 2023
12
We c
ommunicate 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.
In addition to our work as the auditors of Íslandsbanki hf., Deloitte has provided the bank with permitted non-audit services. Deloitte has
in place internal procedures in order to ensure its independence before acceptance of additional services. Deloitte has confirmed in writing
to the Audit Committee that we are independent of Íslandsbanki hf.
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 2023 with the file name "549300PZMFIQR79Q0T97-
2023- 12-31-en.zip" is prepared, in all material respects, in compliance with laws no. 20/2021 disclosure obligation of issuers of securities
and the obligation to flag relating to 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.
Management is responsible for preparing the Consolidated Financial Statements in compliance with laws 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 European single electronic format (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, the Consolidated Financial Statements of Íslandsbanki hf. for the year 2023 with the file name "549300PZMFIQR79Q0T97-
2023-12-31-en.zip" is prepared, in all material respects, in compliance with the ESEF Regulation.
Deloitte was appointed auditor of Íslandsbanki hf. by the general meeting of shareholders on 31 January 2024.
K
ópavogur, 8 February 2024
D
eloitte ehf.
__________________
___________
Geir Steindórsson
State Authorised Public Accountant
Íslandsbanki hf. Consolidated Financial Statements 2023
13
Notes 2023 2022
126,095 87,671
11,047 6,342
( 88,531) ( 50,887)
6 48,611 43,126
18,591 17,630
( 4,357) ( 3,577)
7 14,234 14,053
8 241 ( 1,257)
9 581 881
10 570 433
1,392 57
64,237 57,236
11 ( 15,003) ( 13,452)
12 ( 11,740) ( 10,166)
13 ( 860) ( 300)
- (
165)
( 1,871) ( 1,858)
( 29,474) ( 25,941)
34,763 31,295
14 ( 1,015) 1,576
33,748 32,871
15 ( 9,198) ( 8,485)
24,550 24,386
35 149
24,585 24,535
Earnings per share from continuing operations
Basic and diluted earnings per share attributable to
16 12.32 12.19
The notes on pages 20 to 86 are an integral part of these Consolidated Financial Statements.
shareholders of Íslandsbanki hf. (ISK) ...................................................................................................
*Comparative figures have been changed with immaterial effects. A provision of ISK 300 million recognised in the line item "Other
operating expenses" in the 2022 Consolidated Financial Statements was restated in the line item "Administrative fine".
Income tax expense ..............................................................................................................................
Profit for the year
Profit for the year from continuing operations
Discontinued operations held for sale, net of income tax .......................................................................
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* ....................................................................................................................
Administrative fine* ................................................................................................................................
Contribution to the Depositors' and Investors' Guarantee Fund .............................................................
Total operating income
Net interest income
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 ....................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
14
Amounts are in ISK million
2023 2022
24,585 24,535
( 4,203) 2,527
( 4,203) 2,527
1 2
1 2
( 4,202) 2,529
20,383 27,064
The notes on pages 20 to 86 are an integral part of these Consolidated Financial Statements.
Profit for the year ...................................................................................................................................
Items that will not be reclassified to the income statement
Consolidated Statement of Comprehensive Income
Items that may subsequently be reclassified to the income statement
Foreign currency translation ..................................................................................................................
Net gain (loss) on financial liabilities, net of tax .....................................................................................
Other comprehensive income (expense) for the year, net of tax
Comprehensive income for the year
Íslandsbanki hf. Consolidated Financial Statements 2023
15
Amounts are in ISK million
Notes 31.12.2023 31.12.2022
21 87,504 94,424
22 73,475 110,364
17 161,342 130,804
23 5,776 7,461
24 1,223,426 1,186,639
17 13,241 15,868
26 4,051 3,844
27 6,562 6,752
28 2,930 3,279
29 3,638 6,072
30 749 728
1,582,694 1,566,235
31 16,149 15,269
32 850,709 789,897
23 5,090 10,804
34 417,573 468,270
35 38,155 34,392
37 13,107 12,128
38 17,218 16,601
1,358,001 1,347,361
9,898 10,000
55,000 55,000
5,083 9,158
154,712 144,716
224,693 218,874
1,582,694 1,566,235
The notes on pages 20 to 86 are an integral part of these Consolidated Financial Statements.
Other liabilities ................................................................................................
Debt issued and other borrowed funds ............................................................
Total Liabilities
Liabilities
Investments in associates ...............................................................................
Property and equipment ..................................................................................
Intangible assets .............................................................................................
Shares and equity instruments ........................................................................
Equity
Tax liabilities ...................................................................................................
Subordinated loans .........................................................................................
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 ..........................................
Total Liabilities and Equity
Total Equity
Share capital ...................................................................................................
Share premium ...............................................................................................
Reserves .........................................................................................................
Retained earnings ...........................................................................................
Consolidated Statement of Financial Position
Cash and balances with Central Bank .............................................................
Assets
Bonds and debt instruments ...........................................................................
Loans to customers .........................................................................................
Derivatives ......................................................................................................
Loans to credit institutions ...............................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
16
Amounts are in ISK million
Foreign
Liability currency
Share Share Statutory
Restricted
credit translation Retained
Total
capital premium reserve reserves reserve reserve earnings
equity
Equity as at 1 January 2022 10,000 55,000 2,500 4,640 ( 1,054) - 132,624 203,710
Profit for the year ..................................................... 24,535 24,535
Net gain (loss) on financial liabilities, net of tax ........ 2,840 ( 313) 2,527
Foreign currency translation ..................................... 2 2
Comprehensive income for the year - - - - 2,840 2 24,222 27,064
Dividends paid ......................................................... ( 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
Equity as at 1 January 2023 10,000 55,000 2,500 4,870 1,786 2 144,716 218,874
Profit for the year ..................................................... 24,585 24,585
Net loss on financial liabilities, net of tax .................. ( 3,613) ( 590) ( 4,203)
Foreign currency translation ..................................... 1 1
Comprehensive income (expense) for the year - - - - ( 3,613) 1 23,995 20,383
Dividends paid ......................................................... ( 12,254) ( 12,254)
Purchase of treasury shares .................................... ( 102) ( 2,208) ( 2,310)
Restricted due to capitalised development costs ...... ( 290) 290 -
Restricted due to fair value changes ........................ ( 309) 309 -
Restricted due to associates .................................... 136 ( 136) -
Equity as at 31 December 2023 9,898 55,000 2,500 4,407 ( 1,827) 3 154,712 224,693
The notes on pages 20 to 86 are an integral part of these Consolidated Financial Statements.
Consolidated Statement of Changes in Equity
The Bank's authorised and issued share capital consists of 2,000 million ordinary shares with a par value of ISK 5 each. Íslandsbanki
bought back approximately 20.4 million own shares for ISK 2,310 million during 2023. As of 31 December 2023, the Bank's paid-up share
capital totalled ISK 65,000 million, and the total stated share capital amounted to ISK 64,898 million. The Bank has a single class of
ordinary shares that do not carry any rights to fixed income. The Annual General Meeting (AGM) for the 2022 operating year took place on
16 March 2023. During the AGM, shareholders approved the Board's proposal to distribute dividends of ISK 6.15 per share, totalling
approximately ISK 12,300 million (2022: ISK 5.95 per share). The dividends were paid on 27 March 2023.
Íslandsbanki hf. Consolidated Financial Statements 2023
17
Amounts are in ISK million
2023 2022
24,585 24,535
( 33,442) ( 39,076)
11,199 ( 57,031)
108,689 78,521
( 76,073) ( 42,172)
286 1,049
( 1,861) ( 1,683)
( 7,165) ( 3,582)
Net cash provided by (used in) operating activities 26,218 ( 39,439)
- ( 1,103)
374 35
( 311) ( 273)
( 385) ( 470)
Net cash used in investing activities ( 322) ( 1,811)
117,497 191,503
( 180,813) ( 129,448)
( 528) ( 472)
( 12,254) ( 11,900)
( 2,310) -
Net cash provided by (used in) financing activities ( 78,408) 49,683
( 52,512) 8,433
( 51) 5
139,035 130,597
Cash and cash equivalents at year-end 86,472 139,035
Reconciliation of cash and cash equivalents
Notes
21 3,653 3,563
21 64,025 80,866
22 18,794 54,606
Cash and cash equivalents at year-end 86,472 139,035
The notes on pages 20 to 86 are an integral part of these Consolidated Financial Statements.
*For further breakdown see the following page.
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's account and is available for the customer's
disposal.
Dividends paid ........................................................................................................................................
Net increase (decrease) in cash and cash equivalents ...........................................................................
Effects of foreign exchange rate changes ...............................................................................................
Purchase of treasury shares ...................................................................................................................
Cash and cash equivalents at the beginning of the year .........................................................................
Cash on hand ......................................................................................................................
Unrestricted balances with Central Bank .............................................................................
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 ............................................................................................
Consolidated Statement of Cash Flows
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** .........................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
18
Amounts are in ISK million
Consolidated Statement of Cash Flows
Non-cash items included in profit for the year
2023 2022
( 48,611) ( 43,126)
1,620 1,400
( 207) ( 198)
1,190 ( 1,430)
( 581) ( 881)
( 219) ( 19)
2,322 ( 5,115)
( 35) ( 149)
1,871 1,
858
9,
198 8,
485
10 99
To
tal ( 33,442) ( 39,076)
Changes in operating assets and liabilities
2023 2022
( 9,831) ( 738)
1,397 ( 32,284)
( 21,426) 4,557
( 23,058) ( 78,415)
2,540 13,313
2,442 ( 293)
23 ( 182)
888 1,546
63,077 41,048
( 5,590) ( 9,207)
737 3,624
Total 11,199 ( 57,031)
Significant non-cash transactions
The notes on pages 20 to 86 are an integral part of these Consolidated Financial Statements.
During the year the Group repurchased own debt securites amounting to ISK 8,094 million by issuing new debt.
Significant non-cash transactions 2022
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 ........................................................................................................................
Other liabilities ........................................................................................................................................
During the year the Group did not have any significant non-cash transactions.
Loans to credit institutions ......................................................................................................................
Foreign exchange gain ...........................................................................................................................
Net gain from sales of property and equipment ......................................................................................
Unrealised fair value gain (loss) 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 2023
Net impairment on financial assets .........................................................................................................
Net interest income ................................................................................................................................
Depreciation, amortisation, and write-offs ...............................................................................................
Share of profit and gain from sale of associates .....................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
19
Amounts are in ISK million
Notes to the Consolidated Financial Statements
Notes
Page
Notes
Page
General information
1 Corporate information ................................................. 21 28 Intangible assets ......................................................... 42
2 Basis of preparation .................................................... 21 29 Other assets ............................................................... 43
3 Significant accounting estimates and judgements ....... 21 30 Non-current assets and disposal gorups held for sale . 43
4 Changes to accounting policies ................................... 22 31 Deposits from Central Bank and credit institutions ...... 43
5 Operating segments .................................................... 23 32 Deposits from customers ............................................ 43
33 Pledged assets ........................................................... 44
Notes to the Consolidated Income Statement 34 Debt issued and other borrowed funds ........................ 44
6 Net interest income ..................................................... 27 35 Subordinated loans ..................................................... 45
7 Net fee and commission income ................................. 27 36 Changes in liabilities arising from financing activities .. 45
8 Net financial income (expense) ................................... 28 37 Tax assets and tax liabilities ....................................... 46
9 Net foreign exchange gain .......................................... 28 38 Other liabilities ............................................................ 47
10 Other operating income ............................................... 28
11 Personnel and salaries ................................................ 29 Other Notes
12 Other operating expenses ........................................... 31 39 Custody assets ........................................................... 47
13 Administrative fine ...................................................... 31 40 Leases ........................................................................ 48
14 Net impairment on financial assets ............................. 32 41 Íslandsbanki's shareholders ........................................ 49
15 Income tax expense .................................................... 32 42 Related party .............................................................. 50
16 Earnings per share ...................................................... 32 43 Provision and contingencies ....................................... 51
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 ........................................................ 33 45 Risk management ....................................................... 53
18-19
Fair value information for financial instruments ........... 34
46-50
Credit risk ................................................................... 54
20 Offsetting financial assets and financial liabilities ........ 37
51-53
Liquidity risk ................................................................ 61
21 Cash and balances with Central Bank ......................... 37
54-58
Market risk .................................................................. 65
22 Loans to credit institutions .......................................... 37
59-60
Capital management ................................................... 70
23 Derivative instruments and short positions .................. 38 61 Operational risk ........................................................... 72
24 Loans to customers .................................................... 39
25 Expected credit losses ................................................ 39 Accounting policies
26 Investments in associates ........................................... 41 62 Material accounting policies ........................................ 73
27 Property and equipment .............................................. 41
Íslandsbanki hf. Consolidated Financial Statements 2023
20
Notes to the Consolidated Financial Statements
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 2023 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 eight 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 8 February 2024. 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 2023 the
exchange rate of the ISK against the USD was 136.20 and for the EUR 150.50 (at year-end 2022: USD 142.04 and EUR 151.50).
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 debt 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.
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 source of estimation uncertainty is the allowance for credit losses.
Íslandsbanki hf. Consolidated Financial Statements 2023
21
Notes to the Consolidated Financial Statements
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 (SICR)
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
During the last quarter of 2023, the Group made temporary changes to the impairment model due to seismic activity on the Reykjanes
peninsula. 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 seismic activity created such circumstances for loans to individuals and small companies in the town of Grindavík, and
therefore adjustments were warranted. The adjustments include transferring exposures amounting to ISK 5.2 billion from Stage 1 to
Stage 2 and applying higher haircuts to the values of collateral for these exposures. In addition, a management overlay was applied to
the modelled ECL, resulting in a total additional impairment allowance of ISK 1.7 billion due to the seismic activity.
The All Risk Committee has decided to adjust the weights of the forward-looking scenarios to better reflect uncertainty in economic
conditions for borrowers and the ongoing uncertainty in global markets. The scenarios are usually weighted 25%-50%-25% (optimistic,
base, pessimistic), but it was decided to keep using 20%-50%-30% at year-end 2023, as it had been throughout the year. Management
used sensitivity analysis to determine the appropriate weights for the three scenarios. According to the analysis, a shift of 5% weight
from the baseline to the pessimistic scenario would increase the impairment allowance by ISK 320 million, while a 5% shift from the
baseline to the optimistic scenario would decrease the allowance by ISK 220 million.
The allowance for credit losses is further discussed in Notes 24-25, in Notes 46-50 on risk management and in Note 62.3.
4.
Changes to accounting policies
Amendments to IFRS standards that became effective from 1 January 2023 did not have a material impact on the Consolidated Financial
Statements.
Changes to IFRS standards issued but not effective at the reporting date
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.
Íslandsbanki hf. Consolidated Financial Statements 2023
22
Notes to the Consolidated Financial Statements
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 line
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 contact
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 debt 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 & Internal Services, Legal, Marketing & Communications, and Strategy &
Sustainability), Digital & Data, 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.
Íslandsbanki hf. Consolidated Financial Statements 2023
23
Notes to the Consolidated Financial Statements
5.
Corporate & Treasury & Subsidiaries,
2023 Personal Business Investment Proprietary Cost The Bank eliminations & The Group
Banking Banking Banking Trading centres total adjustments total
Net interest income (expense) ...................................................................... 17,410 17,980 13,854 ( 475) ( 365) 48,404 207 48,611
Net fee and commission income (expense) .................................................. 4,336 2,208 4,575 ( 8) ( 36) 11,075 3,159 14,234
Other net operating income ........................................................................... 70 90 1,284 565 374 2,383 ( 991) 1,
392
21,
816 20,278 19,713 82 ( 27) 61,
862 2,
375 64,237
Salaries and related expenses ...................................................................... ( 2,473) ( 2,161) ( 2,132) ( 272) ( 6,959) ( 13,997) ( 1,006) ( 15,003)
Other operating expenses ............................................................................. ( 2,592) ( 1,196) ( 1,061) ( 505) ( 5,579) ( 10,933) ( 807) ( 11,740)
Administrative fine ........................................................................................ - - - - ( 860) ( 860)
- (
860)
Bank tax ........................................................................................................ ( 838) ( 454) ( 489) ( 77) ( 13) ( 1,871)
- (
1,871)
Net impairment on financial assets ............................................................... ( 1,589) ( 669) 1,
163 80 - (
1,015)
- (
1,015)
Cost allocation .............................................................................................. ( 5,225) ( 4,058) ( 3,569)
581 12,
271 - - -
Profit (loss) before tax ................................................................................... 9,099 11,740 13,625 ( 111) ( 1,167) 33,186 562 33,748
Income tax income (expense) ....................................................................... ( 2,584) ( 3,170) ( 3,660) 203
291 (
8,920) ( 278) ( 9,198)
Profit (loss) for the year from continuing operations 6,515 8,570 9,965 92 ( 876) 24,
266 284 24,
550
Net segment revenue from external customers ............................................. 29,266 22,829 29,448 ( 19,989) 308 61,862 2,375 64,237
Net segment revenue from other segments ..................................................
( 7,450) ( 2,551) ( 9,735) 20,071 ( 335) - - -
Fee and commission income ........................................................................ 8,116 2,262 4,648 401
- 15,427 3,
164 18,591
Depreciation, amortisation, and write-offs ..................................................... ( 179) ( 57) ( 2)
- (
1,368) ( 1,606) ( 14) ( 1,620)
At 31 December 2023
Loans to customers ...................................................................................... 574,653 311,689 336,161 923
- 1,
223,
426 - 1,
223,
426
O
ther assets ................................................................................................. 3,176 2,210 889 343,823 8,716 358,
814 454 359,268
Total segment assets 577,829 313,899 337,050 344,746 8,716 1,582,240 454 1,582,694
Deposits from customers .............................................................................. 406,821 251,238 172,658 22,957
- 853,674 (
2,965) 850,709
Other liabilities .............................................................................................. 3,720 3,828 5,370 487,357 5,768 506,043 1,249 507,292
Total segment liabilities 410,541 255,066 178,028 510,314 5,768 1,359,717 ( 1,716) 1,358,001
Allocated equity ............................................................................................ 41,160 47,210 63,033 69,975 1,145 222,523 2,170 224,693
Risk exposure amount .................................................................................. 260,760 291,509 366,761 48,148 6,930 974,108 2,924 977,032
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)
Total operating income
Íslandsbanki hf. Consolidated Financial Statements 2023
24
Amounts are in ISK million
Notes to the Consolidated Financial Statements
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 ( 402) 149 1,480 ( 1,423) 57
19,741 16,757 16,966 2,216 ( 112) 55,568 1,668 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) ( 4,598) ( 9,554) ( 612) ( 10,166)
Administrative fine ........................................................................................ - - - - ( 300) ( 300) - ( 300)
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 - - -
Profit (loss) before tax ................................................................................... 8,918 10,710 10,811 2,578 ( 368) 32,649 222 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 2,686 ( 276) 24,484 ( 98) 24,386
Net segment revenue from external customers .............................................
33,261 18,158 23,790 ( 19,722) 81 55,568 1,668 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
Comparative figures have been changed with immaterial effects.
Operating segments (continued)
Total operating income
Íslandsbanki hf. Consolidated Financial Statements 2023
25
Amounts are in ISK million
Notes to the Consolidated Financial Statements
5.
Subsidiaries, eliminations & adjustments
2023 Íslands- Allianz Other Eliminations
sjóðir hf. Ísland hf. subsidiaries & adjustments Total
Net interest income .................................................................... 11 105 89 2 207
Net fee and commission income (expense) ............................... 1,465 1,651 ( 30) 73 3,159
Other net operating income ....................................................... 74 ( 2) 295 ( 1,358) ( 991)
Total operating income 1,550 1,754 354 ( 1,283) 2,375
Salaries and related expenses ................................................... ( 686) ( 249) ( 71) - ( 1,006)
Other operating expenses .......................................................... ( 222) ( 828) ( 273) 516 ( 807)
Profit (loss) before tax ................................................................ 642 677 10 ( 767) 562
Income tax expense ................................................................... ( 128) ( 150) - - ( 278)
Profit (loss) for the year from continuing operations 514 527 10 ( 767) 284
Net segment revenue from external customers .......................... 1,860 1,721 7 ( 1,213) 2,375
Net segment revenue from other segments ............................... ( 310) 33 347 ( 70) -
Fee and commission income ..................................................... 2,021 1,651 - ( 508) 3,164
Depreciation, amortisation, and write-offs .................................. - ( 2) ( 3) ( 9) ( 14)
At 31 December 2023
Total assets ............................................................................... 2,284 2,330 5,517 ( 9,677) 454
Total liabilities ............................................................................ 292 879 100 ( 2,987) ( 1,716)
Total equity ................................................................................ 1,992 1,451 5,417 ( 6,690) 2,170
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 ( 1,649)
( 1,423)
Total operating income 1,581 1,606 292 ( 1,811) 1,668
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 ( 1,389) 222
Income tax expense ( 178) ( 142) - - ( 320)
Profit (loss) for the year from continuing operations 625 653 13 ( 1,389) ( 98)
Net segment revenue from external customers .......................... 1,855 1,479 11 ( 1,677) 1,668
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
Comparative figures have been changed with immaterial effects.
Operating segments (continued)
Íslandsbanki hf. Consolidated Financial Statements 2023
26
Amounts are in ISK million
Notes to the Consolidated Financial Statements
6. Net interest income
2023 2022
5,389 2,791
3,236 757
117,470 84,123
11,035 6,335
12 7
Interest income 137,142 94,013
( 243) ( 364)
( 50,073) ( 23,049)
( 2,470) ( 578)
( 25,829) ( 21,709)
( 3,214) ( 1,538)
( 79) ( 82)
( 6,623) ( 3,567)
Interest expense ( 88,531) ( 50,887)
Net interest income 48,611 43,126
7. Net fee and commission income
2023 2022
2,908 3,154
3,340 3,627
8,072 6,774
2,251 2,350
2,020 1,725
Fee and commission income 18,591 17,630
( 496) ( 484)
( 3,847) ( 2,999)
( 14) ( 94)
Fee and commission expense ( 4,357) ( 3,577)
Net fee and commission income 14,234 14,053
Fee and commission income by segment is disclosed in Note 5.
Investment banking and brokerage .................................................................................................................
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 ................................................................................................................................................
Payment processing ........................................................................................................................................
Brokerage ........................................................................................................................................................
Loans and guarantees .....................................................................................................................................
Other fee and commission income ..................................................................................................................
Other fee and commission expense ................................................................................................................
Clearing and settlement ..................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
27
Amounts are in ISK million
Notes to the Consolidated Financial Statements
8.
Net financial income (expense)
2023 2022
2,610 ( 6,121)
( 2,511) 4,512
42 ( 56)
170 408
( 70) -
Net financial income (expense) 241 ( 1,257)
2023 2022
( 1,062) ( 2,735)
( 537) ( 1,051)
286 1,049
1,083 754
541 726
( 70) -
Net financial income (expense) 241 ( 1,257)
9. Net foreign exchange gain
2023 2022
( 51) 5
( 5,524) 11,647
( 2,153) ( 1,078)
( 1) ( 11)
Net foreign exchange gain (loss) for assets ( 7,729) 10,563
2,599 ( 4,782)
375 ( 1,317)
4,444 ( 5,677)
892 2,094
Net foreign exchange gain (loss) for liabilities 8,310 ( 9,682)
Net foreign exchange gain 581 881
10. Other operating income
2023 2022
- 158
207 40
219 12
54 45
63 44
27 134
Other operating income 570 433
Rental income .................................................................................................................................................
The following table shows the categorisation of the net financial income (expense) by type.
Debt issued and other borrowed funds at amortised cost ................................................................................
Subordinated loans .........................................................................................................................................
Net loss on bonds and related derivatives .......................................................................................................
Deposits ..........................................................................................................................................................
Debt issued and other borrowed funds designated as at fair value through profit or loss .................................
Net loss on shares and related derivatives ......................................................................................................
Net gain on debt issued and related derivatives ..............................................................................................
Net gain (loss) on fair value hedges ................................................................................................................
Legal fees .......................................................................................................................................................
Net gain (loss) on financial assets and financial liabilities mandatorily at FVTPL .............................................
Net gain (loss) on financial liabilities designated as at FVTPL .........................................................................
Net gain on derecognition of financial liabilities measured at amortised cost ...................................................
Net gain on economic hedging and other derivatives .....................................................................................
Net loss on derecognition of financial assets measured at amortised cost ......................................................
Net loss on derecognition of financial assets measured at amortised cost ......................................................
Dividend income ..............................................................................................................................................
Other net operating income .............................................................................................................................
Cash and balances with Central Bank .............................................................................................................
Loans at amortised cost ..................................................................................................................................
Financial assets mandatorily at fair value through profit or loss .......................................................................
Other assets ....................................................................................................................................................
Share of profit of associates, net of income tax ...............................................................................................
Net gain from sale of associates .....................................................................................................................
Gain from sales of property and equipment .....................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
28
Amounts are in ISK million
Notes to the Consolidated Financial Statements
11.
Personnel and salaries
2023 2022
11,545 10,332
1,734 1,594
1,591 1,423
133 103
Salaries and related expenses 15,003 13,452
The Bank The Group The Bank The Group
731 770 730 772
725 764 700 739
5.7 -
4.4 -
6.8 -
9.6 9.0
3.8 -
4.1 -
9.6 8.9
8.3 9.5
7.5 8.9
5.1 6.4
3.4 -
2.4 2.5
2.1 6.4
- 3.6
- 7.6
- 2.2
- 2.3
0.3 0.6
Total salaries 73.1 67.9
Positions at year-end .................................................................................................
Jökull H. Úlfsson, former member of the Board ...............................................................................................
Árni Stefánsson, former member of the Board ................................................................................................
Average number of employees ...................................................................................
Ari Daníelsson, former member of the Board ..................................................................................................
Herdís Gunnarsdóttir, former member of the Board .........................................................................................
Tanya Sharov, former member of the Board ...................................................................................................
Salaries ...........................................................................................................................................................
Contributions to pension funds ........................................................................................................................
2023
2022
2023
2022
Social security charges and financial activities tax* .........................................................................................
Frosti Ólafsson, member of the Board .............................................................................................................
Other salary-related expenses .........................................................................................................................
*Financial activities tax calculated on salaries is 5.5% in 2023 (2022: 5.5%).
Finnur Árnason, former Chairman of the Board ...............................................................................................
Guðrún Þorgeirsdóttir, former Vice-Chairman of the Board .............................................................................
Heiðrún Jónsdóttir, former Vice-Chairman of the Board ..................................................................................
Anna Þórðardóttir, member of the Board .........................................................................................................
Hallgrímur Snorrason, former Chairman of the Board ......................................................................................
Total amount of paid compensation for the Board of Directors, the CEO, and the Executive Committee is specified as follows:
Alternate board members ................................................................................................................................
Contribution to pension funds for the Board of Directors amounted to ISK 9.8 million in 2023 (2022: ISK 9.2 million).
Agnar Tómas Möller, member of the Board .....................................................................................................
Valgerður Hrund Skúladóttir, former member of the Board ..............................................................................
Linda Jónsdóttir, Chairman of the Board .........................................................................................................
Stefán Pétursson, Vice-Chairman of the Board ...............................................................................................
Haukur Örn Birgisson, member of the Board ...................................................................................................
Helga Hlín Hákonardóttir, member of the Board ..............................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
29
Amounts are in ISK million
Notes to the Consolidated Financial Statements
11. Personnel and salaries (continued)
Total
salaries
Pension
funds
contrib.
Total
salaries
Pension
funds
contrib.
50.5 7.2 46.9 6.6
41.6 5.9 39.8 5.6
44.9 6.7 42.7 6.4
44.9 6.4 42.9 6.1
22.6 4.0 - -
6.3 0.9 - -
48.5 6.9 41.1 5.7
29.7 6.4 48.3 11.5
24.0 3.3 47.0 6.7
Total 313.0 47.7 308.7 48.6
Jón Guðni Ómarsson, CEO* ......................................................................................
Riaan Dreyer, Managing Director of Digital & Data .....................................................
Sigríður Hrefna Hrafnkelsdóttir, former Managing Director** ......................................
****Ásmundur Tryggvason stepped down as Managing Director of Corporate & Investment Banking as of 1 July 2023. His resignation
agreement is in compliance with the underlying employment agreement, in accordance with the Bank's remuneration policy, as
approved at the latest AGM, and the current Act on Financial Undertakings. The employment agreement stipulated a notice period of
twelve months and wages and benefits for the period amount to ISK 46.1 million. The former Managing Director also maintains all
rights regarding leave and pension during that period. Other provisions are standardised and in accordance with the employment
agreement and relevant collective wage agreements. The Bank expensed ISK 63.4 million in salaries and related expenses relating to
the agreement in the third quarter of 2023. Included in salaries for the year 2022 is an employment anniversary payment. The payment
is in accordance with the collective agreement of the Confederation of Icelandic Bank and Finance Employees (SSF).
Ásmundur Tryggvason, former Managing Director**** ................................................
Guðmundur Kristinn Birgisson, Chief Risk Officer ......................................................
Included in total salaries are non-monetary benefits such as the use of cars owned by the Group.
***Birna Einarsdóttir and the Board of Directors of Íslandsbanki reached an agreement on the terms of her resignation as CEO of
Íslandsbanki as of 28 June 2023. The agreement concluded with the former CEO is in compliance with the underlying employment
agreement, in accordance with the Bank's remuneration policy, as approved at the latest AGM, and the current Act on Financial
Undertakings. The employment agreement stipulated a notice period of twelve months and wages and benefits for the period amount
to ISK 56.6 million. The former CEO also maintains all rights regarding leave and pension during that period. Other provisions are
standardised and in accordance with the employment agreement and relevant collective wage agreements. The Bank expensed ISK
82.6 million in salaries and related expenses relating to the agreement in the second quarter of 2023.
Una Steinsdóttir, Managing Director of Business Banking ..........................................
2023
Kristín Hrönn Guðmundsdóttir, Managing Director of C&I Banking** ..........................
Birna Einarsdóttir, former CEO*** ...............................................................................
*Jón Guðni Ómarsson was appointed CEO by the Bank's Board of Directors on 28 June 2023, succeeding Birna Einarsdóttir. Jón
Guðni has been with the Bank and its predecessors from the year 2000 and served as CFO from 2011 until year-end 2023. Included in
salaries for the year 2022 is an employment anniversary payment. The payment is in accordance with the collective agreement of the
Confederation of Icelandic Bank and Finance Employees (SSF).
Barbara Inga Albertsdóttir, Chief Compliance Officer** ..............................................
**On 1 July 2023 Kristín Hrönn Guðmundsdóttir was appointed Managing Director of Corporate & Investment Banking. On 1 November
2023 Barbara Inga Albertsdóttir was appointed Chief Compliance Officer. Sigríður Hrefna Hrafnkelsdóttir decided to resign her position
as Managing Director of Personal Banking at the end of the year. A settlement of accrued holiday pay is included in the salaries of
Sigríður Hrefna for the year 2023.
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
2023 there were no paid performance-based salaries (2022: none) and there were no unpaid performance-based salaries at year-end
2023. There were no share-based payments in the years 2023 and 2022.
2022
Íslandsbanki hf. Consolidated Financial Statements 2023
30
Amounts are in ISK million
Notes to the Consolidated Financial Statements
12.
Other operating expenses
2023 2022
2,593 1,986
4,733 4,389
654 565
1,620 1,400
2,140 1,826
Other operating expenses 11,740 10,166
Auditors' fees
105 81
22 20
10 7
Auditors' fees 137 108
13.
Administrative fine
Software and IT expenses ...............................................................................................................................
Real estate and office equipment ....................................................................................................................
The Settlement Agreement provides that the Bank admits, that in the preparation and execution of the Offering, it did not comply with
applicable legal requirements and internal rules of the Bank on the provision of investment services, particularly in relation with
recording of telephone communications, provision of information to clients in the Offering, investor classification requirements, and
measures to prevent conflicts of interest e.g., segregation of duties and employees' transactions. The Settlement Agreement states
that the Bank's implementation of corporate governance and internal controls as well as a risk-based approach to supervision of
recordings of telephone communications were insufficient. Furthermore, the Settlement Agreement states that the Bank should have
carried out a separate risk assessment regarding its role in the Offering. The Settlement Agreement also states that in provision of
investment services in connection with the Offering the Bank did not, in all respects, satisfy its obligation to act honestly, fairly, and
professionally and to promote market integrity.
Under the terms of the Settlement Agreement, the Bank agreed to pay a fine in the amount of ISK 1,160 million and admitted to having
violated certain provisions of the Act on Markets in Financial Instruments no. 115/2021 and the Act on Financial Undertakings no.
161/2002 in connection with the Offering. Furthermore, the Bank undertook to carry out certain remedial measures within a specified
period. The Bank's Chief Audit Executive reviewed the improvements and confirmed in an audit that the remedial requirements had
been adequately met before 1 October 2023. The audit was confirmed by the Bank's Board at the end of October 2023 and sent to the
FSA.
The Bank recognised a provision of ISK 300 million in connection with the preliminary findings from the FSA's inspection into the
execution of the Offering in the 2022 Consolidated Financial Statements and in the second quarter of 2023 a charge of ISK 860 million
was recorded in relation to this matter.
Birna Einarsdóttir and the Board of Directors of Íslandsbanki reached an agreement on the terms of her resignation as CEO of
Íslandsbanki as of 28 June 2023. Jón Guðni Ómarsson, who served as CFO from 2011, was appointed CEO. Ellert Hlöðversson was
appointed CFO of Íslandsbanki on 16 October 2023 and assumed the role as of 1 January 2024. On 1 July 2023 Kristín Hrönn
Guðmundsdóttir was appointed Managing Director of Corporate & Investment Banking, taking over from Ásmundur Tryggvason who
stepped down. For further information see Note 11.
A shareholder meeting was held on 28 July 2023 to address the Settlement Agreement and the Bank's reaction thereto, and to carry
out an election of members to the Board of Directors of the Bank, alternate directors, and the Chairman of the Board. Linda Jónsdóttir
was elected the Chairman of the Board of Directors. For further information on changes to the Board of Directors see Note 42.
Review of interim financial statements ............................................................................................................
Other administrative expenses* .......................................................................................................................
Audit of the financial statements ......................................................................................................................
Other services .................................................................................................................................................
At year-end 2022, Íslandsbanki 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 share capital of
Íslandsbanki that took place in March 2022 (the Offering). On 22 June 2023 the Bank announced that the Board of Directors accepted
the FSA's offer to conclude the matter with a settlement agreement (the Settlement Agreement).
Depreciation, amortisation, and write-offs ........................................................................................................
*Comparative figures have been changed with immaterial effects. A provision of ISK 300 million recognised in the line item "Other
operating expenses" in the 2022 Consolidated Financial Statements was restated in the line item "Administrative fine".
Professional services ......................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
31
Amounts are in ISK million
Notes to the Consolidated Financial Statements
14.
Net impairment on financial assets
2023 2022
( 1,168) 1,837
153 ( 336)
- 75
Net impairment on financial assets ( 1,015) 1,576
15. Income tax expense
2023 2022
7,548 5,659
2,083 1,396
( 191) ( 472)
( 242) 1,902
Income tax recognised in the income statement 9,198 8,485
Income tax recognised in other comprehensive income ( 173) ( 110)
2023 2022
33,748 32,871
6,750 20.0% 6,574 20.0%
2,083 6.2% 1,396 4.2%
- 0.0% 150 0.5%
( 191) ( 0.6%) ( 472) ( 1.4%)
( 98) ( 0.3%) ( 386) ( 1.2%)
666 2.0% 1,210 3.7%
( 12) 0.0% 13 0.0%
Effective income tax expense 9,198 27.3% 8,485 25.8%
16. Earnings per share
2023 2022 2023 2022 2023 2022
24,550 24,386 35 149 24,585 24,535
1,992 2,000 1,992 2,000 1,992 2,000
Basic earnings per share (ISK) 12.32 12.19 0.02 0.07 12.34 12.27
Special financial activities tax ..........................................................................................................................
Adjustments in prior year's calculated income tax ...........................................................................................
Changes in deferred tax assets and deferred tax liabilities ..............................................................................
Net change in expected credit losses, off-balance sheet items ........................................................................
Recognised income tax is based on applicable tax laws. The income tax rate for legal entities in 2023 is 20% (2022: 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 2023 is 27.3% (2022: 25.8%).
Changes in provision due to court rulings ........................................................................................................
Net change in expected credit losses, on-balance sheet items ........................................................................
Profit attributable to shareholders of the Bank .........................
Weighted average number of outstanding shares ....................
Continued
operations
Profit before tax ..........................................................................................................
20% income tax calculated on the profit for the year ..................................................
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 ...........................................................................................
Other differences .......................................................................................................
Profit for
the year
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 (2022: none).
Discontinued
operations
The Bank is taxed jointly with its subsidiary Íslandssjóðir hf. (Iceland Funds).
Current tax expense excluding discontinued operations ..................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
32
Amounts are in ISK million
Notes to the Consolidated Financial Statements
17. Classification of financial assets and financial liabilities
At 31 December 2023 Mandatorily Hedge Designated Amortised Carrying
at FVTPL accounting as at FVTPL cost amount
- - - 87,504 87,504
- - - 73,475 73,475
157,592 - - - 157,592
3,750 - - - 3,750
- - - - -
5,776 - - - 5,776
- - - 1,223,426 1,223,426
2,342 - - - 2,342
8,997 - - - 8,997
1,902 - - - 1,902
- - - 2,846 2,846
Total financial assets 180,359 - - 1,387,251 1,567,610
- - - 16,149 16,149
- - - 850,709 850,709
5,051 39 - - 5,090
- 45,126 92,645 279,802 417,573
- - - 38,155 38,155
- - - 8,879 8,879
Total financial liabilities 5,051 45,165 92,645 1,193,694 1,336,555
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
Deposits from Central Bank and credit institutions .........................................
Other financial assets .....................................................................................
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 ....................
Listed shares and equity instruments used for economic hedging ................
Unlisted shares and equity instruments .........................................................
Derivatives ......................................................................................................
Loans to customers ........................................................................................
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 ......................................................................................................
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 .........................................................................................
Listed shares and equity instruments .............................................................
Deposits from customers ...............................................................................
Derivative instruments and short positions ....................................................
Debt issued and other borrowed funds ..........................................................
Loans to customers ........................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
33
Amounts are in ISK million
Notes to the Consolidated Financial Statements
18. Fair value information for financial instruments
At 31 December 2023 Level 1 Level 2 Level 3 Total
161,342 - - 161,342
- 5,776 - 5,776
11,339 - 1,902 13,241
172,681 5,776 1,902 180,359
640 - - 640
- 4,450 - 4,450
92,645 - - 92,645
93,285 4,450 - 97,735
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
Bonds and
debt
instruments
Shares and
equity
instruments
2,032 2,245
( 2,188) ( 380)
- 52
156 ( 15)
- 1,902
Fair value at 31 December 2023
Derivatives ...........................................................................................................................
Shares and equity instruments ............................................................................................
Total financial assets
Total financial assets
Total financial liabilities
Derivative instruments .........................................................................................................
Purchases and share capitalisation increase .................................................................................................................
Sales and share capitalisation decrease ........................................................................................................................
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 2023 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.
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).
Short positions .....................................................................................................................
Shares and equity instruments ............................................................................................
Derivative instruments .........................................................................................................
Short positions .....................................................................................................................
Level 3: Valuation techniques based on significant unobservable inputs, e.g. internal assumptions.
Bonds and debt instruments ................................................................................................
Derivatives ...........................................................................................................................
Bonds and debt instruments ................................................................................................
Net gain (loss) on financial instruments recognised in profit or loss
Total financial liabilities
Debt issued and other borrowed funds designated as at FVTPL ........................................
Debt issued and other borrowed funds designated as at FVTPL ........................................
Financial instruments carried at fair value
Changes in Level 3 assets measured at fair value
Fair value at 1 January 2023 ..........................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
34
Amounts are in ISK million
Notes to the Consolidated Financial Statements
18.
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
31.12.2023 31.12.2022
904 1,936
217 1,119
( 187) ( 109)
( 217) ( 224)
Transfers to associates ..................................................................................................................................................
Fair value at 1 January 2022 ..........................................................................................................................................
Purchases ......................................................................................................................................................................
Sales and share capital reduction ..................................................................................................................................
Net gain on financial instruments recognised in profit or loss ........................................................................................
Fair value information for financial instruments (continued)
Transfers to Level 1 or 2 ................................................................................................................................................
Fair value at 31 December 2022
At 31 December 2023 the Group's Level 3 shares amounted to ISK 1,902 million:
- These include shares in five professional investment funds and investment companies investing in unlisted shares and
specialised investments in Iceland totalling ISK 1,636 million. The Group receives information from fund managers who
use valuation models for the valuation of these shares.
The following table illustrates how profit before tax would have been affected if one or more of the inputs for the fair value measurement were
changed for Level 3 assets that are highly sensitive to changes in fair value measurement inputs.
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.
Very favourable ..............................................................................................................................................................
Favourable .....................................................................................................................................................................
Unfavourable ..................................................................................................................................................................
Very unfavourable ..........................................................................................................................................................
- Other Level 3 shares amounted to ISK 266 million.
Íslandsbanki hf. Consolidated Financial Statements 2023
35
Amounts are in ISK million
Notes to the Consolidated Financial Statements
19.
Total fair Carrying
At 31 December 2023 Level 1 Level 2 Level 3 value amount
- 87,504 - 87,504 87,504
- 73,475 - 73,475 73,475
- - 1,207,465 1,207,465 1,223,426
- 2,846 - 2,846 2,846
Total financial assets - 163,825 1,207,465 1,371,290 1,387,251
- 16,148 - 16,148 16,149
- 850,729 - 850,729 850,709
244,967 28,077 - 273,044 279,802
37,414 - - 37,414 38,155
- 8,879 - 8,879 8,879
Total financial liabilities 282,381 903,833 - 1,186,214 1,193,694
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
215,189 113,950 - 329,139 335,254
- 36,070 - 36,070 34,392
- 11,329 - 11,329 11,329
Total financial liabilities 215,189 966,395 - 1,181,584 1,186,141
Loans to customers ........................................................................................
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 ...............................................................................
Debt issued and other borrowed funds* .........................................................
Subordinated loans .........................................................................................
Other financial liabilities ..................................................................................
*Comparative figures have been changed with immaterial effects.
Subordinated loans .........................................................................................
Loans to credit institutions ..............................................................................
Cash and balances with Central Bank ...........................................................
Loans to credit institutions ..............................................................................
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.
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.
Deposits from Central Bank and credit institutions .........................................
Other financial assets .....................................................................................
Financial instruments not carried at fair value
Assets
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.
Cash and balances with Central Bank ...........................................................
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
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.
Íslandsbanki hf. Consolidated Financial Statements 2023
36
Amounts are in ISK million
Notes to the Consolidated Financial Statements
20.
Offsetting financial assets and financial liabilities
Derivatives
31.12.2023 31.12.2022
5,776 7,461
( 4,404) ( 6,382)
( 715) ( 856)
( 3,589) ( 4,962)
( 100) ( 564)
Net amount after consideration of potential effect of netting arrangements 1,372 1,079
Derivative instruments and short positions
31.12.2023 31.12.2022
5,090 10,804
( 2,794) ( 7,486)
( 715) ( 856)
( 2,079) ( 6,630)
Net amount after consideration of potential effect of netting arrangements 2,296 3,318
21. Cash and balances with Central Bank
31.12.2023 31.12.2022
3,653 3,563
64,025 80,866
Cash and unrestricted balances with Central Bank 67,678 84,429
484 483
19,342 9,512
Cash and balances with Central Bank 87,504 94,424
22. Loans to credit institutions
31.12.2023 31.12.2022
53,882 55,742
18,794 54,606
799 16
Loans to credit institutions 73,475 110,364
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.
- Financial assets ..........................................................................................................................................................
- Cash collateral pledged ...............................................................................................................................................
Cash on hand .................................................................................................................................................................
Bank accounts ................................................................................................................................................................
Other loans .....................................................................................................................................................................
Unrestricted balances with Central Bank .......................................................................................................................
Mandatory reserve deposits with Central Bank ..............................................................................................................
Money market loans .......................................................................................................................................................
At 31 December 2023, and at year-end 2022, no netting occurred between financial assets and liabilities subject to enforceable master netting
agreements and comparable arrangements, resulting in no offsetting.
Net financial assets ........................................................................................................................................................
Amounts not set off but subject to master netting arrangements and similar agreements ............................................
- Financial liabilities .......................................................................................................................................................
- Cash collateral received ..............................................................................................................................................
- Financial instruments collateral received ....................................................................................................................
Net financial liabilities .....................................................................................................................................................
Amounts not set off but subject to master netting arrangements and similar agreements ............................................
Balances pledged as collateral to Central Bank .............................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
37
Amounts are in ISK million
Notes to the Consolidated Financial Statements
23.
Derivative instruments and short positions
At 31 December 2023
Assets Liabilities
3,028 79,824 2,587 106,045
1,066 22,028 53 4,587
350 1,463 494 7,507
300 16,824 397 17,052
888 32,776 891 42,192
144 2,273 28 2,208
Derivatives 5,776 155,188 4,450 179,591
- - 640 663
Total 5,776 155,188 5,090 180,254
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
Short positions in listed bonds .............................................................................................
Foreign exchange forwards .................................................................................................
Interest rate swaps ..............................................................................................................
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 2023 the total fair value of the interest rate
swaps in the hedging relationship was negative and amounted to ISK 39 million (2022: negative ISK 1,596 million) and their total notional
amount was ISK 45,150 million (2022: ISK 90,900 million).
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.
Short positions in listed bonds .............................................................................................
Bond forwards .....................................................................................................................
Bond forwards .....................................................................................................................
Notional
values
related to
assets
Foreign exchange swaps ....................................................................................................
Notional
values
related to
liabilities
Cross-currency interest rate swaps .....................................................................................
Equity forwards ....................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
38
Amounts are in ISK million
Notes to the Consolidated Financial Statements
24.
Loans to customers
Net
At 31 December 2023 carrying
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 amount
580,591 11,117 6,483 ( 1,407) ( 1,539) ( 614) 594,631
167,219 14,416 3,335 ( 1,000) ( 538) ( 624) 182,808
77,720 2,986 402 ( 833) ( 118) ( 58) 80,099
7,624 393 - ( 67) ( 12) - 7,938
214 - 1 ( 1) - - 214
67,612 1,869 9,156 ( 225) ( 69) ( 2,541) 75,802
41,219 5,131 345 ( 639) ( 81) ( 44) 45,931
18,466 30 4 ( 16) ( 7) ( 1) 18,476
138,571 4,252 2,529 ( 496) ( 355) ( 328) 144,173
73,259 193 17 ( 104) ( 8) ( 3) 73,354
Loans to customers 1,172,495 40,387 22,272 ( 4,788) ( 2,727) ( 4,213) 1,223,426
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
25. Expected credit losses
Total allowances for expected credit losses
Stage 1 Stage 2 Stage 3 Total
18 - - 18
90 - - 90
4,788 2,727 4,213 11,728
4 4 - 8
916 106 162 1,184
At 31 December 2023 5,816 2,837 4,375 13,028
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
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 .........................................................
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 ................................................................................
Gross carrying amount
Expected credit losses
Individuals ....................................................................
Seafood ........................................................................
Loans to customers .............................................................................................................
Loans to credit institutions ...................................................................................................
Commerce and services ..............................................
Construction .................................................................
Off-balance sheet loan commitments and financial guarantees .........................................
Other financial assets ..........................................................................................................
Energy ..........................................................................
Financial services .........................................................
Industrial and transportation .........................................
Seafood ........................................................................
Investment companies .................................................
Off-balance sheet loan commitments and financial guarantees .........................................
Íslandsbanki hf. Consolidated Financial Statements 2023
39
Amounts are in ISK million
Notes to the Consolidated Financial Statements
25.
Expected credit losses (continued)
Loans to customers
Stage 1 Stage 2 Stage 3 Total
4,636 2,235 4,261 11,132
1,747 ( 1,505) ( 242) -
( 893) 1,076 ( 183) -
( 173) ( 454) 627 -
( 2,998) 1,213 374 ( 1,411)
3,278 292 1,010 4,580
( 809) ( 129) ( 1,031) ( 1,969)
- ( 1) ( 1,014) ( 1,015)
- - 160 160
- - ( 62) ( 62)
- - 313 313
At 31 December 2023 4,788 2,727 4,213 11,728
3,830 3,804 5,931 13,565
2,028 ( 1,743) ( 285) -
( 491) 936 ( 445) -
( 117) ( 460) 577 -
( 3,196) ( 308) ( 1,615) ( 5,119)
3,425 1,742 1,341 6,508
( 842) ( 1,736) ( 605) ( 3,183)
( 1) - ( 1,079) ( 1,080)
- - 146 146
- - ( 115) ( 115)
- - 410 410
At 31 December 2022 4,636 2,235 4,261 11,132
Off-balance sheet loan commitments and financial guarantees
Stage 1 Stage 2 Stage 3 Total
869 242 227 1,338
491 ( 373) ( 118) -
( 112) 146 ( 34) -
( 15) ( 13) 28 -
( 742) 124 353 ( 265)
693 74 59 826
( 268) ( 94)
( 353) ( 715)
At 31 December 2023 916 106 162 1,184
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
New loan commitments and financial guarantees ...............................................................
Transfer to Stage 3 ..............................................................................................................
At 1 January 2023 ...............................................................................................................
At 1 January 2022 ...............................................................................................................
Transfer to Stage 1 ..............................................................................................................
Derecognitions and maturities .............................................................................................
Transfer to Stage 2 ..............................................................................................................
New loan commitments and financial guarantees ...............................................................
Derecognitions and maturities .............................................................................................
Transfer to Stage 2 ..............................................................................................................
Transfer to Stage 3 ..............................................................................................................
Net remeasurement of loss allowance ................................................................................
Net remeasurement of loss allowance ................................................................................
Transfer to Stage 1 ..............................................................................................................
Unwinding of interest ...........................................................................................................
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 956 million were written off but are still subject to enforcement activity.
**During the year financial assets amounting to ISK 570 million were written off but are still subject to enforcement activity.
Foreign exchange ................................................................................................................
Foreign exchange ................................................................................................................
Recoveries of amounts previously written off ......................................................................
Transfer to Stage 2 ..............................................................................................................
Unwinding of interest ...........................................................................................................
At 1 January 2022 ...............................................................................................................
*Comparative figures have been changed with immaterial effects.
Net remeasurement of loss allowance* ...............................................................................
Write-offs** ..........................................................................................................................
Derecognitions and maturities* ...........................................................................................
New financial assets originated or purchased* ...................................................................
Transfer to Stage 1 ..............................................................................................................
Transfer to Stage 3 ..............................................................................................................
Net remeasurement of loss allowance ................................................................................
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 2023 ...............................................................................................................
Transfer to Stage 1 ..............................................................................................................
Transfer to Stage 2 ..............................................................................................................
Transfer to Stage 3 ..............................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
40
Amounts are in ISK million
Notes to the Consolidated Financial Statements
26.
Investments in associates
31.12.2023 31.12.2022
Iceland 30.1% 30.1%
Iceland 43.3% 43.3%
2023 2022
3,844 939
- 1,328
- 1,711
- ( 174)
207 40
Investments in associates at year-end 4,051 3,844
Summarised financial information in respect of the Group's associates is set out below:
6,613 7,088
439 360
17,141 16,921
( 8,194) ( 8,397)
8,947 8,524
Group's share of net assets of associates 4,051 3,844
27. Property and equipment
Right-of-use Fixtures,
At 31 December 2023 Land and assets: equipment
buildings Buildings & vehicles Total
3,213 5,263 3,112 11,588
37 259 274 570
( 172) - ( 174) ( 346)
- 281 - 281
Historical cost 3,078 5,803 3,212 12,093
( 1,378) ( 1,712) ( 1,746) ( 4,836)
( 16) ( 516) ( 354) ( 886)
29 - 162 191
Accumulated depreciation ( 1,365) ( 2,228) ( 1,938) ( 5,531)
Carrying amount 1,713 3,575 1,274 6,562
0-2% 8-50% 8-33%
1,511
2,613
2,027
Revenue .........................................................................................................................................................................
Profit ...............................................................................................................................................................................
Assets .............................................................................................................................................................................
Liabilities .........................................................................................................................................................................
Disposals and write-offs during the year .............................................................................
Disposals and write-offs during the year .............................................................................
Remeasurement ..................................................................................................................
Depreciation during the year ...............................................................................................
Balance at the beginning of the year ...................................................................................
Official real estate value of land and buildings ....................................................................
Depreciation rates ...............................................................................................................
Insurance value of buildings ................................................................................................
Insurance value of fixtures, equipment and vehicles ..........................................................
Reiknistofa bankanna hf., an IT service centre company, Dalvegur 30, 201 Kópavogur ........................
Additions during the year .....................................................................................................
Norðurturninn hf., a rental company of commercial real estate, Borgartún 26, 105 Reykjavík ................
Norðurturninn hf. 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 3,584 million (CPI-linked, based on the CPI in December 2023). 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 .........................................................................................................................................
Share of profit of associates ...........................................................................................................................................
Balance at the beginning of the year ...................................................................................
Net assets ......................................................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
41
Amounts are in ISK million
Notes to the Consolidated Financial Statements
27.
Property and equipment (continued)
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
Historical 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
28. Intangible assets
Purchased Developed
At 31 December 2023 software software Total
2,249 3,183 5,432
385 - 385
( 151) - ( 151)
Historical cost 2,483 3,183 5,666
( 774) ( 1,379) ( 2,153)
( 416) ( 318) ( 734)
151 - 151
Accumulated amortisation ( 1,039) ( 1,697) ( 2,736)
Carrying amount 1,444 1,486 2,930
10-33% 10%
Purchased Developed
At 31 December 2022 software software Total
1,779 3,183 4,962
470 - 470
Historical cost 2,249 3,183 5,432
( 550) ( 1,061) ( 1,611)
( 224) ( 318) ( 542)
Accumulated amortisation ( 774) ( 1,379) ( 2,153)
Carrying amount 1,475 1,804 3,279
10-25% 10%
Amortisation rates ....................................................................................................................................
Additions during the year ..........................................................................................................................
Write-offs during the year .........................................................................................................................
Amortisation rates ....................................................................................................................................
Amortisation during the year ....................................................................................................................
Disposals and write-offs during the year .............................................................................
Remeasurement ..................................................................................................................
Balance at the beginning of the year ........................................................................................................
Balance at the beginning of the year ........................................................................................................
Balance at the beginning of the year ........................................................................................................
Balance at the beginning of the year ...................................................................................
Additions during the year .....................................................................................................
Insurance value of fixtures, equipment and vehicles ..........................................................
Insurance value of buildings ................................................................................................
Additions during the year ..........................................................................................................................
Balance at the beginning of the year ........................................................................................................
Amortisation during the year ....................................................................................................................
Write-offs during the year .........................................................................................................................
Disposals and write-offs during the year .............................................................................
Balance at the beginning of the year ...................................................................................
Depreciation during the year ...............................................................................................
Depreciation rates ...............................................................................................................
Official real estate value of land and buildings ....................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
42
Amounts are in ISK million
Notes to the Consolidated Financial Statements
29.
Other assets
1,698 1,848
1,195 3,591
503 400
122 116
120 117
Other assets 3,638 6,072
30.
Non-current assets and disposal groups held for sale
31.12.2023
31.12.2022
725 723
24 5
Non-current assets and disposal groups held for sale 749 728
31. Deposits from Central Bank and credit institutions
31.12.2023 31.12.2022
15,994 15,105
155 164
Deposits from Central Bank and credit institutions 16,149 15,269
32. Deposits from customers
31.12.2023 31.12.2022
752,146 697,025
98,563 92,872
Deposits from customers 850,709 789,897
Deposits from customers specified by owners
Amount % of total Amount % of total
18,204 2% 8,791 1%
9,514 1% 9,412 1%
398,489 47% 400,329 51%
424,502 50% 371,365 47%
Deposits from customers 850,709 100% 789,897 100%
Central government and state-owned enterprises ..............................................................
Industrial equipment and vehicles .............................................................................................................................
Repurchase agreements with Central Bank ...................................................................................................................
Municipalities .......................................................................................................................
Companies ..........................................................................................................................
Individuals ...........................................................................................................................
31.12.2022
Demand deposits and deposits with maturity up to 3 months ........................................................................................
Term deposits with maturity of more than 3 months ......................................................................................................
31.12.2023
Deposits from credit institutions .....................................................................................................................................
Receivables ....................................................................................................................................................................
Unsettled securities transactions ....................................................................................................................................
Repossessed collateral:
Land and buildings ....................................................................................................................................................
31.12.202231.12.2023
Prepaid expenses ...........................................................................................................................................................
Other assets ...................................................................................................................................................................
Deferred tax assets ........................................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
43
Amounts are in ISK million
Notes to the Consolidated Financial Statements
33.
Pledged assets
31.12.2023
31.12.2022
442,175 402,958
6,775 5,723
2,795 7,813
20,222 19,477
Pledged assets against liabilities 471,967 435,971
34. Debt issued and other borrowed funds
First Maturity
Currency and outstanding nominal issued Maturity type 31.12.2023 31.12.2022
2015 2023 Bullet - 38,970
2012 2024 Bullet 17,051 41,346
2015 2026 Bullet 35,093 32,555
2020 2027 Amortising 27,363 26,992
2022 2027 Bullet 7,461 3,311
2022 2027 Bullet 45,126 43,875
2019 2028 Amortising 31,564 33,456
2023 2029 Bullet
19,596 -
2017 2030 Bullet 32,093 29,812
Covered bonds 215,347 250,317
2020 2023 Bullet - 43,876
2018 2024 Bullet - 5,704
2019 2024 Bullet 1,940 5,972
2019 2024 Amortising 134 282
2021 2024 Bullet 2,005 2,157
2021 2024 Bullet
1,628 3,406
2021 2024 Bullet 1,980 6,903
2021 2024 Bullet 1,591 2,739
2022 2024 Bullet 7,289 10,957
2020 2025 Bullet
1,233 1,228
2021 2025 Bullet
6,105 6,130
2021 2025 Bullet
9,884 10,778
2022 2025 Bullet 42,868 39,561
2022 2025 Bullet 18,916 20,318
2023 2026 Bullet 6,887 -
2023 2026 Bullet 49,777 -
2023 2026 Bullet 6,843 -
2022 2027 Amortising 3,000 3,763
2022 2027 Bullet 6,937 5,301
2023 2028 Bullet 5,031 -
Unsecured bonds 174,048 169,075
16,459 36,650
11,719 12,228
Other borrowed funds 28,178 48,878
Debt issued and other borrowed funds 417,573 468,270
NOK 740 million ...........................................................
EUR 296 million** .........................................................
NOK 1,400 million ........................................................
Floating
Floating
Floating
Fixed
Floating
Floating
Fixed
Floating
Floating
Fixed
Floating
Floating
ISK 1,240 million ..........................................................
Other unsecured loans ...................................................................................................................................................
Other secured loans .......................................................................................................................................................
SEK 450 million ............................................................
Fixed, CPI - linked
Floating
Fixed
ISB CBI 30 - ISK 23,040 million ...................................
ISB CB 23 - ISK 0 million .............................................
ISB CBI 24 - ISK 10,800 million ...................................
ISB CBI 26 - ISK 24,500 million ...................................
ISB CB 27 - ISK 28,389 million ....................................
ISB CBF 27 - ISK 7,420 million ....................................
ISB CB - EUR 300 million* ...........................................
Floating
Floating
SEK 500 million ............................................................
EUR 300 million** .........................................................
SEK 500 million ............................................................
ISK 2,992 million ..........................................................
ISK 6,940 million ..........................................................
ISK 5,020 million ..........................................................
Fixed
Fixed, CPI - linked
Fixed, CPI - linked
Fixed
Floating
ISB CBI 28 - ISK 23,463 million ...................................
NOK 146 million ...........................................................
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 2023 was ISK 117,476 million (year-end 2022: ISK 24,682 million).
Loans to customers ........................................................................................................................................................
Financial assets pledged as collateral with Central Bank ..............................................................................................
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.
Fixed
Fixed, CPI - linked
Fixed, CPI - linked
Fixed, CPI - linked
SEK 120 million ............................................................
SEK 116 million ............................................................
SEK 533 million ............................................................
Interest
Fixed
Fixed
Fixed
EUR 0 million** .............................................................
EUR 0 million(callable 2023)* ......................................
NOK 140 million ...........................................................
ISK 136 million .............................................................
NOK 150 million ...........................................................
ISB CBI 29 - ISK 18,640 million ...................................
Cash and balances pledged against covered Bonds .....................................................................................................
Loans to credit institutions ..............................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
44
Amounts are in ISK million
Notes to the Consolidated Financial Statements
34. Debt issued and other borrowed funds (continued)
35. Subordinated loans
Issued Maturity Callable 31.12.2023 31.12.2022
2018 2028 2023 - 6,820
2019 2029 2024 6,761 6,785
2022 2033 2028
1,525 1,526
2022 2033 2028 9,935 9,199
2023 2034 2029 9,915 -
Tier 2 subordinated loans 28,136 24,330
2021 Perpetual 2026 10,019 10,062
Additional Tier 1 subordinated loans 10,019 10,062
Subordinated loans 38,155 34,392
36.
Changes in liabilities arising from financing activities
1.1.2023
Cash flows
Interest
expense
Foreign
exchange
Fair value
changes
31.12.2023
69,273 ( 36,896) 2,665 - ( 219) 34,823
137,169 ( 16,816) 15,072 - ( 28) 135,397
10,575 ( 189) 918 - - 11,304
- 5,020 11 - - 5,031
69,360 ( 5,121) 4,447 ( 3,695) 77 65,068
83,437 ( 677) 2,470 ( 375) 7,791 92,646
43,875 ( 1,320) 1,373 ( 335) 1,533 45,126
5,703 ( 5,831) 9 113 6 -
48,878 ( 21,507) 1,334 ( 527) - 28,178
34,392 1,441 3,214 ( 892) - 38,155
Total 502,662 ( 81,896) 31,513 ( 5,711) 9,160 455,728
Fixed, 8.62%
Fixed CPI, 4.86%
Covered bonds in hedge accounting ..............................................
Covered bonds in ISK - CPI-linked .................................................
Senior unsecured bonds in ISK ......................................................
Senior unsecured bonds FX ...........................................................
*The Group applies hedge accounting to this bond issuance 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 2023 the total carrying amount of the bond issuance amounted to ISK
45,126 million and included in the amount are fair value changes amounting to ISK 271 million.
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 FX at fair value ........................................
Interest
Subordinated loans in ISK ............................................
Subordinated loans in ISK ............................................
Fixed CPI, 5.8%
Non-cash changes
Covered bonds in ISK .....................................................................
Subordinated loans .........................................................................
Senior unsecured bonds in hedge accounting ................................
Other borrowed funds .....................................................................
Senior unsecured bonds in ISK - CPI-linked ..................................
The Group repurchased own bonds during the year amounting to ISK 95,075 million (2022: ISK 79,026 million).
Floating, STIBOR + 2.5%
Subordinated loans in SEK ..........................................
Floating, STIBOR + 3.9%
**These bond issuances are classified as being designated as at fair value through profit or loss. At 31 December 2023 the total carrying
amount of the bonds amounted to ISK 92,645 million; included in the amount are negative fair value changes amounting to ISK 1,282 million.
The carrying amount of the bonds at 31 December 2023 was ISK 807 million lower than the contractual amount due at maturity.
Subordinated loans in SEK ..........................................
Subordinated loans in SEK ..........................................
Floating, STIBOR + 4.75%
Subordinated loans in ISK ............................................
Íslandsbanki hf. Consolidated Financial Statements 2023
45
Amounts are in ISK million
Notes to the Consolidated Financial Statements
36. Changes in liabilities arising from financing activities (continued)
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 - ( 476) 10,575
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 ( 360) 5,703
- 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
37.
Tax assets and tax liabilities
Assets Liabilities Assets Liabilities
- 11,163 - 9,042
122 1,944 116 3,086
Tax in the balance sheet 122 13,107 116 12,128
Assets Liabilities
94 536
22 7,593
- ( 5,668)
- 110
- 625
Deferred tax assets and tax liabilities 31.12.2022 116 3,086
6 7,184
- ( 7,423)
- 173
- ( 903)
Deferred tax assets and tax liabilities 31.12.2023 122 1,944
Net Recognised
2023 balance at in profit or Recognised Deferred Deferred
1 January loss in equity Net tax assets tax liabilities
( 876) 21 - ( 855) - ( 855)
( 456) 71 - ( 385) - ( 385)
( 479) 55 - ( 424) - ( 424)
( 837) 10 - ( 827) - ( 827)
750 ( 985) - ( 235) - ( 235)
733 8 - 741 741 -
( 1,921) 1,059 903 41 41 -
116 6 - 122 122 -
( 2,970) 245 903 ( 1,822) 904 ( 2,726)
Set-off of deferred tax assets together
( 782) 782
Deferred tax assets and tax liabilities
( 2,970) 245 903 ( 1,822) 122 ( 1,944)
Covered bonds in hedge accounting ..............................................
Covered bonds in ISK - CPI-linked .................................................
Subordinated loans .........................................................................
Deferred tax assets and tax liabilities ..................................................................................
Senior unsecured bonds FX ...........................................................
Senior unsecured bonds in ISK ......................................................
Non-cash changes
Covered bonds in ISK .....................................................................
Income tax payable in 2023 ............................................................................................................................................
Changes in deferred tax assets and deferred tax liabilities due to equity ......................................................................
Calculated income tax for 2023 ......................................................................................................................................
Changes in deferred tax assets and deferred tax liabilities due to equity ......................................................................
Assets and liabilities in foreign currency .........................................
Deferred foreign exchange difference ............................................
Senior unsecured bonds FX at fair value ........................................
Calculated income tax for 2022 ......................................................................................................................................
Lease liabilities ................................................................................
Senior unsecured bonds in hedge accounting ................................
Income tax payable in 2024 ............................................................................................................................................
Derivatives ......................................................................................
- thereof income tax recognised in other comprehensive income ..................................................................................
Debt issued and other borrowed funds ...........................................
with liabilities of the same taxable entities ....................................
Other items .....................................................................................
- thereof income tax recognised in other comprehensive income ..................................................................................
Balance at 31 December
Intangible assets .............................................................................
Property and equipment ..................................................................
Other borrowed funds .....................................................................
31.12.2023
Current tax ...........................................................................................................................
31.12.2022
Deferred tax assets and tax liabilities 1.1.2022 ..............................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
46
Amounts are in ISK million
Notes to the Consolidated Financial Statements
37. Tax assets and tax liabilities (continued)
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
Deferred tax assets and tax liabilities ( 442) ( 1,903) ( 625) ( 2,970) 116 ( 3,086)
38.
Other liabilities
31.12.2023 31.12.2022
2,392 2,448
3,720 3,708
1,184 1,338
6,192 2,921
968 3,805
2,762 2,381
Other liabilities 17,218 16,601
39.
Custody assets
31.12.2023 31.12.2022
3,565,465 3,278,816
Assets and liabilities in foreign currency .........................................
Other items .....................................................................................
Debt issued and other borrowed funds ...........................................
Deferred foreign exchange difference ............................................
Lease liabilities ................................................................................
Derivatives ......................................................................................
Expected credit losses for off-balance sheet loan commitments and financial guarantees ...........................................
Withholding tax ...............................................................................................................................................................
Lease liabilities ...............................................................................................................................................................
Property and equipment ..................................................................
Accruals ..........................................................................................................................................................................
with liabilities of the same taxable entities ....................................
Balance at 31 December
Intangible assets .............................................................................
Custody assets - not managed by the Group .................................................................................................................
Unsettled securities transactions ....................................................................................................................................
Sundry liabilities ..............................................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
47
Amounts are in ISK million
Notes to the Consolidated Financial Statements
40.
Leases
The Group as a lessee
The Group as a lessor
31.12.2023 31.12.2022
27,401 20,263
21,231 16,463
17,895 13,667
11,271 10,697
3,287 3,102
2,607 2,636
Total gross investment in the lease 83,692 66,828
20,385 15,942
16,402 13,431
15,035 11,752
10,018 9,783
2,841 2,763
2,260 2,341
Total present value of lease payments* 66,941 56,012
Unearned interest income 16,751 10,816
212 260
6,898 3,769
Net investment in finance lease receivables
Due within 1 year ............................................................................................................................................................
Due in 4-5 years .............................................................................................................................................................
Due in more than 5 years ...............................................................................................................................................
Interest income from finance lease receivables during the year ....................................................................................
*The Group presents finance lease receivables in the line item "Loans to customers".
Due within 1 year ............................................................................................................................................................
Due in 1-2 years .............................................................................................................................................................
Due in 2-3 years .............................................................................................................................................................
Due in 4-5 years .............................................................................................................................................................
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 2023 the total expense for leases of low-value assets and short-term leases amounted to ISK 61 million (2022: ISK 36
million), the total cash outflow for leases amounted to ISK 659 million (2022: ISK 584 million) and total interest expense from lease liabilities
amounted to ISK 79 million (2022: ISK 82 million).
Due in 3-4 years .............................................................................................................................................................
Due in 1-2 years .............................................................................................................................................................
Due in 2-3 years .............................................................................................................................................................
Due in 3-4 years .............................................................................................................................................................
At year-end 2023 the Group recognised ISK 3,575 million in right-of-use assets which are presented in the line item "Property and equipment"
and lease liabilities amounting to ISK 3,720 million which are presented in the line item "Other liabilities".
Expected credit loss allowance ......................................................................................................................................
Due in more than 5 years ...............................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
48
Amounts are in ISK million
Notes to the Consolidated Financial Statements
41.
Íslandsbanki's shareholders
31.12.2023 31.12.2022
Iceland 42.9% 42.5%
Iceland 8.0% 6.8%
Iceland 7.9% 7.5%
Iceland 6.3% 6.3%
USA 5.6% 4.9%
Iceland 3.3% 3.1%
USA 2.3% 1.3%
Iceland 2.1% 2.4%
Iceland 1.6% 1.6%
Iceland 1.5% 1.2%
UK 1.3% 1.2%
Iceland 1.2% 1.2%
Iceland 1.0% 1.0%
Iceland 1.0% 0.7%
Iceland 0.3% 1.3%
13.7% 17.0%
Total 100.0% 100.0%
Beneficial owners
LSR Pension Fund ...................................................................................................................................
Vanguard ..................................................................................................................................................
Other shareholders ..................................................................................................................................
At 31 December 2023 the number of shareholders of the Bank was 11,552 (year-end 2022: 13,079). At 31 December 2023, 89.4% of the
Bank's shares were owned by domestic parties and 10.6% by international investors (2022: 91.0% domestic parties and 9.0% international
investors). At 31 December 2023 the Bank's employees, board members and related parties of the employees and board members, held
0.14% of shares in the Bank (year-end 2022: 0.22%).
Festa Pension Fund .................................................................................................................................
For domestic pension funds, domestic fund management entities and foreign shareholders, the board of directors of the relevant entity is
considered as the beneficial owner. Information on the holdings of individual funds is published jointly under the name of their management
company.
The Icelandic Government .......................................................................................................................
Live Pension Fund ....................................................................................................................................
Capital Group ...........................................................................................................................................
Gildi Pension Fund ...................................................................................................................................
Íslandssjóðir hf. (Iceland Funds) ..............................................................................................................
Birta Pension Fund ...................................................................................................................................
Frjálsi Pension Fund .................................................................................................................................
RWC Asset Management LLP .................................................................................................................
Lífsverk Pension Fund .............................................................................................................................
Almenni Pension Fund .............................................................................................................................
Stapi Pension Fund ..................................................................................................................................
The following table shows the largest shareholders of Íslandsbanki, taking into consideration treasury shares in the ownership calculation.
Brú Pension Fund .....................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
49
Amounts are in ISK million
Notes to the Consolidated Financial Statements
42.
Related party
Guarantees
Right of use Other Net & loan com-
At 31 December 2023 asset assets Liabilities balance mitments
- 738 544 194 77
3,037 5,001 3,546 4,492 157
Balances with related parties 3,037 5,739 4,090 4,686 234
Interest Interest Other Other
2023 income expense income expense
76 34 7 36
544 27 3 2,035
Transactions with related parties
620 61 10 2,071
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
Interest Interest Other Other
2022 income expense income expense
34 219 4 -
326 81 26 1,993
Transactions with related parties
360 300 30 1,993
Associated companies ...................................................................................
Associated companies ........................................................................................................
At 31 December 2023 a total of ISK 3 million (at year-end 2022: ISK 3 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 ....
Associated companies ...................................................................................
Board of Directors, key management personnel and other related parties .........................
Board of Directors, key management personnel and other related parties .........................
Associated companies ........................................................................................................
Shareholders with significant influence over the Group .................................
Board of Directors, key management personnel and other 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.
The following tables show the Group's balances and transactions with related parties.
The Board of Directors of Íslandsbanki was changed on 28 July 2023 in a shareholder meeting held to address the Settlement Agreement and
the Bank's reaction thereto, and to carry out an election of members to the Board of Directors of the Bank, alternate directors, and the
Chairman of the Board. The new Board of Directors was elected as follows: Linda Jónsdóttir, Chairman, Stefán Pétursson, Vice-Chairman,
Agnar Tómas Möller, Anna Þórðardóttir, Frosti Ólafsson, Haukur Örn Birgisson and Helga Hlín Hákonardóttir. Frosti Ólafsson resigned from the
Board of Directors on 3 January 2024. Alternate board member Páll Grétar Steingrímsson joined the Board of Directors of Íslandsbanki
following the resignation of Frosti Ólafsson.
The Board of Directors and key management personnel of the Bank, the Icelandic State Financial Investments (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. The Group's
associates are also defined as related parties.
Birna Einarsdóttir and the Board of Directors of Íslandsbanki reached an agreement on the terms of her resignation as CEO of Íslandsbanki as
of 28 June 2023. On 1 July 2023 Kristín Hrönn Guðmundsdóttir was appointed Managing Director of Corporate & Investment Banking, taking
over from Ásmundur Tryggvason who stepped down. For further information see Notes 11 and 13.
The previous Board of Directors was as follows: Finnur Árnason, Chairman, Guðrún Þorgeirsdóttir, Vice-Chairman, Agnar Tómas Möller, Anna
Þórðardóttir, Ari Daníelsson, Frosti Ólafsson and Valgerður Hrund Skúladóttir.
Íslandsbanki has a related party relationship with the Icelandic Government as the largest shareholder with significant influence over the Group.
The shares are administered by 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.
Íslandsbanki hf. Consolidated Financial Statements 2023
50
Amounts are in ISK million
Notes to the Consolidated Financial Statements
43.
Provision and contingencies
Provision
Onsite inspection by the FSA into the Bank's anti-money laundering measures
Contingent liabilities
Borgun hf. – Landsbankinn hf.
105 Miðborg slhf. – ÍAV hf.
The Consumers' Association of Iceland
The Financial Supervisory Authority of the Central Bank of Iceland (FSA) conducted an onsite inspection of the Bank's anti-money laundering
(AML) measures in the third quarter of 2022 as part of its supervision of regulatory compliance in the banking sector. The FSA identified certain
shortcomings in relation to the Bank's risk assessment framework, the risk assessment framework for individual customers and transactions as
well as the performance of customer due diligence and regular monitoring of transactions. The Bank has not challenged the FSA's findings and
has already made, and is continuing to make, improvements to its AML framework. The matter could result in a settlement and a fine. The
Bank has recognised an undisclosed provision in relation to this matter.
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.
On 27 April 2023 a panel of three judges of the District Court of Reykjavík rendered a judgement and dismissed the claims made by
Landsbankinn against all defendants. Landsbankinn has appealed the judgement to the Court of Appeal. The Bank has not recognised a
provision in relation to this matter.
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.
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 2 to 3 billion. On 25 May
2023, the District Court of Reykjanes rendered a judgement in one of these cases and dismissed all claims that were made against the Bank.
The plaintiff has appealed the judgement to the Court of Appeal.
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.
The Bank and its subsidiaries are parties to legal proceedings and regulatory matters that arise out of its normal business operations. Apart
from the matters described below, the Group considers that none of these matters are material.
Borgun hf. (currently Teya Iceland 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.
Íslandsbanki hf. Consolidated Financial Statements 2023
51
Amounts are in ISK million
Notes to the Consolidated Financial Statements
43. Provision and contingencies (continued)
The Consumers' Association of Iceland (continued)
EC Clear ehf.
44.
Events after the reporting period
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 Bank has not recognised a provision in relation to this matter.
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.
It is the Bank's preliminary assessment of the potential impact of an adverse ruling on the Bank's loan portfolio with the same interest rate
provision that the Bank's financial loss, taking different scenarios into account, could amount to around ISK 8 billion. The preliminary
assessment does not include an assessment of the impact on the Bank's interest rate risk should an adverse final court ruling be that the initial
contractual interest rates should be applied throughout the duration of the respective loans. Such a ruling, which the Bank regards as unlikely,
would significantly increase the Bank's interest rate risk and could have a considerable negative financial impact on the Bank in times of
increased market interest rates.
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.
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-index 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 case
was heard before the EFTA Court on 13 June 2023. 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.
No events have arisen after the reporting period that require amendments or additional disclosures in the Consolidated Financial Statements
for 2023.
Íslandsbanki hf. Consolidated Financial Statements 2023
52
Amounts are in ISK million
Notes to the Consolidated Financial Statements
45.
Risk management
Risk governance
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.
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.
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 Group 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 practices 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 sub-
committees.
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
Chief Compliance Officer as well as other members of the Executive Committee. 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.
The CRO is independent from the business units, is a member of the Executive Committee 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.
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.
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.
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.
Íslandsbanki hf. Consolidated Financial Statements 2023
53
Amounts are in ISK million
Notes to the Consolidated Financial Statements
45. Risk management (continued)
46. Credit risk
The Chief Compliance Officer (CCO) is responsible for the Compliance function of the Bank, which sits within the second line of defence and
acts independently within the Bank.
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.
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 2023 Report, which
is available on the Bank's website: www.islandsbanki.is.
The CCO is appointed by the CEO, subject to Board confirmation and cannot be removed from post without the Board's prior approval. The
Central Bank and the CAE shall be notified of the dismissal or departure of the CCO. The CCO acts as the Bank's Money Laundering
Reporting Officer (MLRO).
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 Committee 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.
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.
Íslandsbanki hf. Consolidated Financial Statements 2023
54
Amounts are in ISK million
Notes to the Consolidated Financial Statements
47. Maximum credit exposure and collateral
The following table shows the maximum exposure to credit risk by collateral held against those exposures that are subject to IFRS 9
impairment requirements.
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 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 828 million are subject to 100% Government
guarantee and ISK 666 million to 85% 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.
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 Consolidated 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.
Íslandsbanki hf. Consolidated Financial Statements 2023
55
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
87,504 - - - - - - - 87,504 18
73,475 - - - - - - - 73,475 90
161,342 - - - - - - - 161,342 -
Loans to customers: 1,223,426 606,706 307,978 60,466 23,517 76,787 66,315 1,141,769 81,657 11,728
594,631 532,832 8,280 4 185 17,368 184 558,853 35,778 3,560
530,676 528,534 1,499 - 177 - - 530,210 466 2,051
182,808 14,159 71,111 753 3,969 47,061 31,546 168,599 14,209 2,162
80,099 25,822 45,510 76 367 3,543 2,389 77,707 2,392 1,009
7,938 30 6,623 - 1 10 21 6,685 1,253 79
214 - 61 - - - - 61 153 1
75,802 2,122 47,248 1,829 316 8,084 12,073 71,672 4,130 2,835
45,931 4,018 11,646 - 18,521 198 11,200 45,583 348 764
18,476 61 754 - - 20 15 850 17,626 24
144,173 27,169 110,037 - 94 368 1,363 139,031 5,142 1,179
73,354 493 6,708 57,804 64 135 7,524 72,728 626 115
2,846 - - - - - - - 2,846 8
Off-balance sheet items: 197,115 9,629 31,770 6,492 4,227 1,139 20,464 73,721 123,394 1,184
20,680 - 6,766 105 1,532 - 1,961 10,364 10,316 347
176,435 9,629 25,004 6,387 2,695 1,139 18,503 63,357 113,078 837
Total 1,745,708 616,335 339,748 66,958 27,744 77,926 86,779 1,215,490 530,218 13,028
Notes to the Consolidated Financial Statements
Maximum credit exposure and collateral (continued)
At 31 December 2023
Cash and balances with Central Bank .........................................
Loans to credit institutions ...........................................................
Bonds and debt instruments ........................................................
Individuals ................................................................................
- Thereof mortgages .............................................................
Construction ............................................................................
Commerce and services ..........................................................
Energy .....................................................................................
Financial services ....................................................................
Industrial and transportation .....................................................
Investment companies .............................................................
Public sector and non-profit organisations ...............................
Real estate ..............................................................................
Seafood ...................................................................................
Other financial assets ..................................................................
Financial guarantees ................................................................
Loan commitments ..................................................................
Maximum Credit Exposure for off-balance sheet items reflect the maximum amount, not taking into account the Group's ability to reduce its loan commitments before the current undrawn amount is fully
utilised by the customer.
Íslandsbanki hf. Consolidated Financial Statements 2023
56
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
94,424 - - - - - - - 94,424 3
110,364 - - - - - - - 110,364 152
130,804 - - - - - - - 130,804 -
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 1,730,787 565,566 339,183 95,781 23,062 63,889 93,727 1,181,208 549,579 12,638
Cash and balances with Central Bank .........................................
At 31 December 2022
Public sector and non-profit organisations ...............................
Loans to credit institutions ...........................................................
Bonds and debt instruments ........................................................
Individuals ................................................................................
- Thereof mortgages .............................................................
Commerce and services ..........................................................
Construction ............................................................................
Energy .....................................................................................
Financial services ....................................................................
Industrial and transportation .....................................................
Investment companies .............................................................
Maximum Credit Exposure for off-balance sheet items reflect the maximum amount, not taking into account the Group's ability to reduce its loan commitments before the current undrawn amount is fully
utilised by the customer.
Real estate ..............................................................................
Seafood ...................................................................................
Other financial assets ..................................................................
Financial guarantees ................................................................
Loan commitments ..................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
57
Amounts are in ISK million
Notes to the Consolidated Financial Statements
48. Credit quality of financial assets
At 31 December 2023
Loans to customers: Stage 1 Stage 2 Stage 3 Total
487,172 2,604 - 489,776
485,438 17,968 - 503,406
184,363 14,490 - 198,853
15,519 5,324 - 20,843
- - 22,272 22,272
3 1 - 4
1,172,495 40,387 22,272 1,235,154
( 4,788) ( 2,727) ( 4,213) ( 11,728)
Net carrying amount 1,167,707 37,660 18,059 1,223,426
Off-balance sheet loan commitments and financial guarantees: Stage 1 Stage 2 Stage 3 Total
93,558 168 - 93,726
71,681 417 - 72,098
24,477 3,370 - 27,847
961 447 - 1,408
- - 1,220 1,220
1,983 17 - 2,000
192,660 4,419 1,220 198,299
( 916) ( 106) ( 162) ( 1,184)
Total 191,744 4,313 1,058 197,115
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 ........................................................................................................................
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 2023 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 ........................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
58
Amounts are in ISK million
Notes to the Consolidated Financial Statements
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
Unrated .................................................................................................................................
Expected credit losses ...........................................................................................................
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 .................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
59
Amounts are in ISK million
Notes to the Consolidated Financial Statements
49.
period.
At 31 December 2023
Gross carrying amount
Stage 1 Stage 2 Stage 3 Total
1,975 4,323 1,650 7,948
2,136 16,853 5,230 24,219
Total 4,111 21,176 6,880 32,167
Expected credit losses
Stage 1 Stage 2 Stage 3 Total
( 16) ( 75) ( 124) ( 215)
( 32) ( 504) ( 1,224) ( 1,760)
Total ( 48) ( 579) ( 1,348) ( 1,975)
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)
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 62.3.
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
Individuals .............................................................................................................................
Companies ............................................................................................................................
Individuals .............................................................................................................................
The following table provides a summary of the Group's forborne assets.
Individuals .............................................................................................................................
Companies ............................................................................................................................
Companies ............................................................................................................................
Individuals .............................................................................................................................
Companies ............................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
60
Amounts are in ISK million
Notes to the Consolidated Financial Statements
50.
At 31 December 2023
Groups of connected clients:
Before After
76% 2%
15% 15%
10% 10%
At 31 December 2022
Groups of connected clients:
Before After
87% 9%
13% 13%
12% 12%
11% 11%
11% 11%
11% 11%
51. Liquidity risk
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 (CRR). The Group has internal criteria that define
connections between clients. These criteria reflect the Group's interpretation of CRR, 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 had two large exposures at 31 December 2023 (year-end 2022: five). No large exposure is above the maximum 25%
large exposure limit set by the law.
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.
Group 2 .....................................................................................................................................................................
Group 6 .....................................................................................................................................................................
Group 3 .....................................................................................................................................................................
The Group's largest exposure before eligible credit risk mitigating effects is the Icelandic Government. Largest part of the exposure is due to
Icelandic Government Bonds in the Group's liquidity portfolio.
Group 1 .....................................................................................................................................................................
Group 2 .....................................................................................................................................................................
Group 3 .....................................................................................................................................................................
Group 4 .....................................................................................................................................................................
Group 5 .....................................................................................................................................................................
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.
Íslandsbanki hf. Consolidated Financial Statements 2023
61
Amounts are in ISK million
Notes to the Consolidated Financial Statements
52. Liquidity coverage and net stable funding ratio
Net stable funding ratio 31.12.2023 31.12.2022
124% 118%
Liquidity coverage ratio 31.12.2023 31.12.2022
195% 205%
115% 109%
663% 792%
ISK EUR USD Other Total
83,563 487 290 665 85,005
- 31,371 20,913 29,735 82,019
73,995 - - - 73,995
12,287 3 - 22 12,312
169,845 31,861 21,203 30,422 253,331
510 18,704 25,212 15,582 60,008
170,355 50,565 46,415 46,004 313,339
ISK EUR USD Other Total
85,381 462 284 506 86,633
- 34,691 5,666 13,388 53,745
57,696 - - - 57,696
24,370 3 - 25 24,398
167,447 35,156 5,950 13,919 222,472
1,028 21,138 37,573 30,081 89,820
168,475 56,294 43,523 44,000 312,292
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 FSA's
guidelines no. 2/2010 on best practices in liquidity management and liquidity coverage ratio rules no. 1520/2022.
As of January 2023 rules no. 1520/2022 took effect. The minimum LCR ratio that the Group is required to maintain remains 100% for the
total LCR. A new requirement for LCR in EUR is 80% and in ISK the requirement is 50%. There is no longer any minimum requirement for
the aggregated position in foreign currencies. The Group is required to maintain a 100% minimum NSFR ratio.
The following tables show the NSFR and the LCR for the Group at year-end 2023 and 2022.
At 31 December 2023
Liquidity reserve
For all currencies .......................................................................................................................................................
For all currencies .......................................................................................................................................................
ISK ............................................................................................................................................................................
EUR ...........................................................................................................................................................................
Cash and balances with Central Bank .................................................................
Foreign government bonds ..................................................................................
Domestic bonds eligible as collateral with Central Bank ......................................
Level 2 liquid assets ............................................................................................
Balance with financial institutions ........................................................................
High quality liquidity assets
The following table shows the composition of the Group's liquidity reserve.
At 31 December 2022
Cash and balances with Central Bank .................................................................
Foreign government bonds ..................................................................................
Domestic bonds eligible as collateral with Central Bank ......................................
Level 2 liquid assets ............................................................................................
High quality liquidity assets
Balance with financial institutions ........................................................................
Liquidity reserve
Íslandsbanki hf. Consolidated Financial Statements 2023
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
40,011 47,493 - - - - 87,504 87,504
16,086 57,389 - - - - 73,475 73,475
- 85,667 48,754 24,598 2,323 - 161,342 161,342
- 1,887 1,474 2,842 - - 6,203 5,776
- 490 - - - - 490 490
- 34,297 27,617 32,655 - - 94,569 76,961
- ( 32,900) ( 26,143) ( 29,813) - - ( 88,856) ( 71,675)
435 96,569 115,037 352,958 658,427 - 1,223,426 1,223,426
- - - - - 13,241 13,241 13,241
2,413 365 68 - - - 2,846 2,846
Total financial assets 58,945 289,370 165,333 380,398 660,750 13,241 1,568,037 1,567,610
7,611 7,028 1,564 - - - 16,203 16,149
668,448 88,729 46,467 35,530 43,896 - 883,070 850,709
- 2,042 2,103 2,115 913 - 7,173 5,090
- 391 - - - - 391 391
- ( 43,522) ( 20,508) ( 18,591) - - ( 82,621) ( 68,235)
- 45,161 22,578 20,407 -
- 88,146 72,294
- 12 33 299 913 - 1,257 640
- 18,071 35,902 430,196 70,359 - 554,528 417,573
- 290 2,026 20,525 44,852 - 67,693 38,155
2,522 1,546 1,629 2,024 1,399 - 9,120 8,879
- 151 449 1,962 1,399 - 3,961 3,720
2,522 1,395 1,180 62 - - 5,159 5,159
Total financial liabilities 678,581 117,706 89,691 490,390 161,419 - 1,537,787 1,336,555
Net financial assets and financial liab.
( 619,636) 171,664 75,642 ( 109,992) 499,331 13,241 30,250 231,055
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.
Cash and balances with Central Bank ...........
Loans to credit institutions .............................
Bonds and debt instruments ..........................
Derivatives ....................................................
- Net settled derivatives ................................
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 2023
Deposits from customers ...............................
Derivative instruments and short positions ....
- Net settled derivatives ................................
- Inflow .........................................................
- Outflow .......................................................
- Short positions ...........................................
- Inflow .........................................................
- Outflow .......................................................
Loans to customers .......................................
Shares and equity instruments ......................
Other financial assets ....................................
Deposits from CB and credit institutions ........
Debt issued and other borrowed funds ..........
Subordinated loans .......................................
Other financial liabilities .................................
- Lease liabilities ...........................................
- Other liabilities ...........................................
Íslandsbanki hf. Consolidated Financial Statements 2023
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
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
610,507 123,946 52,453 23,018 33,858 - 843,782 789,897
- 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 620,878 142,494 175,473 518,708 121,935 - 1,579,488 1,329,961
Net financial assets and financial liab. ( 527,631) 108,546 2,329 161,491)( 533,342 15,868 ( 29,037) 221,010
Maturity analysis of financial assets and financial liabilities (continued)
At 31 December 2022
Cash and balances with Central Bank ...........
Loans to credit institutions .............................
Shares and equity instruments ......................
Other financial assets ....................................
Deposits from CB and credit institutions ........
Deposits from customers* .............................
Derivative instruments and short positions ....
- Net settled derivatives ................................
Bonds and debt instruments ..........................
Derivatives ....................................................
- Net settled derivatives ................................
- Inflow .........................................................
- Outflow .......................................................
Loans to customers .......................................
- 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 financial guarantees and credit commitments 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.
- Inflow .........................................................
- Outflow .......................................................
- Short positions ...........................................
Debt issued and other borrowed funds ..........
Subordinated loans .......................................
Other financial liabilities .................................
*Comparative figures have been changed with immaterial effects.
Off-balance sheet liabilities
Íslandsbanki hf. Consolidated Financial Statements 2023
64
Amounts are in ISK million
Notes to the Consolidated Financial Statements
54.
Market risk
55. Interest rate risk
MV Duration BPV MV Duration BPV
970 5.21 ( 0.51) 3,446 6.39 ( 2.20)
1,166 2.99 ( 0.35) 124,065 0.58 ( 7.17)
Total 2,136 4.00 ( 0.86) 127,511 0.74 ( 9.37)
45 6.71 0.03 - - -
368 6.50 0.24 282 5.04 0.14
Total 413 6.52 0.27 282 5.04 0.14
1,723 3.40 ( 0.59) 127,229 0.73 ( 9.23)
54 ( 54) 222 ( 222)
59 ( 59) 601 ( 601)
- - 87 ( 87)
- - 4 ( 4)
- - 39 ( 39)
113 ( 113) 953 ( 953)
Trading bonds and debt instruments, short positions
Indexed .............................................................................................
Interest rate risk in the trading book
Non-indexed ......................................................................................
Net position of trading bonds and debt instruments
31.12.2023
31.12.2022
Trading bonds and debt instruments, long positions
Indexed .............................................................................................
Non-indexed ......................................................................................
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 (or non-trading 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, domestic municipality bonds, and covered bonds issued by other
Icelandic banks. In the following tables 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. Fixed income securities in the Bank's liquidity portfolio were reclassified
from trading book to non-trading book in the fourth quarter of 2023.
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.
31.12.2023
31.12.2022
Sensitivity analysis for trading bonds and debt instruments
Effect on profit before tax
Downward
shift
Upward
shift
Downward
shift
Upward
shift
Currency
ISK, indexed ..........................................................................................................................
ISK, non-indexed ...................................................................................................................
EUR .......................................................................................................................................
USD .......................................................................................................................................
Other total .............................................................................................................................
Total
Íslandsbanki hf. Consolidated Financial Statements 2023
65
Amounts are in ISK million
Notes to the Consolidated Financial Statements
55.
At 31 December 2023
0-3 3-12 1-2 2-5 5-10
Over 10
months
months years years years years Total
14 ( 64) ( 948) ( 2,761) 3,223 43
(493)
( 28) ( 276) ( 794) 1,465 46 ( 4)
409
114 86 ( 5) 133 - -
328
49 ( 54) - - - -
(5)
9 ( 12) - - - -
(3)
51 ( 47) - - - -
4
Total 209 ( 367) ( 1,747) ( 1,163) 3,269 39 240
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)
USD ................................................................................
Other ...............................................................................
Other ...............................................................................
Currency
ISK, indexed ....................................................................
ISK, non-indexed .............................................................
EUR ................................................................................
SEK .................................................................................
Interest rate risk in the banking book
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. From the fourth quarter of 2023 the interest rate
sensitivity in the banking book is estimated using contractual cash flows except for callable debt issued and applicable non-maturing
deposits (NMDs) where behavioural assumptions are applied. Fixed income securities in the Bank's liquidity portfolio were reclassified from
trading book to banking book in fourth quarter of 2023.
Sensitivity analysis for interest rate risk in the banking book
Interest rate risk (continued)
Íslandsbanki hf. Consolidated Financial Statements 2023
66
Amounts are in ISK million
Notes to the Consolidated Financial Statements
56. Currency risk
At 31 December 2023
EUR USD GBP CHF JPY SEK NOK DKK CAD
Other foreign
currencies
Total foreign
currencies
Cash and balances with Central Bank ..................... 487 290 120 49 10 52 85 141 27 182 1,443
Loans to credit institutions ....................................... 18,752 25,198 1,626 4,301 314 2,794 17,994 207 685 58 71,929
Bonds and debt instruments .................................... 31,377 20,919 - - - 17,920 11,812 - - - 82,028
Loans to customers ................................................. 92,652 15,817 293 618 1,816 736 2,496 588 6,880 - 121,896
Shares and equity instruments ................................ 46 302 102 - - 22 - - - - 472
Other assets ............................................................ 221 38 - - - - - - - - 259
Total assets 143,535 62,564 2,141 4,968 2,140 21,524 32,387 936 7,592 240 278,027
Deposits from credit institutions .............................. 7,731 995 20 - - 4 - 1 - - 8,751
Deposits from customers ........................................ 38,255 48,952 4,322 545 445 767 4,459 1,440 204 24 99,413
Debt issued and other borrowed funds .................... 154,069 11,719 - - - 30,343 34,725 - - - 230,856
Subordinated loans ................................................. - - - - - 16,780 - - - - 16,780
Other liabilities ......................................................... 7
25 - - - - - 111 - - 143
Total liabilities 200,062 61,691 4,342 545 445 47,894 39,184 1,552 204 24 355,943
Net on-balance sheet position ( 56,527) 873 ( 2,201) 4,423 1,695 ( 26,370) ( 6,797) ( 616) 7,388 216 ( 77,916)
Net off-balance sheet position 60,795 1,091 2,270 ( 4,400) ( 1,696) 26,007 6,918 693 ( 7,334) ( 281) 84,063
Net position
4,268 1,964 69 23 ( 1) ( 363) 121 77 54 ( 65) 6,147
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 2023
67
Amounts are in ISK million
Notes to the Consolidated Financial Statements
56.
Currency risk (continued)
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)
Íslandsbanki hf. Consolidated Financial Statements 2023
68
Amounts are in ISK million
Notes to the Consolidated Financial Statements
56. Currency risk (continued)
-10% 10% -10% 10%
( 427) 427 195 ( 195)
( 196) 196 ( 70) 70
( 7) 7 12 ( 12)
( 2) 2 ( 1) 1
- - 6 ( 6)
36 ( 36) ( 8) 8
( 12) 12 1 ( 1)
( 8) 8 ( 2) 2
( 5) 5 14 ( 14)
7 ( 7) 10 ( 10)
Total ( 614) 614 157 ( 157)
57. Shares and equity instruments
Upward Upward
shift shift
( 62) 62 ( 131) 131
( 178) 178 ( 215) 215
Total ( 240) 240 ( 346) 346
Effect on profit
Downward
shift
Downward
shift
Portfolio
Trading book ..................................................................................................................
Banking book .................................................................................................................
*Comparative figures have been changed with immaterial effects.
DKK ...............................................................................................................................
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
31.12.2023
31.12.2022*
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
31.12.2023
31.12.2022
CAD ...............................................................................................................................
Effect on profit before tax
Currency
EUR ...............................................................................................................................
USD ...............................................................................................................................
GBP ...............................................................................................................................
CHF ...............................................................................................................................
JPY ................................................................................................................................
SEK ...............................................................................................................................
NOK ...............................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
69
Amounts are in ISK million
Notes to the Consolidated Financial Statements
58. Inflation risk
31.12.2023 31.12.2022
1,551 4,148
405,910 282,521
Total CPI-linked assets 407,461 286,669
116,551 107,684
140,428 137,169
19,850 9,199
1,176 4,912
11 -
Total CPI-linked liabilities 278,016 258,964
CPI imbalance 129,445 27,705
59. Capital management
31.12.2023 31.12.2022
Own funds
9,898 10,000
55,000 55,000
5,083 9,158
154,712 144,716
- 1,301
1,827 ( 1,786)
( 14,990) ( 27,267)
( 122) ( 116)
( 1,922) ( 3,279)
( 3) -
CET1 capital 209,483 187,727
10,019 10,062
Tier 1 capital 219,502 197,789
28,135 24,330
Total capital base 247,637 222,119
*The AGM of Íslandsbanki held on 16 March 2023 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 5 billion, which is within the 10% authorisation from the AGM. At 31 December 2023 ISK 2.7 billion remained of
the approved buyback and is therefore deducted from CET1 capital.
Deposits from customers .........................................................................................................................................
Debt issued and other borrowed funds .....................................................................................................................
Off-balance sheet exposures ...................................................................................................................................
Short positions .........................................................................................................................................................
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 2023 and 31 December 2022.
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 1,294 million increase in profit before tax and a 1% decrease would lead to a corresponding decrease, other risk
factors held constant.
Bonds and debt instruments ....................................................................................................................................
Loans to customers .................................................................................................................................................
IFRS 9 reversal due to transitional rules ..................................................................................................................
Fair value changes due to own credit standing ........................................................................................................
Retained earnings ....................................................................................................................................................
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 30 June 2023
maintain an additional capital requirement of 2.4% of risk exposure amount. The Group's overall capital requirement, taking into account
capital buffers, is 19.8%. The Group's capital target includes a 1-3% 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 March 2023, the Central Bank of Iceland Financial Stability Committee announced the decision to increase the countercyclical capital
buffer rate from 2% to 2.5%, effective from 15 March 2024, increasing the Group's overall capital requirements to 20.3%.
Reserves .................................................................................................................................................................
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 wheras the simplified standardised approach is used for counterparty credit risk.
Subordinated loans ..................................................................................................................................................
Foreseeable dividend payment and approved buyback* ..........................................................................................
Tax assets ...............................................................................................................................................................
Intangible assets ......................................................................................................................................................
Insufficient coverage for non-performing exposures .................................................................................................
Additional Tier 1 capital ............................................................................................................................................
Tier 2 capital ............................................................................................................................................................
Íslandsbanki hf. Consolidated Financial Statements 2023
70
Amounts are in ISK million
Notes to the Consolidated Financial Statements
59.
Risk exposure amount
865,758 893,110
10,360 15,417
677 2,756
100,237 88,208
Total risk exposure amount 977,032 999,491
Capital ratios
21.4% 18.8%
22.5% 19.8%
25.3% 22.2%
Leverage ratio
Exposure amount
1,571,430 1,541,738
53,224 68,702
11,246 30,596
Leverage ratio total exposure measure 1,635,900 1,641,036
219,502 197,789
Leverage ratio 13.4% 12.1%
Total capital ratio .....................................................................................................................................................
On-balance sheet exposures ...................................................................................................................................
Off-balance sheet exposures ...................................................................................................................................
Derivative exposures ...............................................................................................................................................
Tier 1 capital ............................................................................................................................................................
Tier 1 ratio ...............................................................................................................................................................
Due to credit risk ......................................................................................................................................................
Due to market risk ...................................................................................................................................................
Due to credit valuation adjustment ...........................................................................................................................
Due to operational risk .............................................................................................................................................
CET1 ratio ...............................................................................................................................................................
Capital management (continued)
Íslandsbanki hf. Consolidated Financial Statements 2023
71
Amounts are in ISK million
Notes to the Consolidated Financial Statements
60.
Minimum requirements for own funds and eligible liabilities
Amount % of REA Amount % of REA
203,223 20.8% 211,892 21.2%
91,450 9.4% 93,028 9.3%
MREL including combined buffer requirement
294,673
30.2%
304,920
30.5%
Own funds and eligible liabilities
Amount % of REA Amount % of REA
247,637 25.3% 222,119 22.2%
155,617 15.9% 122,925 12.3%
Own funds and eligible liabilities
403,254
41.3%
345,044
34.5%
61. Operational risk
The minimum requirement for own funds and eligible liabilities (MREL) for Íslandsbanki is based on the Bank's resolution plan that is
approved by the Icelandic Resolution Authority. The requirement can be met with the total capital base in addition to senior non-preferred
and senior preferred debt with some conditions, such as having more than one year to maturity. This debt is referred to as eligible liabilities.
The subordination requirement provided for in the Bank Recovery and Resolution Directive II (BRRD II) has not been implemented in
Iceland. No market confidence charge is applied in Iceland.
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.
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.
Minimum requirement for own funds and eligible liabilities (MREL)
31.12.2023
31.12.2023
MREL ............................................................................................................................
Combined buffer requirement ........................................................................................
Own funds .....................................................................................................................
Eligible liabilities ............................................................................................................
31.12.2022
31.12.2022
The MREL requirement for Íslandsbanki is the sum of the loss absorption amount (LAA) and recapitalisation amount (RCA). At 31 December
2023 the LAA and RCA were both equal to the total SREP capital requirement of 10.4%, resulting in an MREL requirement of 20.8% of REA.
Íslandsbanki hf. Consolidated Financial Statements 2023
72
Amounts are in ISK million
Notes to the Consolidated Financial Statements
62.
Material 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
6
2.1 Basis of consolidation ............................................................................................................................................................ 74
62.2 Investments in associates ...................................................................................................................................................... 75
62.3 Financial assets and financial liabilities .................................................................................................................................. 75
62.4 Cash and cash equivalents .................................................................................................................................................... 81
62.5 Derivative financial instruments ............................................................................................................................................. 81
62.6 Hedge accounting .................................................................................................................................................................. 82
62.7 Leases ................................................................................................................................................................................... 82
62.8 Loan commitments and financial guarantees ......................................................................................................................... 83
62.9 Provisions .............................................................................................................................................................................. 83
62.10 Employee benefits ................................................................................................................................................................. 83
62.11 Equity .................................................................................................................................................................................... 83
62.12 Interest income and interest expense .................................................................................................................................... 84
62.13 Net fee and commission income ............................................................................................................................................ 85
62.14 Net financial income (expense) .............................................................................................................................................. 85
62.15 Impairment of non-financial assets......................................................................................................................................... 85
62.16 Taxes .................................................................................................................................................................................... 86
62.17 Offsetting ............................................................................................................................................................................... 86
62.18 Earnings per share ................................................................................................................................................................ 86
Íslandsbanki hf. Consolidated Financial Statements 2023
73
Notes to the Consolidated Financial Statements
62.1 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.
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
G
enerally, 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.
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.
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.
Íslandsbanki hf. Consolidated Financial Statements 2023
74
Notes to the Consolidated Financial Statements
62.2 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 62.1).
The Group accounts for its investments in associates using the equity method.
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".
62.3 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.
Íslandsbanki hf. Consolidated Financial Statements 2023
75
Notes to the Consolidated Financial Statements
62.3 Financial assets and financial liabilities (continued)
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.
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)
A financial asset is classified as being subsequently measured at fair value through other comprehensive income 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 and sell, i.e. Held to collect and for sale.
Financial assets at fair value through other comprehensive income are initially recognised and subsequently measured at fair value
in the Statement of Financial Position. Changes in fair value are recognised in other comprehensive income, except for interest earned
which is recognised using the effective interest method 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)”. Impairment and reversals of impairment are recognised in profit
or loss in the line item "Net impairment on financial assets", offset due to impairment is then transferred to other comprehensive
income. Impairment of financial assets measured at fair value through other comprehensive income does not affect the book value of
the financial assets since the financial assets are measured at fair value. On derecognition fair value gains and losses are recycled
to profit or loss.
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Notes to the Consolidated Financial Statements
62.3 Financial assets and financial liabilities (continued)
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 62.6).
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 62.8):
• 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
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 62.6).
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)".
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Notes to the Consolidated Financial Statements
62.3 Financial assets and financial liabilities (continued)
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 62.6).
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 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.
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. In some cases, where significant inputs into these
models are not observable, expert judgement and estimation for these inputs are required. 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.
Financial instruments carried at fair value are categorised into three levels of fair value hierarchy that reflect the type of inputs used
in making the fair value measurements. 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.
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.
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Notes to the Consolidated Financial Statements
62.3 Financial assets and financial liabilities (continued)
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.
Level 3: Fair Value Established Using Valuation Techniques Using Significant Unobservable Market Information
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.
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 ECL or lifetime ECL, 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 SICR 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.
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.
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Notes to the Consolidated Financial Statements
62.3 Financial assets and financial liabilities (continued)
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 models. 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 good and bad cases.
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 forward-looking scenarios to better reflect
uncertainty in economic conditions for borrowers and the ongoing uncertainty in global markets. The scenarios are usually weighted
25%-50%-25% (optimistic, base, pessimistic), but it was decided to keep using 20%-50%-30% at the end of year 2023, as it had been
throughout the year.
The table below shows macroeconomic indicators of the Group's Chief Economist's macroeconomic forecast used in ECL calculations
31.12.2023.
Change in economic indicators %
Estimate
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
2027
Economic growth (YoY real GDP change)
2.2
2.6
3.0
2.3
2.4
Housing prices in Iceland (average YoY change)
7.3
2.6
3.9
4.5
3.5
Purchasing power (average YoY change)
0.6
2.3
2.3
1.2
1.2
ISK exchange rate index (YoY change in average)
1.4
(5.3)
(2.0)
1.0
1.0
Policy rate, Central Bank of Iceland (average per year)
8.2
8.9
7.2
5.2
4.5
Inflation (average per year)
8.7
5.4
3.7
3.3
3.2
Capital formation (YoY real change)
0.8
(0.6)
4.1
1.5
2.5
thereof capital formation in industry
2.7
(3.3)
4.4
2.5
2.5
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Notes to the Consolidated Financial Statements
62.3 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 were made to the impairment model in response to seismic activity in Reykjanes during the last quarter of 2023.
For further information see 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.
62.4 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.
62.5 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 62.3 and Note 62.6).
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.
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Notes to the Consolidated Financial Statements
62.6 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.
62.7 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.
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.
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Notes to the Consolidated Financial Statements
62.8 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
62.3) 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 62.3). 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.
62.9 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.
62.10 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.
62.11 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.
Íslandsbanki hf. Consolidated Financial Statements 2023
83
Notes to the Consolidated Financial Statements
62.11 Equity (continued)
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.
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.
62.12 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 62.3).
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
62.3).
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 62.6), is recognised in profit
or loss as an adjustment to the interest expense recognised for the bonds.
Íslandsbanki hf. Consolidated Financial Statements 2023
84
Notes to the Consolidated Financial Statements
62.13 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.
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.
62.14 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 62.6).
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.
62.15 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.
Íslandsbanki hf. Consolidated Financial Statements 2023
85
Notes to the Consolidated Financial Statements
62.16 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". 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% (2022: 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. The enacted tax rate was temporarily increased from 20% to
21% for taxable income in 2024, this temporary change in tax rate impacts deferred tax calculations.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
deduct
ible 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".
62.17 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.
62.18 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 hf. Consolidated Financial Statements 2023
86
islandsbanki.is
The Board of Directors of Íslandsbanki is
committed to excellence in corporate governance
and complying with the applicable regulatory
standards and best international practices in the

The regulatory framework for corporate gover-
nance practices within Íslandsbanki consists of the
law applicable to entities subject to the supervision
of the Financial Supervisory Authority of the Central
Bank of Iceland (FSA) as well as other applicable
law and regulations, including those imposed by the
FSA and Nasdaq Iceland, available at their respec-
    
The applicable law includes, inter alia, the Act on
      
Recovery and Resolution of Credit Institutions
       
     
       
Act on Measures against Money Laundering
       
Sustainability Disclosure Requirements in the
      
   
    
    
      
      
Íslandsbanki's Articles of Association lay the

The relevant laws are available on the Icelandic



is required to comply with the accepted Guidelines

with Corporate Governance Guidelines issued
by the Iceland Chamber of Commerce, Nasdaq
Iceland and SA Business Iceland (hereinafter the
     
provide that companies are to disclose any
deviations from the Guidelines and explain the



Moreover, the Bank's governance practices are
based on the European Banking Authority's
Guidelines on Internal Governance for Financial
   
     
       

The Bank's shares are admitted to trading on the
       
regularly issues bonds on the regulated securities
        
therefore subject to the disclosure obligation of
issuers pursuant to the Act on the Disclosure and
Information requirements of Issuers of Securities
     

Consolidated Financial Statements
Íslandsbanki's Corporate
Governance Statement 2023
Unaudited
87
islandsbanki.is
The Icelandic State Financial Investments (ISFI),
on behalf of the Icelandic Government, is the
    
of the Bank's shares, in accordance with the Act
     

     
objective as owner is that its management of the

       
    
maximise long-term value for the Icelandic State
     




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

operations, adequate control of risks, prudent
      
    
externally, and compliance with the applicable
laws, regulations, supervisory requirements, and

        
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

Risk Management
The Board of Directors approves the risk policy,
risk appetite statement and procedure for risk
management and ensures that internal procedures

The All Risk Committee, a Senior Management
Committee, is comprised of the Chief Executive
      
the Bank and other members of management

decisions on implementation of the Bank's risk
management and internal audit frameworks and
conducts oversight to ensure that the Bank's risk


guidelines for risk assessment and individual risk

Further information on the Bank's risk management
structure and internal control can be found in the


Audit and Accounting
        
provided with accurate information on the Bank's

basis and the Board Audit Committee assists the
     


The Bank's Finance division is responsible for the
preparation of the Group's Consolidated Financial
Statements in line with the International Financial
Reporting Standards (IFRS) as adopted by the
European Union and additional requirements in
      

    
Audit Committee reviews annual and interim
Consolidated Financial Statements before their
    
The Board's Audit Committee regularly discusses

If the Bank's own shares are taken into account,

88
islandsbanki.is

        
       
Condensed Consolidated Financial Statements

The Consolidated Financial Statements are
published on an annual basis and the Condensed
Consolidated Financial Statements on a quarterly
basis
The Annual General Meeting (AGM) elects an
    

AGM is based on the Audit Committee's proposal


the last AGM, voluntarily relinquished its license
    
     
      
team that initiated the Bank's audit this fall will

  
Board decided to convene a special shareholders'
meeting and propose Deloitte as the Bank's audit
       
that the previously announced timeline for the
publication of the Bank's audited annual accounts
was not disturbed and continuity in the review
that had already begun, a letter of engagement
was signed with Deloitte for this service, subject
       
        


form the basis of the Audit Committee's proposal

Group Internal Audit
The Board appoints the Chief Audit Executive,
who is responsible for internal audit of the Bank
      
directly to the Board and operates independently
from other departments in accordance with
       
     
    
of governance, risk management, and control
   
of the Chief Audit Executive and Group Internal
Audit are further outlined in the Group Internal

Compliance

       

         

crime risk, data protection, breach of conduct and

is responsible for monitoring and assessing the


and monitoring the Bank's compliance with the
Act on Measures against Money Laundering and


      

Íslandsbanki Values, Sustainability and Code of
Conduct
        
Íslandsbanki's values are passion, professionalism,
and collaboration and they are the pillars of the
Bank's corporate culture, shaping the conduct and

The Board approves a Code of Conduct for
        
     

The Bank has in place a Sustainability Policy which
is focused on making its operations exemplary
in the Icelandic business environment, based on
internationally recognised environmental, social,


89
islandsbanki.is
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;
      
an Annual and Sustainability Report that is based
on the Nasdaq ESG guidelines, the applicable
Global Reporting Initiative (GRI) metrics, the UN
Principles for Responsible Banking (UN PRB),

a signatory to the UN Global Compact on social

Board of Directors
At each AGM seven non-executive directors, and
two alternate members, are elected to the Board

elected separately at the AGM or the shareholders'
       


shareholders' meetings unless otherwise provided
        
Board is responsible for setting the Bank's general
       
      
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


The Rules of Procedure of the Board are adopted


     
Board's current Rules of Procedure are available on

of Association a Board meeting has a quorum if
        

The Articles of Association of the Bank provide that
the ratio of each gender on the Board of Directors
       
        
Board has approved a policy on the suitability of
       

the composition of the Board shall at any time be
diverse, with regard to educational and professional

The Board Sub-Committees
The Board sub-committees are three in total, and
they operate under the terms of a mandate letter
from the Board as well as the Rules of Procedure
        
sub-committees are available on the Bank's
      
      
When appointing the sub-committees, the Board
shall take into account the expertise, skills and
experience needed of a member to be appointed
       
committees are constituted of members of the
Board.
The Board Audit Committee, comprising three
       
   
reporting process, the system of internal control, the
audit process and the Bank's process for monitoring
compliance with the relevant laws and regulations
       

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
   
include the parent company, its subsidiaries, and


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
90
islandsbanki.is
    
       
oversight responsibilities concerning the Bank's
Compensation Policy, implementation of the
Bank's Sustainability Policy and issues concerning


The structure and composition of Board sub-

Stefán Pétursson
(b. 1963)
Joined the Board as
Vice-Chairman in

Main Occupation:    

Work experience:     
       

Other directorships:      
      
and Investors' Guarantee Fund, Icelandic Chamber of
        

Education:
oecon in Business Administration from the University of

Shareholding and independence: Stefán holds no
shares in Íslandsbanki and is considered independent of
   

Sub-Committees: Member of the Board Risk

Linda Jónsdóttir
(b. 1978)
Joined the Board as

Main occupation    

Work experience:     
Director of Treasury, Finance and Investor Relations at

      
     
     


Other directorships: University of Iceland Science Park

Icelandic Enterprise Investment Fund, Iceland Chamber

Education:     

    

Shareholding and independence:   
      



Sub-Committees: Member of the Corporate

Members of the Board
91
islandsbanki.is
Agnar Tómas
Möller (b. 1979)
Joined the Board

Main occupation: 
Work experience: Fund Manager of bond funds at Kvika
      


      
Teacher at the School of Business Administration and the


Other directorships:     

Education:      


Shareholding and independence: Agnar holds no
shares in Íslandsbanki and is considered independent of
   

Sub-Committees: Member of the Board Audit

Anna Þórðardóttir
(b. 1960)
Joined the Board

Main Occupation: 
Work experience:     

Other directorships: The Icelandic Centre for Future
     
       

Authorised Public Accountants and a member of the

Education:     

      

Shareholding and independence: Anna holds no shares
in Íslandsbanki and is considered independent of the


Sub-Committees: Chairman of the Board Audit

Haukur Örn
Birgisson (b. 1978)
Joined the Board

Main Occupation: Supreme Court Attorney, owner, and

Work experience: Supreme Court Attorney, owner,
and Managing Director of Íslenska lögfræðistofan
     

      
     


the University of Iceland, Verzlunarskóli Íslands and

Other directorships: Reparations Settlement
Committee (as Chairman) and Administrative
Committee of the International Golf Federation (Board

         

Education:       

Shareholding and independence:   
shares in Íslandsbanki and is considered independent of
   

Sub-Committees: Chairman of the Board Corporate

92
islandsbanki.is

Páll Grétar
Steingrímsson
(b. 1965)
Joined the Board

Main Occupation: Independent consultant and director

Work experience:     

Other directorships: The Board Audit Committee of




of State Authorised Public Accountants (as Vice-

Education:     

Shareholding and independence: Páll holds no shares
in Íslandsbanki and is considered independent of the


Sub-Committees: Member of the Board Audit

Helga Hlín
Hákonardóttir
(b. 1972)
Joined the Board

Main Occupation: 
Work experience: Founder and lawyer at Lixia
   
        


     
      

Other directorships:     
        
     
    
 

        

Education:       
     
licensed by the Icelandic Ministry of Finance and

Shareholding and independence: 
shares in Íslandsbanki and is considered independent of
   

Sub-Committees: Chairman of the Board Risk
Management Committee and member of the Board
    

93
islandsbanki.is
Structure and Composition of Board Sub-Committees
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

of the Nomination Committee shall be three,
elected for one year at a time by the Board of

be one of three members of the Committee but
       
Committee members shall be independent of
      
of those Committee members shall further be
independent of the Bank's shareholders who
own a qualifying holding, or any such group of
shareholders acting in concert and owning a

The Nomination Committee consists of:
-

- Linda Jónsdóttir, Chairman of the
Board of Íslandsbanki
- 
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
       
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

The Rules of Procedure of the Bank's Nomination

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
     
is intended to improve working methods
       
assessment entails an evaluation of the strengths

This is, inter alia, based on the necessary number
of Board directors, the Board structure in relation
to knowledge and experience, Board procedure
     
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
       
Board
Audit Committee
Board
Risk Management Committee
Board Corporate Governance

Chair Member
Agnar Tómas Möller
Anna Þórðardóttir


Linda Jónsdóttir


94
islandsbanki.is
This assessment was performed by the Board in

suitability of the Board as well as the suitability of
individual Board members and concluded that
the Board and individual Board members possess
      
requirements of the Act on Financial Undertakings
and the Bank's policy on the suitability of the Board

The Chief Executive Ocer
      
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

      
Committee and other Senior Management

Jón Guðni
Ómarsson (b. 1976)


Work experience: 

Education:     
      


      

Other directorships: 
Shareholding and independence: Jón Guðni holds
        


Guðni is considered independent of the Bank and major
       
      

The Executive Committee
The Executive Committee consists of eight

      
     

    
      
    



Director of Personal Banking since February
  

Senior Management Committees
Senior Management Committees are advisory
     
Management Committees are divided into
Policy-Setting Committees, which implement
Board policies, and Business Committees, which
       
     

The Executive Committee and the All Risk
Committee are considered Policy-Setting
Committees and they take major decisions on the
       
Committee members include all of the Bank's
95
islandsbanki.is
Managing Directors, as well as other members of

- The Executive Committee oversees and co-
ordinates key aspects of the Bank's activities and
has decision-making authority in matters assigned


- The All Risk Committee takes major decisions
on implementation of the Bank's risk management
and internal audit frameworks and conducts
        


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

- The Senior Credit Committee decides on
proposals on lending and is the formal venue for

- The Asset and Liability Committee decides
on proposals regarding market risk, liquidity risk,

- The Investment Committee decides on
proposals regarding the purchase, sale and
valuation of equity stakes and other investments of

- The Operational and Security Committee
decides on proposals regarding new products
and services, continuous operation and material

- The Sustainability Committee is a formal
forum for reviewing and discussing issues related
to sustainability risk, sustainable procurement, and

- The Digital Product Committee is a formal
forum for prioritisation of initiatives between
product teams in line with the strategy and goals of

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
    
authority of the Bank, are the general forum for
    

information is disclosed to the market through the
relevant regulated market's announcement system
in accordance with the Bank's Disclosure and
     
quarterly meetings for market participants where
      
relations present the Bank's Interim Financial

The Bank's Disclosure Committee assesses the
    
decides on disclosure in accordance with the
Bank's Rules on insider trading and management


      

Information on Infringements of Laws and
Regulations Determined by the Appropriate
Supervisory or Ruling Body
         
Settlement Agreement regarding the execution
         
       
Agreement provides that the Bank admits, that
     
it did not comply with the certain applicable
legal requirements and internal rules of the
Bank on the provision of investment services,
particularly in relation with recording of telephone
communications, disclosures made to purchasers
      
requirements, and measures to prevent conflicts of

    
that the Bank's implementation of governance
and internal controls as well as a risk-based
96
islandsbanki.is
approach to supervision of recordings of telephone
   
the Settlement Agreement states that the Bank
should have carried out a separate risk assessment
     
Agreement also states that in executing the

obligation to act honestly, fairly and professionally

Settlement Agreement, the Bank agreed to pay a

to having violated certain provisions of the Act on


       
the Settlement Agreement, the FSA put forward
     
     
the Bank's Chief Audit Executive reviewed the

remedial requirements had been adequately met



        
an inspection of the Bank's anti-money


No other remarks were received from an appro-
priate supervisory or ruling body concerning
     
on legal cases relating to Íslandsbanki can be
found in the Notes to the Consolidated Financial

This Corporate Governance Statement was


97
Green Asset Ratio
Unaudited
Template
number
0
1
2
3
4
5
In accordance with local regulation, Íslandsbanki publishes in an unaudited appendix to
the Consolidated Financial Statements information regarding the EU taxonomy, Green
Asset Ratio. In 2023, the regulation entered into force for financial institutions and other
non-financial institutions within its scope, and by that made it mandatory to publish
information on the Bank's assets which meet the regulation's requirements, and can
according to the taxonomy be considered as environmentally sustainable. Íslandsbanki
must obtain this information directly from its customers or other public data sources,
such as The Register of Annual Accounts, but as almost no such information has been
published during the process of this financial statement, the Bank faces an impossibility
regarding data. For that reason, no assets are defined as green or sustainable according
to the EU taxonomy at year-end 2023. The Bank aims to work on data collection and
conversations with major customers in 2024, with the aim that the disclosure for 2024
better reflects the actual situation. It is clear that the implementation into Icelandic
legislation will influence the Bank's efforts in this regard.
KPI off-balance sheet exposures
Name
Summary of KPIs
Assets for the calculation of GAR
GAR sector information
GAR KPI stock
GAR KPI flow
98
Total environmentally sustainable assets
Main KPIs**** Main KPIs***** % coverage (over total assets)***
Main KPI Green asset ratio (GAR) stock
Total environmentally sustainable activities
Main KPIs Main KPIs % coverage (over total assets)
Additional KPIs
GAR (flow)
GAR non-EU exposures
Trading book*
Financial guarantees
Assets under management
Fees and commissions income**
* For credit institutions that do not meet the conditions of Article 94(1) of the CRR or the conditions set out in Article 325a(1) of the CRR.
*** % of assets covered by the KPI over banks´ total assets.
**** based on the Turnover KPI of the counterparty.
***** based on the CapEx KPI of the counterparty, except for lending activities where for general lending Turnover KPI is used.
Note 1: Across the reporting templates: cells shaded in black should not be reported.
Note 2: Fees and Commissions (sheet 6) and Trading Book (sheet 7) KPIs shall only apply starting 2026. SMEs´inclusion in these KPI will only apply subject to a positive result of an impact assessment.
** Fees and commissions income from services other than lending and AuM Instutitons shall dislcose forwardlooking information for this KPIs, including information in terms of targets, together with relevant
explanations on the methodology applied.
0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation
As the information to be published in the table is based on financial statements of companies which are not available at the time of the publication of the Consolidated Financial Statements,
and since Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy efficiency of buildings 2010/31/EU has has not been implemented in Iceland, the
tables are empty.
99
1. Assets for the calculation of GAR
a b c d e f g h i j k l m n o p q r s t u v w x y z aa ab ac ad ae af
Of which
specialised
lending
Of which
transitional
Of which
enabling
Of which
specialised
lending
Of which
adaptation
Of which
enabling
Of which
specialised
lending
Of which
transitional/
adaptation
Of which
enabling
Of which
specialised
lending
Of which
transitional
Of which
enabling
Of which
specialised
lending
Of which
adaptation
Of which
enabling
Of which
specialised
lending
Of which
transitional/
adaptation
Of which
enabling
1 GAR - Eligible assets share in numerator and denominator
2
Loans and advances, debt securities and equity instruments
not HfT eligible for GAR calculation
3 Financial corporations
4 Credit institutions
5 Loans and advances
6 Debt securities
7 Equity instruments
8 Other financial corporations
9 of which investment firms
10 Loans and advances
11 Debt securities
12 Equity instruments
13 of which management companies
14 Loans and advances
15 Debt securities
16 Equity instruments
17 of which insurance undertakings
18 Loans and advances
19 Debt securities
20 Equity instruments
21 Non-financial corporations
22 NFCs subject to NFRD disclosure obligations
23 Loans and advances
24 Debt securities
25 Equity instruments
26 Households
27
of which loans collateralised by residential
immovable property
28 of which building renovation loans
29 of which motor vehicle loans
30 Local governments - House financing
31
Collateral obtained by taking possession:
32
Other local governmental funding
33
Other assets excluded from the numerator for the calculation of
the proportion of green assets (which fall under the
34 Other corporations, non-financial
35
SMEs and NFCs (other than SMEs) not subject to NFRD
disclosure obligations
36 Loans and advances
37
of which loans collateralised by commercial
immovable property
38 of which building renovation loans
39 Debt securities
40 Equity instruments
41
Counterparties outside the Union that are not subject to
disclosure obligation under the NFRD
42 Loans and advances
43 Debt securities
44 Equity instruments
45
Derivatives
46
Interbank loans, payable when required
47
Cash and cash equivalents
48
Other assets
49
Total GAR
50 Other assets not eligible for GAR calculation
51
Governments
52
Central bank exposure
53
Trading book
54
Total assets
55 Financial guarantees
56 Assets under management
57 Of which debt securities (NFRD obliged corporates)
43 Of which equity instruments (NFRD obliged corporates)
1. This template shall include information for loans and advances, debt securities and equity instruments in the banking book, towards financial corporates, non-financial corporates (NFC), including SMEs, households (including residential real estate, house renovation loans and motor vehicle loans only) and local governments/municipalities (house financing).
2. The following accounting categories of financial assets should be considered: Financial assets at amortised cost, financial assets at fair value through other comprehensive income, investments in subsidiaries, joint ventures and associates, financial assets designated at fair value through profit or loss and non-trading financial assets mandatorily at fair value through profit or loss, and real estate collaterals obtained by credit institutions by taking possession in exchange in of cancellation of debts.
4. For motor vehicle loans, institutions shall only include those exposures generated after the date of application of the disclosure.
3. Banks with non-EU subsidiary should provide this information separately for exposures towards non-EU counterparties. For non-EU exposures, while there are additional challenges in terms of absence of common disclosure requirements and methodology, as the EU taxonomy and the NFRD apply only at EU level, given the relevance of these exposures for those credit institutions with non-EU subsidiaries, these institutions should disclose a separate GAR for non-EU exposures, on a best effort basis, in the form of
estimates and ranges, using proxies, and explaining the assumptions, caveats and limitations.
Of which towards taxonomy relevant sectors Of which towards taxonomy relevant sectors Of which towards taxonomy relevant sectors
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Total gross
carrying
amount
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
Off-balance sheet exposures - Corporates subject to NFRD disclosure obligations
Of which environmentally sustainable Of which environmentally sustainable Of which environmentally sustainable Of which environmentally sustainable
As the information to be published in the table is based on financial statements of companies which are not available at the time of the publication of the Consolidated Financial Statements, and
since Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy efficiency of buildings 2010/31/EU has has not been implemented in Iceland, the tables
are empty.
Of which environmentally sustainable Of which environmentally sustainable
Million EUR
Disclosure reference date T
Disclosure reference date T-1
Total gross
carrying
amount
TOTAL (CCM + CCA)
Of which towards taxonomy relevant sectors Of which towards taxonomy relevant sectors Of which towards taxonomy relevant sectors
100
2. GAR sector information
a b c e f h i k l n o q r
Mn EUR
Of which
environmentally
sustainable (CCM)
Mn EUR
Of which
environmentally
sustainable (CCM)
Mn EUR
Of which
environmentally
sustainable
(CCA)
Mn EUR
Of which
environmentally
sustainable
(CCA)
Mn EUR
Of which
environmentally
sustainable
(CCM + CCA)
Mn EUR
Of which
environmentally
sustainable
(CCM + CCA)
1
2
3
4
…
Gross carrying amount Gross carrying amount Gross carrying amount
As the information to be published in the table is based on financial statements of companies which are not available at the time of the publication of the Consolidated Financial Statements the
tables are empty.
1. Credit institutions shall disclose in this template information on exposures in the banking book towards those sectors covered by the Taxonomy (NACE sectors 4 levels of detail), using the relevant NACE Codes on the basis of the principal activity of the counterparty.
2. The counterparty NACE sector allocation shall be based exclusively on the nature of the immediate counterparty. The classification of the exposures incurred jointly by more than one obligor shall be done on the basis of the characteristics of the obligor that was the
more relevant, or determinant, for the institution to grant the exposure. The distribution of jointly incurred exposures by NACE codes shall be driven by the characteristics of the more relevant or determinant obligor. Institutions shall disclose information by NACE codes
with the level of disaggregation required in the template.
Gross carrying amount
Climate Change Adaptation (CCA)
Breakdown by
sector - NACE 4
digits level (code
and label)
Climate Change Mitigation (CCM)
TOTAL (CCM + CCA)
Non-Financial corporates (Subject to
NFRD)
SMEs and other NFC not subject to
NFRD
Non-Financial corporates (Subject to
NFRD)
SMEs and other NFC not subject to
NFRD
Non-Financial corporates (Subject to
NFRD)
SMEs and other NFC not subject to
NFRD
Gross carrying amount Gross carrying amount
101
3. GAR KPI stock
a b c d e f g h i j k l m n o p r s t u v w x y z aa ab ac ad ae af
Of which
specialised
lending
Of which
transitional
Of which
enabling
Of which
specialised
lending
Of which
adaptation
Of which
enabling
Of which
specialised
lending
Of which
transitional/
adaptation
Of which
enabling
Of which
specialised
lending
Of which
transitional
Of which
enabling
Of which
specialised
lending
Of which
adaptation
Of which
enabling
Of which
specialised
lending
Of which
transitional/
adaptation
Of which
enabling
1 TOTAL GAR
2
Loans and advances, debt securities and equity instruments not
HfT eligible for GAR calculation
3 Financial corporations
4 Credit institutions
5 Loans and advances
6 Debt securities
7 Equity instruments
8 Other financial corporations
9 of which investment firms
10 Loans and advances
11 Debt securities
12 Equity instruments
13 of which management companies
14 Loans and advances
15 Debt securities
16 Equity instruments
17 of which insurance undertakings
18 Loans and advances
19 Debt securities
20 Equity instruments
21 Non-financial corporations
22 NFCs subject to NFRD disclosure obligations
23 Loans and advances
24 Debt securities
25 Equity instruments
26 Households
27
of which loans collateralised by residential
28 of which building renovation loans
29 of which motor vehicle loans
30
Local governments
31
Collateral obtained by taking possession: residential
and commercial immovable properties
32
Other local governmental funding
49
Share of green assets
1. Institution shall dislcose in this template the GAR KPIs on stock of loans calculated based on the data disclosed in template 1, on covered assets, and by applying the formulas proposed in this template.
2. Information on the GAR (green asset ratio of 'eligible' activities) shall be accompanied with information on the proportion of total assets covered by the GAR.
3. Credit instituti ons can, in addition to the information included in this template, showthe proportion of assets funding taxonomy relevant sectors that are environmetnallysustainable (Taxonomy-aligned). This information would enrich the information on theKPI on environmentatlly sustainable assets compared to total covered assets.
As the information to be published in the table is based on financial statements of companies which are not available at the time of the publication of the Consolidated Financial Statements, and
since D
irective 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy efficiency of buildings 2010/31/EU has has not been implemented in Iceland, the tables
are empty.
Proportion
of total
assets
covered
Disclosure reference date T-1
Of which towards taxonomy relevant sectors Of which towards taxonomy relevant sectors
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
Of which environmentally sustainable Of which environmentally sustainable Of which environmentally sustainable Of which environmentally sustainable Of which environmentally sustainable Of which environmentally sustainable
% (compared to total covered assets in the denominator)
Disclosure reference date T
TOTAL (CCM + CCA)
Of which towards taxonomy relevant sectors Of which towards taxonomy relevant sectors Of which towards taxonomy relevant sectors Of which towards taxonomy relevant sectors
102
4. GAR KPI flow
a b c d e f g h i j k l m n o p
Of which
specialised
lending
Of which
transitional
Of which
enabling
Of which
specialised
lending
Of which
transitional
Of which
enabling
Of which
specialised
lending
Of which
transitional
Of which
enabling
1 GAR - Eligible assets
2
Loans and advances, debt securities and equity
instruments not HfT eligible for GAR calculation
3 Financial corporations
4 Credit institutions
5 Loans and advances
6 Debt securities
7 Equity instruments
8 Other financial corporations
9 of which investment firms
10 Loans and advances
11 Debt securities
12 Equity instruments
13 of which management companies
14 Loans and advances
15 Debt securities
16 Equity instruments
17 of which insurance undertakings
18 Loans and advances
19 Debt securities
20 Equity instruments
21 Non-financial corporations
22 NFCs subject to NFRD disclosure obligations
23 Loans and advances
24 Debt securities
25 Equity instruments
26 Households
27
of which loans collateralised by residential
immovable property
28 of which building renovation loans
29 of which motor vehicle loans
30
Local governments
31
Collateral obtained by taking possession: residential and
commercial immovable properties
32
Other local governmental funding
49
Share of green assets
1. Institution shall dislcose in this template the GAR KPIs on flow of loans calculated (new loans on a net basis) based on the data disclosed in template 1, on covered assets, and by applying the formulas proposed in this template.
As the information to be published in the table is based on financial statements of companies which are not available at the time of the publication of the Consolidated Financial
Statements, and since Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy efficiency of buildings 2010/31/EU has has not been implemented
in Iceland, the tables are empty.
Proportion
of total new
assets
covered
Disclosure reference date T
Proportion of new eligible assets funding taxonomy relevant sectors Proportion of neweligible assets funding taxonomy relevant sectors
Of which environmentally sustainable Of which environmentally sustainable Of which environmentally sustainable
% (compared to flow of total eligible assets)
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Proportion of new eligible assets funding taxonomy relevant sectors
103
5. KPI off-balance sheet exposures
a b c d e f g h i j k l m n o
Of which
specialised
lending
Of which
transitional
Of which
enabling
Of which
specialised
lending
Of which
transitional
Of which
enabling
Of which
specialised
lending
Of which
transitional
Of which
enabling
1 Financial guarantees (FinGuar KPI)
2 Assets under management (AuM KPI)
1. Institution shall dislcose in this template the KPIs for off-balance sheet exposures (financial guarantees and AuM) calculated based on the data disclosed in template 1, on covered assets, and by applying the formulas proposed in this template.
As the information to be published in the table is based on financial statements of companies which are not available at the time of the publication of the Consolidated Financial Statements the
tables are empty.
Of which environmentally sustainable Of which environmentally sustainable
Disclosure reference date T
% (compared to total eligible off-balance sheet assets)
Climate Change Mitigation (CCM)
Climate Change Adaptation (CCA)
TOTAL (CCM + CCA)
Of which environmentally sustainable Proportion of new assets funding taxonomy relevant sectors Proportion of new assets funding taxonomy relevant sectors
Of which environmentally sustainable
104
Íslandsbanki hf.
•
Hagasmári 3
•
201 Kópavogur
•
Iceland
•
Reg.no. 491008-0160
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