Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Islandsbanki hf (OISE:ISB, Financial) reported a strong capital position, maintaining a capital ratio of 23.1% and a CET1 ratio of 19.9%.
- The bank continues its share buyback program, owning just below 4% of its own shares, with the ability to buy back ISK6.7 billion more.
- Loan growth was robust, with a 2.3% increase during the quarter, supported by strong demand in the housing market.
- The bank's asset quality remains strong, with a reduction in stage two loans from 3.3% to 2.5% and a decrease in stage three loans from 1.9% to 1.8%.
- Islandsbanki hf (OISE:ISB) has been investing in digital developments, enhancing its product offerings and infrastructure, which received strong rewards.
Negative Points
- Return on equity was slightly below the target of 10%, reported at 9.7%, impacted by a fine related to AML issues.
- The cost-income ratio exceeded the target, reported at 46.4% for the quarter, partly due to increased investments in IT and regulatory infrastructure.
- The high interest rate environment, with Central Bank rates at 9.25%, is impacting individual borrowers and causing fluctuations in earnings.
- Tourism, a significant sector for Iceland, is expected to see a reduction in visitor numbers due to volcanic activity and high costs.
- Inflation remains high at around 6%, with expectations for it to decrease slowly, impacting the bank's net interest income and earnings volatility.
Q & A Highlights
Q: How should we think about Islandsbanki delivering a return on equity above 10% in the coming years, and what are the main levers and efficiencies involved?
A: Jon Omarsson, CEO, explained that the underlying business supports a return on equity well above 10% in the medium to long term. The main levers include strong loan growth, both domestically and internationally, and potential M&A opportunities. In the short term, fluctuations in inflation and interest rates may cause some volatility, but the bank expects a positive impact in the long term as fixed-rate mortgages run off.
Q: Can you elaborate on the ISK25 billion of excess capital and your plans for internal and external growth opportunities?
A: Jon Omarsson, CEO, stated that the bank plans to optimize capital through a mix of share buybacks and growth, including strong loan growth in Iceland and modest international growth, particularly in the seafood sector. The bank is also open to potential M&A opportunities in Iceland.
Q: What is driving the strong deposit growth, and is there any seasonality involved?
A: Ellert Hlodversson, CFO, noted that deposit growth has been strong across all banks, reflecting the overall financial strength of households. There is no specific seasonality, but rather a reflection of the strong financial position of households, with growth predominantly in that segment.
Q: How does Basel IV impact Islandsbanki's risk-weighted assets (RWAs)?
A: Ellert Hlodversson, CFO, explained that as a standardized bank, Islandsbanki expects a reduction in RWAs due to Basel IV, particularly in mortgages, which will move to a more LTV-based approach. This will result in a reduction in risk-weighted assets, benefiting the bank's capital position.
Q: What are the expectations for loan growth going forward?
A: Ellert Hlodversson, CFO, indicated that loan growth has been strong, particularly in the construction sector, and the bank expects growth to be in the mid to high-mid single digits over the year, driven by new investments in infrastructure and other areas.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
