From the Chairman of the Board

The Bank’s profit in 2022 was ISK 17.0 billion after tax and return on equity was 6.3%. While we achieved good results from core operations, the decreased fair value of the Bank’s shareholding in Eyrir Invest hf., in the amount of ISK 10.5 billion, puts profitability below target.

Net interest income grew by 19% in 2022. The Bank’s net fee & commission income grew by 12%, reflecting increased activity almost across the board. Increased activity and good results in corporate banking and corporate finance along with sound asset management are the largest drivers of success.

The Bank’s current dividend policy is to pay a 50% of the previous year's profit in dividends to shareholders. The Board of Directors intends to propose that the Annual General Meeting (AGM) 2023 approve payment of an ISK 8.5 billion dividend for the operating year 2022. If the proposal is approved, the Bank’s dividend payments in 2013-2023 will amount to ISK 175.2 billion.

The Bank's position is strong by all measures. In 2021, we issued bonds for significant amounts on international capital markets. As a result, we were able to hold steady while financing terms and other conditions were unfavourable on international capital markets last year. Conditions have now improved and we aim to again increase our foreign currency issuance.

Service our customers want

Landsbankinn is at the forefront as regards development of technical infrastructure and digital solutions for our customers. It is extremely pleasing to see greatly increased use of Landsbankinn’s app by corporates.

It has been our policy to continue to operate branches and outlets in communities around the country, where conditions provide for such activities. We are part of society and follow through on our words. It is clear to us that both individuals and businesses appreciate this policy. Our share in the retail market all around the country has been growing. It now measures over 40% across all geographies and is even higher in rural areas, or almost 46%.

New technology has not only changed banking practices on the customer side, it has also led to changes in how we provide personal service and advice. One example is the development in technology to host remote meetings. Landsbankinn utilises this technology to enable employees all around the country to attend to customers regardless of geographies using the channels that are best suited to needs and purposes at each time. This allows us to draw much more effectively on the great expertise of our team, jobs in branches in rural Iceland have become more varied, wait for advice and services is shortened and service improved. Activity in branches and outlets around the country has changed in line with the times and new technology. Landsbankinn in Akureyri is a good example of the Bank’s modernised activity outside of the capital area. A team of around 30 employees currently works in our Akureyri branch, around half in service positions in the branch proper and the other half in a call centre that answers customers from the entire country. Our Akureyri branch is the largest branch outside of the capital region and the team there does a great job, as evidenced in the Bank’s high market share in the region. The Bank’s housing in Akureyri has long been too expansive for the operation, as in many other locations. We decided to offer the house for sale in 2022 and, in fall, we concluded an agreement with investment firm Kaldbakur on the purchase of the house. We had previously sold the old Landsbankinn houses in Ísafjörður and Selfoss, and now only one of the buildings designed by Guðjón Samúelsson remains in the Bank’s possession, Austurstræti 11. These buildings are all closely knit to the Bank’s history and we do not leave them without regret. But the fact is that with our removal from these old and venerable bank buildings, they can be revitalised and get a new lease on life. This is already the case in Akureyri, Ísafjörður and Selfoss and I trust that this will also be the case in Reykjavík.

100 years between moves

Next year, 100 years will have passed since the Bank moved into Austurstræti 11 again following the destruction of the first Landsbankinn building in the Great Reykjavík Fire of 1915. The then CEO, Magnús Sigurðsson, said on the occasion of the relocation to the rebuilt house in February 1924 that the new building was “the most beautiful structure ever erected by us Icelanders; a building that will ever stand as a monument to the people who raised it”. I wholeheartedly agree. Austurstræti 11 is a real gem and a good example of the importance of doing things well, both in the design and construction process, not least when building in prominent places in cities and towns.

The new headquarters will contribute to the harbour area and help activity flourish, with its open spaces and lively operation. It will also strengthen the Bank’s operation in that it offers a much better work environment than current facilities in Kvosin and Borgartún, which are both impractical and inefficient.

Construction has gone well and the aim is to begin the moving process now in the first quarter. All from the beginning, we have planned for utilisation of around 60% of the building's square measure (around 10,000 square metres) by the Bank itself while other parts of the building would be sold or rented. In fall, an agreement was reached with the State for the purchase of the so-called North Wing of Austurbakki to house the Ministry of Foreign Affairs and part of the activity of the National Gallery of Iceland. Sale of the North Wing to one large and trusted buyer was both a simple and efficient outcome. The activity the State intends to house in the building harmonises well with our own operation and provides several options for synergies. The outcome is favourable for both parties and it is exciting to think that the building will be bursting with life and energy from the outset.

Landsbankinn is the largest commercial bank in Iceland and offers universal financial service. Financial service requires specialised knowledge and investment in both technology and people. Security is also a considerable expense item, as cybercrime is a growing threat. Nor is the cost of meeting stringent demands made of financial undertakings, for regulation and control, insignificant. The Bank is well managed, as evidenced by stable operating expenses over the course of several years. We are focused on offering favourable terms, both in lending and deposits while keeping service charges low. At the same time, the Bank must achieve acceptable returns on the equity tied up in its operation.

Important to get inflation under control

Volatility has characterised both the Icelandic and international economies in past few years. There is no need to waste words on the impact of Covid-19. As the effect of the pandemic was receding and the outlook was for recovery in the world economy, Russia invaded Ukraine. The war and its impact on Ukraine are horrific and its direct and indirect influence is both extensive and far reaching. Energy prices rose through the roof and while we in Iceland only experience limited effects, higher fuel prices are nevertheless encumbering, both for private individuals and businesses. Global inflation is high and economic growth in our main trading countries falls far short of average growth in previous years. The situation is different and better here in Iceland than in most other countries; even so, we still face significant economic challenges. Inflation has been high and pervasive and the trade imbalance more negative than is sustainable in the long term. To counter inflation, the Central Bank has raised the policy rate a great deal, to 6.5% from a low point of 0.75% at year-end 2020. While Landsbankinn’s customers are generally well placed and loans past due are at a historic low, it is clear that higher interest rates and inflation will have a negative effect on many. Individuals and families who fixed the rates on their housing mortgages before the rate hike cycle began are fairly sheltered. This year, and primarily in 2024 and 2025, the fixed-rate term will end for many of our customers. Based on the current situation, the interest rate environment can be expected to be significantly more unfavourable when that happens. Businesses are of course also affected by high interest rates and companies refrain from making necessary investments.

Growing importance of sustainability

The Bank has amassed a great deal of knowledge about sustainability and is strongly focused on the issues. Work on sustainability at Landsbankinn is based on its ambitious Sustainability Policy, revised in 2021. The Bank is committed to both domestic and international partnerships on sustainability and has participated actively on such initiatives as the development of PCAF’s methodology to assess emissions from the credit and asset portfolios of financial undertakings. We have set our own goals for a reduction in GHG emissions from our operation, both from direct operation and indirect emissions from our loan book. It is our experience that customers, both individuals and companies as well as our employees, are increasingly aware and mindful of sustainability. The regulatory environment is also growing more extensive. We build on a long tradition of work on sustainability in the Bank and have been leading in this field. We intend to maintain that position.

The focus point of sustainability work in financial institutions has in recent years been on measuring CO₂ emissions from operations. In 2022, the COP15 conference resulted in the Montreal Pledge on actions to safeguard biodiversity. Financial undertakings obviously have an important role to play but, as in the case of emissions, there is a need for methodology to measure the impact of financial undertakings on biodiversity. We determined to participate from the start and joined the Partnership for Biodiversity Accounting Financials (PBAF) who are working on developing this methodology.

Landsbankinn will clearly still have to contend with challenges in its external environment and competition as financial services are developing at break-neck speed. The Bank’s strong financial position, combined with its team of ambitious and diligent personnel all around Iceland, will enable the Bank to continue to be a leading domestic bank. The Bank is committed to work for the benefit of its customers and owners, having the interests of employees and society in general in mind. Building new headquarters only every 100 years is a testament to stability and long-term thinking. Landsbankinn is a trusted bank for a successful future.

On behalf of the Board of Directors, I want to thank Lilja Björk Einarsdóttir, CEO, other executives and the Bank’s employees for pleasant and effective collaboration in 2022.