From the Chief Executive Officer
The Bank’s core operation was successful in 2022. The scope of financial service to corporates, individuals and professional investors increased and revenue grew. Demanding conditions on equity markets affected the Bank’s performance in 2022 and its profitability was beneath target.
Lilja Björk Einarsdóttir, Chief Executive Officer of Landsbankinn
Optimism reigned in early 2022, despite some lingering restrictions that were a legacy of the pandemic, and we had full cause for optimism. Tourists appeared again in down-town Reykjavík and hotels and restaurants in the city, which were among the hardest hit as a result of travel limitations, glimpsed better times. The fisheries and seafood sector was flourishing, following an exceptionally good capelin season. Creating value from catches also went well, despite the fact that demand changed during the pandemic. Construction activity was still high and the interest rate environment enabled ever more people to purchase or look into purchasing real estate. Private individuals generally did not suffer financially from the pandemic; on the contrary - loans with payments past due were low and savings had grown considerably.
This all changed with the Russian invasion of Ukraine. The war and the uncertainty it occasioned have had a material economic impact. It is not yet clear what the final effect of growing inflation in Europe and the US will be on Iceland.
Landsbankinn is well situated. The Bank’s equity position is strong and the Bank able to take on challenges. Despite everything, the future is bright and both households and businesses generally in a good place.
The energy crisis does not extend to Iceland and the direct financial impact of rising energy prices are limited. Then again, interest levels have risen considerably lately and inflation, both home-grown and imported, is becoming more pervasive. The economic outlook is uncertain and regaining a balance will take time.
Aim to increase foreign currency issuance
There were great changes on international capital markets in 2022 following the invasion of Ukraine by Russia, the energy crisis in Europe, rising inflation and severely tightened monetary restraint in leading world economies. As a result, the premium on new and outstanding international funding for financial undertakings rose considerably in the course of the year and such bonds became increasingly illiquid. This applies not least to the premium on bond issuances by banks from smaller European states, including Icelandic banks.
As a general rule, the Bank seeks to secure funding in the equivalent amount of ISK 300 million per year on global markets and with domestic bond issuance. Our issuance volume was high in 2021 and we were well funded going into 2022. This allowed us to hold back and wait while the worst volatility hit international capital markets. We have used this time well and prepared for the issue of covered bonds in foreign currency. We aim to issue such bonds in the first quarter of this year to meet most of the Bank’s refinancing needs for 2023, as conditions on international financial markets have improved considerably since the latter part of 2022.
Topped the Performance Satisfaction Index for the fourth time
Customer numbers continued to grow and the Bank’s market share in the retail market has never measured higher. It was great to see a substantial increase in lending to corporates and continued growth in mortgage lending, despite a slow-down in demand in the second half of the year. Deposits also grew considerably.
We all strive to enhance customer satisfaction and simplify life for them with a combination of first-rate digital solutions and personal service. Topping the Icelandic Performance Satisfaction Index in the banking market for the fourth year in a row was a huge recognition.
It wasn’t the only success we achieved in simplifying life for our customers in 2022. Our Save in App function was a complete hit. Save in App is a wholly digitalised deposit account that we launched in March 2021. The solution is simple and offers the exciting possibility to save up together and set common goals. In 2022, we began offering our best interest rates on non-indexed savings in the app. Savings in the app increased 35fold between years which goes to show that the app is both an important sales channel for new products and services, and that our customers are quick to take exciting new solutions into use. Other notable successes include our pioneering of electronic registration of documents for refinanced housing mortgages. We made Aukakrónur accessible on phones and have implemented a much securer authentication process in login and verification of payments in online banking and the app. Our experience is that customers are very happy with the app. Use of the app has grown substantially, most notably among corporates, and understandably so - everything is simpler and more convenient in the app.
Everything in one place
Around 6,000 individuals joined our group of satisfied customers in 2022 and our market share in the retail market measured 40.1% at the end of the year, higher than ever. Our corporate customer base grew by almost 2,000 during the same time.
Our focus on simplifying solutions and service for corporates with a powerful online banking platform and an app that meets the needs of everyday operation has resulted in great satisfaction. We are working on more new solutions for our corporate customers. One is our merchant acquiring service that is in the process of being launched these days. We have been testing the service recently and the results are very good. The solution is both technically advanced yet simple in use and offers an automatic reconciliation feature through an API.
We will offer payment processing and acquiring through POS terminals and eCommerce, and the system supports all main eCommerce platforms. Our team, who has been presenting the solution, has gotten very positive feedback and our customers clearly appreciate having everything in one place - with Landsbankinn.
Increased lending to corporates
Landsbankinn leads in lending to corporates and holds around 40% of the market share. We were happy to see an increase in lending to corporates spanning all sectors in 2022. The increase amounts to ISK 92 billion, or ISK 80 billion not having regard for the exchange rate impact, which is equivalent to 10% lending growth. We were a strong lender to construction projects in 2022. Total growth in lending to the sector does not reflect this activity as the sale of assets has gone well, leading to rapid repayment. According to our books, we financed around 4,300 apartments built as part of 142 construction projects in 2022. We have supported residential housing development handsomely, lending on average ISK 36 billion to construction projects each year.
We achieved good results in other aspects of corporate banking, not least in FX trading and liquidity management. The Bank’s Corporate Finance department completed several successful projects during the year. Despite a difficult year on markets, the concerted effort and hard work of previous years secured continued growth in Landsbréf’s core income. The company has achieved good results and its operation was successful, resulting in an ISK 3 billion dividend payment to the Bank in 2022.
Vigorous corporate service, successful fund development and increased activity in asset management play a large part in the 12% increase in the Bank’s fee and commission income in 2022.
Part of the community
Landsbankinn has in recent years continued to invest in its technological infrastructure which, while perhaps not readily apparent to customers, results in numerous new features, better security and stability. We are as before strongly focused on security. Sadly, attempts at cyberfraud have been rampant both online and through text messages recently. Information sharing and open discussion is the best defence and the Bank’s employees have shared their knowledge and expertise on cyber security actively both verbally and in writing to individuals and businesses alike.
The Bank has a significant positive impact on society. We are one of the largest sponsors in Iceland, supporting around 250 individuals, associations and projects in 2022 through various means.
Every year, we publish a substantial number of economic analyses and varied information about finance. The web publications of Landsbankinn Economic Research, Vikubyrjun and Hagsjá, are a staple of all discussion about the economy. Nor are the Bank’s dividend and tax contributions negligible, with ISK 20.5 billion paid in dividends and ISK 14.1 billion paid in tax in 2022, a total amount of ISK 34.6 billion.
Leading in sustainability
We are the largest commercial bank in Iceland, with a credit portfolio that incorporates loans to individuals and businesses in all parts of the country and in all sectors. Landsbankinn was the first Icelandic financial institution to measure emissions from its credit portfolio, which, as it has the greatest impact, was selected as our starting point. We believe that regular measurement of the climate impact of material factors in our operation is key to goal setting and performance measurement in the effort to reduce GHG emissions.
To put the Bank's emphasis on indirect emissions into perspective, the carbon footprint of our own activities is less than one percent of the estimated total emissions from our operations. As with all measurements, emission measurements must be put into context before broad conclusions are drawn or decisions made. Iceland is a signatory to the Paris Agreement and our authorities have set the goal of achieving carbon neutrality by 2040. This is obviously a great task in which all Icelandic companies must participate.
Emission figures for 2020 and 2021 are rather lower than figures for 2019, and the reduction can be attributed largely to the effect of the pandemic that shook the world.
Landsbankinn intends to continue to lead the field in sustainable development, not just domestically but also internationally.
Increased activity - less effort
Ten years have now passed since Landsbankinn first paid a dividend to its new owners. It is safe to say that the Bank’s operation has since undergone dramatic changes and activity increased a great deal. Deposits and lending have doubled, both retail and corporate customers grown much more numerous and the Bank’s market share in the retail market has grown from 32% to over 40%. Sound operation is the foundation that enables the Bank to have paid a total dividend of ISK 175 billion in the years 2013-2023, if the proposed dividend payment of ISK 8.5 billion is approved by the annual general meeting. At the same time, the Bank’s equity has grown by almost ISK 40 billion. With new technology and efficiency measures, employee numbers have decreased by a third since 2013, despite greatly increased activity, improved service and more customers. The composition of our team has changed, in line with increased use by customers of self-service solutions to take care of banking business, in online banking or the app, that previously required employee assistance. A greater part of our team now works in software development and maintenance of technical infrastructure than in front-end service positions. We continue to emphasise good advisory service, both in branches and service centres.
Energy and enterprise
Landsbankinn’s employees certainly deserve praise for their drive and ambition, and for their ability to quickly adapt to changed conditions on financial markets. It has been good to welcome the Bank’s employees back to the workplace post-pandemic. At the same time, our new policy on remote work, setting clear guidelines and providing opportunities to work from different locations, has been very well received. We also wanted to support our younger employees by raising payments while on parental leave to 80% of wages. We want the Bank’s employees to be proud of Landsbankinn and to recommend the workplace to others. This is one of the Bank’s key goals.
The Bank’s employees are energized and we are positively inclined. Robust service to corporates and investors plus our highest share in the retail market yet - there are opportunities for further advancement in these conditions. We counter competition with good access to experienced employees, a great app and fair terms. That’s Landsbankinn, an ever-smarter bank.
I thank the Bank's employees and the Board of Directors for successful and pleasant collaboration in the past year.