Íslandsbanki (ISB) Q2 2024 earnings summary

Executive summary

• Q2 2024 profit was ISK 5,266m–5.3bn, in line with consensus, with ROE at 9.7% (10.6% adjusted for FSA fine), matching guidance.

• Asset quality improved, with NPL ratio at 1.8% and impairment reversals contributing positively.

• Net interest margin held steady at 3.1%; lending and deposit margins slightly declined year-over-year.

• Cost-to-income ratio rose to 46.4%, above target, mainly due to IT investments, inflation, and higher FTEs.

• Capital position remains robust, with CET1 at 19.9% and total capital ratio at 23.1%, well above requirements.

Financial highlights

• Net interest income for Q2 2024 was ISK 12,491m, down 1% year-over-year; net fee and commission income was ISK 3,419m, down 5%.

• Profit for the period decreased 14% year-over-year; cost of risk was -0.04% in Q2 2024, reflecting net impairment releases.

• Operating expenses increased 2% year-over-year, with administrative expenses at ISK 7,726m and salaries up 7.9%.

• Customer loans grew 2.3% in the quarter to ISK 1,276.6bn; deposits increased 4% to ISK 916.1bn.

• Customer loans to deposits ratio improved to 139% from 152% a year ago.

Outlook and guidance

• ROE for 2024 expected to be around 10%, assuming normalized impairment levels.

• Cost-to-income ratio anticipated to be around 45% for 2024, with inflationary pressures partly offset by high interest rates.

• Loan growth expected in the mid- to high mid-single digits for the year; loans and revenues projected to grow in line with nominal GDP.

• Dividend payout policy remains at 50% of earnings; ISK 10bn share buybacks planned for 2024.

• Capital optimization expected to conclude before year-end 2025, subject to market conditions.