...July 23, 2019 - In a fiercely competitive environment, no longer supported by a strong economy, Icelandic banks' business prospects and earnings have become weaker. - Banks compensated for low operating profits with extraordinary gains in recent years, but this has largely come to an end. - In our view, the role of pension funds in lending distorts Icelandic banks' competitive environment in terms of business generation and margins. We therefore now see a negative trend for industry risk. - Overall, economic risks for Icelandic banks remain stable for now. We expect the economy to contract in 2019 but rebound in 2020. - We are revising to negative from stable our outlooks on Arion Bank, Islandsbanki hf, Landsbankinn hf., and Housing Financing Fund (HFF). We are affirming the ratings on all four banks. - The negative outlooks reflect the likelihood of downgrades if current conditions persist, to the further detriment of the banks' earnings. The negative outlook on HFF also reflects the potential...
