Islandsbanki hf

The stable outlook indicates that while we expect a gradual economic recovery in Iceland over the next two years, there are residual risks associated with COVID-19-related setbacks and/or the withdrawal of accommodative fiscal and monetary policy. Such eventualities could impair the bank's profitability, causing its return on equity (ROE) to remain in the mid-single digits, and its asset quality to deteriorate such that the NPA ratio would be likely to rise above 3.0% from 2.2% as of June 2021. In the next two years, we anticipate that Islandsbanki's RAC ratio will remain above 15% on the back of moderate loan growth and contained dividend payments. We could lower the ratings on Islandsbanki if the economic environment in Iceland becomes even

...We expect Islandsbanki's risk-adjusted capital (RAC) ratio to remain above 15%, despite capital optimization. The RAC ratio stood at 18.0% as of year-end 2020, and we expect it to decline to about 16.5% by 2023, on the back of inflation in risk-weighted assets (RWAs) and limited capacity for retained earnings. While a 50% dividend payout ratio has been approved for 2021, additional payouts are likely in 2022 and 2023, provided the recovery in the bank's performance remains robust. We expect the bank to maintain a payout ratio of about 50%, and note the successful placement of an inaugural Swedish krona (SEK) 750 million additional Tier 1 note in September 2021. On a positive note, earnings will be supported by increasing cost efficiencies and strong lending growth on the back of increased demand for mortgages. Islandsbanki's asset-quality indicators remain vulnerable to setbacks in the recovery of international tourism. This is despite an Icelandic krona (ISK) 1.1 billion impairment release...

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