Islandsbanki hf

The positive outlook on Islandsbanki reflects our expectation that the economic risks facing Icelandic banks are receding. We could raise the ratings on Islandsbanki in the next 12-24 months if we saw a sustained improvement of economic risk indicators from abating housing market imbalances and private sector leverage. This could lead us to raise the anchor on Icelandic banks to 'bbb' from 'bbb-', potentially resulting in a one-notch upgrade of Islandsbanki. A positive rating action could also materialize if Islandsbanki were to build significant additional buffers of gone-concern loss-absorbing capital above our adjusted threshold of 4% of S&P Global Ratings' RWAs. In our base case, we expect Islandsbanki will maintain its strong domestic retail and corporate franchise and sound financial

... and sound profitability counterbalance concentration on Iceland, which is seeing risks related to economic imbalances recede. As a full-service bank, Islandsbanki continues to demonstrate a solid market position, holding 30% of retail lending and 33% of corporate lending in Iceland. This is further complemented by a leading position within domestic asset management. Over the course of 2023, rising interest rates have supported the bank's net interest income and by year-end S&P Global Ratings expects operating revenues will have risen by about 10%-11% relative to 2022. While both cost and revenue growth are set to abate, we forecast that annual net earnings will remain stable at about Icelandic krona (ISK)25 billion-ISK26 billion (about 165...

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