Islandsbanki hf

Arion Bank hf. recently approached Islandsbanki's board of directors about merger talks. A potential merger between the two D-SIBs would create a leading bank in Iceland with significant benefits of scale in operating efficiency, innovation capacity, and customer offering. Given that no formal discussions have been initiated and a merger would be subject to several regulatory approvals, we do not include the merger in our base-case scenario at this stage. The positive outlook reflects our expectation that Islandsbanki will build up significant buffers of ALAC to meet the subordinated MREL requirement by 2027. We could take a positive rating action if Islandsbanki's subordinated buffer exceeded our adjusted threshold of 4% of S&P Global Ratings risk-weighted assets (RWAs) in the next

... and sound profitability counterbalance its concentration in Iceland. With total assets of Icelandic krona (ISK) 1,608 billion (10.9 billion), Islandsbanki retains a solid market position, with 31% market share in retail, 37% among small and midsize enterprises (SMEs), and 34% among large corporates in Iceland. This is complemented by a leading position in domestic asset management, with assets under management of ISK364 billion and 28% market share in domestic retail funds. The universal business model provides the bank with diversified revenue streams, with the three business segments of personal banking, business banking and corporate and investment banking contributing fairly evenly to earnings. The recently announced partnership with VIS...

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