Three Icelandic Banks Upgraded On Receding Economic Imbalances; Outlooks Stable

We consider that economic risks facing Icelandic banks have abated with a stabilizing housing market and significant deleveraging of the private sector. In our base case, we expect balanced real residential property price growth of 2%-4% per year over 2024-2025 following a marked slowdown and 3.5% contraction in 2023. We expect Iceland's economic growth will average 2.4% over 2024-2025 and thereby outperform most Nordic and European peers, despite the ongoing deceleration in economic activity. We see industry risks affecting the banking sector as broadly stable, with incumbent banks remaining profitable and well capitalized, and in a good position to absorb the impact from potential asset quality weakening and to fend off foreign bank and non-bank competition should it emerge. We

...- We consider that economic risks facing Icelandic banks have abated with a stabilizing housing market and significant deleveraging of the private sector. - In our base case, we expect balanced real residential property price growth of 2%-4% per year over 2024-2025 following a marked slowdown and 3.5% contraction in 2023. - We expect Iceland's economic growth will average 2.4% over 2024-2025 and thereby outperform most Nordic and European peers, despite the ongoing deceleration in economic activity. - We see industry risks affecting the banking sector as broadly stable, with incumbent banks remaining profitable and well capitalized, and in a good position to absorb the impact from potential asset quality weakening and to fend off foreign bank and non-bank competition should it emerge. - We have therefore improved our assessment of economic risk faced by Icelandic banks and revised up our anchor for banks operating in Iceland to '###' from '###-'. - As a result, we raised our long-term ratings...

Ratings Action