From the Chairman of the Board and the CEO

“Landsbankinn’s emphasis on quality service and sound operation has secured higher customer satisfaction and increased confidence in the Bank.”

- Helga Björk Eiríksdóttir, Chairman of the Board of Directors

“Digital service contributes to more accessible and simpler banking. Personal service ensures that customers receive solid financial advice and assistance when needed.”

- Lilja Björk Einarsdóttir, CEO


Fara neðar

Address of the Chairman of the Board of Landsbankinn

The domestic economy has clearly reached a turning point. After a period of continuous economic growth since 2011, a slight cooling was detected in 2019. The failure of WOW air was highly impactful and mostly responsible for tourist numbers declining by over 300,000, or more than 14%. Unemployment increased considerably from the previous year and, despite rate cuts and steady price levels, the external operating environment was challenging for most sectors. Unrest in global markets was also an influential factor in 2019.

Sound operation

Under these conditions, Landsbankinn’s performance and profitability in 2019 was quite good. The Bank’s profit in 2019 was ISK 18.2 billion. After-tax return on equity (ROE) was 7.5%, or 9.2%, having regard for the bank tax. The Bank’s long-term goal is to achieve 10% ROE, not having regard for the bank tax. Strong emphasis is placed on limiting operating cost and the Bank’s cost-income ratio is low compared to European banks. At year-end 2019, the Bank’s cost-income ratio was 42.6%, down from the previous year. Salaries and related expenses decreased by ISK 131 million between years while other operating expenses increased by ISK 186 million. Landsbankinn's balance sheet is robust. The Bank’s equity was ISK 248 billion at year-end 2019 and its CAR was 25.8%, which is considered high by international comparison.

The Bank’s results reflect solid and robust operations. They nevertheless also reflect the changes in the economy, showing negative value changes to lending for the first time since 2008. Low interest rate levels put pressure on the Bank’s interest margin and will continue to do so. At the same time, high capital requirements plus a special bank tax on large financial undertakings reduce profitability. A decrease of the bank tax at the end of the year, from 0.376% to 0.318%, was a positive step. It should be borne in mind that the tax was introduced as a temporary measure and that taxation has not fully filtered through to prices. Landsbankinn offers competitive terms in the banking market and will endeavour to continue to do so.

Financial undertakings face many challenges in the foreseeable future. Customers demand more effective service and better terms while competition from both domestic and international parties increases, as does the cost of public supervision and IT systems. Much like any other company, Landsbankinn must optimise its operation and generate a reasonable return on equity for its owners. Landsbankinn’s primary role is to support Icelandic households and industry throughout the country, which the Bank will continue to do. The government can contribute by lowering taxes even more than planned.

Helga Björk Eiríksdóttir, Chairman of the Board

In the years 2013-2019, Landsbankinn has paid a total of ISK 142 billion in dividends which accrue largely to the National Treasury. It is Landsbankinn’s policy to pay the lion’s share of the previous year’s profit in dividend to shareholders; additionally, the aim is to make special dividend payments to optimise its capital structure. At the Annual General Meeting of Landsbankinn on 27 March, the Board of Directors will propose that the Bank pay ISK 9,5 billion in dividend for the year 2019.

Dividend paid by Landsbankinn 2013-2018 (mISK)
*The Board of Directors of Landsbankinn will propose to the AGM 2020 that shareholders be paid a 9.5 bn dividend for the year 2019.

Housing for Landsbankinn

Landsbankinn has for a number of years planned to move centralised activities to new facilities, as the current housing situation in central Reykjavík is impractical and uneconomical. It was with this aim in mind that the Bank purchased land at Austurhöfn in Reykjavík in 2014. In May 2017, the Board of Directors decided to construct new housing for the Bank on this site. This was based on an initial schedule whereby the estimated cost of constructing office and service housing in this location was ISK 9 billion, including land cost. Having regard for developments of the construction term index, this amount is now equivalent to ISK 10 billion.

Once proposals for the design of the building had been examined, it became clear that construction would be costlier than initially planned. The latter-day decision for the building to comply with the BREEAM standard added to the initial cost. The current total cost of construction, approved by the Board of Directors, is ISK 11.8 billion. Despite exceeding initial plans by ISK 1.8 billion, the move to a new building remains a necessary and positive adjustment, with estimated annual savings from the move set at ISK 500 million. The Bank intends to sell or rent around 40% of the building and the cost of the space the Bank intends to use for own activity is estimated at ISK 7.5 billion.

Measures to combat money laundering and terrorist financing

Landsbankinn has a strong focus on measures to prevent money laundering and terrorist financing. Such control has been variously reinforced in recent years. New computer systems have been taken into use, improving automatic surveillance. More employees have been added to control units and increased emphasis placed on such measures throughout the Bank’s operation. The Financial Supervisory Authority of the Central Bank of Iceland regularly assesses the Bank’s measures to combat money laundering and terrorist financing and the Bank aims to fulfil regulatory requirements in full.

It was certainly disappointing when, in October 2019, the Financial Action Task Force (FATF) placed Iceland on the so-called grey list over countries that are co-operative yet working to an action plan to implement principles for reform. FATF’s concerns are not directed at Icelandic financial undertakings but at public authorities. The government has stated its case and made clear that the aim of reform is to have Iceland removed from the list in the near future.

Equal pay and equal job opportunities

Landsbankinn has over several years placed great emphasis on ensuring equal pay and equal job opportunities. Landsbankinn received legally required equal pay certification in March 2019. The gender-based wage gap is measured monthly and has ranged between 1.3-1.8% since the system was implemented. The Bank is serious about equality and works to promote it in various ways. The Bank has participated in Gallup’s Equality Indicator since 2018. A contingency plan for bullying, gender-based discrimination, sexual harassment and violence (EKKO) was introduced to employees in 2019.

Companies are increasingly focused on corporate social responsibility and customers follow their efforts closely. Landsbankinn considers CSR to be a key element of the Bank’s operation. This includes the implementation of an ambitious policy for responsible investment, with employees obtaining specialised knowledge of green bonds issuance, and adherence to international standards.

Ownership of Landsbankinn

Name Holding
National Treasury of Iceland 98.20%
Landsbankinn hf. 1.56%
Other shareholders* 0.24%
Number of shareholders 883
*In 2013 around 1,400 employees and former employees received shares in Landsbankinn under a settlement agreement between LBI hf. and the Icelandic State. Upon the mergers with Sparisjóður Vestmannaeyja and Sparisjóður Norðurlands, former guarantee capital holders in the savings banks received shares in the Bank.

Landsbankinn’s operating environment is constantly changing. Rules and regulatory requirements alongside new technology lead to stiffer and more varied competition in the financial market. This competition is not limited to domestic competitors and includes international banks and possibly international tech giants.

Strategy and future vision

Five years ago, Landsbankinn approved a new and ambitious strategy for the years leading up to 2020. This strategy was updated in 2017, sharpening the focus on digital solutions and customer service. Numerous innovative solutions have since been introduced and greater emphasis placed on personal service and advice. The Bank has also concentrated on improving corporate services throughout Iceland. Landsbankinn’s focus on quality service and solid operation has led to increased satisfaction among customers and growing confidence in the Bank. Toward the end of January 2020, it was revealed that Landsbankinn had topped the Icelandic Performance Satisfaction Index in 2019 for banking customers. The Bank is extremely proud of this recognition and thankful for the trust it expresses. Our ambitious employees are to be commended and we intend to continue to provide the best service in the domestic banking market.

The strategy formed for the years leading up to 2020 has served us well - now it is time to form a new strategy for the future. Work on a new strategy began this winter and the new strategy will be introduced in fall. The future holds many challenges and cannot help but be interesting.

At the Bank's AGM on 4 April 2019, Berglind Svavarsdóttir, Einar Thór Bjarnason, Helga Björk Eiríksdóttir, Hersir Sigurgeirsson and Sigríður Benediktsdóttir were re-elected to the Board of Directors of Landsbankinn. Guðbrandur Sigurðsson and Thorvaldur Jacobsen were elected Directors of the Board and Guðrún Blöndal and Sigurður Jón Björnsson were elected alternates.

Landsbankinn’s employees are a strong and united team and can be proud of the Bank’s achievements in 2019. On behalf of the Board of Directors of Landsbankinn, I thank the Bank’s staff for pleasant and successful collaboration in 2019. I also extend our thanks to customers, shareholders and regulators for good co-operation in 2019.

Address of the CEO of Landsbankinn

Landsbankinn has made major advances that are reflected in increased customer satisfaction and a strong market position, along with robust and sound operation. The year’s profit was ISK 18.2 billion after taxes, falling short of the previous year’s profit by ISK 1 billion. The largest change is a contribution to credit loss provision accounts in response to loan impairment. This is a considerable change from the previous year, when value changes to lending were positive, due mostly to a reversed precautionary entry for foreign currency loans. Provisions for possible credit losses are a natural part of any bank’s operation, with the amount of such contributions determined not only by asset quality but also the economic environment and outlook.

Increased operational efficiency and on-going restrictive measures are the main reasons behind neigh on stable operating cost year-over-year, despite contractual wage increases. The Bank’s cost-income ratio decreased considerably between years and was 42.6%. In fact, Landsbankinn had the 11th lowest cost-income ratio of European banks according to a comparison undertaken by the European Banking Authority (EBA). Return on equity (ROE) was 7.5% - 9.2% discounting the bank tax. In the remarks accompanying its selection of Landsbankinn as the best bank in Iceland 2019, international financial magazine Euromoney noted that the Bank’s financial performance testified to its surpassing position in Iceland, especially as regards efficiency and profitability, but also healthy growth in lending and deposits.

Lilja Björk Einarsdóttir, CEO

The most important aspect of Landsbankinn’s operation is its relationship with customers. Topping the Icelandic Performance Satisfaction Index is an excellent start to 2020, as the survey, carried out in late 2019, measures overall customer satisfaction. We focus jointly on the personal relationship with customers and the development of new digital solutions. Digital service contributes to more accessible and simpler banking. Personal service ensures that customers receive solid financial advice and assistance when needed.

The Bank’s employees have taken advantage of opportunities to strengthen and build customer relationships and we welcomed several new customers in 2019. This applies to both corporates and private individuals. Four out of ten companies with annual turnover exceeding ISK 500 million choose to bank with Landsbankinn and corporate customer satisfaction has not been as high since 2008. We are proud to have supported over a 1000 families and individuals taking their first steps in the real estate market. Landsbankinn held a 38% share in housing loans to first-time buyers in 2019. Landsbankinn offers competitive terms whenever possible yet it should be clear that competing on terms against parties who pay lower levies than the Bank is difficult. Taxation on large financial undertakings, well beyond what applies in neighbouring countries, skews the competitive position severely and negatively impacts terms to customers. For 2019, the Bank pays an ISK 4.2 billion tax on the total liabilities of financial institutions, around ISK 1.1 billion to the Depositors' and Investors' Guarantee Fund, and around ISK 709 million in a special financial administration tax levied solely on wages paid by financial undertakings and securities houses, as well as insurance firms. It is a positive development that both the bank tax and contribution to the Depositors' and Investors' Guarantee Fund have decreased. This needs to be taken further, by abolishing the bank tax which was always intended as a temporary measure, and by ensuring that contributions to the Depositors' and Investors' Guarantee Fund do not exceed need. Landsbankinn will continue to work on reducing operating costs, with the largest opportunities lying in further standardisation and simplification of the joint infrastructure of the financial system.

The year 2019 was characterised by a rate-cutting phase in Iceland and considerable uncertainty in the economy that faded somewhat as the year progressed. The Bank’s interest spread decreased slightly between years, or by 0.3 percentage points, as a result of policy rate cuts and subsequent rate cuts by the Bank, among other things. The Bank continues to emphasise that the price of credit reflects risk and profitability benchmarks, and that pricing of deposits is set with an eye to market conditions. Risk in the Bank’s credit portfolio continues to decrease. Fisheries and seafood are the single largest industrial sector in the Bank’s lending, with housing loans to individuals forming the single largest credit portfolio.

In 2019, Landsbankinn continued its successful issuance of subordinated bonds and covered bonds. In 2020, Landsbankinn will continue to source funding on both domestic and international credit markets, especially for refinancing purposes, and will continue to build on its strong domestic standing.

Investors and customers increasingly look to corporate social responsibility as a measure of companies and it is important to the Bank to disclose its policy and results in the field. Landsbankinn has had a strong focus on CSR and in 2019, the Bank achieved a very good ESG rating (environmental, social, governance) from international ratings and analytics firm Sustainalytics. The Bank ranked 6th out of 376 European banks analysed by Sustainalytics.

There has been considerable debate about wide-spread pressure on banks and that technological changes will lead to a revolution of the financial market. At the same time, Landsbankinn’s position has never been stronger. Upheaval creates considerable opportunities and Landsbankinn is well placed to meet increased demand, growing competition and new threats such as those posed by cybercrime. We are aware of the challenges the Bank is facing and are working systematically to identify and create new opportunities for the Bank while reducing the impact of the changes on the operation.

The Bank’s success is primarily thanks to its ambitious and energetic personnel, as well as our loyal customers throughout Iceland. The Landsbankinn team is as ever highly motivated and is currently working with the Bank’s management to shape a new future strategy for the Bank, to be introduced in fall. The Bank’s new strategy will focus on further strengthening our relationship with customers while continuing to deliver good and competitive operating results.