G ood morning, and welcome to this webcast presentation of Íslandsbanki full year and fourth quarter presentation result. I'm Birna Einarsdóttir. I'm the CEO of Íslandsbanki, and with me here to present today is Jón Guðni Ómarsson, the CFO. He's actually not with me here in at the bank today. He is at home. He has COVID, but he is in a very good health. We did publish our result yesterday, but in a way, we can say it was no surprises there because we gave out a profit warning in January. We are very happy with the result, and I'm looking forward to take you through the highlights. Then, when I have finished, Jón Guðni Ómarsson will take you through the details regarding the financials. Following, we will have our Q&A session. You're able to participate via the conference call using the dial-in details, and the operator will give you the floor. You can also submit the questions in writing using the webcast form. Moving over to the key takeaways, we are presenting here today a very strong result for the last quarter of 2021, with over 14% return on equity, resulting in over 12% return on equity for the full year, which is well above our target. On the income side, we saw a very strong growth in the fee and commission income of 28% between Q4 2020 and 2021, and 22% when we look at the full year. The growth is coming from investment banking, the card our card business, and asset management, mainly. Our interest income did also develop well in the year 2021, and we saw a growth there by 5%. We are very happy with the result that we saw on the cost side, and our cost reduction effort resulted in a reduction of 9.4% in the real terms. The positive impairment, of course, is an important factor of the good result of the year 2021. We have seen a positive rebound in our tourist industry, and now we can say that 60% of our forbearance loans have resumed payment already. We have only released ISK 1.8 billion of the ISK 6 billion that we put aside last year because of COVID, so we might be able to see a positive impairment this year if our tourist industry continue to improve. We can say that all our business units did perform well last year, and in a way, we can say that everything did work in our favor. Even though we had eruption, earthquakes, and COVID, it was a pretty good year. Personal banking with over 20% growth in their mortgage book. Now we see over 75% of new account opening in the retail bank being done online. Íslandsbanki is the largest SME bank in Iceland with over 40% market share, for example, here in the capital area. Our business banking with a very strong return on equity and deposit, the deposit position has never been stronger. We also saw a record year for our corporate and investment banking. We played a big role in refinancing our clients through lending and bond issuing. Our fund management business also had a record year with a 17% increase in asset under management. Operationally, we finished implementing the loan system, and that was the last one of the core system to be replaced, replacing many legacy loan system that we have been using for decades. We did open a software development center in Poland to attract IT talent, and we did finish off our back-office optimization. Many good milestones in the year 2021. Moving over to the Icelandic economy, I have mentioned before that we are seeing strong rebound in our tourist industry, and many of our clients in that industry are telling us that they are seeing stronger booking now this year than they saw in the year 2019. Our chief economist is confident that the forecast of 4.7% GDP growth will be reached this year with the export industry as the main driver. The government gross debt as a% of the GDP remains at a sustainable level despite a very strong support that the government gave to the businesses during COVID. Like in most other countries, the inflation has proven more persistent than hoped and looks likely to remain above the Central Bank target of 2.5% for a while. The worsening near-term inflation outlook and the growing sign of economic recovery has prompted the Central Bank to hike interest rate faster than was expected with 75 points increase earlier this week, for example. With the Central Bank rate now 2.75%, it's getting close to what it was before COVID. Now briefly about our targets. Our previous return on equity target was 8%-10% and long-term over 10%. Our revised target is above 10%. We have also revised our cost-income ratio to less than 45% to be reached this year instead of 2023. Revised CET1 capital ratio target is now 16.5%. We are very much focusing on our return on equity bridge that we did present during the investor meetings before the listing, and all projects related to that are on target. Our growth target to reach this 10% return on equity is the same, to grow in line with the GDP growth through the business cycle. At the same time, we are keeping the cost flat until 2024. Therefore, we are lowering the cost by the inflation level. This is something that we have delivered in the past, and we have full control over. We will propose to pay ISK 12 billion in dividend in our annual meeting in March, and after that, we will have ISK 40 billion in excess capital, and we are looking, we are also planning to propose to buy back ISK 15 billion of our own shares in the coming months. We remain very focused on our strategy delivery. We are now three years into our five-year strategy focus. This year, we will continue to increase efficiency, as you see in the left side of the house. At the same time, we are enhancing our service and sales by data powerhouse, and we are creating a SME ecosystem working with fintech companies to reach that target. We have a very strong progress in our sustainability journey this last year, and the net zero target in 2040 is something that we are, of course, working on every day. On the sustainability journey, we had a very good result. We did reduce our footprint of our own operation by 20% last year. Good progress with our suppliers. Our main challenge, of course, will be the footprint from our loan book and investments. That is now accounts for over 340 times that our own operation is the footprint from our own operation. That is, of course, our big challenge. As you see from the next slide, there is a good balance. Next. There's a good balance in our sustainability funding and our sustainable lending portfolio. That is, for example, it doubled last year. In January, we did issue EUR 300 million sustainable bond, and we aim to use that this year for green, red and blue sustainable lending. Now over to Jón Guðni with more details about the financials, and I hope the technology will support us in this. Over to you, Jón Guðni. Thank you very much, Birna. Well, I know that I am quite a positive person, but being tested twice positive for COVID is maybe taking it a bit too far. Fortunately, I had very mild symptoms in both cases, and good to have this over and done with. As Birna said, we are extremely happy with the results, and they are exceeding our expectations on all fronts. You can see here when we have a bridge for both the year as a whole and the quarter that we have seen good progress on all fronts. The only yellow boxes are obviously taxes due to higher profits. If you look at the full year results, it's the operating expenses. There we have to take into account that we had IPO-related costs of around ISK 660 million. If we take that out of the picture, we are actually down between years in terms of the costs. As Birna mentioned earlier, a fairly sizable real reduction in the cost base. If you move to the next slide, the net interest income. We had good progress there. Over 4% growth, the main drivers is the volume, both the deposit side and the lending volume. We are now, however, seeing in terms of the margins the opposite impact from what we saw when the rates went down. Now rates are moving upwards quite steadily, and therefore, we are seeing a bit of a reduction in lending margins, but an increase in the deposit margins. We do expect to see this trend continuing in the next few quarters. For our foreign viewers, it's obviously notable that yesterday we had a 75 basis points rate increase from the Central Bank. Moving to the next slide, the fee income. There we have basically outperformed our expectations on all fronts and especially we are now seeing the fourth quarter that the cards and payment processing is picking up both with tourists coming to Iceland and maybe more importantly, Icelanders traveling much more abroad. We are quite happy to see that. The investment bank continues to perform very well and is having a splendid year throughout. As Birna mentioned, asset management has been extremely strong as well. Our fund management business, Íslandssjóðir, they saw a 46% increase year-over-year in terms of their net fee and commission income. Slight dip there in the fourth quarter in terms of loans and guarantees, but good growth for the year as a whole. Moving to the next slide, in terms of the financial income, markets were quite supportive last year, and that's not something that we rely on every year going forward. That's one reason for our guidance in terms of the earnings of 8%-10%. We are obviously quite conservative or have a conservative approach in terms of our guidance, but we are not relying on steady positive financial income in our results. At the bottom left, we can see the sources. The shares and equity market obviously was extremely strong in Iceland, and but for example, now we're seeing a drop in January, as in most other countries. We have some fluctuations in both the derivatives and the mark-to-market in terms of funding. That's something that can go up and down depending on the yield curves, how they are moving. Overall, a very net positive impact from financial income in 2021. Then on the bottom right, you can see our discontinued operations. There we had a very nice pickup or you could say almost a lottery prize at the end of the year, in the fourth quarter. This is obviously something that comes not in every quarter, but once in a while. In this case, we are resolving one of our subsidiaries which had shares in the Visa C shares, so-called, and so positive impact from that. Also, we were selling a plot of land that we have been developing for quite a few years. Both of these items came in the fourth quarter, and they're giving us a quite a big boost in that quarter in terms of the earnings. As I said before, that's not something that we rely on or give expectations in terms of earnings going forward. Now moving to the cost side on the next slide. As Birna mentioned, and I mentioned earlier as well, we are extremely happy with the development there. 9.4% yield reduction year-on-year. Obviously in Iceland, where inflation is running at around 6%. You can see that on all fronts, basically, we are making good progress, and the cost-income ratio is coming down quite steadily. At the bottom, you can see that the FTEs we saw quite a big drop in the fourth quarter. We continue on this trend, basically, and obviously seeking ways to increase efficiencies across the board. As we have talked about before, every manager of the bank has a very clear mandate to find ways to increase efficiencies going forward. So very good picture on the cost base across the board. Moving to the next slide. The impairments is obviously having a very drastic impact, and especially when comparing 2021 to the year before. You can see on the top left how the impairments have been coming through. Positive figures here obviously means a negative impact on the results, with positive impairments meaning that we are impairing against the loan book. But then in 2021, we have negative impairments, meaning a positive impact on our P&L. The gray box or the gray part of the bars you can see is the impact from COVID, the direct impact. There we have realized some of the impairments that we did in 2020. We have taken those back as the economy has recovered and the tourism industry has done a bit better than we had feared. We are obviously not through the woods yet. There's quite a bit of uncertainty still in terms of that sector, how quickly things pick up. We are hearing very positive signs or seeing signs from our borrowers that they are seeing very strong interest for the summer here in Iceland. We can also note that we have, as a percentage of the loan book, quite a bit higher impairment account than the other banks here in Iceland, meaning that we have been more conservative in terms of reversing the impairments that we did in 2020. This means that we have hopefully that if things go extremely well, a bit more upside in terms of having extra releases with impairments. But that's not something that we rely on. Therefore, in the guidance, we have said that we have a guidance of 8%-10% ROE this year. If impairments are in line with what we maybe can expect through the business cycle of 30 basis points, then we can expect to be rather closer to the bottom of that range. At the same time, if we have obviously a very good development here in Iceland and negative impairments, so meaning a release of impairments, that can have obviously quite a drastic impact on our return on equity. Moving to the ne-- or maybe I continue here, sorry. Go back a little bit in terms of the customers. As Birna mentioned before, of about 60% of our customers that have gone into forbearance have already started repaying. You can see at the top right that stage two loans have come down very steadily, mainly due to basically that they're starting to repay and in many cases have fully repaid their loans. At the bottom right, you can see how we categorize our loans to tourism into these four groups, where in the beginning we are quite pessimistic about quite a large part of the industry. As you can see on the far right column, we are now seeing most of the borrowers being in group number one or two. With rather limited overall long-term impact from the pandemic. As I said before, there is still some risks there, and we will see how the summer and the next 12 months go on that front. We are quite optimistic. The next page. Here we can see in terms of the loan book, the growth overall. We are quite happy with the growth. As you can see from the bars, the yellow bars are where we're seeing the growth, which is mortgages. So very big growth there last year, and a strong momentum in the housing market here in Iceland. At the same time, we saw modest growth in terms of business lending, and there may be two reasons. Firstly, that businesses have just not started to invest heavily as a result from the pandemic. People wanted to see, obviously, things come out of the pandemic and the economy starting to pick up. Not heavy investment level. At the same time, we are also supporting many of our clients to fund themselves even more favorably through the bond markets. Therefore, we had more increase in our corporate banking in the first half of the year. Quite a few of our customers used the bond markets in the second half. Therefore, we had a net almost flat year in terms of the lending book. That means that we are using our balance sheet very well, supporting our clients, but at the same time helping them to optimize their financing and through the bond markets. LTV distribution contains the similar level as it has been, and we are very happy in terms of our loan book and feel like we are quite conservative in terms of our lending practices and with a good diversification between industries. Moving to the next one. Here's a bit more on the COVID moratoria. On the left side, we can see the performing loans with forbearance and how that's been developing. As I've noted before, you can see on the, on the right side, that we have seen more than or about 60% of our borrowers already starting repayments. The rest will, or most of the rest will start in the first quarter of this year. So the outlook there is quite favorable. Moving to the next one. Deposits obviously remain our largest funding source, and we saw a very good development last year. We saw a very strong increase in retail deposits, which is obviously the most stable part of the deposit base. Had actually a reduction in the, maybe the most volatile part of the base, as you can see on the bottom right. Basically due to the fact that we were not or didn't need that much funding in terms of the most expensive deposits, which is obviously very helpful and seeing the deposits on the retail side growing very much in line with the growth in the loan book. We are quite happy on that front. Moving into the next slide on the funding, we have basically made good progress now in terms of the sustainable bonds and issued just recently in January our second international sustainable bond of EUR 300 million, which was very well received. We used that to refinance basically our biggest maturity this year. In the middle here, you can see the maturity profile, and we have already refinanced the biggest part of the 2021 financing. We don't expect to see much volume in terms of issuance throughout this year. We do have, however, some Tier 2 coming up for prepayments in the fall, and obviously we'll be looking into the appropriate timing to access the market to refinance those. Moving to the next one. In terms of the capital, that's obviously the capital position remains extremely strong and well above the regulatory requirements and our own targets. You can see here our long-term target is 16.5% CET1. We have excess capital of around ISK 40 billion after having paid the annual dividends this year. You can see on the right side, as Birna mentioned before, 11.9 or almost 12 billion in terms of ordinary dividends, which is 50% of our earnings in 2021. After having paid that, we still have about 40 billion of excess capital. We are, as I said before, rather conservative, so we plan to release 15 billion of the 40 in the coming few months and plan to do that through a buyback of our own shares. We also provide guidance at an overall optimization of the capital structure. We plan to do that in the next 12-24 months. The ISK 15 billion buyback is obviously the first step towards that target. We also note here that there are three buyback options, and we are noting that especially here because in Iceland it's only the first one that has been common here with the share buyback programs. We do want to note so investors are not surprised if we use the other two opportunities or a combination of the three options. You can see here that the first one is the share buyback program, which is a standard measure where we have a broker basically buying shares in the market. The second potential is a tender offer, where the bank basically goes at the end of a business day and offers to buy a certain amount of shares. Our shareholders then can take advantage of that if they choose to do so. The third one is to take part in a block sale. If one of our shareholders is selling a block share, the bank can take part in that. There's a recent example of that when Nordea bought back some of their shares when Sampo was reducing their shareholding in Nordea. We have these three options in terms of the buybacks, and we will basically be assessing the market and either choosing one of these or having a combination. I expect at least that we look over to the next couple of years, that we will have a combination of these three options. Exciting times ahead in terms of the capital release and we obviously remain very strong in terms of our capital position. I have gone through the slides on the financials, and I hope we have some questions from the audience. Thank you. Okay. Thank you, Jón Guðni. As I mentioned, we have our time for Q&A session now. You are supporting me with the questions that will come in writing. The operator is going to give the floor to people that would like to ask the questions themselves. Anyone that has... For now we've received two questions. Yep. Via the telephone line. Okay. The first one is from Sofie Peterzens, JP Morgan. Your line is now open. Please go ahead. Yeah. Hi. Here is Sofie from JP Morgan. My first question would be on interest rate sensitivity. Could you just remind us of your rate sensitivity? Because the rates have gone up quite substantially in Iceland, but NII was a little bit weak in the fourth quarter. Is there kind of a lag effect, and how should we think about the recent +75 basis point rate hike that we saw earlier this month in Iceland? If you could just comment around that. My second question would be on the share buyback and the block sale participation. Could you just remind us, like, kind of how much the government still owns in Íslandsbanki and what the timeframe that they kind of have said? Basically, can you just elaborate maybe a little bit more on kind of a directed share buyback and how that really works in Iceland? Apart from the central bank approval, do you need any other approval to do directed share buybacks on the initiative from the government? Thank you. Okay. If I start with the second one, and then I will give over to Jón Guðni. The government now, during the listing in the spring, the government did sell 35% of their shares, so they still have 65% of the shares in Íslandsbanki. When the government did present the budget end of last year, they did announce that they were planning to sell the rest for the next two years. The exact timing has not been decided. Of course, it depends on the market circumstances. Yes. Jón Guðni, if you go into more details about the block sale and the interest rate. First, in terms of the approvals needed, it's obvious we have to get an approval from our shareholder meeting, which will take place in March, I think it's the 19th of March, and then also from the Central Bank. Having had that, we can basically choose the right moment after that, and well, we will do it before our Q1 results or shortly thereafter. That's something that we need to assess, but no other approvals are needed. Talking about the buyback in any form. Yes. Yeah. Totally. Yeah. Yeah, but may- And, um, with the- Sorry, for the government, if you're thinking what do the government need to do to continue with their sale, they need to take it through parliamentary committee, but you know, it is relatively a smooth process for them. Exactly. That's a process that's ongoing now for them for the ISFI who holds the shares to get the full mandate to be able to sell a further stake. In terms of the block sale, maybe not too much more to say about that. I mean, that's like I said, we have the recent example where Sampo was selling a fairly big sale in Nordea, and then Nordea took a part in that sale. I think they bought probably 10 or 20% of the offering. So that's at least one option that we have. Like I said, I mean, we won't get our approval until 19th of March the earliest. If there's a sale before that from the government, we obviously cannot partake, but possibly later in the year. As we will basically just keep our options open in terms of these three possibilities. In terms of the rate sensitivities, we can note that our liquidity book is around ISK 150 billion-ish, and therefore, a 100 basis point increase in rates feeds through to about 60 basis points in terms of return on equity. Obviously has a good impact there, but it takes some time, because part of the liquidity book is obviously in fixed rate securities, maybe one to three- years, and therefore, it doesn't feed through immediately, but comes over time. Positive impact that comes in more and more. That obviously the 75 basis points will have a good impact there. In the fourth quarter, we had a good impact from the rate increases, but at the same time, we had some negative impact as well, and therefore a bit below consensus on the net interest income. Firstly, it was the issuance obviously of Tier 1 paper in September that had an impact there. A lower CPI imbalance, so the CPI imbalance has basically disappeared, and we had a fairly good profit on that in the year before. There are some other items in terms of the management of liquidity and then all the things within treasury. We are seeing a good performance in all the business units. I hope that gives you a fairly good idea. It's a bit difficult to give the exact timing of how quickly the interest rates go through, because like I said, it takes a bit of time because some of the securities are fixed income. Overall, it will come through, especially if we look into the next one or two years, then we should see the full impact of the rate increases. Okay. Are you okay with that answer? That's helpful. Okay. Yeah. No, that's very helpful. Thank you. Thank you. Is there someone else with questions? Yes. We have two more questions at this time. The next one is from Namita Samtani, Barclays. Your line is now open. Please go ahead. Hi. Morning. I've got two questions for you. Firstly, given the rate hikes in Iceland, how are you seeing the competitive landscape for the mortgage market now, especially versus the pension funds? In general, could you talk about mortgage volumes, and what you expect to see there? Okay. Secondly, just a bigger picture question, but in terms of revenue trends in 2022, could you just talk about some of the big moving parts? Thank you. Okay. The mortgage market and how the rate is impacting that, we have seen, for example, in January, it has continued to be a very strong market for mortgages. Stronger than, I have to admit, than I expected. I can see that there will be less refinancing, of course, because that is what we have been seeing during the time the rates were going down, that our customers were refinancing and also they were refinancing with us, that previously from the pension funds. We will see less of that. We have a very strong market share among the first buyers, and I can see that will continue although the property prices have been rising, like everywhere else. It's more difficult for the first buyers to get into the market. That is, you know, just some discussion about the market in Iceland. Jón Guðni, would you like to like to add something to that? Basically, the Central Bank is obviously increasing rates and therefore trying to cool down the property market. We had close to 20% increase in real estate values last year, as we have seen in many other countries. Part of the reason for them to increase the rates is to maybe cool down that market a bit. At the same time, there's a shortage of properties, and that's having an impact also on the prices that we haven't seen enough new build over the past few years. There are many projects now ongoing, but it will take time, obviously, for them to come into the market. That's having an impact. We do expect to see more of a stabilization in that market in terms of the mortgages themselves this year. Less growth I would expect than last year. In terms of revenue trends, we are quite optimistic and we obviously saw extremely strong growth last year. We are now building from a very strong or high base, you could say. Our guidance going forward is more or less that we will grow in line with normal GDP through the business cycle. Difficult obviously to say, you know, for each year. That for example depends a bit on the capital markets. They are very weak at the moment, but can obviously recover later in the year. The pipeline, however, is quite strong in terms of the capital markets. We are hoping to see, as I mentioned before, a pickup in payment related fees with regards to tourism. Overall, a fairly good picture and that we would see hopefully revenue on the long-term trend in terms of the rising with normal GDP. Yeah. Maybe note there that the GDP, our chief economist and the central bank is now forecasting that GDP will grow in the range of 4%-5% in real terms this year, and then obviously some inflation on top of that. With inflation, if inflation runs at 5%, then the nominal GDP growth is 10%. I think this actually will be quite challenging to see revenue grow at quite that strong of a pace. But overall the outlook is fairly good. Very optimistic about the revenue development for this year. Perfect. Thanks very much. Thank you. Next question. The next question is from Piers Brown, HSBC. Your line is now open. Please go ahead. Yeah. Good morning, everybody. Actually, it's probably three questions. Two are on the buyback and one on the cost of risk. On the buyback, should we think of this as a one-off program, or will you look to continue with a rolling program in view of the capital surplus? Then I'm just interested in terms of the thinking why you've gone for a buyback rather than, say, a special dividend, particularly in the context of some of the liquidity limitations with your share currently. So if you could just maybe address that. Then secondly, on the cost of risk. 8%-10% return on equity guidance for this year, you've mentioned that, the normalization of cost of risk could see that number be at the lower end of this range. I mean, how realistic do you think it is to get to the full normalization of cost of risk this year, in the context that you're still carrying the ISK 2 billion krona overlay, for, on the COVID loan exposures? Thank you very much. Okay. Jón Guðni, would you like to start with the buyback program? Of course, as we mentioned in our presentation, we will have ISK 40 billion as our excess capital after the dividend payment this year, and we are planning to propose only ISK 15 billion buyback this year. Of course, we are going to see how that goes before we continue with reducing the capital ratio. You know. Jón Guðni, would you like to? Yeah, certainly. As I said before, the ISK 15 billion, that's basically the first step. We have noted that we plan in the next 12-24 months to optimize our capital structure. The ISK 15 billion buyback is basically the first step towards that. It's not a one-off exercise. In terms of buyback versus dividend, that's something we looked into very thoroughly and have spoken to many investors also to hear their views. We hear that a combination of dividends and buybacks is quite preferred, and we think that suits the bank as well, having rather stable dividends and then being able to use the buybacks to meet both fluctuations in capital and to optimize the capital structure. We think that a combination of the two is very suitable going forward. In terms of the cost of risk, as we've noted before, we have a fairly conservative view there. In terms of the guidance, we note that if cost of risk is 30 basis points, that we would be at more the bottom of the 8%-10% range. At the same time, we note that we have about ISK 3 billion of still impairments from COVID. If everything goes extremely well, we could potentially see a release of those impairments. At the same time, we have to note that the impairments and the IFRS 9 accounting treatment means that we are always forward-looking. Even though things go well this year, we could have something happen in December, which means that we have to impair against future losses from that event. Giving a guidance for that is quite challenging. We hope by saying this that gives you a, you know, as good of a picture as we can give at the moment. I hope that answered your question. I think Jón Guðni Ómarsson has now said conservative 20x during this presentation. I think that is our message. Yeah. Message received. Thank you very much. Thank you. Do we have any more questions? There are no further questions. No more questions. Any written questions? Jóhann Ottó Wathne was going to read for us the questions. Are you very disappointed there are no written questions? Hmm. Okay. We have a question actually. Oh. A question from the audience. Regarding the share buyback options being considered, why would you need the option of block sale participation in addition to tender offer where every shareholder can submit their best offers? Okay. Is that the question? Yeah. Yeah. As Jón Guðni mentioned, we haven't decided on those three different ways forward in this. Jón Guðni, any more you would like to add to this? Yeah, sure. The reason for having that option is that in our case we have one large shareholder which can have a block sale for them obviously having a very large stake of 65%, that's not something you can offload in the market easily. For other shareholders, they can sell stakes in the market, you know, fairly easily in terms of their holdings. That's the reason why block sales are used. As Birna mentioned, we are just keeping our options open, but we will obviously make sure that we have a good balance in terms of serving the benefits of all shareholders. Okay. Any more written questions? Okay. Then I think we are coming to the end of this presentation. Thank you all very much for participating. We are very happy with this result and proud of where we are today. Thank you.