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4Q24 & FY2024 Financial Results Jón Guðni Ómarsson Chief Executive Officer Ellert Hlöðversson Chief Financial Officer 13 February 2025
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ROE in excess of financial targets 13 February 2025 4Q24 & FY2024 Financial Results 2 Inflation and high policy rates continue to adversely affect NII C/I within target regardless of cost reclassification C/I ratio1 Stable and strong asset quality Loans to customers: Stage 2 and 3 (NPL) 25.3% 23.6% 23.1% 23.4% 23.2% 21.4% 19.9% 19.9% 20.2% 20.1% 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 CET1 ratio Considerable excess capital in place Total capital ratio 3.3% 3.3% 2.5% 3.2% 3.1% 1.8% 1.9% 1.8% 1.6% 1.6% 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Stage 2 Stage 3 41.1% 43.9% 45.7% 40.4% 45.7% 4Q23 1Q24 2Q24 3Q24 4Q24 40.6% 43.9% 2023 2024 4Q23 1Q24 2Q24 3Q24 4Q24 11.2%13.2%9.7%9.8%11.2% 2023 2024 11.3% 10.9% ROE in excess of analyst consensus ROE ROE target > 10% C/I ratio target < 45% 1. Expenses of ISK 279m for 4Q23, ISK 286m for 1Q24, ISK 210m for 2Q24, ISK 269m for 3Q24, and ISK 951m for 2023 recognised in t he line item "Other operating expenses" in the Group's Interim Financial Statements have been restated in the line item "Fee and commission expense", C/I ratio has been restated accordingly. C/I ratio for 2Q24 excludes a charge of ISK 470m due to an administrative fine. C/I ratio for 4Q23 included a provision of ISK 100m made in connection with an administrative fine, the C/I ratio has been restated so it excludes the prov ision.
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Capital optimisation still a priority for the Bank 13 February 2025 4Q24 & FY2024 Financial Results 3 Month by month volatility expected as inflation subsides Target 4Q24 2024 Return on equity >10% 11.2% 10.9% Cost-to-income ratio1 <45% 45.7% 43.9% CET1 excess 100-300bps 470bps 470bps Dividend- payout-ratio 50% 50% Loans to customers and revenue, in general to grow in line with nominal GDP through the business cycle ROE in 2025 expected to be >10% for the year as a whole C/I ratio expected to be below 45% for the year Dividend policy assumes 50% of earnings to be paid to shareholders Distribution of excess CET1 capital in the amount of ISK 15bn planned throughout 2025 through share buybacks Commitment to conclude capital optimisation, subject to market conditions 2025 Guidance 1. C/I ratio for 2024 excludes a charge of ISK 470m due to an administrative fine in 2Q24.
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Highest turnover in equities on Nasdaq Iceland for 10 out of 12 months in 2024 All pillars performed better than 2023, new sale, service revenue and development of clawback 13 February 2025 4Q24 & FY2024 Financial Results 4 Iceland Funds and the Energy Cluster entered into a collaboration and consultancy agreement on a specialised renewable energy fund. Personal Banking Business Banking Corporate & Investment Banking Iceland Funds Loans grew by ISK 34 billion in 2024, almost 6% 20% deposit growth Number of Ávöxtun accounts rose from 20,000 to 55,000 in 2024 Customers using loyalty programme Fríða can see expected reimbursements immediately as data for debit cards is processed in real time Allianz Ísland hf. Continued robust results driven by revenue generation Sustainability highlights in 2024 92% of large suppliers of the Bank signed Íslandsbanki's code of conduct Sustainable lending increased by 23% in 2024 93% of the Bank's credit risk exposure in scope1 assessed with regards to ESG risk by year-end 1. Individuals and small enterprises are out of scope. AUM ~ ISK 364 billion at year end 2024 Positive return in 2024 for all funds managed by Iceland Funds Collaboration and consultancy agreement with the Energy Cluster on a specialised renewable energy fund. Celebrated its 30-year anniversary in 2024 Largest investment bank in Iceland Íslandsbanki's capital markets turnover amounted to ISK 1,160 billion in 2024 New lending totalled ISK 71 billion and ISK 42 billion refinanced 10% deposit growth ISK 92 billion in new lending 39% of car loans from Ergo are green Serving over 50% of Iceland's outstanding companies Highest NPS amongst domestic peers for SMEs Strong performance across business units
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13 February 2025 4Q24 & FY2024 Financial Results 5 Companies and investors choose Íslandsbanki Further rate cuts and declining inflation likely to fuel increased activities in 2025 ISK 163 billion New lending to corporates Highest turnover in equities 10 out of 12 months ISK 92 billion New lending within Business Banking 40% Market share within the greater Reykjavík area amongst SMEs1 1. Average market share in the Reykjavík area from Gallup's last four corporate surveys, the most recent one conducted in 4Q24. 8% increase in Asset Management customers Strong pipeline in Corporate Finance Largest investment bank in Iceland Best yearly return of all Icelandic equity funds over the last 5 years
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Íslandsbanki focuses on financial health 13 February 2025 4Q24 & FY2024 Financial Results 6 Financial health implemented in 2023 and became part of new strategy in 2024 Better financial overview with digital channels • New online bank • Collection service and Payday integration in app • App enhancement include debit card security settings, digital debit cards, private pension savings, and account opening capability • Gambling safety for under 18 year old Better financial health with personal and digital service • Financial health strategy was influenced by increase in customers financial worries, especially amongst Gen Z • Increased demand for educational material on finance • Proactive introduction to new product offerings to customers • Data key in getting to know customers financial health Leading bank in financial education • 27 lectures on finances and 2000 guests • 30 roundtable meetings with corporate customers • Online educational material and finance dictionary
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Positive momentum 13 February 2025 4Q24 & FY2024 Financial Results 7 Enhancing financial health relates to customers of the Bank 3x sales of saving products through digital touchpoints combined with personal service Customers happy with service 15% Net Promoter Score 39points Net Promoter Score among young people 52points 8x sales of credit cards with use of data in automatic digital journeys
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Major digital wins in 2024 13 February 2025 4Q24 & FY2024 Financial Results 8 80% improvement in processing time of car loan applications through new digital solution 1400 digital cards 80% of notarisation requests for mortgage refinancing are digital 89% of corporate accounts through digital channels fully automated 10x increase in automatic mortgage refinancing applications 95% of Personal Banking customers are digitally active Fróði won an international prize as the most likeable chatbot at Boost Camp for the second year in a row 79% of employees communicate with SAM, our internal chatbot
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Offering best financial service in class 4Q24 & FY2024 Financial Results 9 • Wider product offering and enhanced services to our customers • Special benefits through loyalty programs • Enhances financial health • Íslandsbanki's distribution channels to offer insurance products • Roll-out of new services in the spring Data-driven automatic service • Personalized customers journeys • Personal follow-up increased sales 13 February 2025
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New strategy – progressive thinking and financial health 4Q24 & FY2024 Financial Results 13 February 2025 10
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Financial Overview 13 February 2025 4Q24 & FY2024 Financial Results 11
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Economic tailwinds picking up speed 13 February 2025 4Q24 & FY2024 Financial Results 12 A new business cycle following mild GDP contraction likely to bring healthy growth -8 -6 -4 -2 0 2 4 6 8 10 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Effective CBI policy rate Inflation Real policy rate -0.5 0.0 0.5 1.0 1.5 0 1 2 3 4 5 6 7 8 2024 2025 2026 MoM CPI change (r.axis) Inflation YoY (l.axis) A fairly smooth upward path for the economy following mild contraction.. … facilitating further gradual rate cuts by the Central Bank ..and housing market remains resilient in the face of tight monetary policy Inflation looks set to keep subsiding in the near term… Real GDP and main subitems, YoY change, % Year-on-year increase in residential house prices CBI policy rate and real policy rate, %MoM CPI change (%, left axis) and 12m trailing inflation(%, right axis) Shaded areas indicate ISB Research forecasts or estimates. Source: Statistics Iceland, Housing and Construction Authority, the Central Bank of Iceland and ISB Research. 9.0 5.0 -0.5 2.2 2.5 2.6 -18 -15 -12 -9 -6 -3 0 3 6 9 12 15 18 2010 2012 2014 2016 2018 2020 2022 2024 2026 Imports Exports Inventory chg. Investment Public consumption Priv.consumption GDP -5% 0% 5% 10% 15% 20% 25% 30% 2016 2017 2018 2019 2020 2021 2022 2023 2024 Total Single family Apartments
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Profit in line with expectations in 2024 as a whole 13 February 2025 4Q24 & FY2024 Financial Results 13 Key drivers of this quarter's results: Interaction between subsiding inflation and reducing policy rates, in junction with impairment reversals Profit for the period – 4Q23 vs 4Q24 ISKm 6,228 (855) 113 238 (461) 1,354 (321) (13) 6,283 4Q23 Net interest income Net fee & commission income Other net operating income Operating expenses Net impairment on financial assets Income tax Discontinued operations, net of tax 4Q24
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Margins pressured due to pressure from imbalances 13 February 2025 4Q24 & FY2024 Financial Results 14 Volatility may be experienced for the short term while the economy re-stabilizes • Net interest margin was 2.7% in 4Q24 (2.9% in 4Q23), while net interest margin for 2024 as a whole was 2.9% • Lending margin was 1.6% in 4Q24 (1.8% in 4Q23) • Deposit margin was 2.0% in 4Q24 (1.9% in 4Q23) • CPI imbalance end of 4Q24 amounted to ISK 193bn compared to ISK 215bn end of 3Q24 • Inflation subsided continuously throughout the year, moving from 6.7% in January to 4.8% at the end of December, over a period of 12 months • Aggregated inflationary ticks for 1Q25 forecasted to be 0.83% compared to 0.14% accounted for in 4Q24 • Policy rate cuts by Central Bank commenced in the latter half of the year, where rates were cut from a previously level of 9.25% to 8.5% at year-end 2024, and to 8.0% in February 2025 • Nominal fixed rate imbalance continues to subside and provides margin uplifts HighlightsNet interest income Business segments, ISKm Net interest income – YoY comparison ISKm Net interest margin On total assets 4,252 4,257 4,274 3,991 3,327 4,624 4,617 4,707 4,791 4,621 3,560 3,416 3,591 3,458 3,196 -706 -168 -81 -463 -269 11,730 12,122 12,491 11,777 10,875 4Q23 1Q24 2Q24 3Q24 4Q24 Personal Banking Business Banking Corporate & Investment Banking Other 2.9% 3.0% 3.1% 2.9% 2.7% 9.25% 9.25% 9.25% 9.25% 8.77% 4Q23 1Q24 2Q24 3Q24 4Q24 Average CB policy rate 11,730 251 (533) 404 178 (1,155) 10,875 4Q23 Lending volume Lending margin Deposit volume Deposit margin Other interests 4Q24
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Growth in asset management following pickup in capital markets 13 February 2025 4Q24 & FY2024 Financial Results 15 Further reducing rate environment expected to funnel growth across all fee income types and segments • Revenues from investment banking and assets management affected by soft capital market throughout the year but recovered considerably in the fourth quarter • Further reductions in inflation and policy rates are expected to continue to boost capital markets • Increased activity on the lending side is expected with lower interest rate environment, providing growth in fees related to loans and guarantees • Alllianz Ísland hf., a subsidiary of the Bank, remains a strong contributor to the Group’s net fee and commission income • During the quarter, certain costs directly related to fee generation were reclassified as fee expense instead of opex – comparison figures have been updated accordingly HighlightsNet fee and commission income Business segments, ISKm Net fee and commission income – YoY comparison ISKm Net fee and commission income By type, ISKm 999 764 1,002 1,132 1,085 522 505 539 488 488 1,320 1,082 1,050 1,080 1,285 333 340 328 326 348411 354 289 340 429 3,494 3,010 3,209 3,296 3,607 4Q23 1Q24 2Q24 3Q24 4Q24 Personal Banking Business Banking Corporate & Investment Banking Íslandssjóðir Allianz Ísland hf. Other 766 707 664 657 836 769 685 717 681 718 979 719 961 1,079 1,067 566 519 529 503 458 411 354 289 340 429 3,494 3,010 3,209 3,296 3,607 4Q23 1Q24 2Q24 3Q24 4Q24 Asset management Investment banking and brokerage Cards and payment processing Loans and guarantees Allianz Ísland hf. Other fee 3,494 70 (51) 88 (108) 18 96 3,607 4Q23 Asset management Investment banking and brokerage Cards and payment processing Loans and guarantees Allianz Ísland hf. Other fee and commission income 4Q24
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Positive turnaround in NFI in the second half of the year 13 February 2025 4Q24 & FY2024 Financial Results 16 Considerable income related to fair value adjustment of assets • The equity market had a strong gain in October following a rate cut at the beginning of 4Q • As in recent quarters, the Bank has limited equity risk on its books amounting to ISK 8.5bn excluding economic hedges • Loss in fair value and hedge accounting, mainly due to change in IRS swap rates • Loss in ISK balance sheet management due to effect of lower ISK rates this year on NIL contracts – this is offset by a similar gain in net interest income • Fair value adjustment of assets, mainly related to Kirkjusandur 2, the Bank’s previous HQ yielded considerably during the year HighlightsNet financial income (expense) ISKm Shares and equity instruments1 ISKbn Other operating income ISKm Bonds and debt instruments2 ISKbn 1. Excluding listed shares and equity instruments used for economic hedging. 2. Excluding listed bonds and debt instruments used for economic hedging. 455 (236) (499) 228 169 4Q23 1Q24 2Q24 3Q24 4Q24 82.0 66.5 38.6 36.4 33.5 75.6 82.6 83.5 85.9 102.7 157.6 149.1 122.1 122.3 136.2 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 FX ISK 258 1,098 45 357 782 4Q23 1Q24 2Q24 3Q24 4Q24 2.3 5.1 4.6 3.4 6.11.9 2.0 2.1 2.1 2.4 4.2 7.1 6.7 5.5 8.5 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Listed shares Unlisted shares
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Cost-to-income ratio within target for 2024 13 February 2025 4Q24 & FY2024 Financial Results 17 Higher expenses mainly driven by investments in IT, wage increases and emphasis on governance and service • The cost-to income ratio, adjusted for administrative fine was 43.9% in 2024 • Salaries and related expenses grew by 8.8% from 2023, mainly due to increase in average FTEs between years, related to a heightened focus governance and services, as well as wage increases • Operating expenses increased by 5.7% between years, owing mainly to investments in IT • The Bank reclassified certain types of expenses which were previously stated as other operating expenses to be accounted for as fee expenses • The cost-to-income ratio would have been 46.5% for 4Q24 and 44.8% for 2024 if expenses were not restated under fee and commission income HighlightsAdministrative expenses ISKm Cost-to-income ratio1,2 Administrative expenses – by type ISKm Administrative expenses – YoY comparison ISKm 2,661 2,820 2,814 2,471 2,824 1,919 2,043 2,068 1,791 2,115 1,698 1,892 1,845 1,667 1,913 413 355 789 443 2486,691 7,110 7,516 6,372 7,100 4Q23 1Q24 2Q24 3Q24 4Q24 Personal Banking Business Banking Corporate and Investment Banking Other 6,691 383 91 158 18 (100) (41) (100) 7,100 Administrative expenses 4Q23 Salaries Professional services Software and IT expenses Real estate and office equipment Depreciation Other administrative expenses Administrative fine Administrative expenses 4Q24 1. Calculated as (Administrative expenses – one off items) / Total operating income – one-off items). 2. Expenses of ISK 279m for 4Q23, ISK 286m for 1Q24, ISK 210m for 2Q24, and ISK 269m for 3Q24 recognised in the line item "Other operating expenses" in the Group's Interim Financial Statements have been restated in the line item "Fee and commission expense", C/I ratio has been restated accordingly. C/I ratio for 2Q24 excludes a charge of ISK 470m due to an administrative fine. C/I ratio for 4Q23 included a provision of ISK 100m made in connection with an administrative fine, the C/I ratio has been restated so it excludes the provision. 3,861 4,168 4,130 3,787 4,244 395 447 456 427 4861,087 1,233 1,234 1,127 1,245490 402 485 385 390592 678 564 511 551100 470 6,691 7,110 7,516 6,372 7,100 4Q23 1Q24 2Q24 3Q24 4Q24 Salaries and related expenses Professional services Software and IT expenses Real estate and office equipment Depreciation Other administrative expenses Administrative fine C/I ratio target < 45% 41.1% 43.9% 45.7% 40.4% 45.7% 4Q23 1Q24 2Q24 3Q24 4Q24 40.6% 43.9% 2023 2024
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Lending growth moderates while LTVs remain stable 13 February 2025 4Q24 & FY2024 Financial Results 18 Loan portfolio over 94% covered by collateral and focused on lower risk customers 1. Risk class distribution at YE23 shown as comparison • The credit quality of assets continues to be robust due to strong risk management practices and conservative lending policies • Credit exposure fully covered by collateral is ISK 1,212bn or 94% of loans to customers • LTVs reducing by 3ppt year on year and closes off at 54% across all types of securities • Stable sector composition between quarters where mortgages remain the largest part of the loan book • Sustainable lending grew by 23% in 2024 HighlightsLoans to customers By business division, ISKbn Loans to customers By sector, with tourism as a separate sector LTV distribution by underlying asset class 31.12.24, loan splitting approach, ISKbn Loans to customers: gross carrying amount1 31.12.24, risk class and impairment stage, ISKbn 575 584 593 602 608 312 318 327 319 324 336 346 356 353 363 1,223 1,248 1,277 1,274 1,295 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Personal Banking Business Banking Corporate & Investment Banking 43% 43% 43% 44% 44% 11% 12% 12% 12% 12% 8% 8% 9% 8% 8% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7%6% 6% 6% 6% 6%6% 6% 6% 6% 6%6% 6% 5% 5% 6%5% 5% 5% 5% 5% 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Individuals Other Industrial and transportation Seafood Construction Commerce and services Tourism Real estate Mortgages to individuals 0 50 100 150 200 250 Other collateral Cash & securites Vehicles & equipment Vessels Commercial real estate Residential real estate Average LTV 54% (YE23: 57%) 508 545 173 15 0 1 10 25 5 21 509 555 198 20 1-4 5-6 7-8 9 10 Unrated YE2023 Stage 3 Stage 2 Stage 1
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Asset quality remains strong across the board 13 February 2025 4Q24 & FY2024 Financial Results 19 Impairment reversals throughout the year on the back of model recalibration • The Group continues to use temporary overlay to the impairment model due to seismic activity • The definition of forbearance includes a 24-month probation period. Therefore, loans are classified as forborne even after normal payments have resumed • Reserve coverage ratio (RCR) for impairment allowance on Stage 3 was 15.6% at end of 4Q24 • Stage 3 loans remain flat between 3Q24 and 4Q24, following a 0.2% reduction related to foreclosed asset • No signs of increased delinquencies materially affecting the loan book despite high inflation and interest rate environment for prolonged period HighlightsNet impairment on financial assets By period, ISKbn Loans to customers: Stage 2 and 3 (NPL) Development of gross carrying amount as ratio of total loans Current and expected cost-of-risk Performing loans with forbearance Gross carrying amount, ISKbn • Annualised cost of risk was -11bp in 4Q24 (33bp for 4Q23). • The probability weights of economic scenarios were kept unchanged at 20% (good), 50% (baseline), and 30% (bad) at the end of 4Q24. The weights were last changed at end of 1Q22. • A shift of 5% from baseline to the bad scenario would increase the impairment allowance by ISK 0.31bn while 5% shift from the baseline to the good would decrease the allowance by ISK 0.13bn. -0.4 0.5 0.30.1 -0.3 -0.2 -0.2 -0.2 -0.4 0.5 0.2 -0.2 -0.1-0.5 -0.5 1.7 1.0 0.7 -0.1 -0.9 -0.4 4Q23 1Q24 2Q24 3Q24 4Q24 Other changes in loan portfolio General economic environment A few distressed credit cases Changes in models Addition due to seismic activity in Grindavík 3.3% 3.3% 2.5% 3.2% 3.1% 1.8% 1.9% 1.8% 1.6% 1.6% 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Stage 2 Stage 3 6 7 7 7 7 19 23 28 19 17 25 30 35 26 24 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Total Companies Individuals
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Well collateralised mortgage book with stable NPLs 13 February 2025 4Q24 & FY2024 Financial Results 20 Continued shift to CPI-linked loans while fixed rate imbalance subsides in the banking book • Conservative payment assessment for non-indexed variable rate mortgages in the low interest environment means that households are well prepared for higher interest rate environment • At origination, LTV is capped at 80% (85% for first time buyers) and debt service-to-income at 30% (35% for first-time buyers) • Using the loan-splitting approach, the LTV distribution is as follows: • 0-55%: 89% • 55-80%: 10% • 80%+: 1% • Ongoing growth in CPI-linked loans due to higher interest rate environment and increase in variable NIL mortgage rates as customers are managing their payment profile • Fixed rate imbalance continuously subsiding as interest rate resets occur HighlightsMortgage portfolio By interest rate type, gross carrying amount, ISKbn Interest rate reset profile for NIL 3-5y fixed rate mortgages Gross carrying amount, ISKbn LTV distribution of mortgages Gross carrying amount, loan splitting approach, ISKbn Mortgages portfolio: Stage 2 and 3 (NPL) Gross carrying amount as ratio of total mortgages // 75 92 105 115 122 206 210 216 222 226 120 116 110 105 103 130 122 118 114 113 531 540 549 556 564 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 CPI linked floating CPI linked 5Y fixed NIL floating NIL 3-5Y fixed 47% 53% 44% 56% 42% 58% 39% 61% 38% 62% 12 11 9 19 29 22 10 1Q25 2Q25 3Q25 4Q25 2026 2027 2028+ // 0 20 40 60 80 100 120 140 31.12.23 31.12.24Average LTV 54% (YE23: 57%) 1.8% 1.8% 1.2% 1.1% 1.2% 0.9% 0.9% 0.9% 0.9% 0.9% 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Stage 2 Stage 3
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CRE portfolio well diversified and of good quality 13 February 2025 4Q24 & FY2024 Financial Results 21 • Loans to real estate companies and construction amount to 12% and 7% of loans to customers, respectively • Disciplined origination with conservative LTV requirements and debt service criteria • Real estate companies use primarily CPI-linked rental agreements as a form of hedging and have long-term financing to minimise influence of short- term changes in market value of real estate • High occupancy ratio of the listed commercial real estate companies of around 95% • All construction loan commitments are disbursed in line with construction progress as monitored by the Bank or its representatives • The transition from stage 2 to stage 3 is due to owner occupied construction project, not reflective of the CRE sector HighlightsDevelopment of exposure to real estate companies Gross carrying amount by period, ISKbn Development of construction exposure Gross carrying amount by period, ISKbn Real estate portfolio: Stage 2 and 3 (NPL) Gross carrying amount as ratio of the real estate portfolio Real estate collateral by type 31.12.2024 145 153 160 159 156 20 18 13 13 12 165 171 173 172 169 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Off-balance On-balance Occupancy ratios high for domestic commercial real estate companies 80 90 91 92 96 42 43 46 50 42 122 133 137 142 139 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Off-balance On-balance 2.9% 2.9% 3.1% 3.3% 1.3% 1.7% 1.7% 1.6% 1.5% 3.5% 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Stage 3 Stage 2 Residential 23% Hotels and restaurants 14% Office space 13%Industrial or storage 18% Retail 18% Public buildings 1% Other 14% ISK 169bn
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Deposits are the largest source of funding 13 February 2025 4Q24 & FY2024 Financial Results 22 Strong deposit growth in 2024 makes the Bank less reliant on wholesale funding • Deposits from individuals grew by 16% in 2024, and 21% from SMEs • Term deposits were 18% of total deposits at YE • Deposit concentration decreased, 8% of deposits belonged to the 10 largest depositors and 22% to the 100 largest, compared to 10% and 26% respectively at YE23 • A detailed split of the deposit base and LCR is provided in the Additional Pillar 3 Disclosure, providing investors with the necessary information to perform their own stress tests on deposits • 71% of deposits held by individuals (across business segments) and 46% of all deposits covered by deposit guarantee scheme • Loans to customers ratio dropped from 144% to 140% year on year as deposit growth outpaced loan growth in 2024 HighlightsFunding sources By type, % of total liabilities and equity Customer loans to customer deposits ratio Development, % Deposits from customers and credit institutions Development, by LCR category, ISKbn Short-term funding Long-term funding 7% 48% 13% 14% 2% 14% 7% 52% 10% 13% 2% 14% Deposits financial inst. and pension funds Deposit from retail and corp, sovereigns, CB and PSE Senior unsecured bonds Covered Bonds Subordinated debt Equity 31.12.23 31.12.24 425 443 467 480 495 136 134 155 167 164 203 209 199 188 17047 56 54 54 5456 52 52 49 57 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Financial institutions Pension funds Corporations, sovereigns, central banks and PSE Small and medium enterprises Individuals 894 939867 927 939 144% 142% 139% 137% 140% 119% 120% 118% 116% 117% 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Customer loans to customer deposits ratio Customer loans (excl. mortgages funded with CB) to customer deposits ratio
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Light maturity profile allows for opportunistic approach to funding 13 February 2025 4Q24 & FY2024 Financial Results 23 Continuous and considerable spread compression across markets during the year • 2024 saw considerable liability management activity, The Bank bought back the EUR 300m 2026 bond in full, EUR 148m of its 300m 2025 bond as well as SEK/NOK 1.6 bn of bonds maturing in 2025 • The Bank called its SEK 500m Tier 2 bonds in June 2024 at its first call date • The Bank issued a 4yr EUR 300m 2028 senior preferred bond as well as a total of SEK/NOK 1.5bn 2027 senior preferred bonds • The Bank issued ISK 22bn of covered bonds and ISK 16bn of senior preferred bonds • For the first time in years the majority of borrowings are in ISK rather than foreign currencies • A light redemption profile through to 2026 allows for an opportunistic approach to funding • At the end of 4Q24, the Bank's MREL ratio was 33.4%, 390 bps on top of requirements Highlights Sources of borrowings ISKbn Contractual maturity profile of borrowings 31.12.24, ISKbn Development of green/sustainable funding ISKbn Currency split of borrowings ISKbn 176 205 206 170 165 5 9 11 16 32 11 21 22 44 45 44 204 189 159 158 116 27 36 24 17 9 1 49 28 12 414 438 503 456 400 31.12.20 31.12.21 31.12.22 31.12.23 31.12.24 Other borrowings Hybrid/sub. capital - FX Senior unsecured - FX Covered Bonds - FX Hybrid/sub. capital - ISK Senior unsecured - ISK Covered Bonds - ISK 13 50 21 6 75 2 2 9 15 4 22 44 39 13 19 45 9 12 54 64 104 67 111 2025 2026 2027 2028 ≥2029 Other borrowings Hybrid/sub. capital - FX Senior unsecured - FX Covered Bonds - FX Hybrid/sub. capital - ISK Senior unsecured - ISK Covered Bonds - ISK ISK 55%EUR 27% SEK 8% NOK 7% USD 3% ISK 400bn 89% 88% 87% 86% 84% 11% 12% 13% 14% 16% 31.12.20 31.12.21 31.12.22 31.12.23 31.12.24 Green/sustainable Long-Term Debt Non-Green/sustainable Long-Term Debt
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Strong liquidity position, ratios well above requirements 13 February 2025 4Q24 & FY2024 Financial Results 24 Liquidity management hand in hand with liability management throughout 2024 • Reduction in FX liquid assets related to buyback of FX senior issuances and in line with plan • All liquidity measures above regulatory requirements • Total LCR at 168% and NSFR at 125% at YE24 • The Bank's EUR LCR at the end of 4Q24 was 449% • The Bank´s securities portfolios are all MtM (FVTPL and FVOCI). There is no unrealised loss due to HtM (amortised cost) • IRRBB is carefully monitored and managed. The Bank is fully compliant to the supervisory outlier test HighlightsTotal liquidity coverage ratio (LCR) Liquidity coverage ratio for ISK Liquid assets % of total assets, ISKbn Net stable funding ratio (NSFR) 168% 0% 100% 200% 300% 31.12.22 31.3.23 30.6.23 30.9.23 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 LCR Regulatory minimum 126% 0% 50% 100% 150% 200% 31.12.22 31.3.23 30.6.23 30.9.23 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 LCR ISK Regulatory min. ISK 4756459060 373332 30 12 1109283 77 74 122029 62 82 6210282 6685 31.12.2430.9.2430.6.2431.3.2431.12.23 Balances with financial institutions Level 2 liquid assets Domestic bonds Foreign government bonds Cash and balances with Central Bank 325 (20%) 271 (17%) 268 (17%) 313 (20%) 303 (19%) Level 1 liquid assets 125% 0% 50% 100% 150% 31.12.22 31.3.23 30.6.23 30.9.23 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 NSFR total Regulatory minimum
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Capital position considerably in excess of targets 13 February 2025 4Q24 & FY2024 Financial Results 25 Capital optimization a priority for the Bank, subject to market conditions • Based on 2024 profits, the Bank will pay dividend amounting to ISK 12.1bn or 50% of profits in line with its dividend polity • In addition, ISK 15bn have been allocated to share buyback, either through ordinary buyback program or via reverse auctions • SREP: As of 30 June 2024, the Bank must maintain an additional capital requirement of 1.8% of the REA, 0.6 percentage points less than in the previous assessment • The combined buffer requirement is 9.9%, resulting in an overall capital requirement of 19.7% • Íslandsbanki's total capital target ratio is based on the overall regulatory requirement in addition to a 100-300bp management buffer and is therefore currently at 20.7- 22.7% • At end of 4Q24 MREL ratio for the Bank, including the CET1 capital held to meet the combined buffer requirement (CBR), stood at 33.4% (390 bps above requirement) • The Bank has until October 2027 to fulfil the subordination requirement HighlightsCurrent regulatory requirements and minimum capital target 31.12.2024, by capital composition REA ratio, ISKbn % of total assets Capital and leverage ratios % of REA (% of total exposure for leverage ratio) 1CET1 capital target set at mid-point of management buffer 25.3% 23.6% 23.1% 23.4% 23.2% 21.4% 19.9% 19.9% 20.2% 20.1% 13.4% 12.6% 13.0% 13.0% 13.2% 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 Total capital ratio CET1 ratio Leverage ratio 977 1,015 1,019 1,021 1,041 61.7% 61.8% 63.9% 62.9% 64.7% 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 REA REA ratio (REA/Total assets) Capital ratio 23.2% 4.5% 1.0% 9.9% 15.4% 17.4% 20.1% 1.5% 0.3% 1.8% 1.8% 0.9% 2.0% 0.5% 2.5% 2.5% 2.1% Pillar 1 Pillar 2 Combined buffer requirement Overall capital requirement Management buffer Capital target Capital ratio CET1 AT1 T2 Overall capital requirement 19.7% Capital target 20.7-21.7% Management buffer 1.0-3.0% Minimum capital requirement 8% Total SREP capital requirement 9.8% 1
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CRR3 expected to be implemented later this year 13 February 2025 4Q24 & FY2024 Financial Results 26 Capital relief is expected as REA is forecasted to reduce by approx. 4.5% throughout 2025 • Implementation of CRR3 in 2025 expected to reduce REA by 4-5% at implementation and grow slightly through 2025, thus providing additional capital distribution or growth capacity • CRR3 therefore expected to increase total capital ratio by 110bps to 24.3%, while CET1 ratio is expected to grow by 100bps to 21.1% • REA related to operational risk as well as credit risk assume to be reduced with the implementation • The Bank has already prepared the necessary changes and is ready with updated product offering to make use of the changed regulatory framework HighlightsREA and REA ratio Capital Ratios 1CET1 capital target set at mid-point of management buffer 866 905 910 912 922 89611 10 9 9 11 11100 100 100 100 107 86 977 1,015 1,019 1,021 1,041 993 61.7% 61.8% 63.9% 62.9% 64.7% 61.8% 31.12.23 31.3.24 30.6.24 30.9.24 31.12.24 CRR3 Credit risk Market risk Operational risk REA ratio (REA/Total assets) 17.4% 20.1% 21.1%1.8% 0.9% 0.9%2.5% 2.1% 2.3%21.7% 23.2% 24.3% Capital target 31.12.24 Impact of CRR3 CET1 ratio AT1 Tier 2 1
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Capital optimization still a priority for the Bank 13 February 2025 4Q24 & FY2024 Financial Results 27 Month by month volatility expected as inflation subsides Target 4Q24 2024 Return on equity >10% 11.2% 10.9% Cost-to-income ratio1 <45% 45.7% 43.9% CET1 excess 100-300bps 470bps 470bps Dividend- payout-ratio 50% 50% Loans to customers and revenue, in general to grow in line with nominal GDP through the business cycle ROE in 2025 expected to be >10% for the year as a whole C/I ratio expected to be below 45% for the year Dividend policy assumes 50% of earnings to be paid to shareholders Distribution of excess CET1 capital in the amount of ISK 15bn planned throughout 2025 through share buybacks Commitment to conclude capital optimisation, subject to market conditions 2025 Guidance
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Q&A 13 February 2025 4Q24 & FY2024 Financial Results 28
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Appendix I About Íslandsbanki and additional financial information 13 February 2025 4Q24 & FY2024 Financial Results 29
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23% growth in sustainable lending in 2024 Íslandsbanki's Entrepreneurship Fund awarded ISK 50 million in total to 14 sustainability-related projects in 2024 93% of the Bank's credit risk exposure in scope2 assessed with regards to ESG risk by year-end 10.9%ROE Cost-to-income ratio CET 1 ratio Total capital ratio LCR NSFR Leverage ratio Total assets Group, all currencies Group, all currencies 43.9% 20.1% 23.2% 168% 125% 13.2% ISK 1,608bn Implementation of a new anti-money laundering/know your customer model Biometric authentication within the app launched for domestic payments The internal chatbot SAM commenced communication with employees with Quality Manual integration to follow soon 31% Retail customers 37% SMEs 34% Large companies 733 FTEs: Number of FTEs at Íslandsbanki at period end 12 branches Listed on Nasdaq Iceland as of June 2021 To create value for the future In a sustainable way Progressive thinking Collaboration Professionalism 13 February 2025 4Q24 & FY2024 Financial Results 30 This is Íslandsbanki We empower our customers to be a force for good Values The Bank Market share1 Sustainability in 2024 Digital milestones in 2024Ratings and certifications BBB+/A-2 Positive outlook Stable outlook A3 Key Figures 2024 1. For retail customers, based on the number of customers with active deposits as percentage of people with domicile in Iceland, for SMEs on average market share from Gallup's last four corporate surveys the most recent one carried out during 4Q24 and for large companies the market share according to a Gallup survey at end of 2024 among top 300 companies according to Frjáls verslun magazine. 2. Individuals and small enterprises are out of scope.
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Financial overview 13 February 2025 4Q24 & FY2024 Financial Results 31 Key figures & ratios 1. Calculated as (Administrative expenses – One-off items) / (Total operating income – One-off items). ). 2. . Expenses of ISK 279m for 4Q23, ISK 286m for 1Q24, ISK 210m for 2Q24, and ISK 269m for 3Q24 recognised in the line item "Other operating expenses" in the Group's Interim Financial Statements have been restated in the line item "Fee and commission expense", C/I ratio has been restated accordingly. C/I ratio for 2Q24 excludes a charge of ISK 470m due to an administrative fine. C/I ratio for 4Q23 included a provision of ISK 100m made in connection with an administrative fine, the C/I ratio has been restated so it excludes the provision. 3. Negative cost of risk means that there is a net release of impairments. 4. Stage 3, loans to customers, gross carrying amount. 5. Including 1Q24 profit for 31.3.24. 6. MREL ratio includes the CET1 capital held to meet the combined buffer requirement. 4Q24 3Q24 2Q24 1Q24 4Q23 PROFITABILITY Profit for the period, ISKm 6,283 7,280 5,266 5,417 6,228 Return on equity 11.2% 13.2% 9.7% 9.8% 11.2% Net interest margin (of total assets) 2.7% 2.9% 3.1% 3.0% 2.9% Cost-to-income ratio1,2 45.7% 40.4% 45.7% 43.9% 41.1% Cost of risk3 (0.11%) (0.27%) (0.04%) 0.23% 0.33% 31.12.24 30.9.24 30.6.24 31.3.24 31.12.23 BALANCE SHEET Loans to customers, ISKm 1,295,388 1,274,094 1,276,608 1,248,295 1,223,426 Total assets, ISKm 1,607,807 1,622,458 1,595,896 1,643,707 1,582,694 Risk exposure amount, ISKm 1,040,972 1,021,243 1,019,494 1,015,161 977,032 Deposits from customers, ISKm 926,846 927,011 916,127 879,554 850,709 Customer loans to customer deposits ratio 140% 137% 139% 142% 144% Non-performing loans (NPL) ratio4 1.6% 1.6% 1.8% 1.9% 1.8% LIQUIDITY Net stable funding ratio (NSFR), for all currencies 125% 126% 123% 127% 124% Liquidity coverage ratio (LCR), for all currencies 168% 223% 190% 190% 195% CAPITAL Total equity, ISKm 227,355 223,388 216,501 215,718 224,693 CET1 ratio5 20.1% 20.2% 19.9% 19.9% 21.4% Tier 1 ratio5 21.0% 21.2% 20.9% 20.9% 22.5% Total capital ratio5 23.2% 23.4% 23.1% 23.6% 25.3% Leverage ratio5 13.2% 13.0% 13.0% 12.6% 13.4% MREL ratio6 33.4% 35.6% 35.6% 39.1% 41.3%
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Income statement 13 February 2025 4Q24 & FY2024 Financial Results 32 Income statement, ISKm 4Q24 4Q23 ∆% 2024 2023 ∆% Net interest income 10,875 11,730 (7%) 47,265 48,611 (3%) Net fee and commission income 3,607 3,494 3% 13,122 13,283 (1%) Net financial income (expense) 169 455 (63%) (338) 241 (240%) Net foreign exchange gain 113 113 0% 607 581 4% Other operating income 782 258 203% 2,282 570 300% Total operating income 15,546 16,050 (3%) 62,938 63,286 (1%) Salaries and related expenses (4,244) (3,861) 10% (16,329) (15,003) 9% Other operating expenses (2,856) (2,730) 5% (11,299) (10,689) 6% Administrative fines - (100) - (470) (960) (51%) Administrative expenses (7,100) (6,691) 6% (28,098) (26,652) 5% Bank tax (454) (402) 13% (1,900) (1,871) 2% Total operating expenses (7,554) (7,093) 6% (29,998) (28,523) 5% Profit before net impairment on financial assets 7,992 8,957 (11%) 32,940 34,763 (5%) Net impairment on financial assets 352 (1,002) - 645 (1,015) - Profit before tax 8,344 7,955 5% 33,585 33,748 (0%) Income tax expense (2,058) (1,737) 18% (9,426) (9,198) 2% Profit for the period before profit from non-current assets 6,286 6,218 1% 24,159 24,550 (2%) Profit from non-current assets held for sale, net of tax (3) 10 - 87 35 149% Profit for the period 6,283 6,228 1% 24,246 24,585 (1%) Key ratios Net Interest Margin (NIM) 2.7% 2.9% 2.9% 3.0% Cost-to-income ratio (C/I) 45.7% 41.1% 43.9% 40.6% Return on Equity (ROE) 11.2% 11.2% 10.9% 11.3% Cost of risk (COR) (0.11%) 0.33% (0.05%) 0.08%
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Balance sheet reflects a balanced loan and funding profile 13 February 2025 4Q24 & FY2024 Financial Results 33 Conservative mix of assets and stable funding Assets • Vast majority of assets consist of lending to both retail and corporates • Strong liquidity portfolio is a consistent factor in balance sheet management • Very limited exposure to non- liquid or non-lending assets Liabilities • Deposits from retail and corporates are the single largest funding source • Bonds and debt instruments have become a more prominent part of the funding mix thanks to continuous focus on attracting new pockets of demand, including foreign currency and ESG issuance Simplified balance sheet structure 31.12.24, ISK 1,608bn Other Corporate & public sector lending Lending to individuals Loans to credit institutions Liquidity portfolio Cash in Central bank ISKm. Other Equity Subordinated loans Senior unsecured bonds Covered bonds Deposits from retail and corporations Deposits from credit inst. and pension fundsLiquid assets 17% Loan book 81% Deposits 58% Stable funding 39%
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Íslandsbanki's MREL requirement 13 February 2025 4Q24 & FY2024 Financial Results 35 Minimum Requirement for Own Funds and Eligible Liabilities (MREL), 31.12.2024 MREL = RCA+LCC =2x(P1+P2) 9.9% 9.8% 9.8% 9.9% 13.3% 10.3% 29.5% 33.4% MREL including CBR Own funds and eligible liabilities Eligible liabilities Own funds RCA LCC Combined buffer requirement • Íslandsbanki's MREL requirement is the sum of the Loss absorption amount (LAA) and Recapitalisation amount (RCA), both equal to the total SREP capital requirement of 9.8%, resulting in an MREL requirement of 19.8% of REA • CET1 capital that is maintained to meet the combined buffer requirement can not be used to fulfill MREL, therefore the effective requirement can be monitored as 29.5% of REA • Reduction of MREL ratio throughout the year relates to active liability management where the bank repurchased certain issuances, on the back of ample MREL buffer, strong capital position and excessive liquidity position 41.3% 39.1% 35.6% 35.6% 33.4% 30.2% 30.6% 30.7% 29.5% 29.5% 0 .050 .10 .150 .20 .250 .30 .350 .40 .450 31.12.2023 31.3.2024 31.6.2024 31.09.2024 31.12.2024 MREL MREL requirement MREL Development, %
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Assets 13 February 2025 4Q24 & FY2024 Financial Results 36 Asset base mainly consists of loans and liquid assets 1. Stage 3, loans to customers, gross carrying amount. Assets, ISKm 31.12.24 30.9.24 Δ Δ% 31.12.23 Δ Δ% Cash and balances with Central Bank 65,716 104,777 (39,061) (37%) 87,504 (21,788) (25%) Loans to credit institutions 50,486 58,177 (7,691) (13%) 73,475 (22,989) (31%) Bonds and debt instruments 142,618 126,396 16,222 13% 161,342 (18,724) (12%) Derivatives 5,324 6,014 (690) (11%) 5,776 (452) (8%) Loans to customers 1,295,388 1,274,094 21,294 2% 1,223,426 71,962 6% Shares and equity instruments 24,330 18,242 6,088 33% 13,241 11,089 84% Investment in associates 4,701 4,489 212 5% 4,051 650 16% Investment property 2,600 2,100 500 24% - 2,600 - Property and equipment 5,039 5,067 (28) (1%) 6,562 (1,523) (23%) Intangible assets 2,684 2,686 (2) (0%) 2,930 (246) (8%) Other assets 7,304 18,807 (11,503) (61%) 3,638 3,666 101% Non-current assets and disposal groups held for sale 1,617 1,609 8 0% 749 868 116% Total Assets 1,607,807 1,622,458 (14,651) (1%) 1,582,694 25,113 2% Key ratios Risk Exposure Amount (REA) 1,040,972 1,021,243 19,729 2% 977,032 63,940 7% REA / total assets 64.7% 62.9% 61.7% Non-performing loans (NPL) ratio¹ 1.6% 1.6% 1.8%
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Liabilities and equity 13 February 2025 4Q24 & FY2024 Financial Results 37 Deposits continue to be the largest source of funding Liabilities & Equity, ISKm 31.12.24 30.9.24 Δ Δ% 31.12.23 Δ Δ% Deposits from Central Bank and credit institutions 12,535 11,525 1,010 9% 16,149 (3,614) (22%) Deposits from customers 926,846 927,011 (165) (0%) 850,709 76,137 9% Derivative instruments and short positions 7,306 4,764 2,542 53% 5,090 2,216 44% Debt issued and other borrowed funds 367,586 380,814 (13,228) (3%) 417,573 (49,987) (12%) Subordinated loans 31,695 32,084 (389) (1%) 38,155 (6,460) (17%) Tax liabilities 12,916 15,637 (2,721) (17%) 13,107 (191) (1%) Other liabilities 21,568 27,235 (5,667) (21%) 17,218 4,350 25% Total Liabilities 1,380,452 1,399,070 (18,618) (1%) 1,358,001 22,451 2% Total Equity 227,355 223,388 3,967 2% 224,693 2,662 1% Total Liabilities and Equity 1,607,807 1,622,458 (14,651) (1%) 1,582,694 25,113 2% Key ratios Customer loans to customer deposits ratio 140% 137% 144% Net stable funding ratio (NSFR) 125% 126% 124% Liquidity coverage ratio (LCR) 168% 223% 195% Total capital ratio 23.2% 23.4% 25.3% Tier1 capital ratio 21.0% 21.2% 22.5% Leverage ratio 13.2% 13.0% 13.4% MREL ratio 33.4% 35.6% 41.3%
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Appendix II Icelandic economy update 13 February 2025 4Q24 & FY2024 Financial Results 38
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The Icelandic economy and society draw on many strengths Icelanders enjoy high standards of living in a modern, open and egalitarian society Iceland ranks highly on a variety of global development benchmarks Income inequality is low compared to OECD peers Gini coefficient, OECD, most recent data available Export base has grown more diverse over time Export contribution by industry Sustainable energy usage is prevalent Energy consumption by source, 2020 Iceland ranks highly in attracting/retaining talent IMD World Talent Ranking 2018-2024 0.0 0.1 0.2 0.3 0.4 0.5 SVK ISL SVN CZE NOR BEL FIN DNK AUT SWE CAN POL HUN FRA IRL DEU EST LUX GRC PRT NLD CHE RUS AUS ESP NZL ITA KOR JPN ROU ISR LVA GBR LTU USA 19.2 70.4 0.0 10.0 0.4 Hydro Geothermal Wind Oil Biofuel Shaded area denotes OECD forecast Source: Statistics Iceland, OECD, IMF, WEF, IEP, The Economist, UN, Transparency Int., HF, Yale, IMD, INSEAS 1 2 6 11 13 17 20 21 0 50 100 150 200 Gender equality (WEF) Democracy index (The Economist) Human development (UN) Corruption (Transparency Int.) Economic freedom (HF) Environmental perf. index (Yale) Global innovation index (INSEAS) Competitiveness (IMD) rank no. of countries ranked Public debt remains sustainable after pandemic General govt. gross financial liabilities, % of GDP 0 50 100 150 2010 2012 2014 2016 2018 2020 2022 2024 Iceland UK USA Euro area OECD avg 0% 20% 40% 60% 80% 100% 2009 2011 2013 2015 2017 2019 2021 2023 Marine products Aluminium Other industrial 19% 17% 9% 5% 32% 18% 16 7 4 7 3 3 6 1 3 5 7 9 11 13 15 2018 2019 2020 2021 2022 2023 2024 Switzerland Sweden Iceland Norway Denmark 4Q24 & FY2024 Financial Results 13 February 2025 39
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Economic tailwinds picking up speed 13 February 2025 4Q24 & FY2024 Financial Results 40 A new business cycle following mild GDP contraction likely to bring healthy growth -8 -6 -4 -2 0 2 4 6 8 10 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Effective CBI policy rate Inflation Real policy rate -0.5 0.0 0.5 1.0 1.5 0 1 2 3 4 5 6 7 8 2024 2025 2026 MoM CPI change (r.axis) Inflation YoY (l.axis) A fairly smooth upward path for the economy following mild contraction.. … facilitating further gradual rate cuts by the Central Bank ..and housing market remains resilient in the face of tight monetary policy Inflation looks set to keep subsiding in the near term… Real GDP and main subitems, YoY change, % Year-on-year increase in residential house prices CBI policy rate and real policy rate, %MoM CPI change (%, left axis) and 12m trailing inflation(%, right axis) Shaded areas indicate ISB Research forecasts or estimates. Source: Statistics Iceland, Housing and Construction Authority, the Central Bank of Iceland and ISB Research. 9.0 5.0 -0.5 2.2 2.5 2.6 -18 -15 -12 -9 -6 -3 0 3 6 9 12 15 18 2010 2012 2014 2016 2018 2020 2022 2024 2026 Imports Exports Inventory chg. Investment Public consumption Priv.consumption GDP -5% 0% 5% 10% 15% 20% 25% 30% 2016 2017 2018 2019 2020 2021 2022 2023 2024 Total Single family Apartments
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Economic tailwinds picking up speed 13 February 2025 4Q24 & FY2024 Financial Results 41 A fairly smooth upward path for the economy, driven equally by exports and domestic demand • After robust growth in 2021-2022, GDP growth slowed, culminating in an estimated 0.5% contraction in 2024, signaling a shift in the business cycle. • Despite the contraction, domestic demand saw modest growth in 2024, though negative contributions from net exports and inventory changes, including a failed capelin catch, weighed on overall performance. • GDP growth is forecasted at 2.2% for 2025, driven by private consumption supported by real wage growth, population increases, and savings drawdowns, along with a positive contribution from net trade. • Output growth is projected to rise further, reaching 2.5% in 2026 and 2.6% in 2027, spurred by rebounding investment and stronger demand in the export sector, although private consumption growth may soften slightly. • The latest forecast adjusts prior projections, attributing stronger GDP growth in 2025 partly to base effects from the 2024 contraction. • Risks include global factors such as potential tariff wars and escalating conflicts in Eastern Europe and the Middle East, as well as domestic concerns like geological activity, energy production delays, and housing market dynamics. Highlights 9.0 5.0 -0.5 2.2 2.5 2.6 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 2010 2012 2014 2016 2018 2020 2022 2024 2026 Imports Exports Inventory chg. Investment Public consumption Priv.consumption GDP GDP and contribution of its subcomponents Volume change from prior year (%), annual data GDP and contribution of its subcomponents Volume change from prior year (%), quarterly data 9.7 6.4 3.01.5 -2.8 0.2 -0.5 -30 -27 -24 -21 -18 -15 -12 -9 -6 -3 0 3 6 9 12 15 18 21 24 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1 2024 Q1 Imports Exports Inventory chg. Investment Public consumption Priv.consumption GDP
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New sources of export growth come to the fore 13 February 2025 4Q24 & FY2024 Financial Results 42 Export growth resumes following a modest decline in 2024 • Visitor numbers rebounded in the second half of 2024, with a total of 2.26 million arrivals via Keflavík Airport, reflecting a 2% increase year-on-year.2025. • The tourist industry appears to have matured, shifting focus toward value creation, operational efficiency, and maintaining market share amid growing international competition as growth slows. • Tourism is no longer the dominant driver of export revenues; intellectual property exports and aquaculture are emerging as key growth sectors. • Export revenues from intellectual property rose sharply, reaching ISK 320 billion in 2024, comparable to fishing and aluminum in contribution to total exports. • Land-based aquaculture generated ISK 54 billion in export revenues in 2024 and is projected to grow significantly, though possibly below the most ambitious forecasts. • Despite a marginal contraction in goods and services exports in 2024 due to external shocks, export growth is forecasted at nearly 3% in 2025 and 4% annually in 2026 and 2027, driven in particular by robust export growth in intellectual property and aquaculture products. Highlights 6.3 -1.0 2.9 3.6 3.7 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 2010 2013 2015 2017 2019 2021 2023 2025 2027 Goods exports Service exports Total exports Shaded areas and dotted lines denote ISB Research forecasts Sources: Statistics Iceland, Federation of Icelandic Industries, ÍSB Research. Exports and contribution from subcomponents % change IP-based sector export revenues Bn.ISK. 2024: Federation of Icelandic Industries est. -5% 0% 5% 10% 15% 20% 25% 30% 0 50 100 150 200 250 300 350 2008 2010 2012 2014 2016 2018 2020 2022 2024 Export revenues (l.axis) YoY change (r.axis) Linear (YoY change (r.axis)) 13% avg. growth
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Current account deficit set to close 13 February 2025 4Q24 & FY2024 Financial Results 43 Exports to catch up with imports in 2025, and growth in imports and exports will be in balance later on Highlights • Export growth is projected at nearly 3% in 2025 and nearly 4% annually in 2026 and 2027. Import growth is expected to slow in 2025, driven by weaker business investment. • Net trade is anticipated to contribute positively to GDP growth in 2025 but remain neutral in 2026 and 2027 as export and import growth balances out. • After a deficit of nearly ISK 70bn (1.5% of GDP) in 2024, the current account is expected to improve, with a marginal deficit of 0.3% in 2025, a neutral balance in 2026, and a surplus of 0.5% of GDP in 2027. • Export prices are forecasted to improve somewhat relative to import prices over the forecast horizon, supporting the current account balance. • Iceland's net external assets, at 40% of GDP (ISK 1,800bn) as of September 2024, remain robust, bolstering exchange rate stability and international confidence. • Factors such as ISK appreciation, shifts in foreign markets, and changes in trade dynamics could challenge the forecasted improvements in the current account and NIIP -1.1 2.8 2.1 3.6 3.5 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 2010 2012 2014 2016 2018 2020 2022 2024 2026 Service imports Service imports Total imports 1.1 -1.5 -0.3 0.1 0.5 -10 -5 0 5 10 15 2010 2012 2014 2016 2018 2020 2022 2024 2026 Goods trade Services trade Primary income Net transfers Current account Imports and contribution from subcomponents % change Current account balance % of GDP Sources: Statistics Icelandic, Central Bank of Iceland, ÍSB Research.
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ISK set to be relatively stable over the forecast horizon 13 February 2025 4Q24 & FY2024 Financial Results 44 Wages and prices to rise faster than abroad, pushing the real exchange rate markedly upwards Highlights • The Icelandic króna (ISK) remained stable in 2024, with its overall exchange rate similar to 2023 despite a current account deficit. It strengthened significantly from September to year-end, driven by capital inflows and shifting expectations. • Securities investments, a favorable interest rate differential, and moderate outflows contributed to the ISK’s appreciation, counteracting trade deficits and foreign investment by pension funds. • The real exchange rate of the ISK has risen steadily due to faster wage and price increases in Iceland relative to trading partners, nearing the upper limit for a balanced current account. • A marginal appreciation of the ISK is expected through H2 2026, with the EURISK exchange rate forecasted at 143 by that time, followed by a slight depreciation in 2027. • Stronger ISK in the latter forecast period could increase the likelihood of a persistent current account deficit, necessitating an eventual correction through depreciation. • The balance between foreign investor interest in Icelandic assets and domestic outbound investments will likely determine FX market movements, with periodic fluctuations expected. 195.2 188.9 149.3 144.4 93.4 99.9 40 50 60 70 80 90 100 11050 70 90 110 130 150 170 190 210 230 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 ISK trade-weighted index EUR/ISK REER, relative prices (r.axis) ISK exchange rate and real exchange rate EURISK levels and indices Source: Statistics Iceland, The Central Bank of Iceland, ISB Research. ISK exchange rate and selected determinants ISK bn (left) and EURISK (right) Max. RER w.r.t. relative prices 135 140 145 150 155 160 165-60 -40 -20 0 20 40 60 2019 2020 2021 2022 2023 2024 2025 Central bank FX interventions Trade balance excl. ships/aircraft Flows due to reg. inward investment Net FX purchases by pension funds EUR/ISK
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Domestic balance sheets staying robust 13 February 2025 4Q24 & FY2024 Financial Results 45 Private sector debt ratios are stable and public debt remains moderate in global context 0 20 40 60 80 100 120 140 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Iceland UK USA Euro area OECD avg Private sector debt % of GDP Household debt % of disposable income Corporate debt % of GDP General government gross financial liabilities % of GDP Shaded areas indicate OECD forecasts. Source: Central Bank of Iceland, Eurostat, Statistics Iceland, OECD.. 0 50 100 150 200 250 300 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Iceland Denmark Sweden Finland Ireland Norway 73 77 0 100 200 300 400 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Households Businesses (excl. financial) 0 50 100 150 200 250 300 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Q3 24Iceland Denmark Sweden Netherlands Ireland Norway
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• Investment grew by nearly 4% YoY in the first nine months of 2024, driven by an 8% rise in residential investment and a 4% increase in business investment, while public investment declined slightly.2024 • Total investment growth is estimated at 3% for the year, reflecting continued resilience despite a rising real interest rate and tighter fiscal policy. • Investment volumes are expected to remain flat in 2025, with robust growth in residential investment offset by slower public investment growth and a contraction in business investment. • Mixed indicators highlight optimism in aquaculture sector development and other sectors, but high real interest rates and subdued tourism-related investment dampen overall prospects for 2025. • Business investment is projected to rebound strongly in 2026, driven by lower real interest rates and pent-up demand in export sectors, with total investment growing over 3% annually in both years. • Persistent housing demand will sustain residential construction, while the need for infrastructure investment may lead to increased public sector spending in the medium term. Investment set to grow in coming years after a brief hiatus 13 February 2025 4Q24 & FY2024 Financial Results 46 High interest rates and a more ambiguous outlook for exports will impede investment temporarily, but growth will pick up again later Highlights Source: Central Bank of Iceland, Statistics Iceland, Gallup. Investment, real change, and contribution of subcomponents % Business investment and related indicators YoY change (%) and indices 0 20 40 60 80 100 120 140 160 180 200 -70 -60 -50 -40 -30 -20 -10 0 10 20 30 40 50 60 70 2018 2019 2020 2021 2022 2023 2024 General business investment General investment goods imports VAT turnover, construction Business sentiment, 6M expectations (r.axis) 1.6 3.0 0.2 3.5 3.3 -15 -10 -5 0 5 10 15 20 25 2010 2012 2014 2016 2018 2020 2022 2024 2026 Public sector Residential Business Total investment
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Labour market healthy, albeit calmer 13 February 2025 4Q24 & FY2024 Financial Results 47 Real wages set to grow steadily during the forecast horizon Highlights • Unemployment rose to an average of 3.5% in 2024, up 0.3 percentage points year-on-year, though slightly lower than anticipated due to stronger-than- expected tourism in Q4. • The number of individuals unemployed for 6-12 months increased by nearly 15% YoY in December 2024 but showed improvement later in the year, reflecting seasonal recovery and a strong tourism sector. • Unemployment is forecasted to rise modestly to 3.8% in 2025, before easing to 3.6% in 2026 and 3.5% in 2027 as the economy strengthens. • Corporate surveys indicate reduced staffing shortages, with only 23% of executives reporting shortages – the lowest share since mid-2021, suggesting a loosening labour market. • Wages are expected to grow by 5.1% in 2025, 4.7% in 2026, and 4.4% in 2027, with robust real wage growth of 1.4% in 2025, 1.7% in 2026, and 1.2% in 2027. • Long-term wage agreements and reduced labour market tightness have helped keep wage drift in check, contributing to stable real wage growth during the forecast period. 0.7 1.4 1.7 1.2 -10 -5 0 5 10 15 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 Wages Real wages 3.8 3.6 3.5 0 1 2 3 4 5 6 7 8 9 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Unemployment ISB Research forecast Wages, year on year change % Unemployment1 % of workforce, annual average 1. Excluding recipients of part-time unemployment benefits. Source: Statistics Iceland, The Central Bank of Iceland and Confederation of Icelandic employers
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Icelanders put their wallets to work 13 February 2025 4Q24 & FY2024 Financial Results 48 Private consumption growth to rebound during the forecast horizon Highlights • Private consumption grew by 0.9% in 2024, supported by higher real payment card turnover, despite a 0.4% decline in overseas travel and weaker durable goods purchases such as vehicles. • Household optimism surged in late 2024, with the Gallup economic sentiment index surpassing 100 in December, indicating a positive outlook for the economy and employment. • High savings rates, rising property values, and robust net wealth levels have placed Icelandic households in a strong financial position historically. • Private consumption is projected to grow by 2.7% in 2025, driven by households tapping into accumulated savings and a recovery in durables purchases as interest rates decline. • Private consumption is expected to expand by 2.4% in 2026 and 2.3% in 2027, supported by stronger purchasing power and continued declines in interest rates. • Purchases of durable goods, which were deferred during the high-interest rate period, are expected to rebound during the forecast horizon, further boosting consumption. 0.9 2.72.42.3 0 20 40 60 80 100 120 140 160 -20 -15 -10 -5 0 5 10 15 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 Private consumtion Household card turnover Real wages Gallup CC index (r.axis) Net household wealth Selected ratios Private consumption and related indicators % change YoY (left) and index value (right) Sources: Central Bank of Iceland, Gallup, Statistics Iceland, ÍSB Research. 0 1 2 3 4 5 6 7 8 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Ratio of net wealth to GDP Real net wealth per capita
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The real estate market shows continued resilience 13 February 2025 4Q24 & FY2024 Financial Results 49 Central Bank monetary tightening has impact but underlying demand supports prices and turnover Capital area house prices relative to macroeconomic fundamentals Index, January 2011=100 Commercial property real prices in greater Reykjavik Index, 1995=100 (l.axis) and % change (r.axis) Residential house prices and turnover % change (r.axis) and number (l.axis) Commercial real estate market activity No. of registered purchase agreements Source: The Central Bank of Iceland. 80 100 120 140 160 180 200 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Relative to the consumer price index Relative to the wage index Relative to the building cost index Relative to the rent index -10 0 10 20 30 0 500 1000 1500 2000 2021 2022 2023 2024 No. of contracts, seasonally adj. (l.axis) Nominal prices, YoY change (r.axis) Real prices, YoY change (r.axis) -40 -20 0 20 40 60 0 50 100 150 200 250 300 350 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 YoY % change (r.axis) Real prices (l.axis) 0 50 100 150 200 250 300 2010 2012 2014 2016 2018 2020 2022 2024 Retail and offices Industrial, warehouse, other
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The Icelandic housing market is relatively resilient 13 February 2025 4Q24 & FY2024 Financial Results 50 Supply, demand, mortgage market factors combine to make a large price correction less likely Households are not highly indebted compared to peers Household debt, % of GDP Underlying upward demand trend steady as population growth remains robust Population forecast by Statistics Iceland Mortgage market is flexible w.r.t. loan types with different payment burden Outstanding mortgage loans, share of total Turnover in the residential housing market remains steady despite rate hikes No. of purchase agreements, capital region (th.), and average time to sale Source: The Central Bank of Iceland, Statistics Iceland. 350000 400000 450000 500000 550000 2023 2025 2027 2029 2031 2033 2035 2037 2039 Downside fcast Median fcast Upside fcast 0 20 40 60 80 100 120 140 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1 2015 Q1 2017 Q1 2019 Q1 2021 Q1 2023 CPI-indexed loans FX-linked loanc Nominal loans Overdrafts Leasing 0 20 40 60 80 100 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24 Floating rate 3-5yr fixed rate CPI-indexed, floatng rate CPI indexed, 3-5yr fixed rate Other 0 1 2 3 4 5 0 500 1000 1500 2000 2500 3000 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Detached/semidetached apts (l.axis) Multi-family dwellings (l.axis) Other real estate (l.axis) Avg time to sale (months), (r.axis)
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Disinflation set to continue 13 February 2025 4Q24 & FY2024 Financial Results 51 Inflation rapidly approaching the target but will not reach it during the forecast horizon Highlights • Inflation continued to decline throughout 2024, particularly after mid-year, with a rapid reduction in autumn driven by free school meals and university fee cancellations, • Inflation in trading partner countries moderated, while the ISK appreciated significantly from September onwards due to capital inflows, contributing to easing price pressures. • Inflation is expected to average 3.6% in 2025, 3.0% in 2026, and 3.2% in 2027, with stability in global prices, limited wage drift, and a stable ISK as key factors. • Wage agreements for certain labour segments and potential changes in domestic and international government policies pose risks to inflation stability. • Inflation is not expected to reach the Central Bank’s target during the forecast horizon but will likely drop below the upper tolerance limit by March 2025. • Global commodity prices have risen due to poor harvests, while oil prices are projected to decline amidst high inventories and reduced demand from China. -0.4 -0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 0 1 2 3 4 5 6 7 8 2024 2025 2026 MoM CPI change (r.axis) Inflation YoY (l.axis) 0 1 2 3 4 5 6 7 8 9 10 11 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Inflation Inflation forecast Inflation target Inflation and the CBI inflation target * % *Forecast as of Jan-2025 Sources: Statistics Iceland, Central Bank of Iceland and ÍSB Research. Month-on-month and year-on-year CPI change * % *Forecast as of Jan-2025
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Highlights Interest rates on a downward path in the coming term 13 February 2025 4Q24 & FY2024 Financial Results 52 The Central Bank's monetary easing phase will probably continue until mid-2026, with long-term interest rates following suit • The Central Bank began cutting the key interest rate in Q4 2024, reducing it from 9.25% to 8.5% amid falling inflation and a slowing economy. • Inflation expectations have declined across most measures, though breakeven inflation rates in bond markets have shown slight upward movement recently. • The narrowing output gap, easing housing market pressures, slower wage growth, and resilient domestic demand suggest continued but moderated economic activity. • The key interest rate is projected to fall to 6.5% by the end of 2025, with the monetary easing phase likely concluding in mid-2026 when the rate reaches 5.0-5.5%. • Nominal ten-year Treasury rates remain high at 6.7%, with real rates at 2.7%. These are expected to decline to 5.7% and 2.2%, respectively, over the forecast horizon. • The long-term breakeven inflation rate is forecast to decline from the current 4.0% to 3.5%, with the market likely pricing in lower long-term inflation expectations due to an uncertainty premium. 0 1 2 3 4 5 6 7 8 9 10 2011 2013 2015 2017 2019 2021 2023 2025 2027 Main CBI policy rate Long term yield Long term real yield -8 -6 -4 -2 0 2 4 6 8 10 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Effective CBI policy rate Inflation Real policy rate Policy rate and inflation * %, Real policy rate based on 12m forward forecasts * Forecast as of Jan 2025 Sources: Central Bank of Iceland, Kodiak, Statistics Iceland, ÍSB Research. Key interest rates %, average per year 4.0% breakeven 3.5% breakeven
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Iceland's credit rating rising apace 13 February 2025 4Q24 & FY2024 Financial Results 53 Rating companies acknowledge the flexibility of the economy and improving public debt metrics 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Moody´s S&P Global Fitch AAA/Aaa AA+/Aa1 AA/Aa2 AA-/Aa3 A+/A1 A/A2 A-/A3 BBB+/Baa1 BBB/Baa2 BBB-/Baa3 BB+/Ba1 Development of sovereign credit rating Source: Moody’s, S&P, Fitch Ratings and Central Bank of Iceland. MOODY'S IN SEPTEMBER 2024 ‒ "The stable outlook reflects balanced risks at the A1 rating level." ‒ "We expect fiscal consolidation to continue over the coming years broadly as planned in the medium- term fiscal plan." ‒ "The alignment of the foreign-currency ceiling with the local-currency ceiling reflects low transfer and convertibility risk, given Iceland's high policy effectiveness and robust net external creditor position at around 37% of GDP." FITCH IN SEPTEMBER 2024 – "Iceland's ‘A’ rating is underpinned by very high income per capita and governance indicators more consistent with ‘AAA’ and ‘AA’ category sovereigns." – "Sizeable buffers, including ample foreign reserves and a large fiscal cash buffer, help mitigate Iceland's external vulnerabilities." – "Strong fundamentals include sizeable pension fund assets, a sound banking sector, and strong private- sector balance sheets." – "However, the rating remains constrained by Iceland's small economy with limited export diversification and high public debt. " S&P IN NOVEMBER 2024 – "Iceland's institutional settings are strong and per capita income levels are high, but the economy remains concentrated on a few key sectors, including aluminum, fishing, and tourism." – "The stable outlook reflects our view that, beyond a temporary slowdown in 2024, Iceland's economy will continue to expand over the next two years, while recording modest fiscal and external deficits." – "It also reflects our assumption that volcanic activity will not have a significant sustained adverse effect on the country's economic, fiscal, and balance-of-payments performance. " S&P in Mar-17: Rating upgrade to A on lifting of capital controls; outlook stable Fitch in Dec-17: Rating upgrade to A on economic stability, reduced external vulnerability and improvement in government debt ratios, supported by robust growth Moody's in Nov-19: Upgrade to A2 on sustained sizeable debt reduction gains and improvements in economic resilience 53 S&P in Nov-23: Rating upgrade from A to A+ on strong growth and fiscal consolidation, outlook stable Moody's in Sep-24: Rating upgrade to A1 on improving fiscal metrics and the moderating impact of tight economic policy on inflation.
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Disclaimer 13 February 2025 4Q24 & FY2024 Financial Results This presentation is for information purposes only and shall not be construed as an offer or solicitation for the subscription or purchase or sale of any financial instrument. All information contained in this presentation should be regarded as preliminary and based on company data available. The information set out in this presentation has not been independently verified. Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. Due care and attention has been used in the preparation of forecast information. However, actual results may vary from their forecasts, and any variation may be materially positive or negative. Forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of Íslandsbanki. No representation or warranty is made by Íslandsbanki as to the accuracy, completeness or fairness of the information or opinions contained in this presentation. The information in this material is based on sources that Íslandsbanki believes to be reliable. Íslandsbanki can however not guarantee that all information is correct. Furthermore. information and opinions may change without notice. Íslandsbanki is under no obligation to make amendments or changes to this publication if errors are found or opinions or information change. Íslandsbanki and its management may make certain statements that constitute "forward-looking statements". These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as "anticipates, " "targets," "expects,” “estimates," "intends," " plans," "goals," "believes" and other similar expressions or future or conditional verbs such as "will," "should," "would" and "could". The forward-looking statements represent Íslandsbanki's current expectations, plans or forecasts of its future results and revenues and beliefs held by the company at the time of publication. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and are often beyond Íslandsbanki's control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements. Forward-looking statements speak only as of the date they are made and Íslandsbanki undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward- looking statement was made. Íslandsbanki does not assume any responsibility or liability for any reliance on any of the information contained herein and accepts no liability whatsoever for any direct or indirect loss, howsoever arising, from use of this presentation. Íslandsbanki is the owner of all works of authorship including, but not limited to, all design, text, sound recordings, images and trademarks in this material unless otherwise explicitly stated. The use of Íslandsbanki's material, works or trademarks is forbidden without written consent except were otherwise expressly stated. Furthermore, it is prohibited to publish material made or gathered by Íslandsbanki without written consent. 54
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