Íslandsbanki (ISB) Q2 2024 earnings summary

Executive summary

• Q2 2024 profit was ISK 5.3 billion, down from ISK 6.1 billion year-over-year, with ROE at 9.7% (10.6% adjusted for FSA fine), in line with guidance and consensus estimates; H1 2024 net profit was ISK 10.7bn, ROE 9.8%.

• Asset quality improved, with Stage 2 and Stage 3 loans decreasing, NPL ratio at 1.6–1.8%, and impairment reversals realized.

• Strong loan and deposit growth continued, with loans up 2.3% in Q2 and 4.3% in H1, and deposits up 4.2% in Q2 and 7.7% in H1.

• Share buybacks remain active, with nearly 4% of shares held and further buybacks planned; ISK 12.3bn dividend paid in April 2024.

• Settlement reached with FSA on AML issues, resulting in a ISK 570 million fine (ISK 470 million charged in Q2).

Financial highlights

• Net interest income for Q2 2024 was ISK 12,491m (down 1% YoY); H1 2024: ISK 24.6bn (down from ISK 25.0bn YoY); net interest margin at 3.1%.

• Cost-to-income ratio was 46.4% for Q2 and 45.6% (adjusted) for H1, above target due to higher operating expenses and regulatory investments.

• Salary growth was 7.9% year-over-year, with increased FTEs to strengthen regulatory infrastructure.

• Other operating expenses rose, mainly due to IT investments and inflation.

• Net fee and commission income declined year-over-year; net financial income remained negative due to market volatility.

Outlook and guidance

• ROE guidance maintained at around 10% for the year, with medium-term prospects above 10%.

• Loan growth expected in the mid- to high mid-single digits for the year; revenues projected to grow in line with nominal GDP.

• Inflation at 6.3% in July 2024, expected to fall to 5.4% by year-end; policy rate cuts anticipated in 2H24 if disinflation continues.

• Cost-to-income ratio expected around 45% for the full year, with inflationary pressures partly offset by high interest rates.

• Earnings may fluctuate in the short term due to interest rate and inflation dynamics.