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S&P Global Ratings affirms BBB+/A-2 rating for Íslandsbanki but changes outlook to negative

S&P Global Ratings affirms BBB+/A-2 rating for Íslandsbanki but changes outlook to negative

Today, S&P Global Ratings (S&P) has affirmed Íslandsbanki’s rating of BBB+/A2 but has changed the outlook from stable to negative.

In its report, S&P refers to Íslandsbanki’s stable domestic market position and acknowledges the Bank’s success in introducing new digital products and improving its IT infrastructure, placing Íslandsbanki well ahead of many other European banks. S&P also notes the Bank’s exceptional capitalisation, strong liquidity levels and robust asset quality.

S&P’s rational for the change to negative outlook is mostly derived from its view that Iceland’s operating environment will remain challenging, affected by the 2019 economic recession, declining interest rates, still-high taxation, and stiff competition from pension funds in mortgage lending, and thus contributing to the declining profitability of the Bank. S&P notes that it could revise the outlook to stable again if economic and operating conditions improve and/or if earnings prospects for the Bank become better. The rating agency also notes it could lower the ratings on the Bank over the next 24 months if the operating environment in Iceland becomes more difficult.

In light of this, Íslandsbanki would like to reiterate its view that it is the responsibility of the government to ensure that taxes and levies on financial institutions are not too onerous and do not undermine banks’ competitive positions vis-à-vis other financial institutions at home and abroad.  Taxes on commercial banks are still many times higher in Iceland than in neighbouring countries. This is unfortunate in an environment where pension funds and fintech companies are now competitors without having to pay levies to the government at a rate comparable to those paid by commercial banks. Competition is a good thing, but it is vital to maintain a level playing field for all.

Aneta Larkins

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