Íslandsbanki has been building a dependable presence in capital markets over the past 10 years through the issuance of various asset classes of debt in multiple currencies. With diversification as its watchword, it has established itself as a regular issuer, always aiming at a balance of consistency and choice of appropriate markets. It has a clear and considered funding policy, matching sources of funds to lending and in so doing minimising currency and refinancing risk.
Íslandsbanki has worked hard to achieve a strong set of credit ratings. Currently rated A3 (stable outlook) by Moody’s Investors Service and BBB+ (stable outlook) by S&P Global Ratings, the bank’s funding exercises are supported by extremely strong capitalisation, high levels of liquidity and solid earnings. The bank is committed to preserving the strongest ratings possible.
As one of the pillars of the Icelandic banking market, Íslandsbanki’s deposit base remains the principal — and a growing — source of funding. Representing 53% of total funding, the deposit base is well diversified and granular, with only 26% of deposits belonging to the 100 biggest depositors.
Covered pioneer
In 2011, the bank became Iceland’s pioneer for covered bonds, issuing the first such transaction domestically. The country’s market for covered bonds has developed strongly over the past 10 years with ISK554bn ($4bn) outstanding, and Íslandsbanki’s share standing at 31%. The investor base encompasses all the biggest asset managers in the country, whether pension funds, mutual funds or insurance companies.
More recently domestic markets have also opened up to the issuance of senior preferred and subordinate transactions. This provides the bank with opportunities that were previously unavailable to reduce dependence on foreign markets for these asset classes.
In overseas markets, the bank has a wide footprint as it has issued across a diverse range of asset classes and currencies. It typically issues one euro-denominated senior transaction each year.
In March 2024, Íslandsbanki issued a heavily oversubscribed €300m four year senior preferred, fixed rate bond. Launched with initial price talk of 230bp over mid-swaps, a more than five-times oversubscription meant that the bank was able to print the eventual transaction at 185bp over mid-swaps — a notable endorsement of the strength of appetite for Icelandic risk.
Íslandsbanki remains an energetic supporter of Scandinavian currency markets, having issued multiple times in Swedish kronor (SEK) and Norwegian kroner (NOK) variously in senior preferred, subordinated and additional tier 1 formats. Most recently, the bank issued dual-currency NOK 500m/SEK 500m three year senior bonds in green format — its first green transactions in those markets.
Indeed, the bank has issued in green or sustainable formats several times since 2020, when it signed its Sustainable Financing Framework (SFF) — the first Icelandic bank to do so. Íslandsbanki is committed to ESG principles across its entire business, not least in funding. In January 2024, it updated its framework, now renamed to become a Sustainable Funding Framework, incorporating all the latest changes to EU taxonomy and in alignment with ICMA Green, Social and Sustainable Bond Principles. Íslandsbanki will make judicious use of the framework to allow it to access the growing requirement for asset managers to invest in sustainable assets.
In the summer of 2022, the bank issued its inaugural euro-denominated covered bond. Rated A+ by S&P Global Ratings, the €300m 3% fixed rate five year was placed with a range of European investors that was almost entirely new to the bank. Although this was in itself a good diversification trade, the bank expects to be only an occasional issuer of foreign currency covered bonds.
The Treasury team at Íslandsbanki wants to ensure that it continues to be responsive to the needs of investors and the market in general. As Íslandsbanki looks to the opportunities that lie ahead, including its first issues of senior non-preferred bonds, we would welcome a dialogue with investors and other market participants looking across the capital spectrum.
To get in touch, email us at treasury@islandsbanki.is