Islandsbanki Q2 2025 slides: profit surges 37% as ROE hits 13%

Islandsbanki hf (ICE:ISB) presented its second quarter 2025 financial results on July 31, showcasing strong performance across all business segments with quarterly profits 37% higher than the previous year and return on equity reaching 13%.

Quarterly Performance Highlights

The Icelandic bank reported core operating income growth of 11.5% year-on-year, with all core revenue streams performing better than the previous year. Return on equity reached 13.0% in Q2 2025, significantly higher than the 9.7% recorded in Q2 2024 and the 9.4% from Q1 2025.

As shown in the following chart of key financial metrics, Islandsbanki has maintained a strong capital position while improving profitability and operational efficiency:

The cost-to-income ratio improved to 41.0% in Q2 2025 from 46.7% in the same period last year, well within the bank’s financial target of below 45%. This improvement was driven by both reducing administrative expenses and growth in income.

Net interest margin increased to 3.3% in Q2 2025, up from 3.1% in Q2 2024, contributing to the bank’s strong performance. The following chart breaks down the net interest income by business segment:

The bank’s quarterly profit comparison shows significant improvement over the previous year:

Strategic Initiatives

Islandsbanki completed the full sale of the Government’s stake in May 2025 through a successful fully marketed offering (FMO), attracting more than 31,000 investors. Following the transaction, the bank still maintains over 30,000 shareholders, with pension funds representing the largest investor group (35.9%) followed by retail investors (35.5%).

The bank has begun its capital optimization journey with share buybacks pursuant to an ISK 15 billion authorization that commenced in early July. Additionally, the Financial Supervisory Authority decreased the bank’s additional capital requirement by 0.4 percentage points in its annual assessment.

Islandsbanki continues to diversify its loan portfolio, with lending outside of Iceland growing year-to-date to represent 7% of the Corporate & Investment Banking loan portfolio. The bank maintains its position as the market leader in Iceland, holding the highest market share in turnover on Nasdaq Iceland in equities and total turnover year-to-date.

Capital Position & Asset Quality

Islandsbanki maintains a strong capital position with a total capital ratio of 21.5% and a CET1 ratio of 18.5% as of June 30, 2025. The bank’s capital ratios remain well above regulatory requirements, providing flexibility for further capital optimization.

The following chart illustrates the bank’s capital position relative to regulatory requirements:

Asset quality remains strong, with 94% of loans to customers fully covered by collateral. The bank reported that credit exposure fully covered by collateral amounts to ISK 1,247 billion. While there was a slight increase in Stage 2 loans, the bank attributed this primarily to a handful of credit cases being granted forbearance during the quarter.

The bank’s loan portfolio remains well-diversified across business segments, with Personal Banking, Business Banking, and Corporate & Investment Banking all showing growth. Mortgage products are seeing a normalization in the shift between different interest rate types.

Forward-Looking Statements

Islandsbanki provided guidance for 2025, expecting loans to customers and revenue to grow in line with nominal GDP through the business cycle. The bank anticipates ROE for the full year 2025 to be 10-11%, assuming a normalized level of impairments.

The cost-to-income ratio is expected to remain below 45% for 2025, and the dividend policy assumes 50% of earnings will be paid to shareholders.

The bank’s CEO, Jón Guðni Ómarsson, highlighted capital optimization as an ongoing priority, noting that month-by-month fluctuations are expected as the economy reaches equilibrium.

The Icelandic economy is described as "lifting off gradually after a brief touch-down," as shown in the following economic indicators:

Islandsbanki’s stock closed at 126 on July 31, 2025, up 0.79% according to the latest market data. The stock has traded between a 52-week low of 97.8 and a high of 133.5.

With its strong Q2 2025 performance, successful completion of the government stake sale, and ongoing capital optimization initiatives, Islandsbanki appears well-positioned to meet its financial targets for the year while maintaining its market leadership in Iceland’s banking sector.

Full presentation:

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