Investor Presentation Landsbankinn February 2018 Investor - - PowerPoint PPT Presentation

Investor Presentation Landsbankinn

February 2018

Landsbankinn

DISCLAIMER

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. This presentation may not be reproduced, retransmitted or further distributed to the press or any other person or published, in whole or in part, for any purpose. Failure to comply with this restriction may constitute a violation of applicable securities laws. This presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of Landsbankinn in any jurisdiction or an inducement to enter into investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. The information set out in this presentation has not been independently verified. No representation or warranty is made by Landsbankinn as to the accuracy, completeness or fairness of the information or opinions contained in this presentation. This presentation is intended only for persons having professional experience in matters relating to investments being relevant persons (as defined below). Solicitations resulting from this presentation will only be responded to if the person concerned is a relevant person. Neither this presentation nor any copy of it may be taken or transmitted into the United States of America, its territories or possessions, or distributed, directly or indirectly, in the United States of America, its territories or possessions. Any failure to comply with this restriction may constitute a violation of U.S. securities laws. This presentation is not an offer of securities for sale in the United States. Landsbankinn has not registered and does not intend to register any securities in the United States or to conduct a public offering of any securities in the United States. This presentation is made to and is directed only at persons in the United Kingdom having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (the "Order"), and to those persons to whom it can

• therwise lawfully be distributed (such persons being referred to as "relevant persons").

The forward-looking statements in this presentation are based upon various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, management's examination of historical operating trends, data contained in Landsbankinn’s records and other data available from third parties. Although Landsbankinn believes that these assumptions were reasonable when made, these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control, and Landsbankinn may not achieve or accomplish these expectations, beliefs or projections. Neither Landsbankinn, nor any of its members, directors, officers, agents, employees or advisers intend or have any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained in this presentation. Landsbankinn accepts no liability whatsoever for any direct or indirect loss, howsoever arising, from use of this presentation. Landsbankinn assumes no obligation to update this presentation, provide any additional information or correct any errors, which may eventually become apparent.

2 Investor Presentation

Landsbankinn

The Big Picture – Iceland at a glance

Investor Presentation

Capital city Reykjavík Population 348,580 (EOY 2017) Size 102,775 km2 Government Parliamentary Constitutional Republic Elections held 28 October 2017 Legislature Althingi 63 members elected for term every four years Political milestones Full independence in 1944 Member of UN in 1946, OECD 1948, NATO

• 1949. Joined EFTA in 1970 and accessed the

European Economic Area in 1994 Currency ISK - Icelandic króna 1 EUR ≈ 124 ISK GDP Total $19.4 billion Per Capita $57,889 (2016) Sovereign long term credit ratings S&P: A/Stable (March 2017) Moody’s: A3/Stable (Sept 2016) Fitch: A/Stable (Dec 2017)

3

Landsbankinn‘s branches

Source: www.statice.is, www.imf.org

Landsbankinn

A leading Icelandic universal bank

■ Landsbankinn hf. is the largest financial institution in Iceland offering universal banking services for

households, corporates and institutional investors

■ The market leader in the Icelandic financial services sector

■ Market share ≈ 35-40 % in the domestic retail segment and corporate sector ■ Award winning mobile banking solutions for retail and corporates ■ The most extensive branch network in Iceland, 24 branches and 13 service points

■ Total number of staff 997 (EOY 2017)

4 Investor Presentation

Landsbankinn

Strategy

Investor Presentation 5

Landsbankinn

Ownership

6

Icelandic State Treasury

929 other shareholders

0.3%

The Icelandic State Financial Investments (ISFI)

98.2%

Landsbankinn

• Own shares

1.5%

■

The Finance Ministry published an ownership policy in July 2017 in regards to equity holdings in financial companies that are supervised by the Icelandic State Financial Investments (ISFI)

■

In regards to Landsbankinn the policy states,

■

The government will retain a significant equity stake in the bank (34-40%) to ensure stability in the domestic financial sector

■

The remaining equity stake will be sold in the next few years given favorable market conditions

■

Equity in Landsbankinn will be listed on a stock exchange

Investor Presentation

Landsbankinn

Organisational chart

7

Perla Ösp Ásgeirsdóttir Hreiðar Bjarnason Hrefna Ösp Sigfinnsdóttir Arinbjörn Ólafsson Helgi Teitur Helgason Árni Þór Þorbjörnsson Lilja B. Einarsdóttir

Investor Presentation

Landsbankinn

8

S&P credit rating

Fundamental factors for Landsbankinn:

■

Very strong capital and earnings

■

Strong liquidity position

■

Average funding profile

■

Adequate business position

■

Moderate risk position Icelandic sovereign Landsbankinn hf. Long-term rating A BBB+ Short-term rating A-1 A-2 Outlook Stable Stable Last rating action March 2017 October 2017

Investor Presentation

20.01.2014 17.07.2015 21.07.2015

1 3 5 7 9 11 13 15 17 19

2013 2014 2015 2016 2017 2018 Landsbankinn hf. Republic of Iceland - Foreign currency 17.03.2017 15.01.2016 13.01.2017 25.10.2017 25.10.2016

Landsbankinn

Financial objectives

9

.

Objective 2017 Guidelines Return on Equity (ROE) ≥ 10% 8.2% Long-term objective ROE is projected to be 7-8% in 2018 Cost-income Ratio (C/I ratio) ≤ 45% 46.1% Long-term objective Cost-income ratio is projected to be 43-48% in 2018 Total Capital Ratio (TCR) ≥ 23% 26.7% The Bank's aim is to maintain capital ratios above the FME's capital requirements at any given time, plus a 1.5-2.5% management buffer The Bank also aims to be in the highest category for risk-adjusted capital ratio, as determined and measured by the relevant credit rating agencies Long-term objective to be reached in stages leading up to 2020 Common Equity Tier 1 Capital (CET1) ≥ 18% 26.3% Dividend Payout Ratio 60 - 80% 78% The aim is also to make special dividend payments to further optimise the Bank's capital structure Investor Presentation

Landsbankinn

10

Strong overall credit profile

■

Landsbankinn is among the global leaders in terms of its leverage ratio and CET 1 ratio

■

Landsbankinn’s pro-forma RAC ratio as of mid-year 2017 is at 19.9%

■

Landsbankinn aims to be in the highest category for RAC ratio, as determined and measured by the relevant credit rating agency

Source: Annual financial statements 2017/ Standard&Poors – RatingsDirect *Annual financial statements 2016 **Mid-year 2017 RAC ratio

Investor Presentation

19.9%** 11.6% 10.3% 10.9% 12.3% 10.2% 10.1% 0% 5% 10% 15% 20% 25%

Landsbankinn Swedbank AB Jyske Bank AS Nordea Bank AB DNB Bank AS Danske Bank AS Bank of Ireland

S&P RAC ratio

Year-end 2016

26.3% 19.5% 17.6% 16.3%* 13.8% 0% 5% 10% 15% 20% 25% 30% Landsbankinn Nordea Danske Bank DNB Bank of Ireland

CET 1 ratio

Year-end 2017

18.20% 5.20% 4.40% 7.30%* 7.00% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Landsbankinn Nordea Danske Bank DNB Bank of Ireland

Leverage ratio

Year-end 2017

Landsbankinn

Banking system in Iceland – three main players

Investor Presentation 11

1,193 1,036 1,148 900 950 1,000 1,050 1,100 1,150 1,200 1,250 Landsbankinn Íslandsbanki Arion banki Assets (ISKbn) 246 181 226 50 100 150 200 250 300 Landsbankinn Íslandsbanki Arion banki Equity (ISKbn) 46.1% 63.5% 56.1% 0% 20% 40% 60% 80% Landsbankinn Íslandsbanki Arion banki Cost to Income ratio 153.0% 133.2% 165.5% 100% 120% 140% 160% 180% 200% Landsbankinn Íslandsbanki Arion banki Loans to Deposit ratio 18.2% 16.2% 15.4% 0% 5% 10% 15% 20% 25% Landsbankinn Íslandsbanki Arion banki Leverage ratio Source: Financial Statements 2017 26.3% 22.6% 23.6% 15% 20% 25% 30% 35% Landsbankinn Íslandsbanki Arion banki CET 1 ratio

Landsbankinn

Strong market position

12

Retail banking Corporate banking

Investor Presentation

Source: Gallup

2017 Results

Landsbankinn

Financial highlights Operations Balance Sheet

Profit after taxes

ISK 19.766bn

Return on equity after taxes

8.2%

Interest spread as a ratio

• f assets and liabilities

2.5%

Cost-income ratio

46.1%

Total Assets

ISK 1,193bn 26.7% 157% 0.9% ISK 246bn

Equity Total Capital Ratio LCR Total Arrears (>90 days)

EUR 159.08m EUR 9.60bn EUR 1.98bn

Exchange rate: EUR/ISK as at 31 December 2017 124.25

14 Investor Presentation

Landsbankinn

Investor Presentation 15

Development of KPIs

12.4% 12.5% 14.8% 6.6% 8.2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 2013 2014 2015 2016 2017

Return on equity after taxes

42.9% 56.0% 43.8% 48.4% 46.1% 0% 10% 20% 30% 40% 50% 60% 2013 2014 2015 2016 2017

Cost-income ratio excluding valuation adjustments

5.2% 8.2% 9.4% 10.8% 4.70% 6.2% 0% 2% 4% 6% 8% 10% 12% 2013 2014 2015 2016 2017

Dividend yield

Special dividend 26.7% 29.5% 30.4% 30.2% 26.7% 16.7% 23.3% 21.8% 22.1% 21.4% 0% 5% 10% 15% 20% 25% 30% 35% 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Total capital ratio

FME capital requirement *2017 according to a motion for the AGM.

Landsbankinn

Income Statement

Investor Presentation 16

Amounts in ISKm Profit 2016 Net interest income Net adjustments in valuation Net fee and commission income Other income FX gain (loss) Salaries and related expenses Other operating expenses Taxes Profit 2017 1,621 2,103 622 1,662

• 1,196
• 12
• 324
• 1,353

5,000 10,000 15,000 20,000 25,000

Change from 2016 to 2017

16,643 19,766

Landsbankinn

Investor Presentation 17

Income statement

Amounts in ISKm

2017 2016 Change Q4 2017 Q4 2016 Change Net interest income 36,271 34,650 5% 9,201 8,443 9% Net adjustments in valuation 1,785

• 318

662%

• 282
• 4,737
• 94%

Net interest income after adjustments in valuation 38,056 34,332 11% 8,919 3,706 141% Net fee and commission income 8,431 7,809 8% 1,840 1,900

• 3%

Other net operating income 7,025 6,559 7% 1,111 1,402

• 19%

Total operating income 53,512 48,700 10% 11,870 7,008 69% Salaries and related expenses 14,061 14,049 0% 3,753 3,640 3% Other operating expenses 9,789 9,465 3% 2,411 2,292 5% Total operating expenses 23,850 23,514 1% 6,164 5,932 4% Profit before tax 29,662 25,186 18% 5,707 1,076 430% Income tax expense and tax on liabilities of financial institutions 9,896 8,543 16% 2,783 833 234% Profit for the period 19,766 16,643 19% 2,925 243 1106%

Landsbankinn

Investor Presentation 18

Net operating income

Amounts in ISKm

9,879 7,855 7,269 7,466 8,018 7,118 7,385 8,929 10,145 10,158 7,340 7,057 8,834 8,596 8,894 9,977 5,776 7,292 8,443 9,201 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 2013 2014 2015 2016 2017

Net interest income

Q1 Q2 Q3 Q4 4,430 14,027 12,334 4,419 2,067 3,932 6,101 5,882

• 4,737
• 282
• 10,000
• 5,000

5,000 10,000 15,000 20,000 25,000 2013 2014 2015 2016 2017

Net adjustments in valuation

9M Q4 1,363 1,518 1,641 1,980 2,116 1,597 1,403 1,753 1,914 2,316 1,151 1,275 1,745 2,015 2,159 1,180 1,640 1,702 1,900 1,840 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 2013 2014 2015 2016 2017

Net fee and commission income

Q1 Q2 Q3 Q4 66% 16% 7% 5% 3% 3%

Income mix

Net interest income Net fee and commission income Equities Net adjustments in valuation Bonds Other net operating income

Landsbankinn

Investor Presentation 19

Net operating income

Amounts in ISKm

4,631 2,491 7,947

• 100

3,975 2,372 3,572 1,724 555

• 75
• 2,000

2,000 4,000 6,000 8,000 10,000 12,000 2013 2014 2015 2016 2017

Equities

9M Q4 3,438 614 2,186 1,225 1,251 637 2 592 315 542 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 2013 2014 2015 2016 2017

Bonds

9M Q4 1,350

• 40
• 1,219

33

• 893
• 203

107

• 58
• 212
• 482
• 2,000
• 1,500
• 1,000
• 500

500 1,000 1,500 2013 2014 2015 2016 2017

FX gain (loss)

9M Q4 2,660 1,473

• 238

3,999 1,581 750 1,358 4,296 744 1,126

• 1,000

1,000 2,000 3,000 4,000 5,000 2013 2014 2015 2016 2017

Other operating income

9M Q4

Landsbankinn

Investor Presentation 20

Operating expenses

*2013, less expensed equity-based wages

Amounts in ISKm

■

In 2010 the government imposed a special tax on financial institutions

■

The tax of 0.376% is levied on the carrying amount of total liabilities in excess of ISK 50bn

■

Furthermore, in accordance with Act No.165/2011, a 6% additional special income tax on financial institutions on pre-tax profit over ISK 1bn is recognised

3,173 3,455 3,702 3,754 3,491 3,122 3,288 3,179 3,559 3,654 2,810 3,019 3,466 3,096 3,163 3,508 3,805 3,407 3,640 3,753 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 2013 2014 2015 2016 2017

Salaries and related expenses*

Q1 Q2 Q3 Q4 1,183 1,126 1,063 1,012 997 200 400 600 800 1,000 1,200 1,400 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Full time employees

2,611 2,649 2,580 2,499 2,426 2,593 2,395 2,597 2,444 2,477 2,371 2,164 2,127 2,230 2,475 2,372 3,313 2,674 2,292 2,411 2,000 4,000 6,000 8,000 10,000 12,000 2013 2014 2015 2016 2017

Other operating expenses

Q1 Q2 Q3 Q4

Landsbankinn

Investor Presentation 21

Balance sheet - assets

Amounts in ISKm

5% 4% 2% 2% 1% 59% 65% 73% 77% 78% 6% 5% 2% 2% 4% 3% 3% 3% 2% 2% 25% 22% 18% 14% 10% 2% 1% 2% 3% 5% 0% 20% 40% 60% 80% 100% 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Assets

Cash and balances with CB Bonds and debt instruments Equities and equity instruments Loans and advances to financial institutions Loans and advances to customers Other assets

31.12.17 31.12.16 Change Cash and balances with CB 55,192 30,662 24,530 80% Bonds and debt instruments 117,310 154,892

• 37,582
• 24%

Equities and equity instruments 27,980 26,688 1,292 5% Loans and advances to financial institutions 44,866 20,408 24,458 120% Loans and advances to customers 925,636 853,417 72,219 8% Other assets 18,238 17,641 597 3% Assets classified as held for sale 3,648 7,449

• 3,801
• 51%

Total 1,192,870 1,111,157 81,713 7%

Landsbankinn

Investor Presentation 22

Balance sheet - loans

Amounts in ISKbn

* Problem loans are defined as loans and advances with individual allowance and / or more than 90 days in arrears 250 240 274 319 366 244 279 327 360 411 187 199 211 174 149 680 718 812 853 926

• 50

50 150 250 350 450 550 650 750 850 950 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Loans to customers

ISK-CPI loans ISK loans FX loans 138 110 111 121 134 151 171 200 239 286 185 198 210 173 149 474 480 521 533 569 100 200 300 400 500 600 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Loans to corporates

ISK-CPI loans ISK loans FX loans 5.3% 2.3% 1.8% 1.5% 0.9% 5.5% 4.0% 2.0% 0.9% 1.1% 10.8% 6.3% 3.8% 2.4% 2.0% 0% 2% 4% 6% 8% 10% 12% 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Problem loans

Arrears > 90 days Loans and advances with individual allowance 112 129 163 198 232 93 108 127 121 125 1 1 1 1 206 239 291 320 357 50 100 150 200 250 300 350 400 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Loans to individuals

ISK-CPI loans ISK loans FX loans

Landsbankinn

Investor Presentation 23

Balance sheet - loans

Amounts in ISKbn New lending FX change CPI changes Changes in impairment & Write offs Installments 853 279 7

• 213

926 400 500 600 700 800 900 1,000 1,100 1,200

Change in 2017

Loans 31.12.16 Loans 31.12.17

44% 40% 11% 4% 1%

Loans by currencies

ISK ISK CPI EUR USD Other currencies

31.12.2017 31.12.2016 Change ISK 411 361 50 14% ISK CPI 366 319 47 15% EUR 99 93 6 6% USD 38 61

• 23
• 38%

Other currencies 12 19

• 7
• 37%

Total loans 926 853 73 9%

Landsbankinn

Investor Presentation 24

Balance sheet - loans

Amounts in ISKm

50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000

Public entities Individuals Fisheries Construction companies Real estates companies Holding companies Retail Services ITC Manifacturing Agriculture Other

Loans by industry sectors

31.12.15 31.12.16 31.12.17 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

Continuous LTV distribution of mortgages to individuals

31.12.2015 31.12.2016 31.12.2017

Weighted average LTV 31.12.17 59.9% (62.3% 31.12.16 ; 63.4% 31.12.2015)

25,000 50,000 75,000 100,000 125,000 150,000 175,000 200,000 225,000 250,000 Indexed mortgage loans Non-indexed mortgage loans Overdrafts and credit cards Vehicle financing Other

Loans to individuals by loan types

31.12.15 31.12.16 31.12.17

Funding and Liquidity

Landsbankinn

Investor Presentation 26

Balance sheet – liabilities and equity

Amounts in ISKm

167,218 53,827 56,731 20,093 32,062 456,662 551,435 559,051 589,725 605,158 100,000 200,000 300,000 400,000 500,000 600,000 700,000 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Deposits

Due to financial institutions and CB Deposits from customers 21% 23% 23% 23% 20% 4% 3% 3% 2% 2% 21% 19% 19% 20% 24% 40% 50% 50% 53% 51% 14% 5% 5% 2% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Liabilities and equity

Due to financial institutions and CB Deposits from customers Borrowings & subordinated loans Other liabilities Equity

31.12.17 31.12.16 Change Due to financial institutions and CB 32,062 20,093 11,969 60% Deposits from customers 605,158 589,725 15,433 3% Borrowings 281,874 223,946 57,928 26% Other liabilities 27,642 25,776 1,866 7% Subordinated liabilities 77 388

• 311
• 80%

Equity 246,057 251,231

• 5,175
• 2%

Total 1,192,870 1,111,157 81,713 7%

Landsbankinn

Investor Presentation 27

Borrowings

Amounts in ISKm

50,000 100,000 150,000 200,000 250,000 Bonds issued to LBI Covered bonds EMTN issuance Other unsecured loans Subordinated liabilities

Borrowings

31.12.2013 31.12.2014 31.12.2015 31.12.2016 31.12.2017 68% 25% 7%

Borrowings 31.12.2017

EMTN issuance Covered bonds Other unsecured loans Subordinated liabilities 7,500 16,120 3,720 19,540 420 8,640 19,000 20,306 10,748 28,471 62,125 37,275 37,352 7,760

• 100

200 300 400 500 600 10,000 20,000 30,000 40,000 50,000 60,000 70,000 2018 2019 2020 2021 2022 2023 2024 > 10 years

Maturity profile

ISK FX ISKm EURm

Issue date: October 2015 September 2016 March 2017 November 2017

Size: € 300 m € 500 m € 300 m € 300 m Issue rating (S&P): BBB- BBB- BBB BBB+ (positive outlook) (positive outlook) (positive outlook) (stable outlook) Tenor: 3-year 4.5-year 5-year 5.5-year Maturity date: October 2018 March 2021 March 2022 May 2023 Launch spread: + 295 bp + 190 bp + 130 bp + 85 bp Joint lead managers: Citi, DB, JP Morgan Barclays, Citi, DB Barclays, BAML, Citi, JP Morgan Citi, DB, Morgan Stanley, Nomura Roadshow locations: Copenhagen, Oslo, Helsinki, Stockholm, London Copenhagen, Helsinki, London, Paris, Amsterdam London, Paris, Amsterdam Investor Call

Investors Geography

28

Landsbankinn’s EUR senior unsecured issuance

Investor Presentation

• Asset Managers
• Insurers / Pensions
• Banks
• Official Institutions
• Other
• UK / Ireland
• Nordics
• Ger / Aus / Swiss
• South Europe
• BeNeLux
• France
• Asia / Other

Type 54% 41% 3% 2% 58% 26% 8% 4% 4% 57% 31% 5% 4% 3% 72% 13% 10% 2% 3% 32% 47% 6% 12% 3% 34% 31% 10% 13% 8% 4% 60% 13% 6% 5% 7% 9% 35% 20% 14% 10% 9% 8% 4%

29

Landsbankinn’s senior issuance

Investor Presentation

• Historical Z-spreads (mid)
• Current EUR curve

As of 23.02.2018

Landsbankinn

Investor Presentation 30

Liquidity coverage ratio

*according to the liquidity rules set by the Central Bank of Iceland, No. 266/2017

Amounts in ISKm

208% 614% 360% 743% 931% 0% 100% 200% 300% 400% 500% 600% 700% 800% 900% 1000% 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Liquidity coverage ratio FX

LCR FX Regulatory requirements

Total* FX* 31.12.2017 Unweighted Weighted Unweighted Weighted Level 1 liquid assets 110,036 110,036 51,112 51,112 Information items 24,333 10,273

• A. Total liquid assets

134,369 110,036 61,385 51,112 Deposits 451,942 115,437 47,910 18,427 Borrowing 220 220 Other outflows 140,357 17,181 32,796 3,523

• B. Total outflows (0-30 days)

592,519 132,838 80,707 21,950 Loans and advances to financial institutions 57,074 43,202 44,836 43,141 Other inflows 42,736 19,443 12,593 6,729 Limit on inflows

• 33,407
• C. Total inflows (0-30 days)

99,810 62,646 57,429 16,463 Liquidity coverage ratio A/(B-C) 157% 931%

102% 131% 113% 128% 157% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Liquidity coverage ratio total

LCR total Regulatory requirements

Landsbankinn

Investor Presentation 31

Capital requirements

■

Landsbankinn's calculation of risk-weighted assets and capital ratios is based on the standardised approach

■

Landsbankinn has assessed the impact of adopting IFRS 9 as of 1 January 2018:

■

In addition to higher loan impairment and tighter requirements, FME interprets the standard to provide that general adjustment for credit risk will no longer fall under Tier 2 capital as of 1 January 2018

■

As a result, the total impact of the adoption of the standard is:

■ Common Equity Tier 1 capital decreases by ~0.1 percentage

point

■ The total capital ratio decreases by ~0.5 percentage points

CET1 Tier 1 Total Pillar I 4.5% 6.0% 8.0% Pillar II A 2.8% 3.7% 4.9% Minimum requirements under Pillar I and Pillar IIA 7.3% 9.7% 12.9% Systemic risk buffer 2.8% 2.8% 2.8% Capital buffer for systematically important institutions 2.0% 2.0% 2.0% Countercyclical capital buffer 1.2% 1.2% 1.2% Capital conservation buffer 2.5% 2.5% 2.5% Combined buffer requirements under Pillar II B 8.5% 8.5% 8.5% Total capital requirements 15.8% 18.2% 21.4% Total capital ratio 31.12.17 26.3% 26.3% 26.7%

888,918 845,604 865,482 836,758 924,118 77.2% 77.0% 77.4% 75.3% 77.5% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% 200,000 400,000 600,000 800,000 1,000,000 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17

Risk weighted assets

Risk weighted assets RWA / total assets 8.0% 8.0% 8.0% 8.0% 8.0% 8.7% 7.8% 6.3% 6.0% 4.9% 7.5% 7.5% 8.1% 8.5% 16.7% 23.3% 21.8% 22.1% 21.4% 26.7% 29.5% 30.4% 30.2% 26.7% 0% 5% 10% 15% 20% 25% 30% 31.12.2013 31.12.2014 31.12.2015 31.12.2016 31.12.2017

Total capital requirements as defined by FME

Combined buffer requirements Pillar II A Pillar I Total capital ratio

Landsbankinn

Dividend policy and capital structure policy

Investor Presentation 32

Landsbankinn's dividend policy

■

Landsbankinn aims to pay regular dividends to shareholders amounting in general to 60-80% of the previous year's profit. In line with Landsbankinn's target capital ratio, the aim is also to make special dividend payments to optimise the Bank's capital structure

■

In determining the amount of dividend payments, the Bank's continued strong financial position shall be ensured. Regard shall be had for risk in the Bank's internal and external environment, growth prospects and the maintenance of a long-term, robust equity and liquidity position, as well as compliance with regulatory requirements of financial standing at any given time Funding composition and capital structure goals

■

In ensuring an appropriate and favourable capital structure, the Bank aims to minimise financing cost and secure adequate and timely access to liquid resources at any given time

■

The Bank will seek to optimise its capital structure through dividend payments, buy-back programmes and issuing equity instruments not included in share capital

■

The Bank's aim is to maintain capital ratios above the FME's capital requirement at any given time, plus a 1.5-2.5% management buffer

■

The Bank also aims to be in the highest category for risk-adjusted capital ratio, as determined and measured by the relevant credit rating agencies

*Dividend payment in 2018 in accordance with the proposal made to the AGM

Proposal of the Board of Directors to the AGM in March 2018:

■

Regular dividend of ISK 0.65/share

■

The total amount is ISK 15,366 m

■

This is equivalent to 78% of the previous year's profit

■

Reduces the Bank's equity ratio by 1.7 percentage points

19,897 23,687 28,500 13,002 15,366 11,820 24,822 69% 80% 78% 78% 78% 0% 10% 20% 30% 40% 50% 60% 70% 80% 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 2014 2015 2016 2017 2018

Dividend payout*

Special dividend Dividend / Profit previous year

Amounts in ISKm

Landsbankinn

Landsbankinn key take-aways

33

Exceptionally strong capital ratio’s Positive credit rating trajectory

» Currently BBB+/A-2,

stable outlook

Largest financial institution in Iceland Favorable economic

• utlook in Iceland

Investor Presentation

Economic Outlook

Positive economic fundamentals

2012-2017 Landsbankinn Economic Research projections Source: Statistics Iceland, Landsbanki Economic Research

Investor Presentation

• 20
• 15
• 10
• 5

5 10 15 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GDP growth and contribution to growth

Private final consumption Government final consumption Gross fixed capital formation Changes in inventories Net exports Gross Domestic Product %

• 25
• 20
• 15
• 10
• 5

5 10 15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Current account balance*

Trade balance Underlying balance on primary income ** Underlying current account balance ** Headline current account balance * Secondary income is included in the primary income. ** Excluding the calculated income and expenses of DMBs in winding-up proceedings but including the estimated effects of the settlement of their estates, and excluding the effects of pharmaceuticals company Actavis on the primary income until 2012. Also adjusted for the failed DMBs' financial intermediation services indirectly measured (FISIM).. % of GDP

Positive economic fundamentals

36

Source: Statistics Iceland

Investor Presentation

1 2 3 4 5 6 7 8 9 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Unemployment rate

%

• 5

5 10 15 20 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Inflation is now 2.4% (January)

Other components Services Domestic goods Housing Petrol Imported goods CPI %

Tourism has been a primary driver

37

Source: Icelandic Tourist Board

Investor Presentation

• 10%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Number of foreign visitors

YoY change (right) Total number (left)

thousand visitors 100 120 140 160 180 200 220 240 260 20 40 60 80 100 120 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Exchange rate

Real exchange rate Nominal exchange rate (trade weighted average)

• Jan. 2000 = 100

Index (inverted scale)

External position

38

Source: Central Bank of Iceland

Investor Presentation

100 200 300 400 500 600 700 800 900 1000

• 20
• 10

10 20 30 40 50 60 70 80 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17

Central Bank intervention in foreign exchange market

FX purchase, spot market FX sale, spot market FX purchase, forward contracts FX sale, forward contracts Net accumulated purchase (right) ISKbn ISKbn

• 200
• 180
• 160
• 140
• 120
• 100
• 80
• 60
• 40
• 20

20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Iceland International Investment Position

IIP IIP excluding DMBs undergoing winding up Estimated underlying IIP * % GDP * Central Bank of Iceland estimate of the underlying net external position that will result when the domestic and foreign assets of the deposit money banks in winding-up proceedings have been sold and the proceeds distributed to creditors

39

Strong economic recovery – government deleveraging

Investor Presentation

10 20 30 40 50 60 70 80 90 100

General government debt

Net debt Gross debt 2016-2021 IMF staff estimations / projections Source: IMF World Economic Outlook, October 2017 % GDP

50 100 150 200 250

Denmark Sweden Iceland Germany Ireland United Kingdom France Belgium United States Portugal Italy Greece Japan

General Government Gross Debt

• International comparison (2016)

% of GDP IMF Staff estimations Source: IMF World Economic Outlook, October 2017

Households and corporates have followed suit

40

Source: Financial Stability 2017/2, Central Bank of Iceland

• 1. Debt owed to domestic and foreign financial undertakings and market bonds issued.

Source: Financial Stability 2017/2, Central Bank of Iceland

Investor Presentation

20 40 60 80 100 120 140

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Household debt

Indexed Foreign currency Non-indexed Overdraft Asset financing

% GDP

20 40 60 80 100 120 140 160 180 2012 2013 2014 2015 2016 2017

Corporate debt¹

Indexed Non-indexed FX loans Asset financing agreements Domestic bonds issued Foreign bonds issued % GDP

Corporate debt as percentage of GDP in international comparison

41

1. Debt owed to domestic and foreign financial undertakings and market bonds issued. Source: Financial Stability 2017/1, Central Bank of Iceland

Investor Presentation

50 100 150 200 250 300 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Corporate debt –international comparison¹

Iceland Denmark Ireland Greece Spain Italy Cyprus Finland Sweden Norway % GDP