Investor Presentation May 2017 Investor Presentation DISCLAIMER - - PowerPoint PPT Presentation

Investor Presentation

May 2017

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. 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

• pinions contained in this presentation.

This presentation may contain projections and forward-looking statements which are subject to a number of risks and uncertainties that could cause actual results to differ materially and could adversely affect the financial effects described herein. 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 338,350 (1 Jan 2017) Size 102,775 km2 Government Parliamentary Constitutional Republic Center-right coalition formed 11 Jan 2017 - the Independence Party, Bright Future and the Reform Party Legislature Althingi

• 63 members elected for term every four years
• Last elections took place 29 Oct 2016

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 ≈ 115 ISK GDP Total $16.7 billion Per Capita $50,277 (2015) Sovereign long term credit ratings S&P: A/Stable (March 2017) Moody’s: A3/Stable (Sept 2016) Fitch: BBB+/Positive (Jan 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 ≈ 30-40 % 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 1,000 (Q1 2017)

4 Investor Presentation

Landsbankinn

Vision: Landsbankinn is to be exemplary Mission: The trusted financial partner Our relationship with customers is based

• n mutual benefit. We are a trusted

financial partner that supports customers towards success. We aim to tailor our services to fit their needs and to operate in harmony with our environment and society. We want our customers to be able to say…

“This is how a bank should be”

Strategy

5 Investor Presentation

Landsbankinn

Ownership

■

ISFI’s Selection Committee nominates members to the Board of Directors of Landsbankinn based on an assessment of qualifications, education and experience of individuals being considered for membership

■

The government has announced its plans to sell 28.2% stake in Landsbankinn.

6

Icelandic State Treasury

≈ 900 other shareholders

0.3%

The Icelandic State Financial Investments (ISFI)

98.2%

Landsbankinn

• Own shares

1.5%

Investor Presentation

Landsbankinn

Organisational chart

7

Perla Ösp Ásgeirsdóttir Hreidar Bjarnason Hrefna Ösp Sigfinnsdóttir Ragnhildur Geirsdóttir Helgi Teitur Helgason Árni Thór Thorbjörnsson Lilja Björk 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 risk and business position Icelandic sovereign Landsbankinn hf. Long-term rating A BBB Short-term rating A-1 A-2 Outlook Stable Positive Last rating action March 2017 October 2016

Investor Presentation

20.01.2014 21.07.2015 25.10.2016

1 3 5 7 9 11 13 15 17 19

07.10.2008 07.10.2009 07.10.2010 07.10.2011 07.10.2012 07.10.2013 07.10.2014 07.10.2015 07.10.2016 Landsbankinn hf. Republic of Iceland - Foreign Currency

Landsbankinn

9

Strong overall credit profile

■

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

■

Landsbankinn’s pro-forma RAC ratio as of mid-year 2016 is at 18.6%

■

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

Source: Standard&Poors – RatingsDirect **Mid-year 2016 RAC ratio

Year-end 2015

18.6%** 11.7% 10.4% 10% 11.2% 10.0% 7.3% 0% 5% 10% 15% 20%

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

S&P RAC ratio year-end 2015

Investor Presentation

29.7% 18.4% 16.3% 16.3% 12.3% 0% 5% 10% 15% 20% 25% 30% 35%

Landsbankinn Nordea Danske Bank DNB Bank of Ireland

CET 1 ratio

20.3% 5.0% 4.6% 7.3% 7.3% 0% 5% 10% 15% 20% 25%

Landsbankinn Nordea Danske Bank DNB Bank of Ireland

Leverage ratio

Year-end 2016 Year-end 2016

Landsbankinn

Banking system in Iceland – three main players

10

Source: Financial Statements Q1 2017

Investor Presentation

1182 1029 1120 900 950 1000 1050 1100 1150 1200 1250 Landsbankinn Íslandsbanki Arion banki Assets (ISKbn) 234 171 215 50 100 150 200 250 Landsbankinn Íslandsbanki Arion banki Equity (ISKbn) 27.0% 22.8% 27.3% 15% 20% 25% 30% 35% Landsbankinn Íslandsbanki Arion banki Tier 1 ratio 42.5% 60.1% 64.2% 0% 20% 40% 60% 80% Landsbankinn Íslandsbanki Arion banki Cost to Income ratio 146.7% 124.0% 151.4% 100% 120% 140% 160% 180% 200% Landsbankinn Íslandsbanki Arion banki Loans to Deposit ratio 17.7% 15.5% 17.0% 0% 5% 10% 15% 20% 25% Landsbankinn Íslandsbanki Arion banki Leverage ratio

Landsbankinn

Strong market position

11

Retail banking Corporate banking

Investor Presentation

Source: Gallup

2017 Q1 Results

Landsbankinn

Financial highlights Operations Balance Sheet

Profit after taxes

ISK 7.6bn

Return on equity after taxes

12.5%

Interest spread as a ratio

• f assets and liabilities

2.2%

Cost-income ratio

42.5%

Total Assets

ISK 1,182bn 27.0% 158% 1.3% ISK 234bn

Equity Tier 1 Capital LCR Total Arrears (>90 days)

EUR 65m EUR 10bn EUR 2bn

Exchange rate: EUR/ISK 116

13 Investor Presentation

Landsbankinn

Investor Presentation 14

Development of KPIs

26.7% 29.5% 30.4% 30.2% 27.4%

0% 5% 10% 15% 20% 25% 30% 35% 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

Total capital ratio

42.9% 56.0% 43.8% 48.4% 42.5%

0% 10% 20% 30% 40% 50% 60% 2013 2014 2015 2016 Q1 2017

Cost-income ratio excluding valuation adjustments

4.4% 8.2% 9.4% 10.8% 5.2%

4.7% 0% 2% 4% 6% 8% 10% 12% 2012 2013 2014 2015 2016

Dividend yield

Special dividend

12.4% 12.5% 14.8% 6.6% 12.5%

0% 2% 4% 6% 8% 10% 12% 14% 16% 2013 2014 2015 2016 Q1 2017

Return on equity after taxes

Landsbankinn

■

Value changes in the credit portfolio in Q1 were positive by ISK 1.8 bn as compared with a positive change in the amount of ISK 311 m in Q1

• f 2016

■

Net commission income increased by 7% as compared to the same period last year, first and foremost due to increased activity in capital markets

■

Other operating income increased substantially between years, accounted for mostly by positive changes in the fair value of unlisted equities

■

Effective tax rate is 15.6%

Investor Presentation 15

Income Statement

Amounts in ISKm

Q1 2017 Q1 2016 Change Net interest income

8,018 7,466 552 7%

Net adjustments in valuation

1,779 311 1,468 471%

Net interest income after adjustments in valuation

9,797 7,777 2,020 26%

Net fee and commission income

2,116 1,980 136 7%

Other net operating income

3,800 1,764 2,036 115%

Total operating income

15,713 11,521 4,192 36%

Salaries and related expenses

3,491 3,754

• 263
• 7%

Other operating expenses

2,426 2,499

• 73
• 3%

Total operating expenses

5,917 6,253

• 336
• 5%

Profit before tax

9,796 5,268 4,528 86%

Income tax expense and tax on liabilities of financial institutions

2,220 1,953 267 14%

Profit for the period

7,576 3,315 4,261 129%

Landsbankinn

Investor Presentation 16

Net operating income

Amounts in ISKm

49% 16% 13% 11% 7% 2% 2%

Income mix

Net interest income Equities Net commission and fees Net adjustments in valuation Other net operating income Bonds FX gain

9,879 7,855 7,269 7,466 8,018 7,118 7,385 8,929 10,145 7,340 7,057 8,834 8,596 9,977 5,776 7,292 8,443 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 1,363 1,518 1,641 1,980 2,116 1,597 1,403 1,753 1,914 1,151 1,275 1,745 2,015 1,180 1,640 1,702 1,900 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

• 438

4,170 1,596 311 1,779 8,800 15,958 16,620

• 629
• 5,000

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

Net adjustments in valuation

Q1 Q2 - Q4

Landsbankinn

Investor Presentation 17

Net operating income

Amounts in ISKm

2,400

• 442

3,478

• 234

2,688 4,603 6,505 6,193 689

• 2,000

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

Equities

Q1 Q2 - Q4 932

• 210

741 584 294 3,143 826 2,037 956

• 500

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 2013 2014 2015 2016 2016

Bonds

Q1 Q2 - Q4 1,172

• 23
• 324

162

• 365
• 25

90

• 953
• 341
• 1,500
• 1,000
• 500

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

FX gain

Q1 Q2 - Q4 314

• 327

291 1,252 1,183 3,096 3,158 3,767 3,491

• 1,000

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

Other operating income

Q1 Q2 - Q4

Landsbankinn

Investor Presentation 18

Operating expenses

*2013, less expensed equity-based wages

Amounts in ISKm

3,173 3,455 3,702 3,754 3,491 3,122 3,288 3,179 3,559 2,810 3,019 3,466 3,096 3,508 3,805 3,407 3,640 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 1,000 200 400 600 800 1,000 1,200 1,400 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

Full time employees

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

Other operating expenses

Q1 Q2 Q3 Q4

■

Total operating expenses are down 5% from same period last year

■

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

Landsbankinn

Investor Presentation 19

Balance sheet - assets

31.03.17 31.12.16 Change Cash and balances with CB 35,826 30,662 5,164 17% Bonds and debt instruments 147,992 154,892

• 6,900
• 4%

Equities and equity instruments 30,868 26,688 4,180 16% Loans and advances to financial institutions 70,230 20,408 49,822 244% Loans and advances to customers 872,350 853,417 18,933 2% Other assets 19,009 17,641 1,368 8% Assets classified as held for sale 6,192 7,449

• 1,257
• 17%

Total 1,182,467 1,111,157 71,310 6%

Amounts in ISKm

5% 4% 2% 2% 1% 59% 65% 73% 77% 74% 6% 5% 2% 2% 6% 3% 3% 3% 2% 3% 25% 22% 18% 14% 13% 2% 1% 2% 3% 3% 0% 20% 40% 60% 80% 100% 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

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

Landsbankinn

Investor Presentation 20

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 250 240 274 319 332 244 279 327 360 373 187 199 211 174 167 680 718 812 853 872 100 200 300 400 500 600 700 800 900 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

Loans to customers

ISK-CPI loans ISK loans FX loans 138 110 111 121 123 151 171 200 239 253 185 198 210 173 167 474 480 521 533 543 100 200 300 400 500 600 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

Loans to corporates

ISK-CPI loans ISK loans FX loans 112 129 163 198 209 93 108 127 121 120 1 1 1 1 206 239 291 320 329 50 100 150 200 250 300 350 400 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

Loans to individuals

ISK-CPI loans ISK loans FX loans 5.3% 2.3% 1.8% 1.5% 1.3% 5.5% 4.0% 2.0% 0.9% 0.9% 10.8% 6.3% 3.8% 2.4% 2.2% 0% 2% 4% 6% 8% 10% 12% 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

Problem loans

Arrears > 90 days Loans and advances with individual allowance

Landsbankinn

Investor Presentation 21

Balance sheet - loans

Amounts in ISKbn New lending FX change CPI changes Changes in impairment & Write offs Installments 853 76 2 1 1

• 61

872 400 500 600 700 800 900 1,000

Loans change Q1 2017

Loans 31.12.16 Loans 31.3.17

31.03.2017 31.12.2016 Change

ISK 373 361 12 3% ISK CPI 332 319 13 4% EUR 102 93 9 9% USD 47 61

• 14
• 24%

Other currencies 18 19

• 1
• 3%

Total loans 872 853 19 2%

43% 38% 12% 5% 2%

Loans by currencies

ISK ISK CPI EUR USD Other currencies

Landsbankinn

Investor Presentation 22

Balance sheet - loans

Amounts in ISKm

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

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 31.03.17 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 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 31.03.17 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

Continuous LTV distribution of mortgages to individuals

31.12.2015 31.12.2016 31.3.2017

Weighted average LTV 31.03.16 60.1% (62.3% 31.12.16 ; 63.4% 31.12.2015)

Funding and Liquidity

23

Landsbankinn

Investor Presentation 24

Balance sheet – liabilities and equity

31.03.17 31.12.16 Change Due to financial institutions and CB 31,613 20,093 11,520 57% Deposits from customers 594,565 589,725 4,840 1% Borrowings 244,649 223,944 20,705 9% Other liabilities 77,356 25,776 51,580 200% Subordinated liabilities 390 388 2 1% Equity 233,894 251,231

• 17,337
• 7%

Total 1,182,467 1,111,157 71,310 6%

Amounts in ISKm

167,218 53,827 56,731 20,093 31,613 456,662 551,435 559,051 589,725 594,565 100,000 200,000 300,000 400,000 500,000 600,000 700,000 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

Deposits

Due to financial institutions and CB Deposits from customers 21% 23% 23% 23% 20% 4% 3% 3% 2% 7% 21% 19% 19% 20% 21% 40% 50% 50% 53% 50% 14% 5% 5% 2% 2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

Liabilities and equity

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

Landsbankinn

Investor Presentation 25

Borrowings

Amounts in ISKm

125,272 22,380 49,938 11,754 639 50,122 38,586 118,513 16,723 388 18,102 46,821 156,250 23,476 390 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 Issued bonds to LBI Covered bonds EMTN issued Other unsecured loans Subordinated liabilities

Borrowings

31.12.2015 31.12.2016 31.3.2017 19,464 2,460 16,120 2,660 18,900 4,280 37,896 11,016 16,275 60,450 36,270 87 18,084

• 100

200 300 400 500 600 10,000 20,000 30,000 40,000 50,000 60,000 70,000 2017 2018 2019 2020 2021 2022 2023 2024 > 10 years

Maturity profile

ISK FX

ISK EUR

Landsbankinn

26

Landsbankinn’s EUR senior unsecured issuance

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

• investor types
• geography

Investor Presentation

• Asset Managers ● Insureres / Pensions● Banks ● Official Institutions ● Other
• UK / Ireland ● Nordics ● France ● Ger / Aus / Swiss ● BeNeLux ● Asia / Other

Issue date: October 2015 September 2016 March 2017 Size: € 300 m € 500 m € 300 m

Issue rating (S&P): BBB- (positive outlook) BBB- (positive outlook) BBB (positive outlook) Tenor: 3-year 4,5-year 5-year Maturity date: October 2018 March 2021 March 2022

Launch spread: + 295 bp + 190 bp + 130 bp

Joint lead managers: Citi, DB, JP Morgan Barclays, Citi, DB Barclays, BAML, Citi, JP Morgan Roadshow locations: Copenhagen, Oslo, Helsinki, Stockholm, London Copenhagen, Helsinki, London, Paris, Holland London, Paris, Holland

Investors

Landsbankinn

Investor Presentation 27

Liquidity

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

Total* FX* 31.03.17 Unweighted Weighted Unweighted Weighted Level 1 liquid assets

126,790 126,790 20,194 20,194

Level 2 liquid assets information items

12,627 11,606

• A. Total liquid assets

139,417 126,790 31,800 20,194

Deposits

395,485 107,279 36,245 13,582

Borrowing

2,860 2,860

Other outflows

178,622 54,686 74,790 39,193

• B. Total outflows (0-30 days)

576,967 164,825 111,035 52,775

Loans and advances to financial institutions

69,532 65,622 69,475 65,608

Other inflows

40,716 18,742 15,092 7,778

Limit on inflows

• 33,805
• C. Total inflows (0-30 days)

110,248 84,364 84,567 39,581 Net outflow 0-30 days (B-C) 80,461 13,194

Liquidity coverage A/(B-C)

158% 153%

Amounts in ISKm

208% 614% 360% 743% 153% 0% 100% 200% 300% 400% 500% 600% 700% 800% 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

Liquidity coverage ratio FX

LCR FX Regulatory requirements 102% 131% 113% 128% 158% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

Liquidity coverage ratio total

LCR total Regulatory requirements

Landsbankinn

Investor Presentation 28

Capital requirements

■

Total capital ratio was 27.4% end of Q1 2017, as compared with 30.2% at year-end 2016

■

In September 2016, the Icelandic parliament Althingi approved a bill of legislation amending the Act on Financial Undertakings to transpose into Icelandic law various provisions from CRD IV / CRR

■

Capital requirements pertaining to Landsbankinn as provided for in the Act on Financial Undertakings, guidelines on capital buffers from the Financial Stability Counsel and decisions made by the Financial Supervisory Authority, Iceland (FME), in the yearly ICAAP/SREP are stated in the above table

■

The Bank's target is to maintain a capital ratio above the FME's total capital requirement at any given time, plus an administration buffer specified in the Bank's risk appetite. 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

8.0% 8.0% 6.3% 6.0% 3.0% 2.7% 2.0% 2.0% 0.9% 2.5% 2.5% 21.8% 22.1% 0% 5% 10% 15% 20% 25% 31.12.14 31.12.15

Total capital requirements as defined by FME

Capital conservation buffer Countercyclical capital buffer Capital buffer for systematically important institutuions Systemic risk buffer Pillar II A Pillar I 77.2% 77.0% 77.4% 75.3% 72.5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 31.12.13 31.12.14 31.12.15 31.12.16 31.03.17

Risk weighted assets

Risk weighted assets RWA / total assets

Landsbankinn

Capital controls lifted

29 ■ The offshore ISK overhang in

the amount of ISK 320bn solved with auctions

■ Capital controls replaced by

prudential rules and volume limitations

■ The solution concerning the failed

banks estates was twofold: Stability conditions, and if the estates do not satisfy the conditions, a stability tax will be levied on them

• Final step on lifting the capital controls taken on 12 March 2017
• Capital flows to and from Iceland are now unrestricted, apart from:
• Carry trade inflow
• Derivatives denominated in ISK
• Individuals, companies and pension funds can invest abroad without restrictions

Estates of failed banks Offshore ISK The domestic economy

  

Investor Presentation

• A threefold capital controls liberalization strategy executed

Landsbankinn

Landsbankinn key take-aways

30

Exceptionally strong capital ratio’s Positive credit rating trajectory

» Currently BBB/A-2,

positive outlook

Largest financial institution in Iceland Favorable economic

• utlook in Iceland

Investor Presentation

Economic Outlook

Positive economic fundamentals

2017-2019 Landsbankinn Economic Research projections Source: Statistics Iceland, Landsbanki Economic Research

9.4 1.5

• 6.9
• 3.6

2 1.2 4.4 1.9 4.1 7.2 5.5 4.0 3.1

• 25
• 20
• 15
• 10
• 5

5 10 15 20 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

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

%

GDP growth and contribution to growth

Investor Presentation

• 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

Significant turnaround in foreign trade*

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

32

Positive economic fundamentals

33

Source: Statistics Iceland and Directorate of Labour

• 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

Inflation is now 1.9%

Other components Services Domestic goods Housing Petrol Imported goods CPI

%

Investor Presentation

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

Unemployment rate

%

Tourism has been a primary driver

34

Source: Icelandic Tourist Board and Central Bank of Iceland

• 10%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 200 400 600 800 1000 1200 1400 1600 1800 2000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of foreign visitors

YoY change (right) Total number (left)

thousand visitors

Investor Presentation

100 120 140 160 180 200 220 240 260 20 40 60 80 100 120

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

Exchange rate

Real exchange rate Nominal exchange rate (trade weighted average)

• Jan. 2000 = 100

Index (inverted scale)

The Central Bank has been active on the buy side on the local FX market

35

Source: Central Bank of Iceland, Statistics Iceland

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

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

Investor Presentation

• 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

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

36

Strong economic recovery – government deleveraging

10 20 30 40 50 60 70 80 90 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

General government debt

Net debt Gross debt

2016-2021 IMF staff estimations / projections Source: IMF World Economic Outlook, April 2017

% GDP 50 100 150 200 250 Sweden Denmark 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, April 2017

Investor Presentation

Households and corporates have followed suit

37

Source: Financial Stability 2017/1, Central Bank of Iceland

20 40 60 80 100 120 140 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Household debt

Indexed Foreign currency Non-indexed Overdraft Asset financing agreements

% GDP

Investor Presentation

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

Corporate debt¹

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

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

Corporate debt as percentage of GDP in international comparison

38

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

Corporate debt –international comparison1

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

Investor Presentation

1. Debt owed to domestic and foreign financial undertakings and market bonds issued. Source: Financial Stability 2016/1, Central Bank of Iceland