Landsbankinn Investor Presentation November 2016 Investor - - PowerPoint PPT Presentation

Landsbankinn Investor Presentation

November 2016

The Big Picture – Iceland at a glance

Investor Presentation Landsbankinn hf.

Capital city Reykjavík Population 334,300 (Q3 2016). An estimated 7% of the population is of foreign-born nationality. Median age is 37.1 years Size 102,775 km2 Government Parliamentary Constitutional Republic. Post elections taking place 29 October a coalitions has not been formed 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 ≈ 123 ISK GDP Total $14.5 billion Per Capita $52,426 (2014) Sovereign long term credit ratings S&P: BBB+/Stable (January 2016) Moody’s: A3/Stable (September 2016) Fitch: BBB+/Stable (July 2015)

2

Landsbankinn„s branches

A leading Icelandic universal bank

■ Landsbankinn is headquartered in Reykjavik, Iceland and anchored on the

domestic operations of the old Landsbanki Íslands hf. (LBI hf.)

■ Universal Banking services in Iceland for households, corporates and

institutional investors

■ Credit rating assigned by Standard & Poor’s (S&P)

• BBB positive outlook (October 2016)

■ The market leader in the Icelandic financial services sector ■ Strong retail presence with the most extensive branch network ■ Market share about 35-40 % in the domestic retail segment and corporate

sector

■ Total number of staff 1,043 (Q3 2016) ■ The Icelandic State holds 98% of shares in Landsbankinn

3 Investor Presentation Landsbankinn hf.

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

4 Investor Presentation Landsbankinn hf.

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

5

Icelandic State Treasury

≈ 1100 other shareholders

0.4%

The Icelandic State Financial Investments (ISFI)

98.2%

Landsbankinn

• Own Shares

1.4%

Investor Presentation Landsbankinn hf.

Organisational chart

6

Perla Ösp Ásgeirsdóttir Hreidar Bjarnason Hrefna Ösp Sigfinnsdóttir Ragnhildur Geirsdóttir Helgi Teitur Helgason Árni Thór Thorbjörnsson Steinthór Pálsson

Investor Presentation Landsbankinn hf.

7

S&P credit rating

Fundamental factors:

■

Very strong capital and earnings

■

Strong liquidity position

■

Average funding profile

■

Adequate risk and business position Sovereign Landsbankinn Long-term rating BBB+ BBB Short-term rating A-2 A-2 Outlook Stable Positive Last rating action Jan 2016 October 2016

20.01.2014 21.07.2015 25.10.2016

1 3 5 7 9 11 13 15 17 19

07.10.2008 07.10.2010 07.10.2012 07.10.2014 07.10.2016 Landsbankinn hf. Republic of Iceland - Foreign Currency

Investor Presentation Landsbankinn hf.

8

Strong overall credit profile

■

Landsbankinn is among the global leaders in terms of its leverage and core tier 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

23.6% 4.8% 4.5% 7.3% 6.4% 4.6% 4.9% 0% 5% 10% 15% 20% 25%

Landsbankinn Nordea Danske Bank DNB Bank of Ireland Nordic banks* European banks*

Equity to Asset ratio

Year-end 2015 * Averages from 2014 Year-end 2015

30.4% 18.5% 18.5% 15.3% 13.3% 16.8% 14.1% 0% 5% 10% 15% 20% 25% 30% 35%

Landsbankinn Nordea Danske Bank DNB Bank of Ireland Nordic banks* European banks*

Core Tier 1 ratio

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 Landsbankinn hf.

9

Capital ratio & regulatory requirements

■

Landsbankinn‟s Total Capital Ratio (CAR) is 29.1%

■

Landsbankinn’s regulatory capital requirements, are determined by the SREP process and additional capital buffers based on CRD IV

■

In July 2015, a legislation came into force in Iceland implementing capital buffer requirements under CRD IV

■

On 22 January 2016 (and on 3 October 2016), the Icelandic Financial Stability Council made recommendations to the FME, in accordance with the new legislation to formally implement the new CRD IV capital buffers in steps

■

The Bank’s target for the Group’s minimum capital ratio is to be comfortably above the fully phased in FME capital requirements plus capital buffers. The bank also aims to be in the highest category for risk-adjusted capital ratio, as determined by and measured by the relevant credit rating agencies

■

Landsbankinn’s leverage ratio at the end of Q3 was 20.0%

■

The legal minimum requirement in Iceland is 3.0%

Investor Presentation Landsbankinn hf.

3% 3% 3% 2% 2% 2% 0% 1% 1.25% 2.50% 2.50% 2.50% 1.1.2017 Q1 2017 Q4 2017

Implementation of CRD IV capital buffers

* The systemic risk buffer and the countercyclical capital buffer only apply to domestic assets

10

Strong market position

Source: Gallup Iceland Source: NASDAQ Iceland

21% 79%

Share of fixed income trading on NASDAQ ICE

Landsbankinn Others 24% 76%

Share of equities trading on NASDAQ ICE

Landsbankinn Others 37% 63%

Market share - Personal banking – Q3 2016

Landsbankinn Others 33% 67%

Market share - Corporate banking – Q3 2016

Landsbankinn Others

Investor Presentation Landsbankinn hf.

Banking system in Iceland – three main players

11

Source: Interim Financial Statements 9M 2016 *Arion bank‘s H1 2016 Results 251 201 209 50 100 150 200 250 300 Landsbankinn Íslandsbanki Arion banki*

Equity (ISKbn)

47.7% 56.0% 56.1% 0% 20% 40% 60% 80% Landsbankinn Íslandsbanki Arion banki*

Cost to Income ratio

143.5% 123.7% 168.6% 100% 120% 140% 160% 180% 200% Landsbankinn Íslandsbanki Arion banki*

Loans to Deposit ratio

29.1% 27.8% 26.8% 15% 20% 25% 30% 35% Landsbankinn Íslandsbanki Arion banki*

Tier 1 ratio

20.0% 17.7% 18.1% 0% 5% 10% 15% 20% 25% Landsbankinn Íslandsbanki Arion banki*

Leverage ratio

1134 1068 1035 900 950 1000 1050 1100 1150 Landsbankinn Íslandsbanki Arion banki*

Assets (ISKbn)

Investor Presentation Landsbankinn hf.

Results 9M 2016

Financial highlights 9M 2016 Operations Balance Sheet

Profit after taxes

ISK 16.4bn

Return on equity after taxes

8.5%

Interest spread as a ratio

• f assets and liabilities

2.3%

Cost-income ratio

47.7%

Total Assets

ISK 1,134bn 29.1% 140% 1.8% ISK 251bn

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

EUR 128m EUR 8.9bn EUR 1.96bn

Exchange rate: EUR/ISK 127.9 as at 30th September 2016

13 Investor Presentation Landsbankinn hf.

14

Development of KPIs

4.4% 8.2% 9.4% 10.8%

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

Divident yield

12.0% 12.4% .12,5% 14.8% 8.5%

0% 2% 4% 6% 8% 10% 12% 14% 16% 2012 2013 2014 2015 9M 2016

Return on equity after taxes

45.0% 42.9% 56.0% 43.8% 47.7%

0% 10% 20% 30% 40% 50% 60% 2012 2013 2014 2015 9M 2016

Cost-income ratio excluding valuation adjustments

25.1% 26.7% 29.5% 30.4% 29.1%

0% 5% 10% 15% 20% 25% 30% 35% 31.12.12 31.12.13 31.12.14 31.12.15 30.09.16

Total capital ratio

Investor Presentation Landsbankinn hf.

■

Net interest income increased by 5% between periods

■

Loan revaluations during the 9M period were positive by ISK 4.4 billion, compared to positive revaluations of ISK 12.3 billion in 2015

■

Net commission income increased by 15% as compared with the same period the previous year due to changes in the payment card market and increased activities of Capital Markets

■

The significant year-on-year decrease in other operating income is largely attributable to decreased capital gains on equities

■

Effective tax rate is 24.9%

15

Income statement

Amounts in ISKm

9M 2016 9M 2015 Change Q3 2016 Q3 2015 Change Net interest income 26,207 25,032 5% 8,596 8,834

• 3%

Net adjustments in valuation 4,419 12,334

• 64%

2,144 10,489

• 80%

Net interest income after adjustments in valuation 30,626 37,366

• 18%

10,740 19,323

• 44%

Net fee and commission income 5,909 5,139 15% 2,015 1,745 15% Other net operating income 4,711 8,419

• 44%

284 1,089

• 74%

Total operating income 41,246 50,924

• 19%

13,039 22,157

• 41%

Salaries and related expenses 10,409 10,347 1% 3,096 3,466

• 11%

Other operating expenses 7,173 7,304

• 2%

2,230 2,127 5% Total operating expenses 17,582 17,651 0% 5,326 5,593

• 5%

Share in profit of equity accounted associates 446 257 74% 71 145

• 51%

Profit before tax 24,110 33,530

• 28%

7,784 16,709

• 53%

Income tax expense and tax on liabilities of financial institutions 7,710 9,117

• 15%

2,682 4,701

• 43%

Profit for the period 16,400 24,413

• 33%

5,102 12,008

• 58%

Investor Presentation Landsbankinn hf.

16

Net operating income

Amounts in ISKm

63% 14% 11% 9% 3% 0%

Income mix

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

8.553 9.879 7.855 7.269 7.466 10.020 7.118 7.385 8.929 10.145 7.782 7.340 7.057 8.834 8.596 9.229 9.977 5.776 7.292 5.000 10.000 15.000 20.000 25.000 30.000 35.000 40.000 2012 2013 2014 2015 2016

Net interest income

Q1 Q2 Q3 Q4

• 7.087

4.430 14.027 12.334 4.419 2.696 3.932 6.101 5.882

• 25.000
• 20.000
• 15.000
• 10.000
• 5.000

5.000 10.000 15.000 20.000 25.000 2012 2013 2014 2015 2016

Net adjustments in valuation

9M Q4 1.002 1.363 1.518 1.641 1.980 1.090 1.597 1.403 1.753 1.914 1.030 1.151 1.275 1.745 2.015 1.326 1.180 1.640 1.702 1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 2012 2013 2014 2015 2016

Net commission and fees

Q1 Q2 Q3 Q4

Investor Presentation Landsbankinn hf.

17

Operating expenses

■

Total operating expenses decreased by 0.4% over the same period of the previous 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

*2013, less expensed equity-based wages

Amounts in ISKm

3.232 3.173 3.455 3.702 3.754 3.364 3.122 3.288 3.179 3.559 3.103 2.810 3.019 3.466 3.096 3.477 3.508 3.805 3.407 2.000 4.000 6.000 8.000 10.000 12.000 14.000 16.000 2012 2013 2014 2015 2016

Salaries and related expenses*

Q1 Q2 Q3 Q4 2.715 2.611 2.649 2.580 2.499 2.716 2.593 2.395 2.597 2.444 2.640 2.371 2.164 2.127 2.230 2.858 2.372 3.313 2.674 2.000 4.000 6.000 8.000 10.000 12.000 2012 2013 2014 2015 2016

Other operating expenses

Q1 Q2 Q3 Q4 1.233 1.183 1.126 1.063 1.043 900 950 1.000 1.050 1.100 1.150 1.200 1.250 31.12.12 31.12.13 31.12.14 31.12.15 30.09.16

Full time employees Investor Presentation Landsbankinn hf.

18

Balance sheet - assets

30.09.16 31.12.15 Change

Cash and balances with CB 52,822 25,164 27,658 110% Bonds and debt instruments 168,029 203,684

• 35,655
• 18%

Equities and equity instruments 30,896 29,192 1,704 6% Loans and advances to fin institutions 16,835 20,791

• 3,956
• 19%

Loans and advances to customers 837,494 811,549 25,945 3% Other assets 19,653 16,323 3,330 20% Assets classified as held for sale 8,073 11,955

• 3,882
• 32%

Total 1,133,802 1,118,658 15,144 1% Amounts in ISKm

6% 5% 4% 2% 3% 61% 59% 65% 73% 74% 6% 6% 5% 2% 1% 4% 3% 3% 3% 3% 21% 25% 22% 18% 15% 2% 2% 1% 2% 4% 0% 20% 40% 60% 80% 100% 31.12.12 31.12.13 31.12.14 31.12.15 30.09.16

Assets

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

Investor Presentation Landsbankinn hf.

19

Balance sheet - loans

Amounts in ISKbn

239 250 240 274 297 227 244 279 327 353 199 187 199 211 187 666 680 718 812 837 100 200 300 400 500 600 700 800 900 31.12.12 31.12.13 31.12.14 31.12.15 30.09.16

Loans to customers

ISK-CPI loans ISK loans FX loans 135 138 110 111 110 139 151 171 200 231 198 185 198 210 186 100 200 300 400 500 600 31.12.12 31.12.13 31.12.14 31.12.15 30.09.16

Loans to corporates

ISK-CPI loans ISK loans FX loans 104 112 129 163 187 88 93 108 127 122 2 1 1 1 1 50 100 150 200 250 300 350 31.12.12 31.12.13 31.12.14 31.12.15 30.09.16

Loans to individuals

ISK-CPI loans ISK loans FX loans 8,3% 5,3% 2,3% 1,8% 1,8% 23,1% 5,5% 4,0% 2,0% 0,8% 31,4% 10,8% 6,3% 3,8% 2,6% 0% 5% 10% 15% 20% 25% 30% 35% 31.12.12 31.12.13 31.12.14 31.12.15 30.09.16

Problem loans

Arrears > 90 days Loans and advances with individual allowance

Investor Presentation Landsbankinn hf.

20

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 and real estates companies Holding companies Retail Services ITC Manifacturing Agriculture Other

Loans by industry sectors

31.12.14 31.12.15 30.09.16 20.000 40.000 60.000 80.000 100.000 120.000 140.000 160.000 180.000 Indexed mortgage loans Non-indexed mortgage loans Vehicle financing Other

Loans to individuals by loan types

31.12.14 31.12.15 30.09.16

Investor Presentation Landsbankinn hf.

Funding and Liquidity

22

FX assets and liabilities

Amounts in ISKm

187.152 179.328 1.607 5.642 48.215 70.731 15.005 50.000 100.000 150.000 200.000 250.000 300.000

FX assets FX liabilities

Loans and advances to financial institutions. Cash and Bonds Other assets Loans Borrowings & subordinated loans Other liabilities Deposits

• 20.035

14.457 20.320 23.795 2.425

• 25.000
• 20.000
• 15.000
• 10.000
• 5.000

5.000 10.000 15.000 20.000 25.000 30.000 31.12.12 31.12.13 31.12.14 31.12.15 30.09.16

Net FX balance

552 41.191 12.871 29.378 63.955 15 15 31.013 7.406 5.590 11.656 16.800 10.000 20.000 30.000 40.000 50.000 60.000 70.000 Q4 2016 2017 2018 2019 2020 2021 2022 2023 2024

Maturity profile

FX ISK

Investor Presentation Landsbankinn hf.

23

Balance sheet – liabilities and equity

30.09.16 31.12.15 Change Due to financial institutions and CB 41,307 56,731

• 15,424
• 27%

Deposits from customers 583,715 559,051 24,664 4% Borrowings 220,800 209,344 11,456 5% Subordinated loans 407 639

• 232
• 36%

Other liabilities 36,427 28,362 8,065 28% Equity 251,146 264,531

• 13,385
• 5%

Total 1,133,802 1,118,658 15,144 1%

Amounts in ISKm

98,718 167,218 53,827 56,731 41,307 421,058 456,662 551,435 559,051 583,715 100.000 200.000 300.000 400.000 500.000 600.000 700.000 31.12.12 31.12.13 31.12.14 31.12.15 30.09.16

Deposits

Due to financial institutions and CB Deposits from customers 20% 21% 23% 23% 22% 3% 4% 3% 3% 3% 29% 21% 19% 19% 20% 39% 40% 50% 50% 51% 9% 14% 5% 5% 4% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 31.12.12 31.12.13 31.12.14 31.12.15 30.09.16

Liabilities and equity

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

Investor Presentation Landsbankinn hf.

24

Liquidity

*according to the liquidity and funding rules set by the Central Bank of Iceland, No. 1031/2014

Total* FX* 30.09.16 Unweighted Weighted Unweighted Weighted Level 1 liquid assets

163,601 163,601 32,046 32,046

Level 2 liquid assets and information items

35,510 8,552 17,158 8,552

• A. Total liquid assets

199,111 172,153 49,204 40,598

Deposits

391,505 121,948 48,813 23,246

Borrowing

3,098 3,098 1,501 1,501

Other outflows

172,110 34,899 25,966 2,588

• B. Total outflows (0-30 days)

566,713 159,945 76,280 27,335

Loans and advances to financial institutions

15,048 13,806 15,021 13,779

Other inflows

57,802 23,002 24,970 12,503

Limit on inflows

• 5,781
• C. Total inflows (0-30 days)

72,850 36,808 39,991 20,501

Liquidity coverage A/(B-C)

140% 594%

Amounts in ISKm

102% 131% 113% 134% 123% 140% 0% 20% 40% 60% 80% 100% 120% 140% 31.12.13 31.12.14 31.12.15 31.03.16 30.06.16 30.09.16

Liquidity coverage ratio total

LCR total Regulatory requirements 208% 614% 360% 496% 684% 594% 0% 100% 200% 300% 400% 500% 600% 700% 31.12.13 31.12.14 31.12.15 31.03.16 30.06.16 30.09.16

Liquidity coverage ratio FX

LCR FX Regulatory requirements

Investor Presentation Landsbankinn hf.

Capital controls liberalisation strategy – a threefold solution

25 ■ The offshore ISK overhang in

the amount of ISK 320bn solved with a one-time auction

■ Capital controls will be

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 ■ Composition plans and stability contributions have been approved for the estates of the failed banks ■ In January 2016 the estates paid significant amounts to creditors ■ Before the authorities could begin lifting capital controls on resident entities a final auction, in a series

• f twenty-three, was held 16 June 2016 to deal with the offshore ISK overhang

■ Holders of offshore ISK assets that did not use them by participating in the auction had their assets

transferred to an account subject to special restrictions

■ On 11 October a bill was passed where important steps are taken to lift capital controls in full.

Controls on resident and non-resident individuals and legal-entities will be markedly eased in two steps; first upon passage of the bill on 21 October and second on 1 January 2017

■ With the measures provided for in the bill the capital controls should no longer place substantial

restrictions on most resident entities, i.e. pension funds, other legal entities, and individuals Estates of failed banks Offshore ISK The domestic economy

  

Investor Presentation Landsbankinn hf.

Landsbankinn as an investment opportunity

Funding

■

EMTN Programme of EUR 1.5 billion established in August 2014

■

Programme rated BBB by S&P, with a positive outlook

■

In October 2015, the bank issued a EUR 300m 3% Fixed Rate Note, listed on ISE

■

In December 2015, the bank issued a SEK 250m and NOK 250m Floating Rate Notes, listed on ISE

■

In April 2016, the bank issued a tap of its existing NOK and SEK Floating Rate Notes, by NOK 250m and SEK 100m

■

In September 2016, the bank issued a EUR 500m 1.625% Fixed Rate Note listed on ISE

■

Nordic Investment Bank, senior unsecured EUR 30m loan agreement

■

Covered Bond Programme of ISK 100 billion established in October 2013

■

4 series issued and listed on NASDAQ OMX Iceland

■

Debt Issuance Programme of ISK 30 billion established in May 2015

■

11 series issued and listed on NASDAQ OMX Iceland

■

The deposit base is well diversified and accounts for over 50% of the liabilities of Landsbankinn. The loans to deposit ratio at the end of Q3 was 143.5%

Equity

■

Government plans to sell up to 28.2% of its stake

■

Clear dividend strategy

■

Landsbankinn aims to pay yearly dividends amounting to the lion‘s share of the previous year‘s profits

■

In determining the amount, regard will be had to maintain the bank‘s strong equity- and liquidity position

■

Authorization from AGM of Landsbankinn for the bank to acquire up to 10% of own shares.

■ The bank's Board of Directors has decided to exercise the

• authorization. Buy-backs will take place during three repurchase

periods, with a total maximum of 480 million shares, or the equivalent of 2% of issued share capital.

■ After the first period Landsbankinn acquired 0.5% of issued

share capital 26 Investor Presentation Landsbankinn hf.

Landsbankinn key take-aways

27

Exceptionally strong capital ratio’s Positive credit rating trajectory

» Currently

BBB/Positive

Solid market position Favorable economic

• utlook in Iceland

» Increased freedom –

liberalization of capital controls

Investor Presentation Landsbankinn hf.

Economic Outlook

The economy started growing again 2011

2016-2018 Landsbankinn Economic Research projections Source: Statistics Iceland, Landsbanki Economic Research

• 20
• 15
• 10
• 5

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

GDP growth and contribution to growth

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

Investor Presentation Landsbankinn hf.

Inflation is now 1.8%

30

Source: Statistics Iceland

• 5

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

Components of CPI inflation

Other components Services Domestic goods Housing Petrol Imported goods CPI %

Investor Presentation Landsbankinn hf.

Unemployment is low compared to other European countries

31

Source: Directorate of Labour

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

Unemployment rate

%

Investor Presentation Landsbankinn hf.

Significant turnaround in foreign trade

32

2016-2018 Central Bank of Iceland projections. Source: Monetary Bulletin 2016/3, Central Bank of Iceland

• 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

Current account balance*

Trade balance Underlying primary income, net ** Underlying current account balance ** Measured 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

Investor Presentation Landsbankinn hf.

Partially due to rapid growth in the tourism sector

33

• 10%

0% 10% 20% 30% 40% 50% 60% 200 400 600 800 1000 1200 1400 2007 2008 2009 2010 2011 2012 2013 2014 2015

Number of foreign visitors

YoY change (right) Total number (left) thousand visitors

Source: Icelandic Tourist Board

Investor Presentation Landsbankinn hf.

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

34

Source: Central Bank of Iceland

100 200 300 400 500 600 700 800 900

• 20
• 10

10 20 30 40 50 60 70 80 90 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

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 Landsbankinn hf.

The real exchange rate has been trending upwards

35

Source: Central Bank of Iceland

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

Exchange rate

Real exchange rate Nominal exchange rate (trade weighted average)

• Jan. 2000 = 100

Index (inverted scale)

Investor Presentation Landsbankinn hf.

IIP has improved significantly

36

Source: Central Bank of Iceland

• 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

Investor Presentation Landsbankinn hf.

37

Treasury debt tripled in the aftermath of the financial crises but government finances are now on a more sustainable path

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

General government debt

Net debt Gross debt

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

% 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, October 2016

Investor Presentation Landsbankinn hf.

Household debt as % of GDP has declined significantly

38

Source: Financial Stability 2016/2, 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 Landsbankinn hf.

Significant deleveraging in the corporate sector

39

• 1. Debt owed to domestic and foreign financial undertakings and market bonds issued. Excluding debt owed by holding companies.

Source: Financial Stability 2016/2, Central Bank of Iceland

50 100 150 200 250 300 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Corporate debt¹

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

Investor Presentation Landsbankinn hf.

Corporate debt as percentage of GDP in international comparison

40

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

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 Landsbankinn hf.

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.

41 Investor Presentation Landsbankinn hf.