At the beginning of 2015 Landsbankinn adopted a new and ambitious strategy to 2020. The strategy is aimed at having customers feel they get results with the bank's support and that both the bank and its customers benefit. The core of the bank's strategy is to set the example to be followed,
and to be a trusted financial partner.
Landsbankinn's strategy to 2020 is founded on the same basis as its work in 2010-2015. At the beginning of 2015 emphases were made more precise and new projects introduced. To follow up on the introduction of its strategy to 2020 the bank has defined five key targets and seven work streams which are to ensure its implementation.
Landsbankinn focuses on increasing customer satisfaction and loyalty. Opinion surveys carried out at regular intervals give important indications of how the the bank is progressing towards this objective.
Surveys of the bank's services in 2015 showed that customers are satisfied with its services and that the bank is on the right track.
Measurement of the quality of service in branches showed, for instance, high satisfaction. A survey of housing mortgages also revealed that Landsbankinn's customers were very satisfied with the service. In fact, this survey showed that the bank's clients were more satisfied than the customers of its competitors in this market. As Landsbankinn has placed major emphasis on providing optimal service in this area and others, the outcome was highly gratifying.
At the beginning of 2015, Landsbankinn set itself a target to achieve a ROE of 10% on the bank's regular operations over the next four years.
Large one-off items, mainly positive loan revaluations, left their mark on the 2015 results, as the bank's ROE last year was 14.8%. If this profitability is adjusted to eliminate the impact of loan revaluations, ROE was 10.6%, an indication of the improvement in the bank's operations.
Landsbankinn's policy of cost restraint has brought results. The bank's cost-income ratio decreased substantially YoY, from 56% in 2014 to 43.8% in 2015. Salary and other operating expenses also decreased 1.5% YoY.
The bank's risk limits and risk appetite objectives are used as a management tool to achieve an acceptable level of risk for its overall activities. Management and employees continuously endeavour to ensure that the risk undertaken by the bank is within the limits set by its risk appetite. Successful measures to reduce risk in 2015 resulted in making the bank's overall risk position at year-end well within the limits of its risk appetite. Risk appetite has been reviewed and revised for 2016 and reflects the bank's ambitious long-term targets.
Landsbankinn assesses its employees' views on the bank regularly with the assistance of outside experts. Major emphasis is placed on employee training and instruction as well as annual performance assessment, which has delivered positive results.
The seven work streams through which the strategy is to be implemented have clear targets, and include those projects which are to be undertaken up until 2020. Each work stream is intended to have a specific, measurable impact on the bank's ROE.
The work streams, and the projects they include, comprise significant improvements to the bank's operations.
It is evident that in the longer term the bank cannot depend upon substantial revenues from positive revaluations and therefore it is important that its regular operations are as cost-efficient as possible. Work will continue on reducing expenses, renewing information systems and resolving the question of the bank's expensive and inefficient headquarters.
Strong emphasis is placed on a performance-oriented corporate culture in Landsbankinn, which is a key factor in successful operations. Work has focused on promoting a vibrant corporate culture in the bank in recent months, with very positive success.
The bank's corporate culture is characterised by:
The introduction of the strategy is managed in an organised fashion and regular assessments are made of its success. In Landsbankinn's estimation the new strategy has already delivered noteworthy success.
|Development of the state's holding|
|Current value of the holding*||261,398|
|Change in value||139,398|
|NPV of interest and dividends||-9,289|
|Net funding cost||-10,967|
|Net profit to the state||128,431|
* Based on book value of equity as of 31/12/2015.
All figures in ISKm.
Landsbankinn hf. was established on 7 October 2008 with a provisional capital contribution from the Treasury of ISK 775 million. This was followed by negotiations with the former bank's creditors on the value of those assets transferred to the new bank. In December 2009 an agreement was signed between the state and representatives of the Winding-up Board of the old bank (now LBI hf.) for the Treasury to acquire the largest share in the bank in return for payment of ISK 122 billion. The state's contribution was comprised of the ISK 775 million previously mentioned and a bond issued with a 10-year maturity. The bond matures in October 2018. With this action the state acquired 81.3% in the bank, plus the possibility of acquiring up to 16.6% in addition without specific consideration, as LBI's subsidiary Landskil owned 18.7%. The bond bears floating deposit interest rates as set by the Central Bank of Iceland and the state has paid interest on the bond since the agreement was reached.
At year-end 2015 the state held 23,567 million shares in the bank or 98.2% of its issued share capital. If own shares held by the bank are excluded the state's holding is 99.1% of issued share capital, of which 98.8% is the result of its original investment.
As of year-end, Landsbankinn's equity was ISK 264.5 billion. The Treasury has paid ISK 54.5 billion in interest on the above-mentioned bond issued in 2009. During this same period the state has received about ISK 53 billion in dividends. If the motion on a dividend which will be made at the bank's AGM in April 2016 is approved, this will bring the total dividends paid to the state to ISK 81 billion. The state will thereby have received all interest which it has paid on the bond repaid plus an additional ISK 17 billion. The state nonetheless still owes ISK 122 billion in connection with the 2009 bond issue, making its profit around ISK 128.4 billion, based on the book value of the bank's equity.