Moody's Affirms Islandsbanki's Ratings Despite Elevated Single Name Concentrations

Strategic Insights -

Moody's Investors Service has affirmed Islandsbanki's A2 long-term and P-1 short-term foreign and local currency deposit ratings, the A3 long-term foreign and local currency issuer ratings and senior unsecured rating, and the baa2 Baseline Credit Assessment (BCA) and Adjusted BCA. The ratings reflect the bank's strong capitalization, good recurring profitability, low problem loans, and adequate liquidity, despite elevated single name and geographical concentrations and a reliance on market funding. The bank's reported CET1 ratio reached 18.6% at end-March 2025, well above the minimum requirement of 15.4%.

Key Takeaways:

  • Islandsbanki's A2 long-term and P-1 short-term foreign and local currency deposit ratings and A3 long-term foreign and local currency issuer ratings were affirmed by Moody's, reflecting the bank's strong capitalization and good recurring profitability.
  • The bank's BCA and Adjusted BCA were affirmed at baa2, despite elevated single name and geographical concentrations and a reliance on market funding.
  • Islandsbanki's long-term ratings are underpinned by the bank's Adjusted BCA and Advanced Loss Given Failure (LGF) analysis, which indicates an extremely low loss-given-failure for depositors and a very low loss-given-failure for senior debt holders.
  • Moody's has stable outlook on Islandsbanki's long-term deposit, long-term issuer, and senior unsecured debt ratings, reflecting the bank's expectation of maintaining strong performance in the next 12-18 months.
  • Upward rating pressure could develop if Islandsbanki improves its risk profile by reducing single name and sector concentrations, while maintaining strong capitalization and earnings generation capacity across the credit cycle.
  • Downward pressure could emerge if Islandsbanki's asset quality, risk profile, or risk management worsens, profitability deteriorates, financing conditions become more difficult, or the macroeconomic environment deteriorates significantly.

Statistics:

  • Islandsbanki's reported CET1 ratio: 18.6% (as of end-March 2025)
  • Minimum CET1 requirement: 15.4%
  • Return on tangible assets: 1.3% (as of the first quarter)
  • Problem loans to gross loans: 1.8% (as of the end-March 2025)
  • Interest expense as a percentage of total assets: n/a
  • Return on equity (ROE): n/a

Sources:

  • Moody's Investors Service
  • "Rating Actions on Markets" (November 2024)
  • Moody's "Rating Methodologies" page
  • Islandsbanki's annual report (2025)