S&P upgrades three Icelandic banks

S&P said it raised the issuer ratings for Arion Bank, Islandsbanki hf and Landsbankinn hf to BBB+ from BBB.

“We consider that economic risks facing Icelandic banks have faded with the stabilizing housing market. Residential house price growth has slowed since the mid-2022 peak. The 12-month price inflation fell steeply over 2023 and real prices corrected by 3.5%. Still, underlying demand appears robust and transaction activity has rebounded over recent months, albeit below the pre-pandemic average, resulting in some upward pressure on housing prices,” S&P said in a press release.

The agency said it forecasts the banks will post net earnings of Icelandic krona (ISK)77 billion-ISK 80 billion (€508 million-€527 million) over the next two years, from ISK 84 billion in 2023. This translates into a robust return on average equity of 10%-12% over 2024-2025, compared with 11.9% in 2023, and a solid cost-to-income ratio around 40% (38%),” the agency said.

The outlook for the banks is stable.

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