As Icelandic banks grapple with the fallout of the Covid-19 crisis, it is instructive to compare the current Tier 1 capital of the country’s two largest lenders with how they fared during the global financial crisis.
Landsbankinn and Íslandsbanki, which have roots that date back to the 1880s, were both re-established by the Icelandic government as a result of the Icelandic financial crisis (2008-11). In 2008, Landsbankinn was born out of the domestic operations of its predecessor Landsbanki, while Íslandsbanki was split out from the bankrupt Glitnir banki.
Before the crash, Íslandsbanki’s predecessor had built up $2.7bn in Tier 1 capital in 2007. This plummeted 79% over the course of 2008 to $564m, as the crisis reached its peak, and then rebounded by 31% in 2009. Similarly, Landsbankinn’s Tier 1 capital fell 67% from $3.8bn to $1.3bn between 2007-09, according to The Banker Database.
The re-established banks have steadily built up their core capital in the subsequent years, reaching peaks of $2.3bn at Landsbankinn and $1.7bn at Íslandsbanki in 2017. In the past two years, however, their capital has dipped slightly: Landsbankinn held $2bn of Tier 1 in 2020, while Íslandsbanki had $1.5bn.
Icelandic banks’ loan books tend to concentrate around real estate and tourism, exposing them to higher risks. The country’s economy shrank 7% last year and the Organisation for Economic Co-operation and Development projects gross domestic product to expand by a modest 2.8% this year.
Trends identified using The Banker Database, an online database providing comprehensive financial data and insight for 4000 of the world's leading banks in 190 countries. Contact us.
