Íslandsbanki hf. - Company Announcement

Islandsbanki hf. : Íslandsbanki assigned BB+/B ratings with stable outlook from S&P

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|Íslandsbanki is well positioned in the Icelandic financial market with strong |
|market share of 30-40% in most business lines despite being the smallest of   |
|its three domestic peers by assets, according to a rating assigned to         |
|Íslandsbanki by Standard & Poor's today.                                      |
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|S&P rates Íslandsbanki as BB+/B with stable outlook. This is a satisfactory   |
|result, especially in light of the fact that it is only one notch below the   |
|rating assigned to the Icelandic Sovereign.                                   |
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|In their research update, S&P note that two-thirds of the Bank's revenues come|
|from net interest income, and has diverse revenues from the Bank's business   |
|segments. They also note that the strategic acquisitions in 2011-12 have      |
|improved the Bank and support their view of the Bank's management and         |
|strategy.                                                                     |
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|In their view, Íslandsbanki is diligently preparing its balance sheet for the |
|eventual relaxation of capital controls by building an exceptional funding and|
|liquidity buffer, and note that the Bank's leverage ratio is exceptional in a |
|global comparison.                                                            |
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|S&P also note that the Bank continues to reduce its non-performing loans and  |
|maintain ambitious goals in the next few years. At year-end 2013, the         |
|Icelandic loan portfolio analysis ratio (LPA) of loans under restructuring was|
|8.3%, compared to an average of 12.5% for Iceland's top three banks at YE13.  |
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|Birna Einarsdóttir, CEO of Íslandsbanki:                                      |
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|We are pleased with the rating outcome, especially as it is only one notch    |
|below the rating assigned to the Icelandic Sovereign. It seems unlikely that  |
|credit ratings for Icelandic banks will improve until we see a positive rating|
|action for the Icelandic Sovereign. This is an important objective that all   |
|relevant stakeholders must address together.                                  |
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|The assigned rating from S&P recognises that the strategic direction we have  |
|followed in the last few years has been fruitful. Today, Íslandsbanki is well |
|funded and a credit rating will further ease market access to international   |
|capital markets and allow is to better serve our customers who are engaged in |
|international trade and need foreign currency funding. That is the way we best|
|fulfil one of the key role for the Bank. Namely, to channel funds for         |
|investment and support the continued growth of the Icelandic economy.         |
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|For further information:                                                      |
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|  * Investor Relations - Tinna Molphy, tinna.molphy@islandsbanki.is and tel:  |
|    +354 440 3187.                                                            |
|  * Media Relations - Dögg Hjaltalín, dogg.hjaltalin@islandsbanki.is and tel: |
|    +354 440 3925.                                                            |
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[HUG#1781822]

Attachments:

S&P Research Update.pdf