#1Íslandsbanki: Investor Presentation August-September 2022 islandsbanki.is#2This is Íslandsbanki Moving Iceland forward by empowering our customers to succeed Vision and Values The Bank Vision to be #1 for service My ケニ Passion Professionalism Collaboration رام FTES 702 number of FTEs at Íslandsbanki at period end ergo ☑ 12 EID branches Listed to Nasdaq Iceland as of June 2021 Market share1 31% retail customers In 37% SMES HI 35% large companies Sustainability 2Q22 Íslandsbanki receives top ESG coz score (90/100) from Reitun for the second year in a row The Bank's score for environmental practices has risen by 12.9% year-on-year Total avoided greenhouse gas emissions in 2021 ~16,800 tCO2e Key Figures 2Q22 Ratings and certifications ROE 11.7% LCR 147% Group, all currencies S&P Global Cost-to-income ratio 42.7% NSFR 118% Ratings Group, all currencies CET1 ratio² 18.2% Leverage ratio² 12.5% BBB/A-2 Stable outlook Total capital ratio² 21.5% Total assets ISK 1,437bn EQUAL PAY CERTIFICATE 2018-2021 1. Based on Gallup surveys regarding primary bank. 12 months rolling average for retail customers, December 2021 survey for SMEs and 2021 average for large companies. Digital milestones 2Q22 New pension platform ☐ released, enables self service for pension customers Corporates can apply for and modify overdraft in app EXEMPLARY IN CORPORATE GOVERNANCE App available in Polish. 2 August-September 2022#315 Export-driven GDP growth following robust growth in demand Strong foundations facilitate a vigorous recovery as world-wide pandemic impact fades Exports replace domestic demand as the key catalyst of healthy GDP growth... Real GDP and main subitems, YoY change, % 12 9 6 3 0 -3 -6 -9 -12 -15 -18 2010 Imports 2500 4.3 5.0 2000 27 2.6 1500 ...as tourism sector recovery continues following receding pandemic impact Number of foreign tourists per year, thousands 1000 500 0 2012 2014 Exports 2016 Priv.consumption 2018 Inventory chg. GDP 2020 2022 2024 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Investment Public consumption A buoyant housing market has been one of the main drivers of inflation... ...which has prompted considerable monetary tightening by the central bank Prices and turnover in the capital region residential housing market Inflation and policy rate, % 30 1200 10 8 25 1000 6 20 800 4 15 600 2 0 10 400 -2 5 200 -4 0 0 -6 2014 2015 2016 2017 2018 2019 2020 2021 2022 2018 No. of contracts (r.axis) YoY price change (l.axis) 2019 Effective CBI policy rate 2020 2021 2022 2023 Inflation. 2024 -Real policy rate Shaded areas indicate ISB Research forecasts. Source: Statistics Iceland, the Central Bank of Iceland and ISB Research. 3 August-September 2022#4Financial overview of the issuer islandsbanki.is August-September 2022#5Increase in core revenues in a good quarter Control of costs further boost a positive result Profit for the period - 2Q21 vs 2Q22 ISKM 5,431 696 (565) 527 (454) 1,837 (1,562) (30) 5,880 2Q21 Net interest income Net fee & commission income Other net operating income Operating expenses Net impairment on financial assets Income tax Discontinued 2Q22 operations, net of tax 5 August-September 2022#6NII rose strongly in all business segments NIM rose to 2.9% due to a higher interest rate environment Highlights NII continued a positive trend supported by higher interest rate environment leading to a Net interest income By business segments, ISKm NII comparison 2Q YoY ISKM 10,254 8,792 9,209 518 8,417 8,644 YoY 369 574 + 21.8% 629 2,715 rise in deposit margin 2,494 2,416 YoY and positively 2,271 2,406 affecting the Bank's 3,449 liquidity portfolio 2,580 2,773 2,983 3,133 Additional positive effect 2,937 3,039 3,192 3,291 3,572 came from higher lending and deposit volumes which 2Q21 3Q21 -25 4Q21 1Q22 2Q22 843 980 348 (669) 335 increased YoY across all Personal Banking Business Banking Corporate & Investment Banking Other business segments Lending margin was 1.9% in 2Q22 (2.2% in 2Q21) while deposit margin was 1.8% in 2Q22 (1.1% in 2Q21) Net interest margin On total assets 3.5% 2.9% 2.6% 8,417 2.4% 2.4% 2.4% 2.4% 1.1% 1.7% 0.9% 2Q21 3Q21 4Q21 1Q22 2Q22 2Q21 Lending Lending Deposit volume margin volume Deposit margin Other interests 2Q22 Average CB policy rate 10,254 August-September 2022#7NFCI rose 18.1% YoY Broad-based fee generation across the business units Highlights Revenues from investment banking and brokerage Net fee and commission income Business segments, ISKm NFCI-comparison 2Q YoY ISKM 3,653 3,427 3,434 and increased revenues increase from currency sales from market making agreements Increased card transaction income and interchange income from cards, both 2,907 170 451 3,064 398 468 544 283 429 YOY + 18.1% 1,317 1,026 1,094 973 1,072 121 (46) 531 521 561 541 518 254 806 1,011 1,111 847 1,067 204 (6) 2Q21 3Q21 4Q21 domestic and foreign. Card 1Q22 2Q22 expenses increased at the same time ■Personal Banking ■Business Banking Corporate & Investment Banking ■ Other ■ Íslandssjóðir NFCI from loans and guarantees rose due to increased fees from guarantees and fees from changes of loan terms Net fee and commission income By type, ISKm 2,907 3,427 3,653 3,434 2,907 444 3,064 289 345 249 585 475 264 647 556 558 820 1,061 672 922 668 663 1,028 702 785 757 769 971 705 787 763 2Q21 3Q21 4Q21 1Q22 2Q22 2Q21 Asset management ■Cards and payment processing ■Investment banking and brokerage Loans and guarantees Asset Investment management banking and brokerage Other fee Cards and Loans and Other fee and payment processing guarantees commission income 3,434 2Q22 7 August-September 2022#8Positive NFI in turbulent markets Rising benchmark interest rates do however support financial income in other derivatives Highlights Reduction in shares and equity instruments in 2Q22 is explained by Norðurturninn hf. (owner of the Bank's headquarters) which was classified as shares and equity instrument but is now classified as an associate Net financial income ISKM 619 941 646 Shares and equity instruments¹ ISKbn 7.6 7.2 7.0 7.2 6.3 3.4 4.1 3.8 4.0 2.7 208 3.8 3.2 3.2 3.5 3.6 30.6.21 30.9.21 31.12.21 31.3.22 30.6.22 2Q21 3Q21 4Q21 (95) 1Q22 2Q22 Listed shares Unlisted shares Net financial income by type in 2Q22 ISKM (136) 1,038 282 Shares and related (976) Bonds and related derivatives derivatives Debt issued at fair value and related derivatives Other derivatives Bonds and debt instruments² ISKbn 108.4 96.4 92.5 84.5 79.3 81.6 67.5 53.0 57.4 70.9 26.3 27.1 28.9 26.8 21.6 30.6.21 30.9.21 31.12.21 31.3.22 30.6.22 FX ISK 1.Excluding listed shares and equity instruments used for economic hedging. 2. Excluding listed bonds and debt instruments used for economic hedging. 8 August-September 2022#9Administrative expenses stable in 2Q22 5.9% reduction in real terms driven by lower salary costs Administrative expenses¹ Cost-to-income ratio² ISKM 5,900 5,768 5,834 5,993 49.9% 47.6% 413 5,088 532 358 446 45.3% 39.4% 42.7% 1,466 327 1,457 1,506 1,515 1,273 1,598 1,307 1,500 1,601 1,588 2,423 2,181 2,279 2,369 2,444 2Q21 3Q21 4Q21 1Q22 2Q22 ■Personal Banking Business Banking Corporate and Investment Banking Other 2Q21 3Q21 4Q21 1Q22 2Q22 C/I ratio C/I target Administrative expenses 1 - by type FTE period end³ ISKM Total assets / FTE³ ISKbn 768 763 735 741 5,900 5,768 5,834 5,993 35 33 33 35 740 38 1.88 1.91 1.94 1.95 1.94 474 400 5,088 402 381 343 342 339 362 346 દ 346 1,111 1,085 1,160 1,109 733 730 702 706 702 481 980 409 532 479 348 3,451 3,276 3,422 3,396 2,953 2Q21 3Q21 ■Salaries and related expenses ■Software and IT expenses ■Depreciation 4Q21 1Q22 ■Professional services ■Real estate and office equipment ■Other administrative expenses 1. Administrative expenses in 2Q21 are excluding 588m one-off cost related to the Bank's IPO. 2. Calculated as (Administrative expenses + Contribution to the Depositor's and Investors' Guarantee Fund - one off items) / Total operating income - one-off items). 2. Target was updated in 1Q21 from the previous <55% 3. FTE numbers exclude seasonal employees. 2Q22 2Q21 3Q21 4Q21 1Q22 2Q22 ■FTE parent FTE subsidiaries 2Q21 3Q21 4Q21 1Q22 2Q22 August-September 2022#10Impairment reversals continued in 2Q22 Majority of forborne borrowers have resumed payments Highlights Reserve coverage ratio (RCR) for impairment allowance on Stage 3 was 24% at end of 2Q22 1.8 2.0 0.2 1.1 0.4 0.5 0.3 Net impairment on financial assets By period, ISKbn ■Changes in models A few distressed credit cases ■General economic environment ■Other changes in loan portfolio Addition due to COVID-19 pandemic Loans to customers: Stage 2 and 3 (NPL) Development of gross carrying amount as ratio of total loans 2.1% 2.0% ■Stage 2 Stage 3 The RCR fell when a disputed 1.0 0.5 -0.5 loan that had been fully impaired -1.1 1.1 -0.6 2.0% 1.0 -1.8 -0.6 0.2 was paid up following a 0.6 0.2 0.2 0.4 0.0 0.1 02 1.8% favourable court ruling -0.3 -0.4 -0.3 13.7% 13.0% 1.8% -0.2 -0.8 -0.9 -0.8 -1.1 -0.6 The definition of forbearance 9.6% includes a 24-month probation -1.0 -0.2 7.2% -0.6 5.6% -0.4 period. Therefore, loans are classified as forborne even after normal payments have resumed -0.5 -2.0 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 30/6/21 30/9/21 31/12/21 31/3/22 30/6/22 Loans amounting to ISK 66bn (80% of total) are expected to exit forbearance probation in 2022 Current and expected cost-of-risk Annualised cost of risk was -20bp in 2Q22 compared to -42bp for 2Q21 Additional impairment allowance currently attributable to the tourism overlay and stage transfer is approx. ISK 0.9bn at end of 2Q22 down from 2.0bn at YE21 The probability weights of economic scenarios were shifted to 20% (good), 50% (baseline), and 30% (bad) at end of 2Q22. A shift of 5% from baseline to the bad scenario would increase the impairment allowance by ISK 0.3bn while a 5% shift from the baseline to the good would decrease the allowance by ISK 0.15bn In 2Q22 a total of approximately ISK 750m of impairment reversals was a result of a favourable court ruling regarding a fully impaired loan Performing loans with forbearance Gross carrying amount, ISKbn 105 94 44 62 60 110 83 60 60 57 57 42 37 13 26 19 9 30/6/20 6 31/12/20 ■Individuals 8 30/6/21 Other companies 8 31/12/21 ■Tourism 30/6/22 10 August-September 2022#11Lending volume growth across all business units Credit quality remains strong and highly collateralised loan portfolio Loans to customers +4.1% Loans to customers By business division, ISKbn By sector, with tourism as a separate sector 1,090 1,081 1,087 1,108 1,154 368 351 347 347 -+2.0% 354 40% 42% 42% 43% 43% 239 235 237 244 +6.6% 260 11.6% 16% 11% 11% 76% 11% 11% 10% 10% 10% 8% 8% 483 495 502 517 -+4.4% - 540 6% 6% 6% 7% 7% 7% 9% 9% 9% 59896 15% 10% 15% 10% 9% 6% 8% 9% 5669689 10% 10% 9% 6% 8% 9% 30/6/21 30/9/21 31/12/21 31/3/22 30/6/22 30/6/21 30/9/21 31/12/21 31/3/22 30/6/22 ■Mortgages to individuals Individuals ■Corporate & Investment Banking ■Business Banking Personal Banking Real estate ■ Other ■Commerce and services ■Tourism ■ Seafood ■Industrial and transportation LTV distribution by underlying asset class 30.6.2022, loan splitting approach, ISKbn 200 180 160 140 120 100 80 60 40 20 0 0-10% 10-20% 20-30% 30-40% 40-50% Average LTV: 61% 50-60% 60-70% 70-80% ■Residential real estate Vehicles & equipment ■Commercial real estate ■Cash & securites ■ Vessels Other collateral %06-08 90-100% >100% Mortgage portfolio¹ Gross carrying amount, 30.6.2022 5% 29% ■CPI linked floating 34% ■CPI linked 5Y fixed ISK 497bn 31% 1. NIL stands for non-index linked loans. ■NIL floating ■NIL 3-5Y fixed 11 August-September 2022#12Deposits are the largest source of funding Retail deposits continue to increase 39% Highlights Term deposits are 18% of total deposits Deposit concentration is stable. 11% of the Bank's deposits belonged to the 10 largest depositors and 27% to the 100 largest depositors at 2Q22, compared to 12% and 28% respectively at YE21 At end of 2Q22 75% of deposits were in non-indexed ISK, 13% CPI-linked and 12% in foreign currencies Funding sources By type, % of total liabilities and equity 46% 11% ..... 7% Deposits Deposit from financial inst. retail and corp, and pension sovereigns, CB. funds and PSE 14% 13% 14% 14% 14% 14% Customer loans to customer deposits ratio Development, % 142% 152% 143% 146% 145% 124% 116% 117% 118% 118% 30/06/2021 30/09/2021 31/12/2021 31/03/2022 30/06/2022 Customer loans to customer deposits ratio Customer loans (excl. mortgages funded with CB) to customer deposit Deposits from customers and credit institutions Development, by LCR category, ISKbn 798 3% 2% 775 757 772 768 70 75 66 55 61 51 复 68 64 Senior Covered Bonds Subordinated unsecured bonds Equity 211 161 155 194 182 debt 116 127 123 121 128 Short-term funding 31.12.21 ■30.6.22 340 344 349 351 358 30/6/21 30/9/21 31/12/21 Long-term funding ■Financial institutions ■Pension funds 31/3/22 30/6/22 Corporations, sovereigns, central banks and PSE ■Small and medium enterprises ■Individuals 12 August-September 2022#13Seasoned and diversified long-term funding programme Majority of 2022 maturities already funded through €300m sustainable bond issue in January Highlights S&P Global ratings BBB/A-2 with stable outlook confirmed on 13 July 2022 Sources of borrowings Development, ISKbn Contractual maturity profile of borrowings ISKbn In June, the Bank signed a new covered bond programme. Rated A by Standard & Poor's, it will permit issuance in foreign currencies, allowing broader market access and investor diversification 435 438 441 424 426 11 37 36 12 25 34 32 49 50 50 51 91 89 86 The Bank has a call option on its SEK 750 Tier 2 of 2027 in November 2022 and a January 2023 call on its EUR 300m senior bond maturing in January 2024 149 149 146 97 80 41 At end of 2Q22, total LCR ratio was 147%, FX LCR was 240% and total NFSR was 118% The Bank's MREL requirement is 21% of total risk exposure amount (TREA) and applies from the date of the announcement, 26 April 2022. The Bank will fulfil the MREL requirement from the outset 130 12 112 63 72 Currency split of borrowings 30.6.22 USD 3% SEK 10% 32 NOK 6% ISK 426bn ISK 53% 45 86 EUR 29% 201 199 205 208 216 23 48 49 17 23 23 30/6/21 30/9/21 31/12/21 31/3/22 30/6/22 2022 ■Other borrowing Subordinated bonds ■Senior unsecured green and sustainable ■Senior unsecured Covered bonds 2023 10 2024 2025 ≥2026 Other borrowing ■Subordinated bonds ■Senior unsecured green and sustainable ■Senior unsecured Covered Bonds August-September 2022 ει#14Strong capital position and dividend capacity Opportunity exists to optimise capital composition and to continue consistent dividends Highlights Current and long-term expected total capital requirements of 17.9% and 19.0% respectively Additional AT1 issuance potential of ISK 6-7bn to optimise capital structure Increase in REA in 2Q22 due to strong and profitable loan growth in 2Q22. This leads to drop in CET1 ratio and a reduction in excess capital Capital ratios and leverage ratio % of REA (% of total exposure for leverage ratio) 24.7% 25.3% 22.9% 22.5% 2.8% 2.8% 21.5% 2.8% 1.2% 2.6% 2.3% 1.1% 1.0% 13.2% 13.6% 12.4% 20.1% 12.4% 12.5% 20.6% 21.3% 18.8% 18.2% 16.5% 30.6.21 30.9.21 CET1 ratio 31.12.21 AT1 31.3.22 Tier 2 30.6.22 CET1 target Leverage ratio Risk exposure amount (REA) ISKbn 69% 65% 64% 63% 63% 992 924 918 945 902 81 85 81 85 81 19 20 20 14 19 819 819 802 845 892 30/6/21 30/9/21 31/12/21 Credit risk Market risk 31/3/22 Operational risk 30/6/22 REA/Total assets Capital distribution plans - ISK 30-35bn of excess CET1 capital Plan to optimise capital structure before year-end 2023 Distribution in the form of share buybacks or special dividends, method and timing subject to the market conditions ISK 15bn of capital release planned in the coming months, subject to market conditions 14 August-September 2022#15Mortgage origination and underwriting islandsbanki.is August-September 2022#16Mortgage portfolio - a broad offering Direct origination and competitive interest rates Characteristics Íslandsbanki originates mortgage loans directly, without collaborating with any brokers Type of product offerings 1 Variable non-indexed mortgage The pricing strategy is to offer competitive interest rates, ensure good profitability in accordance with the bank's profitability goals and maintain steady growth in the mortgage market 2 Variable non-indexed mortgage - additional loan 3 Fixed non-indexed mortgage for 3 years Íslandsbanki follows a standard underwriting procedure when it comes to mortgage lending In terms of products, the basic loan covers up to 70% of the official real estate value. Borrowers are also offered to take out additional loans up to 80% of the purchase price. Special rules apply for loans in excess of ISK 75m For refinancing the loan covers up to 70% of the official real estate value Íslandsbanki also offers a special loan of ISK 3m for those who are buying a house for the first time. The loan is in addition to the traditional 80% housing financing of the purchase price, but up to a maximum of 90% 4 Fixed non-indexed mortgage for 3 years - additional loan 5 Fixed non-indexed mortgage for 5 years Fixed non-indexed mortgage for 5 years additional loan " 7 Indexed mortgage, with interest rate reset every 5 years 8 Indexed mortgage, with interest rate reset every 5 years additional loan 9 Indexed mortgage, with variable interest rates 10 Indexed mortgage, with variable interest rates - additional loan 11 Variable non-indexed first purchase loan 16 August-September 2022#17Different features for different needs Borrowers can choose from an array of solutions Non-indexed loans - Higher debt burden to begin with Inflation does not increase with the loan, which is constantly repaid Faster asset formation where the cost of capital is paid every month Indexed loans Lower debt burden to begin with Indexation is added to the balance of the loan Slower asset formation in the beginning Equal payments Borrower pays the same total amount each month Lower debt burden initially Much more common (around 95% of the portfolio) Equal instalments - Borrower pays the same amount of principal each month Higher debt burden initially Fixed interest rates Variable interest Loan term rates - The debt service burden varies according to the current interest rate at any given time Suitable if interest rates are falling No prepayment fees Maximum loan period is 40 years for non- indexed loans and 30 years for indexed loans Fixed rate Fixed for 3 or 5 years on non-indexed loans. Interest rate becomes variable once fixed rate period has elapsed Fixed for 5 years at a time on indexed loans (then the interest rate is reset every 5 years etc.) Generally higher than variable interest rates So-called prepayment charge (maximum 1%) 17 August-September 2022#18Conservative lending criteria Applicants must meet a stringent set of requirements E H Individuals intending to buy or refinance a home for own use can apply for a mortgage with Íslandsbanki Borrowers can renew their interest rates due to lower LTVs through refinancing, which is common in Iceland Íslandsbanki will have first lien position or equal lien on the property in accordance with the loan rules Each application is evaluated with regards to the credit rating of the applicant, the credit assessment and the value of the property. Special terms apply to loans that exceed ISK 75m in terms of LTVs and the person's ability to pay Each applicant must successfully complete a credit evaluation, before a loan application can be accepted The loan products are divided into base loans (A) and additional loans (B) based on the LTV: Base loan (A): 70% of official real estate value (i. fasteignamat) - (base loans are in the cover pool) Additional loan (B): Up to 80% of property purchase price Íslandsbanki offers a special loan up to a maximum of ISK 3m for those who are buying a house for the first time. The loan is in addition to the traditional 80% of the purchase price, but up to a maximum of 90% LTI (Loan-to-income): In general, it is ensured that the mortgage payment burden does not exceed 30% of paid income. First-time buyers have an exemption of up to 35%. 18 August-September 2022#19Higher interest rates for higher LTVs Generally the loan part that exceeds the 70% limit is subject to a higher rate. Mortgage product type Current interest rate LTV Loan period (years) Mortgage book breakdown as at 30 June 2022 (ISKbn) Variable Non-indexed 149 Variable non-indexed mortgage 6.65% 70% 40 Variable non-indexed mortgage rates - additional loan 7.75% 80% 40 Fixed Non-indexed 146 Fixed non-indexed mortgage for 3 years Fixed non-indexed mortgage for 3 years additional loan - 8.75% 80% 40 40 Fixed non-indexed mortgage for 5 years 8.05% 70% 40 40 7.65% 70% 40 Variable Non-indexed first- 5 time buyer loan Total (Non-indexed) 300 Variable Indexed 27 Fixed non-indexed mortgage for 5 years additional loan - 9.15% 80% 1 40 40 Fixed Indexed 171 Indexed mortgages, with interest rate reset every 5 years 2.30% 70% 30 30 Indexed mortgages, with interest rate reset every 5 years additional loan 3.40% 80% 1 30 80 Indexed mortgage, with variable interest 2.65% 70% rates 30 Total (Indexed) 198 Mortgage Total 498 30 Indexed mortgage, with variable interest 3.75% 80% 1 30 rates additional loan Variable non-indexed first purchase loan (max ISK 3 million loan) 8.10% 85% 10 1. 80% LTV when buying real estate and 70% of official real estate value when refinancing 19 August-September 2022#20Highlights Robust mortgage portfolio Average LTVs stable and built-in buffers for rate increases Mortgage portfolio Gross carrying amount, ISKbn LTV distribution of mortgages to individuals Gross carrying amount, ISKbn, 30.6.2022 Conservative payment assessment for non-indexed variable rates mortgages in low interest 476 497 441 452 459 100 18% 17% environment makes the Bank's 146 customers well equipped for higher 102 114 125 138 15% 80 Total: ISK 497bn Average LTV: 65% 14% interest rate environment 12% 60 10% 154 LTV is capped at 80% (85% for first 155 155 153 151 time buyers) and debt service-to- 40 40 7% income <35% (40% for first-time buyers) 4% 150 151 151 159 171 20 2% 0% 34 32 30 30/06/2021 30/09/2021 31/12/2021 28 31/03/2022 27 30/06/2022 0 ■CPI linked floating ■CPI linked 5Y fixed ■NIL floating NIL 3-5Y fixed 0-10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% 90-100% ■Purchase agreement ■Official real estate value Real estate agents assessment Sensitivity analysis conducted at year-end showed that if rates would rise by 5% it would not lead to a further capital requirement for the Bank. The Bank's rates have now risen by 2.85% since the analysis and are not expected to exceed the 5% stress test range If official real estate value for 2023 was used instead of the official 2022 value, then property value would increase by 26% on average and LTVs would decrease Mortgages portfolio: Stage 2 and 3 (NPL) Development of gross carrying amount as ratio of mortgages portfolio Interest rate reset profile for NIL 3-5Y fixed rate mortgages1 Gross carrying amount, ISKbn 56 46 0.9% 0.9% 0.9% 0.8% 27 0.8% 1.9% 1.8% 1.2% 15 0.9% 0.6% 1 1 30/06/2021 30/09/2021 31/12/2021 31/03/2022 30/06/2022 ■Stage 2 ■Stage 3 2022 2023 2024 2025 2026 2027 1. NIL stands for non-index linked loans 20 August-September 2022#21ん Highlights Property valuations are regularly updated LTVs are generally determined based on the official real estate value Property valuations are updated at least once a year by an external surveyor Íslandsbanki uses an official real estate value which is published once a year. In addition, the Bank uses an independent third party valuation model as well in some cases The product type depends on the LTV ratio in terms of the borrower's financing needs Base loan (A) is up to 70% of official real estate value Additional loan (B) is up to 80% of property price In terms of refinancing, the maximum loan is 70% of official real estate value (A - Base loan) Example An individual buys an apartment for the first time. The price is ISK 50.000.000 and the official real estate value of the property is ISK 40.000.000. The customer is looking for a maximum loan to buy his first apartment and has a down payment of ISK 7,000,000. The funding in terms of product types and LTV would be: Down payment (savings): ISK 7,000,000 Base loan (A): ISK 28,000,000 (70% of the official real estate value, ISK 40,000,000) Additional loan (B): ISK 12,000,000 (from 70% up to 80% of the property price) First-time buyer loan (C): ISK 3,000,000 (in addition to the traditional 80% housing financing of the purchase price) Total loan amount: ISK 43,000,000 LTV: 86% 21 August-September 2022#22Fyrirtæki Application process is streamlined Response is normally delivered within 1 to 5 days The application process for a mortgage is fully digital, with 99% of applications being made digitally Information required: All necessary data is retrieved digitally through a third party, such as credit rating and debt statement from Credit Info, and information on salary income at the tax authority, when performing an automatic credit assessment. The credit assessment is the first step in the process before the client chooses a loan form, an amount, etc. Risk profile considerations: The ability to pay can affect the form of the loan choice. The product offering to customers in some cases varies by risk profile; for instance, lower income individuals cannot take out non-indexed loans because the debt burden is too high or in excess of 30% of their disposable income Timeline: It normally takes 1-5 days to finalize a credit decision on behalf of the Bank Rejection rate and type: The rejection rate has been in the range of 1-5% of all loan applications in recent years. Examples of rejections can be insufficient completion of a property in construction stage, inadequate credit rating, missing cost estimates for improvements or deficiencies in the property, the borrower not being domiciled in the property, etc. 22 August-September 2022#23Loans past due are monitored closely Foreclosure procedures are not expected to take more than 18 months Highlights - Íslandsbanki takes out a list once a month of all debts that are in arrears over 30 days. The Bank keeps a close eye on a daily basis on all arrears that have reached 55 days past-due; on a monthly basis, customers who do not have other debts in legal collection receive a text message or an e-mail The legal publication is read daily and if debt is secured by collateral, notifications of forced sales are received, in order to spot early warning signals On default, the first letter is sent out on the 7th day since default. The second letter (intermediate collection letter) is issued on the 17th day since default and finally, the third letter, the Final Warning, issued on the 31st day since default Mortgage loans past-due for 90 days or more are removed from the cover pool Foreclosure procedure If the debt is secured, letter number two is a payment challenge 15 days after the collection letter. A forced sale request is sent out 15 days after a demand for payment is published by a policy witness or when a confiscation of property is available. The sheriff issues a time when the first forced sale takes place (can be up to two months after request). Approximately 4 weeks after the first forced sale, the start of the auction takes place and about 4 weeks after that, the final sale of the property itself takes place. The process can take 6-12 months. If the debt is not paid in full at auction, a request for enforcement is then made and an unsuccessful foreclosure is requested, and the debt is then written off and sent to the claims shift at Mótus (third party collateral) From the time the case comes in for collection at 55-60 days in arrears, the process can take from 10 months up to 18 months if there is no response from the debtor 23 August-September 2022#24Covered bond programme and cover pool islandsbanki.is August-September 2022#25Íslandsbanki's covered bond programme Assets are ring-fenced on the issuer's balance sheet Transaction Structure Fiscal Agent (Citibank) Representing Bondholders Icelandic Financial Supervisory Authority Oversight by the Mortgage Covered Bond Cross Currency Liability Swap Provider Swap Agreement (as applicable) Monitoring Independent Inspector Cover Pool (KPMG) Issuer (Íslandsbanki) Covered Bond Investors Proceeds from Mortgage Covered Bond Key features Íslandsbanki's covered bond programme reflects the Icelandic ring fencing on balance sheet structure: the assets inlcuded in the cover pool are segregated from Íslandsbanki's remaining assets by way of registration in a cover assets register, with no need to transfer the cover pool to a separate entity The covered bondholders benefit from dual recourse to both Íslandsbanki on an unsecured basis and to the cover pool of assets The programme currently commits to an overcollateralisation (OC) of 25%, which will gradually decrease to 5% by 2030 the Icelandic covered bond framework protects the OC for the benefit of the bondholders in the event of issuer insolvency The cover pool is bankruptcy remote and exclusively available to meet outstanding claims under the covered bonds. It is composed exclusively of Icelandic residential mortgages. Substitute assets are allowed up to a limit of 20% The programme features a liquidity reserve covering 180 days of net outflows On 1 June 2022, S&P assigned a 'A' rating to the programme Hedging structure Íslandsbanki established a collateral reserve account upon issuing its first EUR-denominated covered bond Assets and/or cash are pledged to the collateral reserve account according to the amounts and thresholds in S&P's rating methodology Covered bondholders have full recourse on the collateral reserve account The programme allows Íslandsbanki the flexibility to enter into swap agreements with external counterparties. Such swap agreements shall provide hedging from currency risk arising from mismatches between the mortgage loans included in the cover pool, denominated in ISK, and the amounts payable to the covered bondholders The amounts standing to the credit of the collateral reserve account may be used by Íslandsbanki to enter into a cross currency liability swap 25 August-September 2022#26Íslandsbanki's covered bond programme - cont'd Monitoring Representation of Bondholders / Oversight The Independent Inspector is appointed by the issuer and approved by the Icelandic Financial Supervisory Authority, or Fjármálaeftirlitið (FME) to monitor the cover pool and the cover asset register. It also ensures compliance with matching and market risk limits in accordance with the Icelandic covered bond legislation. The Independent Inspector must submit a report of its inspection to the FME every six months and must notify the FME as soon as they learn about any event deemed to be significant to the supervisory authority The Fiscal Agent acts as a point of contact between the issuer and the covered bondholders. Any notices to be given to or by covered bondholders, for example, need to be submitted through the Fiscal Agent The FME oversees both covered bond issuer and application of the legal framework Issuer bankruptcy does not entitle covered bondholders to accelerate the programme The programme does not feature issuer events of default, the occurrence of which would entitle covered bondholders to accelerate the covered bonds Pursuant to the Icelandic covered bond law, if an issuer enters into resolution proceedings issued covered bonds cannot be accelerated Following an issuer insolvency, any payments by borrowers of the mortgages included in the cover pool will also be added to the register and used to make payments under the covered bonds Soft bullet maturity extension mechanism Upon failure of the issuer to pay the Final Redemption Amount of a series of covered bonds on their scheduled maturity date, payment of principal is automatically deferred to the Extended Final Maturity Date, provided that such an extension is contemplated in the final terms Such non payment does not result in the acceleration of the covered bonds The issuer can make a partial payment of the relevant Final Redemption Amount on any interest payment date following the maturity extension and up to the Extended Final Maturity Date Interest will continue to be payable on any unpaid amount on each interest payment date falling after the maturity date up to the Extended Final Maturity Date On the Extended Maturity Date, failure to pay the Final Redemption Amount will constitute a default Account bank If the issuer ceases to be an Eligible Institution (i.e. it is downgraded below BBB-), it shall establish one or more of the following bank accounts in its name with an Eligible Institution: transaction account, liquidity reserve account and collateral reserve accounts denominated in ISK and any other currency for which there are covered bonds outstanding at the time The cash flows originated under the mortgage loans through borrower payments I will be transferred to the transaction account In the event that any Eligible Institution ceases to be qualified as such, the issuer will be obliged to transfer the relevant issuer account to a credit institution with the appropriate minimum ratings 26 August-September 2022#27Breach of matching rules requirements A breach of the matching requirements prior to the winding up of the issuer in circumstances where no additional assets are available to the issuer or the issuer lacks the ability to acquire additional assets could cause the FME to revoke the license to issue covered bonds If the matching requirements are breached following the winding up of the issuer, the winding up committee would not be permitted to add more assets to the cover pool Matching rules are there to protect the investor The Icelandic Covered Bond Act requires issuers to satisfy a set of requirements, known as matching rules, to ensure that the covered bond programme is able to mitigate asset-liability mismatches Nominal Value Test The total current value of the cover pool which is to serve as collateral for the covered bonds must always exceed the aggregate outstanding amount of covered bonds Loans that are more than 90 days past due are not taken into account for the calculation of the nominal value test Deposit set-off risk will be mitigated by Íslandsbanki through the deduction of such amounts from the nominal value of the cover pool for the purposes of calculating the Nominal Value Test, therefore increasing the required OC necessary to meet the test and providing additional protection to covered bondholders Index matching - to The Bank conducts monthly tests ensure interest matching between the inflation-linked assets in the cover pool and the outstanding inflation-linked covered bonds. The Independent Inspector has visibility over these tests and the matching of the aforementioned generally Liquidity coverage Instalments and other cash flows accruing on the cover assets in the cover pool and from derivative agreements must be such that at any given time the issuer can meet all its financial obligations towards covered bondholders and counterparties to derivative agreements Íslandsbanki contractually commits funding a liquidity reserve with the amount required to be paid on all outstanding covered bonds in respect of interest and third party expenses for the following 6 months to Cash flows from mortgages in default (90 days or more) are ignored in the calculation and not included in the cover pool register Asset Coverage Test - On each monthly calculation date the issuer must ensure that the total value of the cover pool, including cash, the collateral reserve account and the liquidity reserve ledgers is greater than: (i) the total outstanding amount of all series of covered bonds (ii) any other payment obligations to be paid from the cover pool (iii) the deposit-set off amount Net Present Value Test (interest rate sensitivity) On a net present value (NPV) basis, cover assets, including derivatives, must always exceed the corresponding value of interest and principal of the outstanding covered bonds, taking into account the effects of stress-test scenarios on interest and currency risk set by the FME The issuer and the covered bond programme must be able to withstand changes to the risk free interest rate with respect to the net cover pool value and ensure that the cover pool matching rules are still met under a best and worst case stress testing scenario Interest rate risk: the FME defines the stress test for interest rate risk as a sudden and sustained parallel shift in the reference curve by 100bps up and down Currency risk: likewise, the FME defines the currency risk stress test as a 10% sudden and sustained change in the relevant foreign exchange rate between the currency of covered bonds and the currency of cover assets 27 August-September 2022#28Cover Pool - main features Cover pool made of entirely residential mortgage loans Composition of the cover pool The cover pool currently consists of mortgage loans secured against residential properties located in Iceland - going forward, the intention is for this composition to be maintained All the properties included in the cover pool are owner-occupied Cover pool has expanded over years ISKM 400,000 350,000 Pursuant to the Icelandic Covered Bond Act, residential mortgage loans form part of the cover pool only up to a maximum LTV of 80% The Icelandic Covered Bond Act defines that the market value of the properties to be used for calculating the LTVs needs to be based on the selling price of comparable properties in recent transactions or, where such market value is not available, on a specific valuation carried out in accordance with generally accepted principles The Icelandic Covered Bond Act provides that no mortgage loan may be registered in the cover pool if they have been in arrears for 90 days or more 300,000 250,000 The cover pool includes a mix of inflation-linked and non inflation-linked mortgage loans 150,000 Loans granted to employees of Íslandsbanki are also included 200,000 100,000 50,000 0 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 Mar-22 June-22 28 August-September 2022#29WA Current LTV Cover Pool - main features - cont'd Nearly ISK 300bn of collateral backing the loans Cover pool composition as at 30 June Current balance range 2022 ISKm, 30 June 2022 35% 32.22% Cut-off Date 30/06/2022 30% 23.62% 25% 21.24% Current Balance (ISKm) 360,064 20% Cover Pool Balance (ISKm) 15% 360,064 10.37% 9.42% 10% Number of Loans 15,567 5% 3.13% 0% Number of Borrowers 13,855 0-10mn 10-20mn 20-30mn 30-40mn 40-50mn > 50mn 56.13% WA Seasoning (Years) 2.38 50% 45% WA Remaining Term (Years) 33.06 40% 35% Fixed rate (%) 30% 66.86% 25% 20% Variable rate (%) 33.13% 15% 10% 5% WA Interest Rate (%) 3.80% 0% 0% - 20% LTV range (% of current principal balance), 30 June 2022 3.28% 4.51% 20% - 30% 30% - 40% 43.47% 12.34% 14.12% 12.98% 9.15% 40% - 50% 50% - 60% 60% - 70% 70% - 80% 0.16% > 80% 29 August-September 2022#30Cover Pool - main features - cont'd Loan features are aligned with market standards Seasoning profile, months (% of current principal balance), 30 June 2022 60% Interest rate range (% of current principal balance), 30 June 2022 70% 64.47% 50.17% 60% 50% 40% 50% 40% 34.31% 30% 30% 20.61% 20% 20% 11.55% 8.64% 10% 5.60% 10% 3.44% 0% 0% 0-12 m 12 24 m 24-36 m 36-48 m 48 60 m > 60 m 0% -3% 3% -6% Remaining maturity term, years (% of current principal balance), 30 June 2022 Current interest rate type (% of current principal balance), 30 June 2022 1.22% 6% -10% 70% 40% 34.93% 59.43% 35% 60% 30% 50% 25% 40% 20% 30% 15% 20% 15.53% 10% 10.93% 6.74% 10% 4.45% 5% 2.13% 2.92% 0% 0% 0-15 yrs 30 15-20 yrs 20-25 yrs 25-30 yrs 30-35 yrs > 35 yrs Fixed to Maturity Fixed then Refix III SVR1 32.37% 30.58% Fixed then SVR¹ 1. SVR stands for Standard Variable Rate 30 August-September 2022#31Appendix |- About Íslandsbanki and additional financial information islandsbanki.is August-September 2022#32Financial overview Key figures & ratios 2Q22 1Q22 4Q21 3Q21 2Q21 PROFITABILITY Profit for the period, ISKm 5,880 5,187 7,092 7,587 5,431 Return on equity 11.7% 10.2% 14.2% 15.7% 11.6% Net interest margin (of total assets) 2.9% 2.6% 2.4% 2.4% 2.4% Cost-to-income ratio 1 42.7% 47.6% Cost of risk 2 (0.20%) 45.3% 49.9% (0.17%) (0.23%) (0.64%) (0.42%) 39.4% BALANCE SHEET Loans to customers, ISKm Total assets, ISKm Risk exposure amount, ISKm 30.6.22 1,153,677 31.3.22 31.12.21 30.9.21 30.6.21 1,107,893 1,086,327 1,081,418 1,089,723 1,437,253 1,446,355 1,428,821 1,456,372 1,446,860 901,646 917,764 924,375 992,883 945,321 Deposits from customers, ISKM 756,862 761,471 744,036 754,442 765,614 Customer loans to customer deposits ratio 152% 145% 146% 143% 142% Non-performing loans (NPL) ratio³ 1.8% 1.8% 2.0% 2.0% 2.1% LIQUIDITY Net stable funding ratio (NSFR), for all currencies Liquidity coverage ratio (LCR), for all currencies 118% 123% 122% 121% 122% 147% 195% 156% 225% 187% CAPITAL Total equity, ISKM CET 1 ratio4 Tier 1 ratio4 Total capital ratio 4 Leverage ratio4 203,662 197,201 203,710 197,381 190,355 18.2% 18.8% 21.3% 20.6% 20.1% 19.2% 19.9% 22.5% 21.8% 20.1% 21.5% 22.5% 25.3% 24.7% 22.9% 12.5% 12.4% 13.6% 13.2% 12.4% 1.Calculated as (Administrative expenses + Contribution to the Depositors' and Investors' Guarantee Fund - One-off items) / (Total operating income - One-off items). 2. Negative cost of risk means that there is a net release of impairments. 3. Stage 3, loans to customers, gross carrying amount. 4. Including 3Q21 profit for 30.9.21 and 1Q22 profit for 31.3.22. 32 August-September 2022#33Robust profitability in 2Q22 built on a solid platform Income growth of 16% YoY driven by NII and NFCI Income statement, ISKm 2Q22 2Q21 A% 1H22 1H21 A% 2021 Net interest income 10,254 8,417 22% 19,463 16,607 17% 34,043 Net fee and commission income Net financial income (expense) Net foreign exchange gain Other operating income 3,434 2,907 18% 6,498 5,769 13% 12,849 208 619 (66%) 113 912 (88%) 2,499 75 95 (21%) 241 225 7% 479 59 82 (28% 324 204 59% 302 Total operating income 14,030 12,120 16% 26,639 23,717 12% 50,172 Salaries and related expenses (3,396) (3,594) (6%) (6,818) (7,168) (5%) (13,397) Other operating expenses (2,597) (2,894) (10%) (5,009) (5,172) (3%) (9,799) Administrative expenses (5,993) (6,488) (8%) (11,827) (12,340) (4%) (23,196) Contribution to the Depositor's and Investors' Guarantee Fund 0 (162) (100%) (165) (344) (52%) (688) Bank tax (412) (451) Total operating expenses (6,405) (7,101) Net impairment on financial assets 575 1,140 (9%) (10%) (12,834) (50%) (842) (861) (2%) (1,683) (13,545) (5%) (25,567) 1,058 622 70% 3,018 Profit before tax 8,200 6,159 33% 14,863 10,794 38% 27,623 Income tax expense (2,331) (769) 203% (3,794) (1,805) 110% (5,119) Profit for the period from continuing operations 5,869 5,390 9% 11,069 8,989 23% 22,504 Discontinued operations held for sale, net of income tax 11 41 Profit for the period 5,880 5,431 (73%) 8% (2) 57 (104%) 1,221 11,067 9,046 22% 23,725 Key ratios Net Interest Margin (NIM) Cost-to-income ratio (C/I) Return on Equity (ROE) Cost of risk (COR) 2.9% 2.4% 2.7% 2.4% 2.4% 42.7% 49.9% 45.0% 50.6% 46.2% 11.7% 11.6% 10.9% 9.7% 12.3% (0.20%) (0.42%) (0.19%) 0.12% (0.28%) 33 August-September 2022#34Balance sheet reflects a balanced loan and funding profile Conservative mix of assets and stable funding Assets Vast majority of assets consist of lending to both retail and corporates Strong liquidity portfolio is a consistent factor in balance sheet management Very limited exposure to non- liquid or non-lending assets Liabilities Deposits from retail and corporates are the single largest funding source Bonds and debt instruments have become a more prominent part of the funding mix thanks to continuous focus on attracting new pockets of demand, including foreign currency and ESG issuance Simplified balance sheet structure 30.6.2022, ISK 1,437bn Liquid assets 15% Cash in Central Bank Liquidity portfolio Loans to credit institutions Loan book 80% Corporate & public sector lending Deposits from credit inst. and pension funds Deposits 53% Lending to individuals Deposits from retail and corporations Other Assets Senior unsecured bonds Covered bonds Subordinated loans Equity Other Liabilities & equity Stable funding 44% 34 August-September 2022#35Growth in loans to customers continues Steady mortgage growth supported by a strong capital base Assets, ISKm Cash and balances with Central Bank Loans to credit institutions Bonds and debt instruments Derivatives Loans to customers Shares and equity instruments Investment in associates Property and equipment Intangible assets Other assets Non-current assets and disposal groups held for sale Total Assets Key ratios Risk Exposure Amount (REA) Non-performing loans (NPL) ratio¹ 1. Stage 3, loans to customers, gross carrying amount. 30.6.22 31.3.22 A A% 31.12.21 A A% 77,884 77,799 85 0% 113,667 (35,783) (31%) 37,226 73,220 (35,994) (49%) 43,988 (6,762) (15%) 108,477 130,700 (22,223) (17%) 132,289 (23,812) (18%) 6,193 1,153,677 4,245 1,948 46% 2,445 3,748 153% 1,107,893 45,784 4% 1,086,327 67,350 6% 25,789 28,655 (2,866) (10%) 31,677 (5,888) (19%) 3,836 767 3,069 400% 939 2,897 309% 6,846 6,911 (65) (1%) 7,010 (164) (2%) 3,304 3,327 (23) (1%) 3,351 (47) (1%) 12,126 11,170 956 9% 5,784 6,342 110% 1,895 1,668 227 14% 1,344 551 41% 1,437,253 1,446,355 -9,102 (1%) 1,428,821 8,432 1% 992,883 1.8% 945,321 1.8% 47,562 5% 901,646 2.0% 91,237 10% 35 August-September 2022#36Diversified funding base Deposits are the largest source of funding Liabilities & Equity, ISKm 30.6.22 31.3.22 A A% 31.12.21 A A% Deposits from Central Bank and credit institutions 11,437 10,949 488 4% 13,384 (1,947) (15%) Deposits from customers 756,862 761,471 (4,609) (1%) 744,036 12,826 2% Derivative instruments and short positions 11,410 11,013 397 4% 9,467 1,943 21% Debt issued and other borrowed funds 393,754 406,845 (13,091) (3%) 402,226 (8,472) (2%) Subordinated loans 32,181 34,139 (1,958) (6%) 35,762 (3,581) (10%) Tax liabilities 8,498 6,980 1,518 22% 6,432 2,066 32% Other liabilities 18,498 16,802 1,696 10% 12,848 5,650 44% Non-current liabilities and disposal groups held for sale 951 955 (4) (0%) 956 (5) (1%) Total Liabilities 1,233,591 1,249,154 (15,563) (1%) Total Equity 203,662 Total Liabilities and Equity 1,437,253 197,201 1,446,355 6,461 3% (9,102) (1%) 1,225,111 203,710 1,428,821 8,480 1% (48) 8,432 (0%) 1% Key ratios Customer loans to customer deposits ratio 152% 145% 146% REA/total assets 69.1% 65.4% 63.1% Net stable funding ratio (NSFR) 118% 123% 122% Liquidity coverage ratio (LCR) 147% 195% 156% Total capital ratio 1 Tier 1 capital ratio 1 21.5% 22.5% 25.3% 19.2% 19.9% 22.5% Leverage ratio¹ 12.5% 12.4% 13.6% 1. Including first quarter profit for 31.3.22. 36 August-September 2022#37Appendix II Icelandic economy update islandsbanki.is August-September 2022#38Highlights After a 7.1% contraction in 2020, the Icelandic economy recovered strongly in 2021, with GDP growth measuring GDP and contribution of its subcomponents Volume change from prior year (%) Export-driven GDP growth following robust growth in demand GDP growth rapid in 2022 but slower in coming years GDP, domestic demand, and external trade Volume change from prior year (%) 15 15 4.3% Growth was driven mainly by domestic demand. Exports also picked up strongly, albeit outpaced by import growth 12 12 9 ISB Research (forecast published in May-2022) expects GDP growth at 5.0% in 2022, the fastest growth rate since 2016 6 9 5.0 4.3 2.7 2.6 6 3 5.0 4.3 2.7 2.6 3 Exports take over from domestic demand as the main catalyst of growth, with a rapid recovery of tourism and an increase in other exports. Growing consumption and investment also fuel GDP growth in 2022 0 0 -3 -3 -6 -6 For 2023, GDP growth is forecast to measure 2.7%, with exports once again -9 -9 the main driver, although growth in exports as well as domestic demand -12 will ease year-on-year -12 -15 For 2024, GDP growth is projected at 2.6% as export growth eases further and tighter economic policy and supply constraints slow the pace of growth -15 -18 2010 2012 2014 2016 2018 2020 2022 2024 -18 If either or both the Ukraine war and the COVID-19 endgame put severe pressure on the global economy in the coming term, it could weaken the Icelandic economy further ahead Imports Investment Exports Inventory chg. 2010 2012 2014 2016 2018 2020 2022 2024 Public consumption Priv.consumption Net exports National expenditure GDP GDP Sources: Statistics Iceland, ÍSB Research. 38 August-September 2022#39Highlights Tourism recovering swiftly from a two-year drought We forecast that 1.5-1.6 million tourists will visit Iceland in 2022 Number of foreign tourists, by month thousands After a turbulent two-year period the tourist sector appears poised for a swift recovery 300 636,000 tourists visited Iceland in 1H of 2022, the largest total for this period since 2019 Tourism operators are upbeat about the summer and autumn. This year's tourist numbers could come to 80-90% of the 2019 total 250 200 ISB Research expects 1.5-1.6 million tourists this year, about the same number as in the mid-2010s Tourist numbers are assumed to rise to 1.9 million in 2023 and 2.1 million in 2024 150 - Number of foreign tourists, by year thousands 2500 2000 1500 The slowdown in growth further ahead is due in part to a higher real exchange 100 1000 rate and the prospect of weaker growth in global demand Even though visitors were far fewer in 2021 than before the pandemic, stayed longer and spent more on average in Iceland than they did previously 50 500 Average revenues per tourist will likely continue to be somewhat higher than in the past decade Jan Feb 2019 ---2022 fcast Mar Apr May Jun Jul -2020 Aug Sep Oct Nov Dec 0 2021 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2023 fcast ⚫ 2024 fcast Sources: Icelandic Tourist Board, ÍSB Research. August-September 2022 σε#40Highlights Current account balance set to improve in the near term Increased share of exports in GDP growth spurs a recovery of external trade in coming quarters Exports and contribution from subcomponents % change The rapid recovery of tourism explains a large share of the forecasted 20% export growth in 25 2022 and just almost 9% growth in 2023 20 Furthermore, the outlook is for stronger exports of farmed fish, 15 capelin, aluminium and other industrial goods, and increasingly, 10 intellectual property usage 5 The export growth in the abovementioned goods is partly 0 offset by a contraction in exports of groundfish, particularly cod -5 For 2021 Iceland recorded a current account deficit of ISK 90.2bn, or 2.8% of GDP. It was the first full- year deficit since 2011 -10 -15 For 2022, though, the outlook is for the current account to be in balance -20 For 2022-2023, a return to current account surplus is expected as export growth outpaces import growth and terms of trade improve somewhat -25 -30 -35 Iceland's net external assets 2010 2012 2014 2016 currently total just over 4/10 of GDP. This could improve even further during the forecast horizon Goods exports Current account balance and GDP growth % of GDP and % change YoY 10 20.0 12.4 8.7 ih. 0 3.8 -5 -10 -15 -20 -30.2 -25 2018 2020 2022 2024 Service exports -Total exports 5 0.1 211.7 Minya -2.8 TT T * excl. failed banks' estates 2009-2015 GDP, real YoY change C/A balance* (% of GDP) Sources: Statistics Icelandic, Central Bank of Iceland, ÍSB Research. 40 August-September 2022#41Private sector debt % of GDP Domestic balance sheets still healthy Economy-wide leverage remains moderate in comparison with peers and historical levels Corporate debt % of GDP 400 300 350 250 300 200 250 200 150 150 100 100 50 50 0 0 T 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Q1 2003 2022 2005 -Iceland 2007 2009 Denmark 2011 Sweden 2013 2015 2017 2019 2021 -Finland -Ireland Norway ■Households ■Businesses (excl. financial) Household debt % of GDP 160 140 120 100 80 60 40 20 20 General government gross financial liabilities % of GDP 160 140 120 100 80 60 40 20 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Denmark ―Iceland Sweden ―Netherlands Q1 Norway 2010 -Ireland 2011 2012 ■Iceland 2013 2014 ■ UK 2015 2016 2017 2018 2019 ■ USA ■ Euro area 2020 2021 2022 2023 OECD avg Shaded areas indicate OECD forecasts. Source: Central Bank of Iceland, Statistics Iceland, OECD and ISB Research. 41 August-September 2022#42Investment growth loses pace after a growth spurt Residential investment to take over from business investment as the driver of growth Executives' expectations and business investment Index value (left) and % change year-on-year (right) Highlights Investment, real change, and contribution of subcomponents % After a two-year contraction, investment spiked in 2021, with growth measuring just under 14%, its fastest pace in five years 25 Business investment growth was 200 180 extremely strong, and public investment 20 also grew handsomely, while residential investment shrank by over 4% The outlook is for relatively robust growth in business investment in 2022. Residential investment will also pick up again and public sector investment looks sett to increase moderately 15 10 7.2 In 2023, residential investment will likely be the sole driver of growth, as business investment looks set to contract because of rising interest rates and bleaker expectations about firms' operating 5 160 13.6 140 120 100 2.6 0.5 80 0 environment 60 2024 will probably see moderate growth in private sector investment coupled with -5 a contraction in public investment ISB Research forecasts that total 40 20 -10 investment will grow by over 7% in 2022, less than 1% in 2023, and nearly 3% in 2024 -9.5 0 -15 The investment-to-GDP ratio will therefore taper off gradually, although 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 investment will be relatively strong in historical context Public sector Residential Business -Total investment 0 0.5 0.4 0.3 0.2 0.1 -0.1 -0.2 -0.3 -0.4 -0.5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 -Corporate executives, 6M expectations -Business investment, YoY change, 4Q moving average (r.axis) Source: Statistics Iceland, Gallup. 42 August-September 2022#43Unemployment continues to fall A growing labour shortage will probably be one of the greatest challenges. Highlights Labour supply according to corporate executives % Unemployment¹ % of workforce, annual average Unemployment has fallen swiftly after peaking in January 2021 as the relatively swift economic recovery in 2021 has fostered job growth 100 9 Registered unemployment measures 3.3% in June 2022 and 90 8 60 80 7 looks set to fall even further in coming months ISB Research forecasts average year-2022 unemployment at 4.4% According to a recent Gallup survey, 54% of company executives consider themselves short-staffed Construction and tourism companies in particular envision adding on staff As foreign workers have been prominent in these sectors, labour importation is likely to increase markedly this year 70 70 666 60 50 40 40 30 30 20 Unemployment seems likely to fall to 10 a new equilibrium in the coming term, averaging 3.7% in 2023 and 3.6% in 2024, which will bring it back to the 2019 level 0 2006 2007 2009 2010 2011 2013 2014 2016 2017 2018 2020 2021 Firms considering themselves short-staffed -Firms considering the labour supply adequate 1 3 2 4 00 6 LO 5 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Unemployment 1. Excluding recipients of part-time unemployment benefits. Source: Statistics Iceland, The Central Bank of Iceland, Gallup. 43 August-September 2022#44Inflation erodes household purchasing power Private consumption growth will be weaker in the near term as a result Highlights Private consumption rallied last year, growing by 7.6% YoY, after contracting by 3% in 2020 In real terms, private consumption was 4.4% more in 2021 than in 2019, indicating that Icelanders Private consumption and related indicators % change year-on-year (left) and index value (right) 15 have more than recovered their pre- pandemic consumption level 10 Private consumption is estimated to have increased by 8.8% YoY in 1Q2022, largely due to increase in 5 travel and direct purchases abroad by resident households 0 Relevant indicators, such as card turnover and real wage growth suggest a relatively strong 2Q2022 -5 As the year advances, private consumption growth will probably lose momentum due to declining optimism among households and both inflation and higher rates eroding their purchasing power Real wage growth is likely to be -10 -15 halted by an inflation spike in 2022, to return slowly in coming years Households are well positioned and have accumulated significant savings which will probably help sustain private consumption growth for the rest of the year Private consumption growth is forecast at 3.8% in 2022, 2.2% in 2023 and 4.2% in 2024 160 140 120 3.8 4.2 2.2 20 0 -20 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Private consumption Household card turnover Real wages - Gallup CC index (r.axis) 100 80 60 40 20 20 Sources: Central Bank of Iceland, Gallup, Statistics Iceland, ÍSB Research. 44 August-September 2022#45Real estate markets still buoyant Commercial property prices rising again while residential house price rises have gained steam Capital area house prices relative to macroeconomic fundamentals Index, January 2011=100 Residential house prices and turnover in greater Reykjavik % change (l.axis) and number (r.axis) 30 1200 200 180 25 1000 160 20 800 140 15 600 120 10 400 100 5 200 80 0 0 2000 2002 2004 2006 2008 2010 2012 Relative to the consumer price index -Relative to the building cost index 2014 2016 Relative to the wage index Relative to the rent index 2018 2020 2022 2014 2015 2016 2017 2018 2019 2020 2021 2022 No. of contracts (r.axis) YoY price change (l.axis) Commercial property real prices in greater Reykjavik Index, 1995-100 (1.axis) and % change (r.axis) Commercial real estate market activity No. of registered purchase agreements 350 300 40 40 60 300 250 250 200 20 200 20 150 150 0 100 100 -20 50 50 0 -40 0 2000 2002 2004 2006 2008 2010 YoY % change (r.axis) 2012 2014 2016 2018 Real prices (I.axis) 2020 2022 2000 2002 2004 2006 2008 2010 ■Retail and offices. 2012 2014 2016 2018 ■Industrial, specialized, storage 2020 2022 Source: The Central Bank of Iceland. 5 4 August-September 2022#46Inflation to spike in autumn 2022 House prices and import costs the main drivers short-term but wage costs also matter Highlights Inflation and the CBI inflation target % Inflation by contribution of main categories % Inflation started rising in mid-2020, in the wake of the COVID-19 Crisis and the depreciation of the ISK Rising import costs due to 10 pandemic-related supply/demand imbalances and, more recently, the Ukraine war have been partly offset 9 9% by ISK appreciation 8 Rapid house price increases play an 7% outsized role in recent inflation 7 increase due to inclusion in SI inflation measurement 6 CO In June inflation reached a 13 year peak of 8.8% 5% 5 Inflation has proven more persistent than expected, but ultimately it will fall 4 3% 3 ÍSB Research expects inflation to average 8.1% in 2022, 6.4% in 2 2023, and 4.1% in 2024 1% The forecast assumes that the ISK will appreciate in coming quarters. On the other hand, inflationary pressures from wages and/or house prices could turn out stronger than anticipated Furthermore, imported inflation could turn out higher if price hikes abroad continue unabated 1 -1% 0 2016 2017 2018 2019 2020 2021 2022 Jan-19 2023 2024 Jul-19 Other services Jan-20 Jul-20 Jan-21 Jul-21 Public services Inflation Inflation target Fuel Imported goods CPI Jan-22 Housing Domestic goods Sources: Statistics Iceland, ÍSB Research. 46 August-September 2022#47Highlights Policy rate to rise rapidly throughout 2022 Gradual easing further ahead; equilibrium rate in sight by the end of the horizon Policy rate and inflation % The Central Bank of Iceland has hiked its policy by 4 percentage points since May 2021, after reaching an all-time low of 0.75% in 4Q2020 10 The policy rate is now 4.75%, its 8 highest since 2Q2017. The real policy rate remains negative, however 6 Further steep rate hikes are expected in the near future, so as to rein inflation in, keep inflation expectations under wraps, and push the real policy rate above zero 2 We forecast that the policy rate will continue to rise swiftly, peaking at 5- 6% by end-2022 before declining gradually from 2H2023 onwards 0 Long term nominal rates are likely to remain elevated during the policy -2 rate hike cycle, then decrease moderately Long term real rates, currently -4 around the 1% mark, are expected to rise gradually in coming quarters -6 2018 2019 2020 Effective CBI policy rate 8 7 6 5 Interest rates % 3.2% breakeven inflation rate 4 3 2 1 0 2021 2022 2023 2024 -Inflation -Real policy rate 3.6% breakeven inflation rate 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 CBI key interest rate Long term yield -Long term real yield Sources: Central Bank of Iceland, Kodiak, Statistics Iceland, ÍSB Research. 47 August-September 2022#48Highlights Following nearly 3% appreciation in 2021, the ISK strengthened further by just over 5% in 1H2022 ISK exchange rate and CBI FX market intervention EUR m (left) and EURISK (right) ISK likely to appreciate further CA surplus and inflows for securities purchases offset pension funds' foreign investments Real exchange rate and current account balance Index and % of GDP 250 165 120 15 The CBI steadily scaled down its FX market intervention over the course of 2021 200 Increased ISK volatility in the first third of 2022 led to the CBI stepping up FX interventions once more, mainly leaning against short-term appreciation trends Improving C/A balance outlook, rising interest rates, Iceland's strong IIP, solid growth outlook and limited non-residents' securities holdings all weigh in favour of stronger ISK in the medium term 150 160 110 155 100 150 10 5 100 0 90 145 50 -5 Increasing foreign investment by pension funds and possible CBI FX reserve purchases may weigh against ISK strengthening 0 -50 It is impossible to pinpoint how the appreciation will materialise, but ISB Research's forecast assumes that the ISK will be about 5% stronger at the end of the forecast horizon than at the end of June 2022 -100 ་་ ་།་ 140 80 135 70 $130 60 125 -10 -15 -20 -150 120 50 -25 The real exchange rate in terms of relative consumer prices will then be similar to that in 2018 2018 2019 2020 2021 2022 1991 1995 1999 2003 2007 2011 2015 2019 2023 Scheduled interventions -EUR/ISK (r.axis) Discretionary interventions C/A balance, % of GDP (r.axis) RER, relative prices (l.axis). RER, relative wages Source: Statistics Iceland, The Central Bank of Iceland, ISB Research. 48 August-September 2022#49Alternative scenarios demonstrate impact of key uncertainties COVID-19, war in Ukraine and upcoming wage negotiations could have significant impact Highlights The economic outlook for Iceland, like the global outlook, has fluctuated widely in recent quarters ISB Research has identified three major sources of uncertainty for the near-to- medium term economic development: The war in Ukraine COVID-19 developments Upcoming private sector wage negotiations in 4Q2022 GDP growth, % 3.4 5.9 5.0 3.3 3.1 2.7 2.6 2.3 1.9 Inflation, % 8.9 7.6 6.3 6.0 5.4 3.9 3.3 2.8 An optimistic scenario assumes a more favourable outcome for those factors than 2022 2023 Pessimistic ■ Baseline 2024 2022 2023 2024 ■Optimistic ■ Pessimistic ■Baseline ■Optimistic the baseline forecast while the opposite is true in the pessimistic scenario It is assumed that there is roughly a 10% Trade-weighted exchange rate index probability of a more favourable outcome than the optimistic scenario and the converse holds for the pessimistic one GDP growth could prove 1.2% higher in 2022-2024 than baseline if those three factors develop relatively favourably Should the three factors prove more challenging, GDP growth could prove 1.9% lower in the period It should be noted that the pessimistic scenario is not a stress scenario, and it is possible to sketch out a more unfavourable path than is done here 205 187 184 Unemployment, % of labour force 6 5.5 200 190 181 175 180 170 4.4 4.1 3.7 3.0 2022 2023 2024 2022 Pessimistic Baseline Optimistic 2023 Pessimistic ■Baseline Optimistic 4.5 3.6 3.0 2024 1.7 Sources: Islandsbanki Research forecast. 49 August-September 2022#50Iceland's credit rating has remained at A Rating companies acknowledge the flexibility of the economy and resilience to the pandemic shock Development of sovereign credit rating AAA/Aaa AA+/Aa1 AA/Aa2 AA-/Aa3 A+/A1 A/A2 A-/A3 Fitch in Dec-17: Rating upgrade to A on economic stability, reduced external vulnerability and improvement in government debt ratios, supported by robust growth S&P in Mar-17: Rating upgrade to A on lifting of capital controls; outlook stable Moody's in Nov-19: Upgrade to A2 on sustained sizeable debt reduction gains and improvements in economic resilience BBB+/Baa1 BBB/Baa2 BBB-/Baa3 1 2007 2008 2009 2010 2011 Moody's 2012 2013 2014 S&P Global 2015 2016 2017 2018 2019 2020 2021 Fitch MOODY'S IN AUGUST 2021 "The credit profile of Iceland is supported by its wealthy and flexible economy with favourable demographics that support its long-term growth prospects. Current-account surpluses have contributed to a net external creditor position and large foreign-currency reserves." "The credit profile is mainly constrained by the economy's small size and concentration in a limited number of sectors, which increase its vulnerability to shocks and cause volatility in growth." FITCH IN APRIL 2022 Rating affirmed at A with a stable outlook "Iceland's 'A' rating is driven by its very high income per capita, very strong governance, human development and doing business indicators that are more consistent with those of 'AAA' and 'AA' rated countries" "The revision of the Outlook to Stable reflects the resilience shown by the Icelandic economy to the pandemic shock and Fitch Ratings' expectation of a sustained growth recovery, which should facilitate a fiscal deficit and debt reduction over time." S&P IN MAY 2022 "The stable outlook indicates S&P's expectation that Iceland's economy will continue to recover and remain relatively unaffected by the war in Ukraine." "The agency believes fiscal deficits will continue to decrease over the next few years, stabilizing the debt to GDP ratio net of liquid assets." "At the same time, ample foreign reserves will enable the CBI to deal with external pressures or exchange-rate volatility, should they occur." Source: Moody's, S&P, Fitch Ratings and Central Bank of Iceland. 50 August-September 2022#51Appendix III – Covered bond frameworks islandsbanki.is August-September 2022#52Source: ECBC Factbook 2021 Legal framework Issuance structure Regulator and regulatory supervision Issuer type Collateral type LTV limits Asset - liability requirements Substitute assets Minimum OC requirement Insolvency of the issuer Treatment of derivatives in the cover pool The Icelandic covered bond framework Regular oversight performed by the FME Governed by the Icelandic Covered Bond Act (ICBA), which came into force on March 2008, complemented by the Rules of the Financial Supervisory Authority no. 528/2008 ("ICBR") Direct on-balance sheet structure: the cover pool is held by the issuer and the assets shall remain at all times on the issuer's balance sheet. The issuer is obliged to maintain a register of the cover pool Issuers are regulated by the FME which in January 2020 merged with the Icelandic Central Bank Icelandic commercial banks, savings banks and credit undertakings that hold a license to issue covered bonds granted by the FME upon satisfaction of certain criteria Mortgage loan receivables, public sector assets and substitute assets recorded in the cover register Market value LTV limits depend on the mortgage type: 80% (residential), 70% (agricultural), 60% (office/commercial/industrial) The aggregate nominal value of the cover assets must at all times exceed the aggregate nominal value of claims arising from the outstanding covered bonds. On an NPV basis, cover assets, including derivatives, must always exceed the corresponding value of interest and principal of outstanding covered bonds, taking into account the effects of stress-test scenarios set by the FME on interest and currency risk. The issuer shall ensure that inflows arising from cover assets and derivative agreements are such that payment obligations towards holders of covered bonds and counterparties in derivative agreements can always be met Up to 20% of the total value of the cover pool can consist of substitute collateral, although the FME may authorise an increase in the proportion, up to 30%. Eligible substitute assets include: demand deposits with a regulated financial undertaking and exposures to Member States/central banks/other legal entities deemed safe by the FME. The FME may approve additional substitute collateral if appropriate: receivables against municipalities in member states/other regulated financial firms/non-Icelandic development banks/other legal entities No mandatory level - however, the FME assigns a maximum OC level to each programme The ICBA states that in case of issuer insolvency the cover assets and the respective covered bonds are segregated from the general insolvency estate of the issuer. Covered bondholders and registered derivative counterparties have a priority claim on the cover pool and the cash that derives from the pool, ensuring timely repayment at the originally agreed terms, as long as the pool complies with the ICBA criteria. An issuer default does not trigger the premature termination of registered derivative contracts. The ICBA does not provide for the appointment of a special cover pool administrator in case of issuer insolvency Derivatives are eligible assets only if the purpose of the derivative is to hedge against interest and currency risks related to cover assets or covered bonds. The ICBA requires derivatives to be structured such that premature termination of the derivative contract is not triggered by an issuer default or a demand by the counterparty. For this reason, derivative counterparties must have a minimum long-term rating of A3/A-/A- (Moody's/S&P/Fitch) or short-term rating of P2/A2/F2. Lastly, all derivative contracts must be recorded in the cover register 52 August-September 2022#53Name of instrument Supervision Collateral type Segregation of collateral Repayment LTV limits Substitute collateral Protection against mismatching Covered bond framework comparison The Iceland framework is largely aligned with the main European jurisdictions Iceland Sértryggð skuldabréf Icelandic Financial Supervisory Authority (FME) Residential mortgage loans Mortgage loans backed by industrial, office or commercial properties Loans backed by agricultural properties Public sector loans Ring-fenced via registration on the issuer's balance sheet Soft bullet 80% for residential mortgage loans 60% for commercial mortgage loans 70% of for loans backed by agricultural property Up to 20% of the nominal value of the cover pool; FME can approve an increase up to 30% Nominal value and NPV of assets at least equal to outstanding covered bonds; payment obligations covered by inflows; maturity extension Germany Hypothekenpfandbriefe, Öffentliche Pfandbriefe, Schiffspfandbriefe, Flugzeugpfandbriefe German Federal Financial Supervisory Authority (BaFin) Residential mortgage loans Commercial mortgage loans Public sector loans Shipping loans Aircraft loans Ring-fenced via registration on the issuer's balance sheet Soft bullet 60% of mortgage lending value Up to 15% of outstanding covered bonds Nominal value and NPV of assets at least equal to outstanding covered bonds; 180-day liquidity requirements covered via liquid assets; maturity extension 2% Nominal (if mortgage / public sector loans) 5% Nominal (if shipping / aircraft loans) Norway Obligasjoner med fortrinnsrett (OMF) Financial Supervisory Authority of Norway (FSA) and the cover pool monitor Residential mortgage loans Commercial mortgage loans. Public sector loans Shipping loans Ring-fenced via registration on the issuer's balance sheet Hard and soft bullet 80% for residential mortgage loans 60% for mortgage loans backed by other properties Up to 15% of outstanding covered bonds Nominal value of assets at least equal to 105% of outstanding covered bonds; payment obligations covered by inflows; 180-day liquidity requirements covered via liquid assets; maturity extension 5% Nominal Sweden Säkerställda obligationer Swedish Financial Supervisory Authority (SFSA) and the independent inspector Residential mortgage loans Commercial mortgage loans Public sector loans Shipping loans Ring-fenced via registration on the issuer's balance sheet Hard and soft bullet 80% for residential mortgage loans 60% for commercial mortgage loans Up to 15% of outstanding covered bonds Nominal value and NPV of assets at least equal to 102% of outstanding covered bonds; payment obligations covered by inflows; 180-day liquidity requirements covered via liquid assets; maturity extension 2% Nominal/NPV Mandatory OC Voluntary OC is protected Premium Covered Bond Eurosystem eligibility ECB CBPP3 eligibility No mandatory OC requirement Yes up to limit approved by FME No Yes CBs issued prior to 8th July 2022 No CBs issued after 8th July 2022 No Source: ECBC Factbook 2021, National Covered Bond Frameworks 2% NPV Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes, depending on assets No 53 August-September 2022#54Covered bond framework comparison – cont'd - Name of instrument Supervision Collateral type Segregation of collateral Repayment LTV limits Substitute collateral Protection against mismatching Mandatory OC Voluntary OC is protected Premium Covered Bond Eurosystem eligibility ECB CBPP3 eligibility Iceland Sértryggð skuldabréf Icelandic Financial Supervisory Authority (FME) Residential mortgage loans Mortgage loans backed by industrial, office or commercial properties Loans backed by agricultural properties Public sector loans Ring-fenced via registration on the issuer's balance sheet Soft bullet 80% for residential mortgage loans 60% for commercial mortgage loans 70% of for loans backed by agricultural property Up to 20% of the nominal value of the cover pool; FME can approve an increase up to 30% Nominal value and NPV of assets at least equal to outstanding covered bonds; payment obligations covered by inflows; maturity extension No mandatory OC requirement Yes up to limit approved by FME Finland Finnish Covered Bonds Finnish Financial Supervisory Authority (FSA) Housing loans Commercial property loans Public sector loans Ring-fenced via registration on the issuer's balance sheet Hard and soft bullet 80% for residential mortgage loans 60% for commercial mortgage loans Up to 20% of the nominal value of the cover pool Nominal value of assets at least equal to outstanding covered bonds; NPV of assets at least equal to 102% of outstanding covered bonds; 180-day liquidity requirements covered via liquid assets; maturity extension 2% Nominal Yes Yes No Yes CBs issued prior to 8th July 2022 No CBs issued after 8th July 2022 No Yes Yes Source: ECBC Factbook 2021, National Covered Bond Frameworks Denmark Særligt Dækkede Realkreditobligationer Særligt Dækkede Obligationer Realkreditobligationer Danish Financial Supervisory Authority (FSA) Residential mortgage loans Public sector loans Exposures to credit institutions (up to a limit). Residential mortgage loans Public sector loans Residential mortgage loans Public sector loans Cover assets held on the issuer's balance sheet and assigned to individual capital centers (mortgage banks) or registers (commercial banks) Hard and soft bullet 75/80% for residential loans 75% for holiday property 60% for agricultural or commercial property Up to 15% of outstanding covered bonds 80% for residential loans 75% for holiday property 70% for agricultural property 60% for commercial property No limit Balancing principle for mortgage banks; payment obligations covered by inflows; 180-day liquidity requirements covered via liquid assets (does not apply to match-funded programmes) 2% Nominal Yes Yes Yes No No mandatory OC No 54 August-September 2022#55Disclaimer This presentation is for information purposes only and shall not be construed as an offer or solicitation for the subscription or purchase or sale of any financial instrument. All information contained in this presentation should be regarded as preliminary and based on company data available. The information set out in this presentation has not been independently verified. Due care and attention has been used in the preparation of forecast information. However, actual results may vary from their forecasts, and any variation may be materially positive or negative. Forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of Íslandsbanki. No representation or warranty is made by Íslandsbanki as to the accuracy, completeness or fairness of the information or opinions contained in this presentation. The information in this material is based on sources that Íslandsbanki believes to be reliable. Íslandsbanki can however not guarantee that all information is correct. Furthermore. information and opinions may change without notice. 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