Icelandic investment banks Kaupthing and Glitnir posted record yearly profits yesterday and claimed their prospects were good, despite predictions that the North Atlantic economy is slowing down.
Kaupthing, Iceland’s biggest bank by market capitalization, posted a 25 percent year-on-year rise in fourth-quarter operating profit. Net fourth quarter profit was ISK 18.1 billion (EUR 203 million, USD 263 million), with the full-year net a record ISK 85.3 billion (EUR 957 million, USD 1.2 billion). Reuters reports.
The second biggest bank in Iceland, Glitnir, posted a fourth-quarter net profit of ISK 9.3 ISK billion (EUR 104 million, USD 135 million) with its full-year ISK 38.2 billion (EUR 429 million, USD 556 million) and Landsbanki, the third, posted an annual net profit of ISK 40.2 (EUR 451 million, USD 585 million) billion last week.
According to Reuters, the Icelandic banks have relied heavily on borrowing to fund their growth and on rising equity prices for their profits. Analysts worry about their strength, but the banks argue that due to increasing investments overseas, they are less reliant on Iceland.
Kaupthing’s chief executive Hreidar Már Sigurdsson told Reuters 65 percent of the bank’s income in 2006 came from foreign investments and that he expects that number to increase to 75 percent in 2007. He added that he does not believe the economy in Iceland will go downhill from here, as it did this time last year.
In early 2006 Iceland’s markets hit turbulence after foreign reports on an overheating economy in Iceland. Since then the Central Bank has raised interest rates 18 times. In late December 2006 the key interest rate reached a record 14.25 percent.
Now, confidence in the Icelandic market seems to be returning. Last week the main stock market index (OMX) in the Iceland Stock Exchange (ICEX) reached an all time high with a value of 6,930 points.