The profits from the core operations of Landsbanki and Arion bank are way below the state’s demands, according to a new report by the Banking Administration of Iceland. The administration concludes that the Icelandic banking system has far too many employees.
The headquarters of Landsbanki in central Reykjavík. Photo by Páll Stefánsson.
“If this situation should persist for a long time we wouldn’t accept such profits from the banks’ core operations. But it must be kept in mind that difficult matters are being resolved. I don’t think the report gives us a reason to be pessimistic,” commented Finance Minister Steingrímur J. Sigfússon to Fréttabladid.
Sigfússon said the report is useful and he expects the Banking Administration to make suggestions for improvement shortly. As for the size of the banking system, the minister agrees that it is large in international comparison. “Most people believe that these numbers will change in the coming months and years,” he said.
The Banking Administration’s calculations show that Íslandsbanki is performing much better than the other two banks with a 28.7 to 32.5 percent profit from its basic operations.
Arion Bank has a 3.8 to 7.9 percent profit from its basic operations while Landsbanki bottoms out with a profit of only 2.4 to 6.4 percent. A natural profit expectation is evaluated at approximately 15 percent.
Elín Jónsdóttir, director of the Banking Administration, would not reveal which actions she finds necessary to improve the banks’ profitability.
The minister also said that Landsbanki’s situation is understandable considering the projects the bank is working on in regard to companies and export industries. There are no plans to change the state’s situation within the bank, he stated.
The state has a share in all of Iceland’s three largest banks; the highest of which is in Landsbanki, 81.3 percent. The state holds a 13 percent share in Arion Bank (formerly Kaupthing) and five percent in Íslandsbanki (formerly Glitnir). In total the state has ISK 190 billion (USD 1.5 billion, EUR 1.2 billion) tied up in the banks.