Banks Raise Interest on Non-Indexed Loans

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All three of Iceland’s commercial banks announced that they would be raising interest rates on Friday. RÚV reports that Arion Bank, Íslandsbanki, and Landsbankinn are raising interest rates on non-indexed loans, as well as deposits. The hike comes on the heels of a 0.5% increase on key interest rates last week.

Interest rates on most types of non-indexed loans went up by 0.5% at Arion Bank, Íslandsbanki, and Landsbankinn. New non-indexed mortgages offered by Landsbankinn interest rates had a slightly lower hike; those went up 0.25-0.30%.

Read More: Inflation Rate Continues Climb, Now at 9.9% (January 2023)

Non-indexed interest rates on the banks’ home loans are now in the range of 8.0-8.5%, while interest rates on indexed loans remain unchanged.

Deposit rates were also raised, in most cases around 0.5%.

Looking Back: Mortgage Payments Continue Rising in Iceland (August 2022)

Friday’s interest increases come on the heels of the Central Bank’s decision to raise key interest rates by 0.5% last week, bringing it up to 6.5%. This was the Central Bank’s 11th increase on the key interest rate in a row. The lowest this rate has been is 0.75% in the spring of 2021.

Interest rates have not been higher since 2009.

Biggest Residential Construction Boom Outside of the Capital Since Crash

architecture Gardabær buildings crane urban planning

There are more apartments under construction outside the capital area than there have been since 2008. Vísir reports that there are currently 2,672 apartments being built outside of Reykjavík, the largest share of which—1,100 units—are located in South Iceland.

These figures come via the latest economic outlook report published by Landsbankinn’s economic department. The report also states that based on figures from Statistics Iceland, it appears that apartment prices both in- and outside of the capital are developing in a similar way, although apartment prices outside of the capital are actually rising faster.

Sales have gone up and prices have risen

There’s been a great deal of demand for housing over the last few years and the economic outlook report says that post-pandemic, low interest rates and changing consumption habits have boosted demand considerably. Sales have gone up and prices have risen.

Since last July, the residential market price index has gone up 22% for single-family homes in the capital area, while multi-family units have gone up by 24%. But the index outside the capital over the last twelve months has gone up even more: 29%.

Taking a broader snapshot of housing price increases across the board: compared to pre-pandemic, in February 2020, the residential market price index has gone up between 45 – 47%, regardless of whether it’s single- or multi-family homes in question, within the capital, or outside of it.

Most new builds in South Iceland, fewest in the East, Northwest, and Westfjords

Construction outside the capital is split pretty evenly between multi-unit and single-family residences. So far this year, there’s been a 12% increase in the number of apartments under construction, as compared to an over 33% increase between the end of 2020 and the early months of 2021. Before that, between 2009 and 2016, very few new apartments entered the real estate market, although there were many under construction.

The greatest proportion of new residential builds outside the capital area are, as mentioned, in South Iceland. The housing stock in the region has gone up by 4% in the last year, amounting to almost 500 new apartments. In the first seven months of this year, the stock increased by 1.7%, or just over 200 new apartments.

The housing stock on the Suðurnes peninsula alone has gone up by 2.5% since the start of the year; in 2021, it went up by almost 2% in the course of the year. This is on par with the increase of housing stock throughout all of North Iceland combined, where 260 new apartments were completed last year.

There are currently 500 apartments under construction on Suðurnes and in West Iceland, around 350 in Northeast Iceland, and fewer than 100 in East Iceland, Northwest Iceland, and the Westfjords.

In Focus: Sale of State-Owned Banks

sale of state-owned Icelandic banks

For years, Iceland’s government considered selling 25-50% of Íslandsbanki bank, currently fully owned by the State Treasury. Reducing state ownership of financial institutions was a turnaround in Iceland’s financial policy that had been in development for years. With memories of the banking collapse still strong in the minds of the public, many were opposed to […]

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Government to Sell Share in Íslandsbanki

Prime Minister Katrín Jakobsdóttir says that proceeding with the sale of part of the government’s share of Íslandsbanki is “sensible” provided that the proceeds go towards investment in Icelandic infrastructure, Kjarninn reports. Doing so would free up governmental assets for use in much-needed projects. Discussions about the expected sale have already taken place within the ministerial committee on economic affairs, which Katrín sits on alongside Minister for Finance and Economic Affairs Bjarni Benediktsson and Minister for Education, Science, and Culture Lilja D. Alfreðsdóttir.

Katrín says that emphasis will be placed on making the sale open and transparent. The government will not be involved in the decision about who will be sold up to 25% of its share in the bank. The sale will take place via a listing on the Icelandic Stock Market. “It is important that this is fair for those who are interested,” she noted.

The Icelandic government currently owns all of Íslandbanki’s stocks, as well as the vast majority of Landsbankinn’s. The government has hoped a foreign bank would buy a share in Íslandsbanki, preferably one based in a Nordic country. Thus far, however, no such entity has expressed an interested in doing so.

Unlikely to get full price, but still worth it

The government’s current agreement states that Iceland’s financial system must be stable and serve Icelandic society in a cost-effective and fair manner. It also notes that “[t]he state’s ownership of financial institutions is the most extensive in Europe and the government wants to find ways of reducing this.”

A 2018 white paper outlining a “future vision for the financial system” of Iceland discussed in detail how the proceeds from the sale of shares in state-owned banks should be used. Conducting the sales via stock market listings is meant to restructure ownership of Íslandsbanki and Landsbankinn and ensure that well-distributed and stable ownership of these institutions will be a facet of the financial system in the future.

In an interview with Morgunblaðið on Wednesday, Minister for Finance and Economic Affairs Bjarni Benediktsson noted that given current market valuations, it is unlikely that the government would be able to obtain the full recorded price for the share, which is over ISK 170 billion [€1.2 billion; $1.35 billion]. “It is, nevertheless, right in my opinion that [the government] should give up ownership in stages and a 25% share in the bank is worth tens of billions of krónur,” he concluded. “We could then use that capital toward profitable investments in infrastructure.”

‘The economy is ready’

Bjarni published his views on the potential benefits of the proposed sale of up to 50% of the government’s share in Íslandsbanki in a special Independence Party publication on Thursday entitled “On the Right Track.”

“In recent years, there’s been a lot of talk about tariffs to fund public transportation improvements and that’s understandable,” he wrote, “because we need to speed up construction, but a more convenient way is to [sell] this valuable asset and limit tariffs in the future to larger construction projects on the level with [the tunnels] Sundabraut, Hvalfjarðargöng, and other tunnel construction. This is a good time to consider these kinds of efforts; the economy is ready for public construction.”

Bjarni has been a vocal and repeated advocate for the sale of the government’s shares in Íslandsbanki and Landsbankinn, although he does want the government to retain a minority share in the latter bank.

Bank CEO Salaries to be Reduced

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The salaries of the CEOs of both Landsbankinn and Íslandsbanki will be reduced in accordance with a formal request from the Minister for Finance and Economic Affairs, Kjarninn reports. The decision comes in the wake of considerable criticism from both sides of the political spectrum, with critics variously characterizing the salaries of Landsbankinn CEO Lilja Björk Einarsdóttir and Íslandsbanki CEO Birna Einarsdóttir as “excessive” and “tone deaf” in light of ongoing wage disputes for some of Iceland’s lowest-paid workers. Up until now, however, the CEOs’ salaries had been defended by the board of directors for both banks.

This decision was announced in a letter written by Lárus Blöndal, the Chairman of the Board of the Icelandic State Financial Investments office (ISFI), which “manages the state’s holdings in financial undertakings,” and ISFI director Jón Gunnar Gunnarsson.

As previously reported, Landsbankinn CEO Lilja Björk Einarsdóttir received significant pay raises twice in one year. She received her first raise of ISK 1.2 million [$10,045; €8,831] in July 2017, and then another increase of ISK 550,000 [$4,604; €4,047] in early 2018, making her total salary ISK 3.8 million [$31,809; €27,966] a month. Meanwhile, as of January 2017, Íslandsbanki CEO Birna Einarsdóttir was making ISK 4.2 million [$35,162; €30,912] a month, on top of which she also received ISK 200,000 [$1,674; €1,472] in perks and additional benefits.

RÚV reports that per the reductions, the board of Íslandsbanki decided to lower Birna Einarsdóttir’s salary, after which, the board of Landsbankinn decided to follow suit. As of April 1, Íslandsbanki’s Birna will receive ISK 3.65 million [$30,906; €27,338], before additional benefits and perks; ISK 3.85 million [$32,599; €28,836] after. Meanwhile, one of Lilja Björk’s pay raises will be reversed, bringing her monthly salary down to ISK 3.3 million [$27,942; €24,716], before additional perks and benefits; her final monthly salary, including benefits, will be ISK 3.5 million [$29,635; €26,214].

The Icelandic government owns 100% of Íslandsbanki and 98.2% of Landsbankinn.

Minister of Finance Calls for Immediate Review of Bank CEO Salaries

Bjarni Benediktsson

Minister of Finance and Economic Affairs Bjarni Benediktsson has requested an immediate review of CEO salaries at state-owned banks, Kjarninn reports. In a letter sent to the office of Icelandic State Financial Investments (BR) on Thursday, Bjarni stated that the decision of Landsbankinn and Íslandsbanki to raise their CEOs’ salaries “has already had a considerably negative impact on their reputations…as well as sending unacceptable messages” to those union members—specifically hotel cleaning staff—currently involved in ongoing wage disputes.

Bank CEO salaries have come under fire from many quarters after it was learned that Landsbankinn CEO Lilja Björk Einarsdóttir received significant pay raises twice in one year. She received her first raise of ISK 1.2 million [$10,045; €8,831] in July 2017, and then another increase of ISK 550,000 [$4,604; €4,047] in early 2018, making her total salary ISK 3.8 million [$31,809; €27,966] a month. Meanwhile, as of January 2017, Íslandsbanki CEO Birna Einarsdóttir was making ISK 4.2 million [$35,162; €30,912] a month, on top of which she also received ISK 200,000 [$1,674; €1,472] in perks and additional benefits.

In response, Már Guðmundsson, governor of the Central Bank of Iceland, warned against excessive pay raises in a recent video, saying they would inevitably lead to increased interest rates and unemployment in the country. The Confederation of Icelandic Enterprise (SA) also weighed in, with director Halldór Benjamín calling the Landsbankinn bank council’s decision to raise Lilja Björk’s pay twice in one year “tone deaf.”

In his letter to BR, Bjarni stated that this current state of affairs requires “…a prompt review of salary decisions and preparation for changes in current wage policies, which will be submitted at the upcoming general meeting of the banks.” The letter continues by saying that the banks have not respected the state’s requests as far back as January 2017 that restraint and prudence be exercised in respect to all salary decisions.

Both Landsbankinn and Íslandsbanki’s board of directors have responded on their salary decisions in recent weeks. In a letter published on their website, Landsbankinn’s board noted that the criticism they’d received was “understandable,” given that they are owned by the state, but that the decision to raise Lilja Björk’s salary twice was due to the fact that “it was clear that [her salary] was lower than that of the highest executives at other large financial institutions.” They asserted that their CEO salaries had been much lower than those of their counterparts for “many years,” and thus the recent wages were more about establishing wage parity. In its own letter, Íslandsbanki noted that Birna’s salary has decreased ISK 600,000 [$5,025; €4,414] since 2016, but commended her abilities as a CEO, calling her a “strong leader” and similarly stating that the bank’s wage policy requires that CEO salaries be competitive with those of other banks.

Bjarni stated that both banks’ interpretation of the standards for salary increases is “narrow and one-sided” and hasn’t been put into the necessary context. “Trust and confidence must be able to prevail between those who’ve been entrusted with the management of important corporations and those authorities who are responsible for their management as owners.”

This current letter is Bjarni’s second on the matter; he first sent a letter to the two banks about their salary decisions on February 12.

Salaries of Government CEOs Under Scrutiny

Bjarni Benediktsson

Bjarni Benediktsson, Minister of Finance and Economic Affairs, echoes statements made by other officials concerning the excessive pay raises of Lilja Björk Einarsdóttir, CEO of Landsbankinn, Kjarninn reports. “As far as I can tell, instructions made in early 2017 have not been heeded,” a disappointed Bjarni says.

The instructions Bjarni refers to were made by then Minister of Finance and Economic Affairs, Benedikt Jóhannesson, after it was decided in early 2017 to exempt government officials from decisions made by parliament’s salary council. At the time Benedikt urged all CEOs of government entities to show modesty in pay raises in the future. Instead, many have run amok.

Salaries of CEOs became a hot topic in Iceland this week after it was revealed that Lilja Björk Einarsdóttir, CEO of government owned bank Landsbankinn had managed to raise her monthly salary to 3.800.000 ISK, meaning that her pay increased by 82% in two years.

Lilja, however, is not the only one to have received a hefty pay raise. After being freed from parliament’s control, salaries of the head of The Icelandic National Broadcasting Service were raised by 16% to 1.8 million ISK a month, the salary of Isavia’s CEO were raised by 20% to 2.1 million ISK and the salary of the National Power Company of Iceland’s CEO were raised by 32% to 2.7 million ISK.

Bjarni Benediktsson says he has now sent a letter to all government CEOs, asking them to explain just exactly how they have followed Benedikt Jóhannesson’s instructions. He has said he will give everyone a chance to explain themselves, but does not exclude the possibility of parliament intervention in the future.

Pay Raises of State-Owned Bank’s CEO Draw Criticism

Halldór Benjamín

Halldór Benjamín, director of the Confederation of Icelandic Enterprise, SA, is highly critical of the Landsbankinn bank council’s decision to raise the pay of its chief executive officer Lilja Björk Einarsdóttir twice in one year, Fréttablaðið reports. He accuses the council of being tone-deaf.

The CEO of Landsbankinn bank, Lilja Björk Einarsdóttir, received a pay raise of 1.2 million ISK in July 2017 and then another increase of 550 thousand ISK in early 2018, making her total salary 3.800.000 ISK a month.

The pay raise is now being questioned by union leaders and the public, after Már Guðmundsson, governor of the Central Bank of Iceland, warned against excessive pay raises in a recent video, saying they would inevitably lead to increased interest rates and unemployment in the country. Már’s remarks have caused debate and now Lilja Björk’s pay raises are being questioned.

“The news of her pay raises are bad,” Halldór says. “The fact that this is happening in a state-owned bank, going against the will of its owner makes it both an unwise and indefensible decision, in my opinion. This rate of pay raise does in no way represent norms in the job market. Luckily, this kind of behaviour is an exception amongst the largest companies in Iceland. That, however, doesn’t lessen its seriousness or the lack of judgement that is revealed by this decision.”

Katrín Jakobsdóttir, Iceland’s Prime Minister has also chimed in, calling the the pay raises “incomprehensible”.

“This doesn’t affect the leeway of companies in the open market, of course,” Halldór adds. “Most companies in Iceland are small or medium sized, and the economy is now slowing down. The economic upswing is over, and pay agreements must take that into consideration. We at SA have in recent years recommended that pay raises of CEOs are in harmony with other raises.”

 

Three Banks Own Almost 800 of Iceland’s Most Important Artworks

Over 4,500 artworks are owned by Iceland’s three banks—Landsbankinn, Arion Bank, and Íslandsbanki, RÚV reports. The National Gallery of Iceland did an inventory of Icelandic artworks owned by banks in 2009, just after the financial crash, and determined that banks owned nearly 800 “national treasures” that should return to state ownership. Little has changed in regards to the ownership of these cultural artifacts in the intervening decade, however, and the matter is becoming more pressing as the Icelandic government’s option to buy works owned by Arion Bank, at least, will expire in two years.

Taking Inventory

Under the guidance of then-Minister of Culture (now Prime Minister) Katrín Jakobsdóttir, the Ministry of Culture commissioned the National Gallery to oversee an extensive survey of the cultural inventories of Íslandsbanki, Nýja Kaupþing (now Arion Bank), and NBI (now Landsbankinn) just after the economic collapse. Around the same time, there were extensive discussions as to what should be done with these collections, discussions that were even taken up in parliament. The National Gallery established three categories for artworks owned by the banks: works that are considered “national treasures” and should be returned to state ownership (category 1), works that the banks should continue to own but provide public access to (category 2), and works that banks should continue to own, but loan out at will, provided they have the approval of the National Gallery (category 3).

The categorized inventory was submitted to Katrín Jakobsdóttir in the winter of 2009. At the time, the banks collectively owned 4,286 works. Of these, 775 works were categorized as national treasures. Since the initial inventory, all three banks have acquired additional art—either through purchase or acquisitions in bank mergers—but sold very little. The banks have also made a few notable loans of artworks and also given a few artworks away.

Landsbankinn

In 2009, Landsbankinn (NBI) owned 1,953 artworks, 22 of which were protected by law. These protected works included frescoes by Jóhannes Kjarval and Jón Stefánsson, as well as mosaics by Nína Tryggvadóttir. Of the bank’s collection, 460 artworks by 90 artists were categorized as category 1 works, or national treasures. 235 by 85 artists were designated as category 2 works; 35 were designated category 3 works. As of today, the vast majority of these works, or 1,200 pieces, are in storage.

Arion Bank

At the same time, it was determined that Nyjá Kaupþing (now Arion Bank) owned 1,238 artworks. Of these, 195 works by 71 artists were designated category 1 pieces, 170 works by 59 artists category 2, and 29 category 3.

Today, Arion Bank employees seem to share a common love of art, and a few hundred of them pay a monthly fee to take part in a twice-annual drawing, the winners of which receive a work of art from the bank’s collection. Prior to the drawing, the bank displays the prize work for several weeks as a way of introducing employees to the artist. The bank continues to purchase art, with particular emphasis on new works by Icelandic artists.

Íslandsbanki

At the time of inventory, Íslandsbanki owned 1,095 works. Of these, 120 works by 50 artists were designed category 1, 57 works by 32 artists category 2, and 39 category 3. Today, the bank says it owns 668 artworks, 360 of which are paintings. The majority of these, or 440 works, are publicly displayed, while the remainder are in storage.

Time Running Out

Ten years ago, the Icelandic government made an agreement with Nýja Kaupþing in which it would have a twelve-year buying option on the artwork owned by the bank. This agreement, however, is set to expire in two years.