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Iceland's big banks face headwinds amid competition, weak economy

Iceland's major banks Arion banki hf., Íslandsbanki hf., Landsbankinn hf. and Íbúðalánasjóður are struggling to retain profitability amid weak economic growth and stiff competition from pension funds, data from S&P Global Market Intelligence shows.

Arion banki, Íslandsbanki and Landsbankinn all reported a sharp fall in full-year net income between 2015 and 2018, with Íbúðalánasjóður swinging to a loss last year.

Iceland's major banks defaulted in 2008 during the global financial crisis, and the country imposed capital controls that remained in place for more than eight years. The banks that rose from the ashes are now more resilient, with the shocks from the crisis absorbed, low nonperforming assets, stabilizing private sector debt and successful release of capital controls, S&P Global Ratings wrote July 23.

But Ratings, which revised its outlook on the banks to negative from stable, suggested foreign investor confidence may be impacted by a more turbulent economic outlook and noted that banks are facing tough competition from pension funds in the mortgage market. Pension funds' share of outstanding stock of household mortgages increased to 26% in 2018 from 13% in 2015.

As of July 31, US$1 was equivalent to 121.11 Icelandic kronur.

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