Íslandsbanki hf. (ISB) Q4 FY2025 Earnings Call Transcript & Summary

Good morning and welcome to Islandsbanki, it's Friday where we present the fourth quarter and full year '25 financial results. I'm Bjarney and I'm joined as ever by our CEO, Jon Guoni Omarsson; and CFO, Ellert Hlooversson. Before I hand the session over to them, I want to remind you that we will have a Q&A session following the presentation. [Operator Instructions] Now over to you, Jon Guoni.

Thank you Bjarney. As you can see behind me, we have a dark winter morning here in Iceland, temperatures around 12 below, which is a quite unusually cold here. At the same time, as always, during this time of year, the day is getting along quite quickly and actually by 6 minutes every day. So we'll see much more sunlight in the weeks and the months to come. The year 2025 was very good in the operations of Islandsbanki, both in the operations themselves and on the financial side as well. We move directly to the numbers we can see here that the ROE was 11.2% for the year as a whole and 10.5% in the last quarter. Last quarter, we saw a fairly big impact from very low inflation. The bank is quite subject to inflation and therefore, seeing some fluctuations between quarters. And Ellert will take you more through that a bit later on in the presentation. But overall, very strong earnings and well above our targets for the year. The cost income was also below our targets, and we're very happy to see that. And at the same time, obviously, capital levels continue to be extremely strong and develop of all capital requirements from the regulators. We are now setting new targets in terms of profitability, raising the targets from 10% to 13% in the medium term. For this year, we expect to be around 12% subject to, obviously, and based on assuming normal levels of impairments. We see a relatively modest outlook for the economy for the coming few months and quarters. Unemployment is moving upwards quite a bit here in Iceland. And the economy is cooling down, obviously, subject and supported, I would say, by quite a high interest rate environment. The housing market is cooling down as well, and we expect a quite modest growth of around 0% to 1% of GDP during the course of this year. Like I said, in this environment, we do expect to see around 12% return on equity this year and have the ambitious target to reach 13% in the medium term. We look at our business units. Personal Banking did very well, very strong growth in deposits of around 8%, but more modest of 4% in lending,obviously, impacted by the ruling in terms of the mortgages in the fall. And there also basically a slowdown in the housing market. But like I said, very strong increase in deposits. Business Banking, however, saw very good growth in loans of around 7%, supported partly by changes in legislation that were happening at the end of last year. and therefore, quite high demand for electric cars, especially in the last quarter of last year. A bit more modest growth there in terms of deposits, but extremely strong ROE in the business banking unit. Corporate investment banking did well also well, just over 12% return on equity and very strong growth across basically the fee generating units. A bit more on personal banking. There we have seen the cooperation with VIS, the insurance company, been going extremely well with around 10,000 referrals from the bank where we're obviously providing very good service to our customers, getting them good prices in insurance and customers being able to see their insurers in the banking app, and they're having a more holistic picture of the overall finances. We have been continuing to invest very strongly in our app, which we believe -- firmly believe that it's the best in Iceland. And we are seeing a pickup, obviously, for example, in the rating in the App Store and quite a few new enhanced services there and the plenty more to come on that front. We continue to have a very good mix of digital services and personal services, and we'll continue to do so going forward. Business Banking, like I said, had a particularly strong year both on the business side and also operationally. We continue to invest on the digital platforms there with a new online bank, which was opened up during the course of 2025 and the old bank will be fully scaled out during the course of this year. We also introduced new services in terms of expense management, really enabling our customers to use, for example, take pictures of receipts and moving those directly into the accounting systems, and therefore, obviously, relieving them of considerable work. So very good service for our customers. We are also now introducing acquiring services, which will be coming out now in the few -- next few weeks and months. So basically increasing our overall service offerings to our clients on the business side. In terms of CIB, a very strong year, especially in the -- on many fronts, actually, the fee generating units across the board are doing extremely well. We have the highest turnover in equity brokerage and the second highest one in debt brokerage. Our FX brokerage team continues to have an extremely strong market share and good performance. We saw good growth in assets under management of around 8%. And our corporate finance team had a very strong year, really picking up from the 2 years preceding that and a lot of strong projects that were finalized during the course of the year, generating good fee income for the bank and a very strong pipeline looking forward. We also saw good growth in our foreign loan book in CIB, where it grew from around 3% to 13% of the CIB book, and we continue to see opportunities for growth there going forward. AI is obviously in high fashion these days and for a very good reason. We started to invest on the AI front in 2020 with our internal -- the external chatbot, Frooi, which has been extremely successful. And is now at about 82% success store score and resolves about 55% of issues directly. The other 45% going for ongoing help from our team. And this will continue to improve, obviously, over the coming months. In 2022, we entered a partnership with a company called Mioeind to make sure that Icelandic will be well represented within AI tools and other digital tools. Extremely important, obviously, to being a small nation of roughly 400,000 people. It's not obvious that Icelandic will be high on the list in terms of languages. But fortunately, we have done very well there, and Icelandic is heavily used across these different tools. In 2023, Frooi, our chatbot got its voice for the first time. And in 2024, we started to use generative AI with the launch of SAM, which was our internal chatbot, where our employees could get access to the quality handbook and then some other information within the bank. And then we have made very good progress in 2025 with the rollout of Microsoft Copilot to all our staff and with heavy training to make sure that they start to use it in their daily operations. At the same time, we have been implementing machine learning tools both in terms of enhancing customer services to find out which customers to service on different levels. But at the same time, we have started to use that to make decisions for -- on customer lending, for example. To begin with now, we are using it by basically copying what our staff members had done in terms of decisions through machine learning. But the future will definitely be that we will use generative AI on that front as well. So Frooi has obviously generated AI already, and we will continue to invest on this front, and we are looking into now how quickly and in what scale we will do that. Islandsbanki is a force for good, and that is our role here in society. We organized the biggest or help organize the biggest charitable event here in Iceland, the Islandsbanki Reykjavik Marathon. We obviously support our customers and infrastructure building here in Iceland and namely from last year, a new bridge in the South Coast of Iceland. I also mentioned that we are -- in terms of education, we have a lot of meetings here throughout the year for our customers to educate, for example, fraud defenses and how to navigate the finances for people going into retirement. A lot of events on the stock market. So a lot of education here ongoing every month. We also have a helping hand program where our staff members go and help out in different parts of the community. Islandsbanki is also a force for good in terms of the entrepreneur environment in United we have the entrepreneur fund, which handed out grant of about ISK 60 million last year. And this is obviously something that is extremely helpful for many of these companies. You have heard many stories of companies that had started, but then basically in a vital point in their growth story, get this grant, which is really a push for many of these customers. And we are seeing, obviously, that Iceland is quite entrepreneurial and it will be a big driver for growth here going forward. A bit on sustainability. Maybe the biggest item there last year was a substantial growth in our sustainable assets mainly coming from a categorization of part of our mortgage book as sustainable loans. So we saw good growth there. And we expect to continue, obviously, on our sustainable financing and as you can see in the middle graph here, we have seen an increase there as well. So we will continue our efforts on the sustainability front. A bit on funding. We made, I would say, 2 quite remarkable milestones in last year in terms of funding on the international side. Firstly, we had a Tier 1 issuance in the Nordics at pricing or margins, more favorable to the bank as an issue than we have seen in the past, we could say, past 17 years. So a very strong milestone for us, and it's a big part of, obviously, our equity return story. Also during the year, we issued our longest senior unsecured paper, with a 7-year paper where we have now managed to extend our maturities quite substantially and have a very, I would say, comfortable and manageable maturity profile going forward and very good step to extend the maturity profile internationally. Our merger discussions with Skagi continue to go well. We obviously still see the opportunity in the merging of these 2 entities especially through insurance, where we see a big opportunity. And we have seen that, obviously, through the cooperation that we have with VIS opportunities in terms of cross-selling to our customers and enhancing services on both sides due diligence and the preparation for the competition matters and the notification to the competition authorities have been going well and have pretty much been finalized. Obviously, some well things haven't been finalized completely. There are some outstanding items but have more or less been finalized. Merger discussions are ongoing in terms of the merger agreement and those will then obviously be subject to approval by the Boards of both entities. 2025 was very eventful in terms of the capital markets and the biggest item of the year, obviously, was the government sell-down in May where Islandsbanki fully moved into the ownership of the general public and private investors. And we have been seeing quite a bit of movement in the stock over the past few months. On the bottom right, you can see that the liquidity in the stock, obviously, was greatly enhanced after the sale, where we have multiple, more liquidity during the past few months than we had the year before. And I can say that the Islandsbanki stock is now the most liquid in the stock exchange. We have seen a good movement, obviously, in the share price as well. In terms of the shareholder group, we have around 42% ownership by the local pension funds. And then we have private individuals owning about 28%, which is a mix of, obviously, the general public investors. So that's those 2 groups account for about 70%. Then we have foreign investors at around 15% and then the other 15% basically being professional investors here in Iceland. And we have obviously seen a bit of a mix where the general public bought the full stake from the government in May. So we have seen a bit of sell-down from the public and then into hands of private investors, professional investors, both domestic and international. In terms of capital distribution, as you can see here, we have had very strong distributions over the past 2 years as a part of our capital optimization plan. During the course of 2025, this amounted to just below ISK 27 billion. And if you look ahead, we are now proposing a dividend of ISK 12.6 billion and at the same time, asking -- we will be asking our Annual General Meeting to approve a ISK 15 billion buyback program. So if this takes place during the course of this year, which we expect to see. This will be then close to ISK 28 billion in terms of overall capital distributions during the course of the year. And like I said, this is obviously a part of our plan in terms of capital optimization and make sure that we continue to deliver strong, obviously, return and profitability for our shareholders going forward. Having said that, over to you, Ellert, in terms of the financials.

Thank you, Jon Guoni. Starting off with the economy, as Jon stated in his speech, the GDP is estimated to be somewhere between 0% and 1% over the course of this year. And we're seeing rather growth -- we're seeing growth rather weak in 2026, but expected to gain steam later on. Inflation has peaked off as we assume at the 5.2% level. And we're expecting it to come down below 5% for the measurement in this month, coming down to around 3.5% towards the end of the forecast period which, of course, translates into policy rates, which we expect to level off at around 5.5% towards 6% towards the end of the forecasting period. But focusing on Islandsbanki. We turned a profit of ISK 6.4 billion in the quarter if we look aside one-off items. Reported earnings are closer to ISK 5.9 billion. Reported return on equity for the fourth quarter is 10.5%, but closer to 11.5% adjusting for those one-off items, which I will take you through later on the presentation. Overall, a very strong quarter which is concluding a very strong year, where we are seeing return on equity at around 11.2% or closer to 11.5% adjusting for one-off items. Further, the quality of earnings is coming up as more portion of the earnings are coming from core items than in the previous year. But looking first at the interest income. We turned, I would say, an interest income of close to ISK 12.4 billion, a bit below the third quarter this year on the back of the fact that inflation was very low during the fourth quarter. For the fourth quarter, we turned 9 bps of inflation which we took through our books compared to a level of 14 bps in fourth quarter '24, coming down from around 100 bps in third quarter of '25. We expect the first quarter of '26 to be very strong in terms of inflation as we expect the inflationary takes to be accounted for to be close to 223 points compared to the, as I said before, 104 in the previous year. This leaves the interest rate margin at 2.9% for the quarter and 3.1% for the year as a whole. Overall 0.2 percentage points, up from previous year as effects of imbalances has continued to subside. In the fourth quarter, we reversed a provision we made in the third quarter regarding a Supreme Court ruling amounting to ISK 550 million, which is accounted for as interest income in the third quarter. Additionally, there were close to ISK 300 million put through the books as interest expense relating to previous years. Fees were very strong in the fourth quarter and the year as a whole. Growth in the fourth quarter was around 16%, while 7.4% for the year as a whole. Cards and payments remain the largest fee income showing very good growth in the fourth quarter on the back of market support from one of our vendors. Same goes for the investment banking revenues and asset management revenues, a very strong year for the investment bank and volumes on the capital markets picked up, which directly translate into these revenue streams. As before, market risk remains a very small part of the bank's operations, closing off at around ISK 3.2 billion for the listed equity exposure end of 2025. Net financial income was around ISK 400 million, mostly related to gain on bonds and economic hedges. There was considerable fair adjustment on properties through other operating income explaining the lion's share of the ISK 447 million gain in the fourth quarter, which translates into, I would say, revaluation of [indiscernible] which we own as an associated company. Turning our focus to cost. We turned a very strong cost-to-income ratio of 43.5% for the quarter and 42.4% for the year as a whole. The was considerable one-off cost of salaries in the fourth quarter amounted to ISK 804 million related to a dismantling of an early retirement scheme. The bank had previously been running an early retirement scheme where we offered our employees to retire a bit early, paying them salaries and saving salaries on the back of that, which was very suitable for the bank while we were in, I would say, in an FTE reduction phase. But as of now, we are more in the talent replacement phase, if you will. So the scheme has -- is not as favorable for the bank. So market participants can view this as an investment into yearly savings going down the line. Adjusted for this, salaries grew by 4.1% year-on-year. Other operating expenses increased by around 3.3% year-to-date for the year as a whole, mainly attributable to IT-related expenses. Focusing on the balance sheet. The balance sheet is relatively simple for the bank as it has been in the previous quarters. On the asset side, around 18% of the balance sheet are liquid assets and around 75% of the balance sheet are the loan books or loans to customers. Other assets remain very small on the balance sheet. On the liability side of things, 57% are related to deposits and 40% is other stable funding everything from equity to wholesale funding. The loan book grew by 5.5% in the year 2025 as a whole, there of 2.5% in the fourth quarter. Looking at the loan book on the top left-hand side, you will see that the lion's share of the growth in the fourth quarter is coming from the corporate investment banking related to international lending as we have stated as a strategic initiative in our previous earnings calls. The domestic demand has been more gradual throughout the year. The composition of the loan book remains similar to previous quarters around 43% mortgages and the rest reflecting the economy in a healthier way. As before, 94% or over 94% of the book is covered by collateral, and LTVs are moderate, closing off at 54% for the portfolio as a whole. Credit quality continues to be robust on the back of disciplined planting policies. Focusing on the mortgage portfolio towards the bottom left, the fourth quarter is impacted by the very low inflation showing little growth, especially on the CPI-linked side of the mortgage book. LTVs remain very strong for the mortgage book of around 50%, same as a year ago. As I said before, in the third quarter, we provisioned related to a Supreme Court ruling, ISK 550 million related to nominal -- variable nominal interest rates subject to the uncertainty we had at that point in time. However, as further rulings have come through in cases relating to other lenders, the bank has reassessed its position and is currently reversing this provision, taking ISK 550 million through interest income in the fourth quarter. As we view the possibility of our negative outcome I would say, less likely currently. Credit quality is strong and stable, consistent with historical quarters, bringing the attention first to the top right-hand side, where you can see that the NPLs closing off at 1.5% for the book as a whole, consistent with the previous quarters. For the mortgage book, on the graph below, you will find the NPLs same, around 1%, same as in historical quarters. However, we are starting to see more signs on the horizon with Stage 2, mainly, I would say, loans being put in internal supervision both related to the slow sale of residential housing -- new residential housing, which at some point in time, will start to impact the construction sector in a more meaningful manner. Impairments in the fourth quarter were around ISK 1.1 billion, thereof, ISK 1.1 billion allocated to a few distressed credit cases. Thereof, the lion's share comes from a single credit case coming into foreclosure. As of now, we do not see anything structurally within the loan book but are very mindful that we have been in a high interest rate environment, high inflationary environment for a prolonged period, and we are starting to see unemployment pick up a bit. As I said before, Islandsbanki Research, however, assumes that the economy will reach an equilibrium over the course of this year. Focusing on the liability side of things, 51% of the balance sheet is deposits from retail customers, additional 6% from financial institutions and pension funds. We have seen deposit growth moderating with a lower rate environment as deposit growth grew by 4.6% for the book as a whole in 2025. However, 7.9% for retail deposits. There was a slight decline in deposits on the fourth quarter, mainly attributable to strategic reduction in wholesale deposits within the treasury. This deposit, however, this deposit base, however, provides us with very strong liquidity position, closing LCR at 203% for the across the board and within ISK of around 10%. this is paving the way for additional growth and distributions. As I said before, liquid assets remain around 18% of the total balance sheet and are fully mark-to-market as in previous quarters. Coming into 2025, the bank was in an NBS position of having a very low maturity profile for the previous year. However, markets were very constructive in the previous year, and the bank issued to ISK 300 million senior preferred in the Euro space. first one in March, 4 or 5.5 years and the second one towards the end of the year, a 7-year tenure, the longest one issued by the bank since -- over the last 20 years or so. Towards the end of the year, the bank also took advantage of the constructive market conditions and issued an AT1, fully allocating the AT1 bucket with a very successful issuance, both in Swedish kronas and Norwegian kroners. For the year 2026, the maturity profile is also light, as you can see on the top right-hand side, allowing the bank to be adaptive to market conditions as they may be. We are coming up for a call date on our previous AT1 issuance this September, and we expect that to be called. Refinancing will be subject to the bank's capital position and market position around the call date. CRR 3 had a significant positive effect on the risk weights within the bank. We had previously guided towards a reduction in REA of around 6% to 7%, and but closed off closer to 8% or with a 7.8 percentage reduction of ISK 88 billion for the risk base as a whole. This is mainly due to mortgages, as you can see on the bottom right-hand side, all the real estate closing or closed acted, but then an adverse effect related to land and construction development loans towards the right-hand side of the graph. This had considerable positive effect on capital ratios, boosting CET ratio by 1.6 percentage points, and the total capital ratio by around 1.9 percentage points in line with our guidance throughout the last year. Lastly, on capital. We closed off at 20.1% CET1 ratio and 24% total capital ratio compared to an optimal target of 17% and 21.1%, respectively. Leverage remains very high, closing off at 12.5% towards the end of the year. As of now, we have around ISK 36 billion, as of the reporting date. The excess capital, measured down to the midpoint of the management buffer was around ISK 36 billion but until today, beginning of 2026, ISK 4 billion have been allocated and repurchased, bringing the excess capital position down to a level of around ISK 32 billion. The bank remains committed to its efforts to optimize capital structure, both through growth as well as distributions and got this January, a ISK 15 billion allocation from our authorization from the FSA for further buybacks, which have been deducted from the capital base in Q1 2026. So summing up, we are proud to announce our updated financial targets of ROE exceeding 13% in the medium term. The performance in 2025 was strong ROE of 11.2% for the year as a whole. For the fourth quarter, net interest income was up by 14% and fee income up by 16%. And we see ample opportunities ahead with ample capital reserves and capital optimization still at the forefront. And with that, we turn the floor to Q&A.

Yes. As Ellert said, we will now open up for a Q&A session. [Operator Instructions] So my question is, are there any questions on the line?

There are no questions at the telco at this time. So I suggest you take the written questions.

Yes. We'll do so. We have a few of them. [ Akkur ] has submitted 5 questions, and I'll start off by reading the first 3, and then we'll go to the last 2. So the first one, net fee and commission income of ISK 4.2 billion was exceptionally strong across all 3 lines. Is a quarterly run rate of ISK 4 billion or above sustainable? Or should we expect a normalization back towards the ISK 3.0 billion to ISK 3.5 billion seen in earlier quarters? And the next question, cards and payment services fees and personal banking fees, both saw a significant increase quarter-on-quarter and year-on-year. Is this driven by volume, pricing changes or new product uptake? And how much of this step-up should we treat as a new baseline versus seasonal fourth quarter strength? And the last for now, the net impairments increased significantly in the fourth quarter attributed to a few distressed credit cases. Are these cases now fully provisioned? Or is there residual exposure that could result in further charges in coming quarters? Can you quantify the total exposures to these cases?

So starting off first with the net fee and commission income questions. We're seeing a very strong quarter across the board in the fourth quarter. Obviously, volumes on the capital markets were strong in the fourth quarter, and that positively impacted, I would say, fee income from the investment banking side as well as from asset management. Corporate Finance, we had a very strong quarter in the fourth quarter. As we know, transactions in the corporate finance world, they tend to be rather larger in size and can be lumpy. So that kind of -- that doesn't, I would say, even out entirely over the year. For the cards impairments, it's a mixture of volumes. It's a mixture of seasonality and a mixture of market-related income from one of our vendors. However, we note that the fourth quarter is usually stronger with the card income than the other quarters as we have seen throughout the last quarters also. For the impairments, we are impairing this ISK 1.1 billion related to a few distressed cases and they are, let's call them a handful where the lion's share is coming from a single credit case coming into foreclosure. I cannot say that they are fully impaired, but I will say that they are impaired in line with what we perceive as I would say, what we perceive as suitable for each and every case. So we have not fully written off the entire debt, but we have provisioned in accordance with what we perceive suitable for the cases as they may be.

Yes. I'll continue. The new financial targets were announced alongside these results. To what extent did the incoming Board shape these targets versus inheriting them from the outgoing board specifically on the ROE and capital return targets reflective of the new Board strategic priorities? And then the last from Akkur, if the terms of the Skagi merger were to be renegotiated, at what state in the current process would those discussions take place? Separately, when do you expect the due diligence and synergy assessments to be completed?

Okay. Thank you very much. Starting with the ROE targets. We noted that, obviously, in our Q3 results that we had plans to update our targets and would do so along with the fourth quarter earnings. So this has been a continuous process with the discussion starting with, you could say, the old Board, and then being finalized and approved by the new Board in a very good process. And obviously, we now introduced them in this earnings call. In terms of Skagi, those discussions are taking place now in terms of the merger agreement. And that's something that we will be working on in the coming few days and weeks. And when and if, obviously, we reached an agreement on that front, that will be subject to the approval by Boards of both the entities, and then we would move into the formal process with the authorities, both on the competition side and with the financial regulator.

Yes. And we're not done. I have a few more questions submitted to the webcast form. So also gives congrats on eventful year. And yes, on the fees and commission income, is it fair to assume the higher performance-based fees from Mastercard will be recurring or a one-off? Are there options being discussed to increase the FCI from the business banking segment other than acquiring services? Could you share some light into the ISK 330 million correction from the previous years that noted in the cost-to-income ratio for the fourth quarter? And finally, what geographical region are you focusing the foreign lending on?

Yes. So I'll start with the -- in terms of geography, and I then hand over to Ellert. On the geography side, in terms of the internal growth in terms of our lending book, the focus is on, you could say, Northern Europe, along with the U.K. and the Nordics, and it's in infrastructure. And then in the other kinds of lending on the leveraged loan side, and like I said, we've been seeing very good growth there with high quality lending and continue to see opportunities there. As we have noted before, on the infrastructure side, it's both in terms of diversifying our book. and also gaining new experience and connections on that front, as we have seen, we'll be seeing a lot of opportunities on the infrastructure front here in Iceland. And over to you, Ellert.

Thank you. For the card -- I would say, for the fees related to the card income, I would say that it's a mixture of volumes. It's a mixture also of I would say, reimbursement to sort of costs. There has been a lot of development in the card space within the bank, and we are, for example, in the process of making some infrastructure changes on that end which are being supported by the vendor. We are seeing quite a lot of competition in the space. So we are, I would say, making adjustments to our core infrastructure system, making adjustments to our offerings to better meet those needs. But it certainly can be said that some of the income relates to costs, the bank is, I would say, having related to this replacement in the fourth quarter and for the year as a whole. For the business banking side of things, although the business banking is, I would say, close to our expectations, there is some mixture changes within the business banking. For example, within [ Ergo, ] the asset leasing lending growth has been very strong, and we have seen quite a lot of, I would say, fees related to loan origination on that end, offset to some degree by the changes in [ SAPA ] legislation where we have seen, I would say, some pressure, especially on payment-related fee income. We are constantly striving to increase our net fee and commission income across the space, both from the lending activities as well as from other stems and that goes to the business banking activities as well, both by acquiring and adding new service such as acquiring, but also just from current revenue streams. The ISK 313 million within the interest income relates to, I would say, incorrect handling of interest expense related to the bank's wholesale issuances, goes to, I would say, distribution through effective interest rates, which was corrected in the fourth quarter and expense as that came into light.

Yes. And we're not done. I'll combine to a question from separate parties to one. So the first is, does the upgrade of medium-term financial targets include any synergies from the Skagi merger? And then there is a question for some clarification on the ISK 15 billion buyback authorization. So is the ISK 15 million buyback authorization subject to AGM renewal of the authorization and how soon could you initiate a new buyback plan?

Very good. First, in terms of the buyback plan, yes, certainly, that's subject to the approval from the AGM and then we could then start the buybacks directly following that meeting and have plans to counteract that throughout the course of this year. In terms of our financial targets, they are not impacted by the Skagi discussions. So those will remain firmly in place with or without that merger.

And I think the final questions, there's a couple of them. As to cost of risk, could you please elaborate on the ISK 1.1 billion impairment you registered in the fourth quarter? How big is the provision on that one case of foreclosure, what sector are we talking? And how big is your exposure to that sector overall? And have you noticed any other files struggling? Also how big is your exposure to construction that might be under pressure going further? How should we think of cost of risk in 2026? Second question on costs regarding early retirement scheme. How many FTEs are affected, and you mentioned you are in a replacement phase. How many new FTEs are you looking to add in '26, '27 and in which areas? And third, on funding plans for 2026 in the wholesale market, particularly euros. There is no upcoming maturity in 2026 in senior preferred, but would you consider building your curve further in 2026 or happy with the latest 7-year issuance? Would you consider your in other parts of the capital stack like senior nonpreferred or T2? And the final question on Skagi. Could you please tell us how confident are you that the merger will happen and estimated CET1 impact of the transaction? And what do you intend to do with the capital should merger not proceed?

Okay. A lot of questions there. Starting with Skagi. It's -- I'm not going to put any percentage on that front. Those discussions are going on now, and we'll see in the coming days a week, whether those will proceed or not. Obviously, with the merger, we would issue shares, which would further enhance our over capitalization by amount of around ISK 6 billion to ISK 8 billion. But without the merger, obviously, we continue to remain very well capitalized and will continue our optimization plans there. In terms of the construction loans, I think we can say, I mean, we have obviously, quite a bit of exposure to that sector here in Iceland. At the same time, we have our LTVs at quite appropriate levels. In many cases, we are seeing new buildings being sold at around ISK 900,000 to ISK 1.1 million per square meter while the loans -- the underlying loans from the bank are maybe levels at ISK 600,000 to ISK 700,000. So we have quite a bit of a buffer. But at the same time, obviously, it's -- there has been a considerable slowdown in the market. And we are hoping that will pick up sooner rather than later. Maybe move on to you, Ellert.

Yes. If I can add maybe to the construction side, obviously, we are, I would say, we do not view this as a structural issue at this point in time. But we do note that if the market remains slow for a prolonged period, that may impact our credit quality at some point in time. With the cost of risk, this ISK 1.1 billion, the lion's share of that relates to this foreclosure item. I will say that the impact that corporation is in the industry sector. So there is nothing structural within the industry sector as a whole, which is, I would say, notable at this point in time. It's difficult to assess, I would say, and you can see in the composition of the loan book, how we classify it. But the industry sector is very widespread and difficulties for a certain borrower, it certainly does not transpire for the sector as a whole as the way we see it. I mean we have guided towards 20 to 25 bps of cost of risk throughout the cycle. We have been clear for the last few quarters or the last I'd say, the last few years even that the cost of risk has been, I would say, unusually low and even unusually low, given the prolonged period of high inflation and high interest rates. We're seeing cost of risk at around 32 bps in the fourth quarter on an annualized basis. The guidance remains the same, given the current composition of loan book, we will be around 20 to 25 bps throughout the cycle. But as always, it can come in some lumps. For the FTE reduction, we are going to see FTE reductions over the course of this year. And this, I would say, dismantling of this early retirement scheme is, I would say, is a part of that reduction plan. What I was referring to with, I would say, replacement scheme is that it does not entirely translate into reductions at this point in time. Thus, I would say that's dismantling the scheme, but we are going to see some reductions over the course of this year.

Yes. Maybe a bit on the funding plans?

Sorry, for funding plans. I mean it's clear that we are seeing -- the bank is well funded. There are no maturities to be refinanced over the course of this year or limited. We have seen the core. We're starting to place ourselves a bit further out the curve. First with a 5.5-year tenure and then a 7-year tenure. We will remain adaptive if markets are favorable, and we see opportunities to lock in funding for a long period, we may jump on those opportunities, but there is nothing pressing as of now for the composition of the capital stack and the senior nonpreferred, I would say the subordination requirement comes into effect towards the end of 2027. We are -- I would say, we are well funded at least until then. So I would find it unlikely that we'll issue something this year in the nonpreferred space.

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