Clear and effective decision-making authority, controlled risk-taking and monitoring by the Board of Directors, CEO and dedicated committees form the cornerstone of risk management within Landsbankinn.
Risks in the Bank's operation are evaluated using several metrics based on the nature of each risk factor. These metrics are used to determine risk limits, analyse risk factors and changes to them, communicate information and manage risk. Economic capital represents the combined evaluation of all risk factors.
The Bank's internal assessment of capital adequacy weighted by credit risk (loans and claims on customers and financial undertakings) increased by 11% in 2017. Significant growth of the credit portfolio is the main reason behind this increase with the rising quality of the portfolio tempering the effect. The effect of other risk factors on capital requirement diminished in general in 2017.
Despite that, the growth of the credit portfolio causes figures at year-end 2017 to be similar to those of the previous year. The risk exposure amount (REA) also increased yet the improved quality of the credit portfolio and collateral led to the ratio of capital requirements to REA being 10.8% at the end of 2017 as compared with 11.8% at year-end 2016
Landsbankinn's aggregate market risk is moderate and well within limits set by the Bank's risk appetite. The Bank's liquidity position is strong and well in excess of Central Bank requirements, with the Bank's aggregate liquidity coverage ratio (LCR) being 157% at year-end 2017 and 931% in foreign currency.
Work has been under way in recent years to take new deposit and payment systems, managed by the Icelandic Banks' Data Centre, into use. The new systems were finally fully implemented towards the end of 2017. This is the largest software project Landsbankinn has participated in. Undertakings on this scale inevitably impact users and the Bank has emphasised limiting the inconvenience to customers.
|Average probability of default|
|Loss given default|
|Interest rate and indexation risk in the banking book|
|Liquidity risk||Aggregate LCR -total|
|Aggregat LCR - FX|
|Operational risk||Operational scope - Real changes to REA base|
|Funding risk||Net stable funding ratio|
|Economic capital targets|