Core profit slightly better than we expected - Q3 initial take

Q3 core profit was slightly better than we anticipated, helped by both revenues and loan losses. The surprisingly strong CET1 ratio and tightened buffer target set the stage for a high pace of capital distributions, which we view as a core part of the equity case.

Core profit (our definition) 2% better than our estimate, excluding bank levies. Reported net profit though was 17% above our estimate and in line with company-complied consensus. The deviation vs our estimate is driven by the fact that we had pencilled in that the proposed higher Icelandic bank tax would lead to a retroactive Q3 provision covering all of FY2026. It seems this will instead come in Q4 (does not affect the bank tax outlook from 2027 onwards).

Core income 1% better than we expected: 1) a 2% beat on net interest income, as the net interest margin on corporate loans was a slightly higher than we expected and 2) a surprisingly high insurance service result, seemingly due to fewer claims. Like in Q2, net interest income on retail loans is boosted by a high Q3 inflation print. Costs were 1% above our estimate after adjusting for a ISK280m FSA settlement announced yesterday. The 28bps loan loss ratio was better than our 33bps. 12-month forward loan-loss-ratio guidance is 32bps (33bps in Q2), above long-term guidance of 20–25bps. The 18.1% CET1 ratio was much stronger than our 17.2%.

CET1 buffer target lowered from 150–250bps to 100–250bps, with near-term guidance around 175bps. The tighter capital buffer vs our estimated 200–230bps suggests additional capital distributions of c2% of market cap (all else equal).

Little news on the Blikastadir land sale. Bids still at ISK14bn–16bn vs booked assets of ISK7.6bn. Our estimates include a ISK3bn profit upon sale.

We expect positive low single-digit revisions to consensus 2027–28e EPS on the surprisingly strong capital position and expect the stock to trade up by a similar amount.