Islandsbanki hf reported a strong financial performance for the first quarter of 2025, with a profit of €5.2 billion. The bank’s return on equity was slightly below its target at 9.4%, while its adjusted return on equity was close to 11%. The net interest margin improved to 3.2%, up from 3% in the same quarter last year. The stock price increased by 1.82%, closing at 112, reflecting investor confidence in the bank’s strategic initiatives and financial health. According to InvestingPro analysis, the bank currently trades at a P/E ratio of 8.77, suggesting potential value for investors, with a market capitalization of $1.6 billion.
Key Takeaways
- Profit for Q1 2025 was €5.2 billion.
- Return on equity was 9.4%, below the 10% target.
- Net interest margin improved to 3.2%.
- Stock price rose by 1.82% after the earnings announcement.
Company Performance
Islandsbanki’s performance in Q1 2025 was marked by solid profit growth and an improved net interest margin, reflecting effective management of interest rates and cost efficiencies. The bank continues to lead in brokerage market share and has shown strong business banking performance with an 18% return on equity.
Financial Highlights
- Profit: €5.2 billion
- Return on Equity: 9.4%
- Adjusted Return on Equity: Close to 11%
- Net Interest Margin: 3.2%
- Cost to Income Ratio: 47.6%
- Net Fee and Commission Income: Increased by 1.9% (5.2% when adjusted)
Outlook & Guidance
Islandsbanki reaffirmed its guidance for a 10% return on equity for the full year. The bank is targeting a cost-to-income ratio below 45% and a dividend payout ratio of 50%. It plans a $15 billion share buyback and aims for a 5-10% loan book expansion outside Iceland.
Executive Commentary
Jan Kundni, CEO, remarked, "The Icelandic economy continues to be quite robust," highlighting the bank’s confidence in the domestic market. He also stated, "We remain open for potential external growth," indicating potential future acquisitions or expansions.
Risks and Challenges
- Inflation in Iceland is expected to be around 4% for the year, which could impact consumer spending.
- Central Bank interest rate changes could affect the bank’s net interest margin.
- Expanding the loan book outside Iceland poses potential risks of market unfamiliarity and regulatory challenges.
Q&A
During the earnings call, analysts inquired about inorganic growth opportunities, to which the bank confirmed its openness to potential acquisitions. Questions were also raised about the expected issuance of AT1 and Tier 2 capital, and the bank detailed its international lending strategy, emphasizing its cautious approach to expanding its loan book outside Iceland.
Full transcript - Islandsbanki hf (ISB) Q1 2025:
Bjartne Anna, Investor Relations, Istansbanken: Good morning all and welcome to Istansbanken. This Friday, we will present the results for our first quarter twenty twenty five. I’m Bjartne Anna with Investor Relations and I’m joined today by Jan Kundni, Omason, our CEO and our CFO, Alert Kladderson. Before I hand the session over to them, I want to remind you that as per usual, we will have a Q and A session following the presentation. You can participate in the session via the conference call dial ins and press hash key 5 and the operator will give you the floor.
You can also submit questions in writing using the webcast form or send us an e mail through irastransmonke. Is. With that being said, I hand the floor over to you, Jung Kune.
Jan Kundni, CEO, Istansbanken: Thank you, Garde, and thank you all for joining this call on this morning. Iceland, the Iceland economy continues to be quite robust and we were quite happy with our underlying core operations in the first quarter of the year where we saw the core operating income of net interest and fees grow almost 6% in the quarter. At the same time, we were affected by the turmoil in the capital markets where we saw extremely weak net financial income having the impact that the overall return on equity was 9.4%, obviously slightly below our target of 10%. What happened here to the screen? Yes, it comes back.
Sorry. Yes. So the overall return on equity is slightly below our target of 10%. But like I said, we are very happy with our underlying core operations and good growth in the revenue generation. The capital remains extremely strong.
We saw a bit of a drop in the first quarter that was due to the $15,000,000,000 that we have set aside for buybacks in the coming few months. But apart from that obviously we remain with our capital well above our targets. Asset quality also remained very strong. And as I said the Icelandic economy is on a good track. And for example we are not seeing any direct impact from the tariffs and the international impact of that.
So the asset quality has remained very strong across the board. We have confirmed our guidance for above 10% return on equity for the year as a whole. So in spite of the impact from capital markets and net financial income in the first quarter, we are still confident that we will reach the 10% target for the year as a whole. And also to have the costincome ratio below the 45% target. We remain obviously with our dividend payout ratio target of 50%.
And as I mentioned, we have set aside $15,000,000,000 for proposed buybacks in the coming months. In terms of the economy, are expecting to see growth this year. On the top right, you can see a bit in terms of our exports. And on the far right, you can see that obviously the biggest export partner is the Eurozone, but then The U. S.
With about 17%. To the left of that as you can see there in terms of our exports to The U. S, the bulk comes from seafood and then pharmaceuticals and medical equipment. The proposed tariffs of 10% obviously can have some impact, but those are the tariff level is a bit lower than we have seen in most of our neighboring and competing countries. And in general the balance of trade with The U.
S. Is quite level. So from what we have seen, we are seeing quite a limited direct impact here on our customers. But obviously we can expect to see some impact in terms of growth globally and possibly imported inflation. Talking about inflation, the inflation in Iceland has been a bit more sticky than we expected and our Chief Economist is now expecting to see inflation over this year slightly below 4%.
In terms of the interest rate levels, we are now at 70.75% from the Central Bank and we are expecting to see that coming down quarter by quarter and ending up around 6.5% at the end of the year. So like I said overall we are seeing a fairly good investment level quite good activity across the board in terms of new lending. So we are quite optimistic in terms of the economy here in general. As I mentioned apart from the market turmoil which impacted our net financial income, our core business units did very well in the quarter. You can see here at the top that all units were well above our 10% target in terms of return on equity with Business Banking having the highest of close to 18% in the first quarter.
If we look at new lending, we saw the most growth in Business Banking actually around 3% growth in lending and a very good and robust appetite you could say across the board. In deposits, we saw good growth in personal banking from individuals where we saw about 1% growth for the quarter which continues then basically a very robust growth from last year even though at a bit slower pace. Overall very good activity across all the business units. And for example in Corporate and Investment Banking, we maintain the highest market share in brokerage and are seeing now more activity in Corporate Finance as well. We continue to invest quite heavily on the digital front.
And in the first quarter we are actually extremely happy to both launch a new Internet bank and also very quite a few big changes to our app. And I firmly believe that we have now the best app in the banking market here in Iceland. The Internet Bank is basically launched on a new technology. We are replacing legacy technology. So we are now in a very good shape on that front.
It’s a so called soft launch basically where we use this year to add features to the new bank and move our customers which still have access to our old Internet bank. And so far this has proven to be very successful. Like I said, we have the app now we have made great progress on our app which is in extremely good shape now. And we are now putting more emphasis on financial health of our customers for example enabling them to rename accounts pay into or track for example the mortgages in the app and quite a few more features on that front. And plenty more to come on that in terms of the app development over the coming few months.
We at the January, we noted that we had come to an agreement with insurance company Wiese to cooperate in terms of insurance. And we had extremely, you could say, demanding time line and we wanted to have this up and running on the May 5. And I can almost say that to our surprise we did exactly that. So earlier this week we launched the cooperation. Our customers can now see insurance in the app and we are already creating leads on both sides.
And I can say that actually the amount of leads far exceeds what we expected in the first few days of the cooperation. So we’re off to a very good start on that front. Like I mentioned, Business Banking, we have seen very good growth in the loan portfolio there. And on the far right here you can see some examples of new lending. And like I said, this is quite widespread across the board and we are seeing like I said very distributed and across the entities basically in terms of business banking lending to SMEs.
And could almost say a bit surprising given the high interest environment that we are seeing such a good growth on the lending side there. Also note on the left side here that we’re now leading both on the equity side and the debt side the financing for Samheri, Samhongarden. As you’ve heard before there are quite a few projects now ongoing in Iceland about land based salmon farming and that’s something that’s going to be a big part of the growth here the economic growth in Iceland in the years ahead. And we are extremely happy to lead the financing for Samhari on this front. On the debt side, we have both domestic and international banks participating and the same on the equity side where we have seen oversubscription and a great interest on taking part in this extremely exciting project.
When this will be fully operational this facility will produce about 30,000 tonnes of salmon is quite interesting to compare to the overall cod quota in Iceland which is around 100,000 tons. So this obviously will give a good boost to the economy and obviously hopefully also to investors that have taken part in this extremely exciting project. In the first quarter, we issued our inaugural green senior preferred issuance. And we actually issued a longer dated instrument than we had done in the past two years at 5.5 extending a bit the maturity of our borrowings. Having done this now actually we have now finalized most of our borrowing needs throughout this year and we are extremely happy to see the interest from international investors where we saw a very slight new issue premium of only 5 basis points and 3.3 times oversubscription.
So very strong issuance there in the first quarter. Now looking at our shareholder base. As you note here, the Icelandic government is still a majority shareholder with about 45% stake. But yesterday, Congress here in Iceland approved legislation enabling basically the Minister of Finance to make the next steps in terms of the sell down. And in the government budget they have stated their plans to sell about half of the stake this year and half of the stake next year.
And having this bill now being passed through parliament and preparations have been made here on our side to enable this and the government has spoken quite openly that they plan to have a fully fledged offering with the prospectus and open to both the general public and obviously to professional investors at the same time. So we are extremely excited to take part in this process and do our part to obviously present the bank to investors and hopefully seeing new investors coming into our investor base. So exciting times ahead on this front.
Alert Kladderson, CFO, Istansbanken: Now over to you, Elest, on the financials. Thank you, Gunnar. The bank turned a profit of €5,200,000,000 in the quarter assuming a 9.4% return on equity. Taking a look at the composition of income, net interest income was showing healthy signs of growth as well as net fee and commission income, but that was offset by financial expenses as Jornkuni explained, partly due to the capital market development. The composition of income also turned down a high effective tax rate.
Should we adjust the return on equity for the effects of capital markets, the adjusted return on equity would be close to 11% just to give investors some feeling on the effect there too. But focusing on interest. The bank turned a 3.2% net interest margin in the quarter compared to 3% in the same quarter last year and a 2.9% over the year 2024 as a whole. This is due to subsiding imbalances, strategic pricing on both assets and deposits as well as repayment of our quite wide issued quite widely spread euro issuances done in 2023, which was paid back throughout 2024. During the quarter, the bank accounted for 1.04% of inflationary tick and assumes to account for 1.5% in inflationary tick in the second quarter.
As before, we guide towards fluctuations month on month while the economy stabilizes in line with the seasonality of inflation, although we note that the CPI imbalance has started to come down in line with our projections. Turning over to fees. Cards and payments remain the largest segment of our fee income. Here we see growth year on year. In terms of capital markets, after a strong start beginning of the year, markets started to show volatility in, I would say, mid Q1, which continued throughout the quarter affecting both Investment Banking revenues as well as Asset Management revenues.
We expect this to normalize and lower rate environment to boost both capital markets as well as lending activity as the year progresses. Net fee and commission year on year increased by 1.9%. However, as we have stated, there was some euro issuances euro issuance this quarter, which fell in Q2 last year. Fees related to that were therefore accounted for during this quarter while be in Q2 in 2024. Adjusting for that, net fee and commission income reflecting underlying operation grew by 5.2% year on year.
The bank turned a loss of close to $1,000,000,000 on net financial income due to pressure in capital markets. This relates both to market making operations, losses related to economic hedges as well as the group own market positions. Nevertheless, the equity risk on our balance sheet remains small, closing off from the listed side at 6.3% end of the quarter compared to an overall balance sheet size of over 1,600,000,000,000 However, we turned a profit of around €500,000,000 for other operating income, mainly related to revaluation of a non core asset at Kirchhysandre Twer, a plot formerly residing our old headquarters. There progress has been made and the bank assumes that steps will be taken in further development and or sale of the asset as time passes. In terms of efficiencies, the cost to income ratio closed off at 47.6%.
Adjusted for the effect of net financial income, the cost to income ratio would have been 44.8% within our financial targets. Salaries grew by 7.7% between years, but we are starting to see headcount coming down from previous year by a number of five FTEs. Other operating expenses decreased by 1.2% between years. We remain committed to our financial targets of being below 45 cost to income ratio for the year as a whole as we have been before. And turning the focus to the balance sheet.
The loan portfolio closed off relatively flat compared to the previous quarter at around SEK1300 billion, reflecting a 0.3% growth quarter on quarter. As before, the composition is largely unchanged, 44% mortgages and the rest reflect quite healthy the Icelandic economy. The loan portfolio continues to be skewed towards the lower risk classes as shown on the bottom right hand side, over 93% covered by collateral and LTVs coming down to a position of an average LTV of 53%. This of course translates into impairments. Impairments were zero this year or close to zero, reflecting a zero percentage point cost of risk.
Asset quality measured in Stage three is strong between quarters closing off at 1.8, while Stage three remains largely flat. Overall, we can state that there are no structural issues within any sector, sizes or geographical concentration in the book as can be seen by the drop in or a static decline rather in loans with forbearance. The same goes for the mortgage book and turning the focus to the bottom right hand side where asset quality Stage three loans closed off at 1% comparable to the I would say to the previous quarter. So asset quality remains well there. Average LTV for the book is at 54%, which is going to be a favorable I would say favorable position with the implementation of CRR III, it is expected to come into play mid this year.
Fixed rate imbalance as indicated on the top right hand side continues to run off in line with projections. This also contributes to our net interest income as this imbalance continues to run off. For the commercial real estate portfolio, that continues to be diversified and of good quality. Addressing first the increase in Stage three on the bottom left hand side, As we discussed in the last earnings call, the growth between Q3 and Q4 ’twenty four relates to a single exposure being moved to Stage three, a technical CRE, a traditional propco versus opco structure, in I would say not in that sense a traditional CRE. Further growth mainly relates to the reduction of the overall balance.
Growth in stage two relates to a single borrower and dispute between that borrower and the municipality, which has since been resolved, thus lowering stage two again in April, although this is the stand at Q end. As before, the residential real estate sector in Iceland remains well diversified. Funding for the companies is quite long and stable and occupancy ratios are in excess of 95%. So overall, the sector remains healthy. Turning to balance sheet.
As we stated before, deposits grew by 1.3% in the first quarter, mainly due to financial institutes and individuals. Retail deposits remain the largest segment of 53% currently, growing by four percentage points year on year. There is no deposit concentration in the book and loans to customer deposit ratios remain stable. This of course makes us more flexible with regards to wholesale funding. And during the first quarter, we issued as Jungkun stated before, our €300,000,000 inaugural five point five year senior preferred bond, green, the longest duration which we have issued in years.
We experienced a quite healthy book oversubscription. In addition, we issued in SAC and NOK. As a result, the bank has prefunded its operations to a large degree, limiting exposure to current market volatility. And we note also that despite high issuances in the foreign capital markets, our wholesale funding remains over 50% in ISK, which is important for the bank as it increases geographical diversification of the investor base. Additional issuances in the year relating to both AT1 and Tier two will remain opportunistic as we need it for capital purposes in line with our capital optimization.
Liquidity remains strong. Liquid assets are currently 90% of the overall balance sheet and fully mark to market. LCR in all currencies closed off at 202110% for the ISK. And lastly capital. We closed off the quarter at a total capital ratio of 21.6% and CET1 ratio of 18.6%.
This is compared to a regulatory minimum of overall capital requirement of 19.715.4%, on top of which the bank aims to have 100 to 300 basis point management buffer as before. Within these capital ratios, 16,000,000,000 have been allocated to share buybacks, which are not yet completed but have been deducted from the CET1 capital. As of now, we expect the adaptation of CRL3 to be mid this year and to reduce REA by the amount of 4% to 5%, thus boosting capital ratios by around one percentage point. That means that total distribution capital capacity, sorry, including uncompleted buybacks amounts to $37,000,000,000 assuming a fully optimized capital structure and taking into account both the effect of CRR3 expected to be implemented this year. The bank remains committed to its efforts to continue to optimize the capital structure, which may go through which may be through external growth, organic growth as well as distributions to shareholder.
So overall, we are quite happy with the results from underlying core operations. And with that, Bjornne, I hand the floor to you.
Bjartne Anna, Investor Relations, Istansbanken: Thank you both. We now open up for Q and A session. You can participate in the session using the dial in details and press hash key 5 and the operator will give you the floor. You can also submit questions in writing using the webcast form. So operator, are there any questions on the line?
Alert Kladderson, CFO, Istansbanken: Thanks. Yes, the first question comes from Sophie Petersen from JPMorgan. Please go ahead. Your line is open.
Sophie Petersen, Analyst, JPMorgan: Yes, hi. Thanks for taking my question. Just two quick questions. On net interest income, how should we think about net interest income in 2025 given that it has been quite volatile in recent quarters? Should we expect the current net interest income to be the run rate going forward?
Or how should we think about net interest income volatility in coming quarters? And then my second question would be on capital and excess capital. You mentioned that you will kind of look to or you have around 37,000,000,000 of distributable capital, and and you will look at organic growth opportunities and and also distribution to shareholders. Could you maybe expand a little bit on this comment? Kind of what do you think about inorganic growth opportunities you kind of be happy to increase your dividend per share, which is or dividend payout from the current level due to a higher level.
And, yeah, if you could just also talk a little bit about kind of inorganic versus organic growth and then kind of dividends versus share buybacks and also increasing the top payout? Thank you.
Jan Kundni, CEO, Istansbanken: Yes. Thank you, Sophie. I’ll start with the capital. So on the capital side, as we have talked about before, we remain open for potential external growth. That is obviously something that’s a potential, but depends on obviously availability and price at the same time, but something we remain open to.
We have been seeing some growth outside of Iceland as well in terms of taking part in syndicated loans and both to diversify a bit our loan book and also to get more knowledge and experience for example in the infrastructure sector. Our loan book outside of Iceland currently is only 2%. So we see some opportunities there. At the same time, we obviously plan to continue the buybacks and that is our preferred option in terms of returning additional capital to shareholders. And we are hoping that now with the government shutdown that we will see more liquidity in the stock and then potentially more opportunities for buybacks.
So we continue to try to optimize the capital stack as much as we can before the end of this year. And then so obviously looking at these different alternatives. On the net interest income over to you Alast.
Alert Kladderson, CFO, Istansbanken: Yes. Maybe one point to add to the capital. We note also that taking into account I would say buybacks the payback ratio for 2024 was close to 100% of profits for 2023. So buybacks have been quite I would say quite sizable effort in our capital optimization story. But for the net interest income and the NIMs, we have guided before that the NIMs on average through 2025 are going to be close to what we experienced in 2024.
Then we had 2.9%, but quite fluctuating between quarters. Seasonality of inflation domestically is quite a bit. So inflation tends to be higher, I would say, first half of the year and lower in the second half. So we are expecting similar behavior. Overall, we expect to be around the same levels as we did last year.
Sophie Petersen, Analyst, JPMorgan: Very clear. Thank you.
Alert Kladderson, CFO, Istansbanken: And there are no more questions from the call, so I hand the word back to you, Anna Bietne.
Bjartne Anna, Investor Relations, Istansbanken: Thank you, Einar. We’ve received some questions through the webcast form and e mail, so I’ll read them out loud. The first one from Alexander at Akkor. Starting with hi, guys, and congrats on a solid quarter. A couple of questions from me.
First off, were there any one offs in the NIM this quarter? If not, should we assume a similar or even stronger quarter as inflation ticks will likely be higher than in Q1? And then the second one, do you expect to increase your AT1 and or T2 funding in the near term? Or will you wait until you’ve returned more capital to shareholders?
Jan Kundni, CEO, Istansbanken: Well, thank you very much for that. First, again on the capital, obviously to fully optimize our capital stack, we will issue some AT1 and Tier two. And the timing of that is obviously subject to both the market, the capital markets and also how well we progress in terms of the return of core equity Tier one to our shareholders. So that’s something that we expect to hopefully see during the course of this year. And then on the In
Alert Kladderson, CFO, Istansbanken: terms of the NIMs, there are no one offs on the NIM this quarter. We usually do not have one offs. Obviously, strong NIM performance is, I would say, partly due to reducing imbalances both on the CPI side but as well as on the fixed rate imbalance side. We however note that during the first quarter last year comparing to the first quarter last year, we had a €300,000,000 issuance issued at quite widespread over 400 bps, which was paid off in Q2. So that’s I would say that’s a structural change between the years as such.
But there are no one offs in the NIMs. And reiterating what I said before, we expect NIMs overall to be around similar levels for the year as a whole as it was in 2024, while fluctuating a bit due to seasonality of inflation.
Jan Kundni, CEO, Istansbanken: Just to note on the inflation take like mentioned we have just over 1% in the first quarter and expectations of close to 1.5% in the second quarter. But like I mentioned our Chief Economist is expecting about 4% over the year as a whole which is then similar as to annualized in the first quarter. So obviously we’ll see some fluctuations going forward, but we expect the impact on NIM to be similar to what we saw in the first quarter for the year as a whole.
Bjartne Anna, Investor Relations, Istansbanken: And then David Rostet at SEB has five questions. So the first one being, can you please elaborate on the increased risk appetite for lending abroad? Infrastructure is mentioned. What type? Any other sectors or type of lending regions?
How large do you see this portfolio over a three to five year horizon? And the next one, given the ongoing capital optimization measures, is a potential AT1 transaction this year still being considered? SAC market is quite hot given this week’s trade for the Swedish online broker, Avanta. The third one, what is the status for the possibility in the Icelandic MREL framework to meet the subordination requirement with senior preferred bonds? And the fourth subject to the third, are there any plans to issue S and P bonds?
And the fifth, the last one,
Jan Kundni, CEO, Istansbanken: if What was the before again?
Bjartne Anna, Investor Relations, Istansbanken: To the above, are there any plans to issue S and P? And the fifth, if no S and P bonds are planned to be issued, will you terminate the S and P rating as the issue rating then will remain one notch below Landmarken and only focus on Moody’s similar to Aireon?
Jan Kundni, CEO, Istansbanken: Okay. I’ll start with the first one and then give the floor to Eilert. So in terms of our risk appetite abroad, like I said our current loan book outside of Iceland is only around 2% of the balance sheet, so extremely low. So we’re hoping to see a bit of a diversification outside of Iceland. And we are seeing there opportunities on both infrastructure lending and also in leveraged finance basically in syndicated loans.
We are mainly looking at Europe and we are cooperating with some Nordic banks and European players in terms of participating in those loans. We obviously done that for a long time in the seafood industry with good results where we have an exposure especially in North America. But in terms of the growth now we are more looking at basically you could say Western Europe. In terms of infrastructure, we are looking at across the board infrastructure projects. But our main interest actually is in infrastructure projects that we expect to see something similar here in Iceland in the coming years.
For example roads bridges electricity grids and yes so something on that front. So I would say that that’s the main focus at the moment. And in terms of the potential growth like I said it’s about 2% now. In the coming years if you could maybe see it growing to 5% to 10% of the loan book giving us like I said a bit of a diversification. But we’re not expecting any rapid growth above and beyond that.
Alert Kladderson, CFO, Istansbanken: Okay. For the AT1 question, we have touched on that before. We remain open to AT1, but that’s subject to both market conditions as well as our funding needs to optimization of the capital stack. So it’s going to depend a bit on how we progress with the capital optimization. For the S and P questions, we’re going to I’m going to tackle those I would say a bit as one.
Obviously, the bank has a subordination requirement set by the regulator which came into which was set late in October 2024. So we have three years to fulfill that. So that comes into effect I would say towards the end of twenty twenty seven. So we are in no hurry to issue senior non preferreds. Our capitalization is quite strong.
Our liquidity is quite strong and funding is quite strong. So this is not something which we’re doing I would say immediately. We note obviously that we are on positive outlook with Standard and Poor’s, although we note as well that we are one notch between I would say one notch lower than what we see for the Moody’s rating. There have been made there are no decisions on, I would say, either canceling S and P or doing nothing. So that’s something which we are constantly evaluating on all fronts.
With regards to the market dynamics for senior non preferred domestically, we are yet to see the first senior non preferred being issued here domestically. We have however seen the market reacting quite positively to senior preferreds. So we are optimistic that once the senior non preferred market is opened up, it will be accepted in a positive momentum domestically.
Bjartne Anna, Investor Relations, Istansbanken: We have more questions. So two questions from Corr, could you explain the net interest income sensitivity for short term and long term market interest rate changes? And could you explain any currency risks, which part of assets in ISK and which part of liabilities in ISK? And what currency hedging do you have?
Alert Kladderson, CFO, Istansbanken: First off, on the currency rate, we remain FX neutral to a large extent, obviously between I would say ISK as well as the FX. Although there is some sensitivity between currencies in the international market, we try to eliminate those to a large degree through traditional swaps. But overall, we I would say we view our balance sheet from I would say a two side, an ISK balance sheet in a sense and then an FX balance sheet in a sense. So I think that covers the FX risks. For the sensitivity of net interest income, we view that mainly through lower rate environment.
So if the rate environment comes down, we expect returns on our liquidity portfolio to come down with it. On the flip side, we will try to, I would say, maintain and even grow margins. But overall, we are going to see for the medium term, it’s likely that net interest margin will subside as the overall rate environment comes down. However, the I would say the overall target of the bank is based on return on equity. So we will optimize capital to maintain and grow return on equity.
For the short term, there are more elements at play. There we have the imbalances which will be in runoff by both the CPI imbalance as well as the fixed rate imbalance. Both of them will have a positive effect on net interest income overall. But on the flip side, we are seeing rates coming down in a steady pace, which is, I would say, counteracting from a liquidity portfolio standpoint.
Bjartne Anna, Investor Relations, Istansbanken: I think that covers it. And if there are no further questions, we want to thank you for attending this morning’s webcast. We thank you for the questions, for committing the time joining us and hope you have a good day. Thank you.
Alert Kladderson, CFO, Istansbanken: Thank you all. Thank you.
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