Fitch Affirms Iceland’s Glitnir At ’A’; Outlook Stable

Fitch Ratings-London/Frankfurt-30 August 2006: Fitch Ratings has today affirmed Glitnir Bank’s (“Glitnir”) ratings at Issuer Default ’A’, Short-term ’F1’, Individual ’B/C’ and Support ’2’. The Outlook on the Issuer Default rating is Stable.

The ratings reflect the bank’s good underlying profitability and diversified revenue streams, its sound asset quality and its good capitalisation. They also take into account its reliance on wholesale funding, the integration risks linked to recent acquisitions and its exposure to the small Icelandic economy and volatile Icelandic Krona.
Glitnir’s risk profile has changed considerably over the past three years; the exit from the insurance business Sjova-Almennar, acquired in Q403, was completed in May 2006 with the sale of its remaining 33.4% stake. At the same time, the bank has managed to build up a second home market in Norway through a series of acquisitions, the main one being that of BNbank, a commercial bank specialised in commercial and residential property financing. As a result of this strategy, Norway represented around 40% of the group’s loan exposure at end-June 2006, a level similar to the group’s exposure to Iceland.
The build-up of a second home market in Norway has enabled Glitnir to improve the sustainability of its income streams. This strategy offers strong benefits in terms of diversification of revenues, given the low correlation between the performances of the Icelandic and Norwegian economies. Profitability in 2005 and H106 was supported by favourable market conditions, in particular in capital market activities and corporate and investment banking. However, the bank did not benefit from financial gains to the same extent as those of its Icelandic peers, having reduced its appetite for market risk at an earlier stage than they did. The increased cost of funding, caused in particular by concerns linked to macro-economic imbalances in Iceland, is likely to result in more selective asset growth. The bank’s efforts to diversify its investor base and its sound liquidity management have helped it mitigate its exposure to negative market sentiment, although access to funding, in line with its Icelandic peers, bears a higher price. Capitalisation is good - a necessity given turbulent market conditions and the exposure to a volatile domestic currency.

Islandsbanki changed its name to Glitnir in March 2006, mostly to reflect the growing international nature of its activities. It is the second-largest bank in Iceland by total assets. Its activities are now centred around three main business areas: the Icelandic market, where the bank enjoys strong market shares across most financial products; Norway, where the bank acquired strong footholds in real estate finance for corporate and retail customers; and corporate and investment banking, including project and leveraged finance.

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Jon Laycock

Media Relations

Glitnir Bank

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