Research Update:

Iceland 'A/A-1' Ratings Affirmed; Outlook Stable
May 13, 2022

Overview- Iceland's economy has continued to recover, growing by more than 4% in 2021 backed bystrong domestic demand.
- We expect the Russia-Ukraine conflict will have a limited impact on Iceland's economy given its
minimal direct trade links with those countries and overall limited need for energy commodity
imports.
- We also expect fiscal consolidation to accelerate this year, with government debt net of liquid
assets settling at about 42% of GDP over the medium term.
- We affirmed our 'A/A-1' ratings on Iceland. The outlook is stable.

PRIMARY CREDIT ANALYST
Niklas Steinert
Frankfurt+ 49 693 399 9248
niklas.steinert@spglobal.com
SECONDARY CONTACT
Maxim Rybnikov
London+ 44 7824 478 225
maxim.rybnikov@spglobal.com
RESEARCH CONTRIBUTOR

Rating Action
On May 13, 2022, S&P Global Ratings affirmed its 'A/A-1' long- and short-term sovereign credit
ratings on Iceland. The outlook is stable.

Aindrila Chowdhury
CRISIL Global Analytical Center, an
S&P affiliate, Mumbai
ADDITIONAL CONTACT
Sovereign and IPF EMEA

Outlook

SOVIPF@spglobal.com

The stable outlook indicates our expectation that Iceland's economy will continue to recover andremain relatively unaffected by the war in Ukraine. Rising inflation rates have prompted theCentral Bank of Iceland (CBI) to tighten monetary policy, and we believe fiscal deficits will continue
to decrease over the next few years, stabilizing the debt to GDP ratio net of liquid assets. At thesame time, we expect ample foreign reserves will enable the CBI to deal with external pressures or
exchange-rate volatility, should they occur.

Downside scenario
We could lower the ratings on Iceland if the effects of the war in Ukraine became more
pronounced, for example through second-round effects due to lower economic activity in Iceland's
main trading partners in Europe or a shift in global travel preferences. The latter could also occur
if the pandemic re-emerged, particularly in the form of new and more malignant variants. In such a
scenario, we believe it could be more challenging for Iceland's monetary and fiscal authorities towww.spglobal.com/ratingsdirect

May 13, 2022

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Research Update: Iceland 'A/A-1' Ratings Affirmed; Outlook Stableprovide further policy support given currently elevated inflation and previously large deficits. Net
general government debt would rise materially beyond our expectations.

Upside scenario
We could raise the ratings if economic growth exceeds our expectations, which would likely
coincide with stronger export growth and export categories becoming more diverse, reducing
external debt or the volatility in Iceland's terms of trade. This scenario could enable even quicker
fiscal consolidation than we expect, putting the government's debt burden on a firm downward
trend to close to prepandemic levels, as a share of GDP.

Rationale
The war in Ukraine is not likely to have a material effect on Iceland's small and open economy. The
country has limited direct trade links with Russia and Ukraine and a generally low need to importenergy commodities. For now we believe its growth outlook will remain largely unimpeded,
including in the tourism sector. Tourism directly represented 8% of GDP and more than one-thirdof exports before the pandemic. Given the elevated inflation outlook, Iceland's monetary
authorities have continued policy tightening over the past few months. The fiscal authorities havealso rolled back support measures, which we expect will reduce deficits over the next few years
and stabilize public debt, net of liquid government assets, at slightly above 40% of GDP. We also
note that external pressures have been manageable in recent years. The resilient balance of
payments, low net external leverage, and strong central bank foreign currency reserves provide
further economic buffers. Iceland's stable institutional framework and effective policymaking also
support the ratings. The ratings are constrained by the volatile nature of Iceland's small and open
economy and the limited effectiveness of its monetary policy given the strong influence external
developments can have on domestic inflation trends.

Institutional and economic profile: The impact of the war in Ukraine on
Iceland's economy will be limited- Effects of the Russia-Ukraine conflict on Iceland's economy will be indirect, through reduced
economic activity in its main trading partners and higher transportation costs.
- Despite risks to the recovery in tourism, we believe the medium-term growth trajectory will bestrong and supported by a public investment program.
- We expect the government to pursue continuity of economic and social policies as well as
environmental protection.
We expect the war in Ukraine will have a limited impact on the Icelandic economy. First, Iceland's
direct trade exposure to Russia and Ukraine is limited at below 1% each of goods exports. Second,the Icelandic economy has limited need for energy imports, making it less vulnerable to thecurrent price increases. In fact, rising commodity prices outside of the energy sector currently
benefit Iceland as a net commodity exporter. Risks are mostly indirect and limited and arise as
second-round effects via lower economic activity in its most important trading partners in Europe,
as well as higher transportation costs and confidence effects.
Despite risks remaining--mostly to Iceland's large tourism sector--the economic recovery fromthe pandemic remains on track. Iceland's economy saw a recovery of over 4% in 2021, backed bywww.spglobal.com/ratingsdirect

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Research Update: Iceland 'A/A-1' Ratings Affirmed; Outlook Stablestrong domestic demand. The current growth trajectory means it will likely reach prepandemic
real GDP growth in second-half 2022, about six months earlier than we initially estimated. The
labor market has fully recovered and unemployment is already below prepandemic levels. Overall,
Iceland's economic base is fairly concentrated with its main export sectors comprising tourism,
marine, and metals (aluminum). We expect further positive developments from all three sectors.
Aluminum currently benefits from high prices; the fishing sector could potentially see one of its
best seasons of the last decade, indicated by strong catches at the beginning of the year andrelatively high fishing quotas for the full year; and tourism receipts have already recovered beyond
2019 levels despite lower numbers of arrivals as tourists are spending more time in Iceland.
However, Iceland's economy is small and open, and it has a population of just 370,000. Its GDP
was about $25 billion in 2021. In our view, the country has been, and remains, susceptible toexternal shocks and shifts in terms of trade. For example, if vaccines prove ineffective against newstrains of COVID-19, or if the war in Ukraine causes a protracted shift in global or European travel
preferences, tourism could suffer. The shock to the tourism industry during the pandemic followed
a decade of rapid growth; the number of visitors to Iceland increased about fivefold from 2010 to2019.
In our view, Iceland's institutional arrangements remain a rating strength, with functioning checks
and balances between various state bodies. The swift and effective policy responses to thepandemic from several Icelandic institutions underpin our view of generally effective and stablepolicymaking. The government coalition, consisting of three parties that span the political
spectrum, retained its parliamentary majority in last year's election. The coalition agreement
indicates policy continuity and we also expect it to pursue its broadly consensus-oriented
approach to policymaking.

Flexibility and performance profile: Inflation has recently increased to over
5% and we expect it to rise further in the coming months- Monetary policy support has been largely rolled back against the current inflationary outlook.
- Fiscal tightening will be similarly strong over the next few years, with deficits reducing to below
3% of GDP and net debt stabilizing at 42% by 2025.
- External pressures should be manageable given Iceland's net external asset position and large
foreign currency reserves.
As elsewhere, inflation rates have risen in Iceland over the past few months, reflecting the releaseof pent-up demand coinciding with global supply-side disruptions. Inflation remains below manypeers because, among other factors, the contribution of energy prices to headline inflation islower than elsewhere. This reflects Iceland's lower energy commodity imports--stemming fromthe marginal role of gas in the country's energy mix. The Icelandic krona's appreciation of over 8%during the past 12 months against the euro (effectively reversing a similar depreciation during thefirst few months of the pandemic) is also having a counteracting effect on pass-through inflation.
However, housing prices have risen by more than 20% over the past year and, by themselves,
represent over a third of the above 7% inflation (CPI, consumer price inflation) recorded in April(the contribution of imputed rents to inflation is usually high in Iceland). Although we currently
expect inflation of close to 7% for 2022, wage increases, some of which will be decided this year
through universal wage agreements, could have an amplifying effect on domestic inflation.
These inflation levels exceed the CBI's target rate of 2.5%, which has been the case for almost two
years. The CBI has therefore tightened monetary policy over the past few months in an effort towww.spglobal.com/ratingsdirect

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Research Update: Iceland 'A/A-1' Ratings Affirmed; Outlook Stabledecrease inflation, mostly in the form of several rate hikes. The key policy rate is now 3.75%, up 3
percentage points from its historical low of 0.75% in April 2021 and also above prepandemic rates.
Further hikes are still possible if expected inflation continues to exceed the target rate. The
tightening stance follows several months of substantial monetary policy support that the CBImobilized at the start of the pandemic. This primarily included a significant reduction of the policy
rate; foreign exchange interventions of well over €1 billion; and adjustments to several
macroprudential measures related to bank regulation. These policy measures helped support theeconomy, complementing the government's fiscal efforts and reducing exchange rate volatility.
Iceland has accumulated net foreign currency reserves in recent years on the back of a previously
strong tourism sector performance. This provided the CBI additional policy room, especiallyregarding the significant foreign exchange sales in 2020 and 2021.
Fundamentally, however, we still view Iceland's monetary policy effectiveness as constrained. The
underlying economy represents one of the smallest currency areas globally and domestic inflationis generally determined by foreign developments. The country's real effective exchange rate also
tends to fluctuate over the economic cycle and could be subject to large valuation swings,
exacerbating the cyclicality inherent in the economy.
In step with the monetary authorities, the government has also rolled back the fiscal stimulus it
had extended over the past two years. This led to deficits of close to 9% in 2020 and 2021. Highinflation will help the government consolidate its deficits via increasing revenues despite asignificant stock of inflation-linked debt. The government is also actively consolidating its
finances by limiting expenditure increases. However, we note that it has extended the suspensionof its fiscal rules by one more year to 2026, currently, at which point deficits may not exceed -2.5%
of GDP. We believe the government will be able to achieve this goal earlier, by 2025, and despite asignificant investment program focusing on health infrastructure, road construction, and thepromotion of research and development investments in the private sector. Although outside thegovernment budget, public finances have recently benefitted from the sale of significant stakes inpublicly owned Islandsbanki in 2021 and early 2022 and further sales are still possible.
The steep reduction of public debt before the pandemic provided the authorities with ample fiscal
flexibility to support the economy, and kept debt levels manageable. The country's net general
government debt had declined to slightly above 35% of GDP in 2019 from a peak of close to 80% in
2011. Although we forecast debt will remain higher over the next few years than before thepandemic, we think that net government debt (net of liquid assets) will stabilize at about 42% of
GDP until 2025. In gross terms, debt will decrease from about 56% of GDP in 2021 to 49% in 2025
as the government will likely reduce its currently still-ample liquid assets, which it quickly
accumulated at the beginning of the pandemic, to pay down debt over the next few years.
Iceland's debt profile has also improved significantly in recent years. In a departure from the past,
about 75% of government debt is now held domestically and less than a quarter of grossgovernment debt is denominated in foreign currency. Over the past two years, the authorities haveplaced foreign currency debt issuance proceeds as deposits at the central bank to bolster foreignexchange reserves. The government covered its budget deficits during 2020 and 2021
predominantly with issuances on the domestic market under favorable conditions. Further bondplacements in international markets remain an option, in our view.
Furthermore, over the past two years the government has drawn on the liquid assets of 100%
state-owned enterprise, the Housing Financing Fund (HFF). The HFF previously provided
affordable housing loans in Iceland but is being wound down following changes to government
policy. The authorities are effectively managing the HFF and treasury liquidity positions jointly.
Total funding from the HFF extended to the government in 2020 and 2021 covered more than
one-third of the combined budget deficits, but we expect this funding practice will not be used aswww.spglobal.com/ratingsdirect

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Research Update: Iceland 'A/A-1' Ratings Affirmed; Outlook Stable

extensively in future years. These additional domestic financing options, as well as very low
interest costs for foreign issuance, have helped the government further reduce its financing costs.
We expect the government interest bill to stabilize at 5%-6% of revenue in the medium term after
a temporary increase above 6% in 2022 due to high inflation (about one-fifth of public debt is
inflation-linked).
We continue to exclude the HFF's liabilities and net income from our general government data,
despite their recent inclusion in the data reported by the national statistical office. The HFF's
balance sheet size is about 20% of GDP and we consider it a contingent liability for thegovernment given the latter's ultimate collection guarantee on the HFF's outstanding debt.
Although the HFF has sufficient liquid assets to meet its liabilities in the next few years, losses
related to an interest-rate mismatch between the institution's assets and liabilities could require
an additional equity contribution from the government in the long term. However, we do not think
this will be needed for several years yet. The estimated capital shortfall is already incorporated
into our general government debt calculations, even though the HFF's full liabilities are not.
Overall, the total stock of government guarantees remains high albeit decreasing because the
HFF's balance sheet is shrinking over time. We expect guarantees will amount to slightly above
20% of GDP over the next few years with the lion's share pertaining to the HFF.
Iceland's current account has generally remained strong throughout the pandemic and only
moved into a slight deficit in 2021, despite the significant contraction of tourism as the country's
most important export sector. We expect import expenditure will rise over the next few years due
to strong domestic demand and price increases, but the strong performance of the three mostimportant export sectors as well as higher net primary income, based on strong net investment
returns, will keep the current account narrow over the next years. We note that Iceland's
prepandemic current account surpluses averaged over 6% of GDP from 2013-2019, which
supported external deleveraging. Since 2016, Iceland has been in a net external asset position,
which increased significantly during 2020 and 2021, and we expect it will remain roughly stable atabout 40% of GDP over the next few years. This includes significant foreign exchange reserves atthe central bank of over $7 billion, or close to 30% of GDP.
Icelandic bank earnings have recovered after the hit from the pandemic, and sector profitability
should remain robust. We project credit losses will remain close to prepandemic levels in the
coming two years, at nearly 30 basis points of gross loans. While tourism continues to drive theeconomic recovery, housing market strength amid elevated household debt may present a risk.
That said, countercyclical macroprudential controls and policy rate hikes should mitigate the riskof large and disorderly correction. Banks' capitalization remains very strong and earnings provide
a large buffer to absorb higher credit losses. Therefore, we believe the financial sector poses alimited contingent liability for the government.

Key Statistics
Table 1

Iceland Selected Indicators
ISK mil.

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Nominal GDP (bil. LC)

2,512

2,642

2,844

3,043

2,928

3,233

3,598

3,877

4,085

4,281

Nominal GDP (bil. $)

21

25

26

25

22

25

29

33

37

40

62.5

73.1

75.4

69.5

59.4

69.0

76.3

86.9

94.9

100.8

Economic indicators (%)

GDP per capita (000s $)www.spglobal.com/ratingsdirect

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Research Update: Iceland 'A/A-1' Ratings Affirmed; Outlook Stable

Table 1

Iceland Selected Indicators (cont.)
ISK mil.

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Real GDP growth

6.3

4.2

4.9

2.4

(7.1)

4.3

4.5

3.1

2.5

2.3

Real GDP per capita
growth

5.2

2.4

1.8

(0.0)

(8.9)

3.0

2.4

1.6

1.0

0.7

Real investment growth

18.0

10.6

3.1

(2.4)

(9.5)

13.6

4.0

4.0

2.5

0.5

Investment/GDP

21.1

21.7

22.3

21.1

21.4

23.0

22.6

22.9

22.8

22.5

Savings/GDP

29.2

26.0

25.8

26.9

22.2

20.2

23.1

22.6

22.4

22.1

Exports/GDP

47.5

45.7

46.6

44.4

34.4

38.1

45.1

39.7

38.4

39.1

Real exports growth

11.0

5.1

1.7

(4.7)

(30.2)

12.3

13.0

5.5

4.5

4.0

Unemployment rate

3.3

3.3

3.1

3.9

6.4

6.0

4.9

4.3

4.0

4.0

Current accountbalance/GDP

8.1

4.2

3.5

5.8

0.8

(2.8)

0.5

(0.3)

(0.4)

(0.5)

Current accountbalance/CARs

15.1

8.5

7.0

12.0

2.2

(6.8)

1.1

(0.7)

(1.0)

(1.1)

CARs/GDP

53.6

49.8

50.3

48.3

37.9

40.9

49.0

43.6

42.0

42.5

Trade balance/GDP

(3.9)

(6.1)

(5.7)

(4.1)

(3.1)

(5.1)

(4.8)

(4.9)

(4.8)

(4.8)

Net FDI/GDP

3.5

0.7

(1.7)

(2.8)

(2.5)

0.6

(1.5)

(1.5)

(1.5)

(1.5)

Net portfolio equity
inflow/GDP

(6.0)

(1.1)

(1.6)

(0.4)

(3.3)

(5.1)

(3.3)

(2.5)

(2.5)

(2.5)

Gross externalfinancing needs/CARs
plus usable reserves

89.3

79.5

84.3

81.1

80.6

91.6

89.0

91.5

92.3

93.5

Narrow net external
debt/CARs

54.8

51.2

41.8

39.3

66.9

59.8

51.6

53.9

54.6

54.0

Narrow net external
debt/CAPs

64.6

56.0

44.9

44.7

68.4

56.0

52.1

53.5

54.1

53.4

Net externalliabilities/CARs

(6.1)

(6.0)

(18.8)(42.5)(96.7)(101.5)(83.8)(92.6)(97.7)(100.9)Net externalliabilities/CAPs

(7.2)

(6.6)

(20.2)(48.3)(98.8)(95.1)(84.7)(92.0)(96.8)(99.8)

Short-term external
debt by remaining
maturity/CARs

43.6

34.7

33.3

35.9

49.4

41.2

34.9

33.8

33.1

31.8

Usable reserves/CAPs(months)

6.2

7.7

6.4

7.2

10.1

6.9

6.1

5.6

5.4

5.0

Usable reserves (mil. $)

7,231

6,575

6,328

6,787

6,421

7,080

6,800

7,000

7,100

7,200

External indicators (%)

Fiscal indicators (general government; %)Balance/GDP

12.2

0.5

0.7

(1.8)

(8.5)

(8.7)

(5.3)

(4.1)

(3.1)

(2.4)

Change in net
debt/GDP

(1.0)

(1.9)

(4.3)

8.1

3.2

3.8

2.8

3.9

3.0

2.2

Primary balance/GDP

16.1

4.4

3.4

0.6

(6.2)

(6.5)

(2.9)

(1.8)

(0.9)

(0.2)

Revenue/GDP

56.3

43.0

42.2

39.7

40.4

38.7

39.5

40.5

41.0

41.0

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Research Update: Iceland 'A/A-1' Ratings Affirmed; Outlook Stable

Table 1

Iceland Selected Indicators (cont.)
ISK mil.

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Expenditures/GDP

44.1

42.4

41.6

41.5

48.9

47.4

44.8

44.6

44.1

43.4

Interest/revenues

6.9

8.9

6.6

6.2

5.9

5.8

6.2

5.6

5.4

5.4

Debt/GDP

53.7

45.4

39.2

46.0

56.6

56.0

51.0

48.7

49.2

49.1

Debt/revenues

95.4

105.7

92.9

115.8

140.3

144.7

129.2

120.2

119.9

119.8

Net debt/GDP

41.6

37.7

30.7

36.8

41.5

41.4

39.9

41.0

41.8

42.1

Liquid assets/GDP

12.1

7.7

8.5

9.2

15.2

14.6

11.1

7.7

7.3

7.0

CPI growth

1.7

1.8

2.7

3.0

2.8

4.4

6.7

4.7

2.9

2.4

GDP deflator growth

2.3

0.9

2.6

4.5

3.6

5.8

6.5

4.5

2.8

2.5

112.82104.42116.33121.10127.21130.38120.45113.04108.97106.84

Banks' claims on
resident non-gov't
sector growth

1.7

6.8

9.0

4.1

4.7

(7.6)

5.0

4.0

4.0

4.0

Banks' claims on
resident non-gov't
sector/GDP

127.7

129.6

131.3

127.8

139.0

116.4

109.8

106.0

104.6

103.8

Foreign currency shareof claims by banks on
residents

8.9

9.7

10.4

10.9

13.3

14.1

N/A

N/A

N/A

N/A

Foreign currency shareof residents' bankdeposits

8.6

9.7

12.2

12.3

10.8

11.5

N/A

N/A

N/A

N/A

Real effective exchange
rate growth

12.5

12.0

(2.6)

(6.7)

(7.6)

4.2

0.0

0.0

0.0

0.0

Monetary indicators (%)

Exchange rate,year-end (LC/$)

Sources: Statistics Iceland (Economic Indicators), Central Bank of Iceland, The Government of Iceland External Indicators), Statistics Iceland,
Central Bank of Iceland (Fiscal Indicators), and Central Bank of Iceland, IMF (Monetary Indicators).
Adjustments: Government debt adjusted by including loans from Norges Bank and the IMF. Government fiscal metrics exclude the Icelandic
Housing Financing Fund. External metrics exclude debt from previous DMBs in settlement proceedings.
Definitions: Savings is defined as investment plus the current account surplus (deficit). Investment is defined as expenditure on capital
goods, including plant, equipment, and housing, plus the change in inventories. Banks are other depository corporations other than thecentral bank, whose liabilities are included in the national definition of broad money. Gross external financing needs are defined as current
account payments plus short-term external debt at the end of the prior year plus nonresident deposits at the end of the prior year plus
long-term external debt maturing within the year. Narrow net external debt is defined as the stock of foreign and local currency public- andprivate- sector borrowings from nonresidents minus official reserves minus public-sector liquid claims on nonresidents minus
financial-sector loans to, deposits with, or investments in nonresident entities. A negative number indicates net external lending. N/A--Not
applicable. LC--Local currency. CARs--Current account receipts. FDI--Foreign direct investment. CAPs--Current account payments. The data
and ratios above result from S&P Global Ratings' own calculations, drawing on national as well as international sources, reflecting S&P
Global Ratings' independent view on the timeliness, coverage, accuracy, credibility, and usability of available information.

Ratings Score Snapshot

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Research Update: Iceland 'A/A-1' Ratings Affirmed; Outlook Stable

Table 2

Iceland Ratings Score Snapshot
Key rating factors

Score Explanation

Institutional assessment

2 Generally strong, but relatively shorter track record of policies that deliver
sustainable public finances and consistently balanced economic growth over thelong term. Generally effective checks and balances and free flow of information
through society. Statistical information is generally timely and reliable.

Economic assessment

2 Based on GDP per capita ($) as per the Selected Indicators table above.
The economy is concentrated in fishing, aluminum, and tourism. The metals andfishing sectors together account for over 20% of GDP and are subject to volatility
due to changing aluminum prices and varying fishing catch levels. Before thepandemic, the tourism industry also accounted for well over 20% of GDP, including
direct and indirect effects.

External assessment

3 Based on narrow net external debt and gross external financing needs as per
Selected Indicators in Table 1.
Iceland's net international investment position is more favorable than the narrow
net external debt position by over 100% of current accounts receipts (CARs), as per
Selected Indicators in Table 1.
The country is exposed to significant volatility in terms of trade, due to its
dependence on tourism exports and changes in metal prices.

Fiscal assessment:
flexibility and performance

3 Based on the general government balance (% of GDP) as per Selected Indicators in
Table 1.

Fiscal assessment: debt
burden4 Based on net general government debt (% of GDP) and general government interest
expenditure (% of general government revenue) as per Selected Indicators in Table
1.
Contingent liabilities are moderate. We assess the amount of guarantees provided
by Iceland (implicitly and explicitly) to various nondeposit-taking institutions atslightly less than 25% of GDP. We believe there is a significant likelihood of
extraordinary government support.

Monetary assessment

4 The krona is largely floating following the removal of capital controls, albeit with ashorter track record.
The central bank has broad operational independence and uses market-based
monetary instruments. However, Iceland exhibits a very volatile real effective
exchange rate over the economic cycle as the ISK represents one of the smallest
currency areas globally. Given the removal of capital controls and accumulation of
extra netforeign exchange reserves, the central bank can act as lender of lastresort for the financial system.

Indicative ratinga+ As per Table 1 of "Sovereign Rating Methodology."

Notches of supplemental
adjustments and flexibility-1 Iceland's economy and its currency area are narrower than rating peers', whichmakes the country inherently more susceptible to external shocks. This is not fully
captured in the indicative rating.

Final rating
Foreign currency
Notches of uplift
Local currency

A
0 Default risks do not apply differently to foreign- and local-currency debt.
A

S&P Global Ratings' analysis of sovereign creditworthiness rests on its assessment and scoring of five key rating factors: (i) institutional
assessment; (ii) economic assessment; (iii) external assessment; (iv) the average of fiscal flexibility and performance, and debt burden; and (v)monetary assessment. Each of the factors is assessed on a continuum spanning from 1 (strongest) to 6 (weakest). S&P Global Ratings'"Sovereign Rating Methodology," published on Dec. 18, 2017, details how we derive and combine the scores and then derive the sovereignforeign currency rating. In accordance with S&P Global Ratings' sovereign ratings methodology, a change in score does not in all cases lead to achange in the rating, nor is a change in the rating necessarily predicated on changes in one or more of the scores. In determining the final rating
the committee can make use of the flexibility afforded by §15 and §§126-128 of the rating methodology.

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Research Update: Iceland 'A/A-1' Ratings Affirmed; Outlook Stable

Related Criteria- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10,2021- Criteria | Governments | Sovereigns: Sovereign Rating Methodology, Dec. 18, 2017
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
- General Criteria: Methodology: Criteria For Determining Transfer And Convertibility
Assessments, May 18, 2009

Related Research- Global Sovereign Rating Trends: First-Quarter 2022, April 13, 2022
- Sovereign Risk Indicators, April 11, 2022; a free interactive version is available at
http://www.spratings.com/sri- Sovereign Ratings Score Snapshot, May 9, 2022
- Sovereign Ratings List, May 6, 2022
- Sovereign Ratings History, May 6, 2022
- Sovereign Debt 2022: Borrowing Will Stay High On Pandemic And Geopolitical Tensions, April 5,
2022- Sovereign Debt 2022: Ukraine Conflict Could Push Developed EMEA's Commercial Borrowing
Higher Than $1.6 Trillion, April 5, 2022
- Banking Industry Country Risk Assessment: Iceland, Feb 22, 2022
- Default, Transition, and Recovery: 2021 Annual Global Sovereign Default And Rating Transition
Study, May 4, 2022
In accordance with our relevant policies and procedures, the Rating Committee was composed ofanalysts that are qualified to vote in the committee, with sufficient experience to convey theappropriate level of knowledge and understanding of the methodology applicable (see 'Related
Criteria And Research'). At the onset of the committee, the chair confirmed that the information
provided to the Rating Committee by the primary analyst had been distributed in a timely manner
and was sufficient for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the recommendation, theCommittee discussed key rating factors and critical issues in accordance with the relevant
criteria. Qualitative and quantitative risk factors were considered and discussed, looking at
track-record and forecasts.
The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot
above.
The chair ensured every voting member was given the opportunity to articulate his/her opinion.
The chair or designee reviewed the draft report to ensure consistency with the Committee
decision. The views and the decision of the rating committee are summarized in the above

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May 13, 2022

9

Research Update: Iceland 'A/A-1' Ratings Affirmed; Outlook Stablerationale and outlook. The weighting of all rating factors is described in the methodology used inthis rating action (see 'Related Criteria And Research').

Ratings List
Ratings Affirmed
IcelandSovereign Credit Rating

A/Stable/A-1

Transfer & Convertibility Assessment A
Iceland
Senior Unsecured

A

Short-Term Debt

A-1

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors,
have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such
criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. A description of each of
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Research Update: Iceland 'A/A-1' Ratings Affirmed; Outlook Stable

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