By looking beyond its traditional boundaries, the bank reported a 25 per cent annual increase in fourth quarter profits to $264 million and profits for 2006 as a whole hit $1.2 billion.
Kaupthing now brings in 65 per cent of its income from outside Iceland and is aiming to increase this to 75 per cent. The firm has investments in media, business services and healthcare across Europe.
Last year Kaupthing became the largest taxpayer in Iceland, with a tax bill of $102 million - the single ever largest tax payment in Icelandic history.
Meanwhile, fellow Icelandic bank Glitnir reported fourth quarter profits of $135 million and yearly profit of $48 million. Last week the country's third largest bank reported annual profit of $59 million.
The good results come as it had been feared the Icelandic economy could slow - after the national bank upped interest rates 18 times to 14.25 per cent to counter an overheating economy.