CEO’s address

Stable and solid business

It was the third year in a row that the Bank reached all its key financial targets, and stability has become a defining feature of the Arion Group. The diversity of the services that Arion Bank and our subsidiaries provide to our customers is a lynchpin of this stability. We are also benefiting from the focus we have placed in recent years on operational efficiency. This approach has allowed us to improve our digital services, reduce the floorspace required by our business and to make greater use of automation. Furthermore, the focus on capital efficient financial services has been a success. We have managed to increase the capital velocity by selling off corporate loans to entities that aspire to increase the diversity in their portfolios.

New strategy

In 2023, the board of directors approved a new strategy and new values. The strategy expresses our vision for the future and how we see our role and purpose.

Arion Bank’s role is to help those who want to achieve success in Iceland and the Arctic through smart and reliable financial solutions which enhance financial health and create sustainable value. We want our services to empower our customers so that together we can create value which has a positive impact on our society and environment.

Unleash the power of the new north

In 2023 we put our purpose down in writing for the first time. The Bank’s purpose is the answer to the question: Why does Arion Bank exist? And we answer this question with a call to action: To unleash the power of the new north! This purpose embodies the unwavering belief in the environment in which we work, the people who live in this country and indeed across the entire Arctic. Belief that the people have the energy, ideas and dreams worth supporting and turning into reality – for the benefit of everyone in society.

Why the Arctic?

Some people might ask what business an Icelandic bank has in the vast expanse we call the Arctic. The Arctic can be defined as the northernmost areas of the United States, Canada and Russia, Greenland, Iceland, the Faroe Islands and the far north of Norway, Sweden and Finland. The fact of the matter is that Iceland shares many similarities with other countries in the region, with its wide-open spaces, sparse population, cold climate and seasonal extremes of dark winters and bright summers.

We are convinced that Iceland and Icelandic companies have much to contribute to a region which will take on ever greater importance over the years to come, not least in the battle against climate change. Many areas of the Arctic will see a huge amount of development in the future, particularly Greenland, where our experience in Iceland could be applied to great effect. In just half a century, Iceland has been transformed from a country receiving development aid into one of the world’s most prosperous nations. Approximately 10% of the inhabitants of the Arctic are indigenous and it is vital that all development in the region is in harmony with local communities and the environment. The Bank has therefore adopted a special sustainability policy on the Arctic.

The Bank’s business loan portfolio to companies in the Arctic, excluding Iceland, grew by 10% in 2023, with 61% of these loans being to the seafood sector.

Aiming to improve services

Our vision for the next three to five years is to become the best at meeting the needs of our target groups – a leading company which drives the success of our customers and the whole of society. Today we provide solid financial services – but we know we can do better.

To guide us on the road ahead we have adopted specials service standards. All product development and services need to meet these standards, which in basic terms mean that we go the extra mile, with refreshing services and understand our customers’ situation with empathy.

Solid performance on the stock market

For more than a decade, Arion Bank has played a key role in reinvigorating the Icelandic stock market. 2023 was no exception, with the Bank participating in the IPOs of Arnarlax, Hampiðjan, Kaldalón and Ísfélagið. Arion Bank has now been actively involved in nine of the last ten IPOs on Nasdaq Iceland.

Arion Bank also had the highest turnover in equities on Nasdaq Iceland, with 20%, the eighth year in a row it achieved this distinction.

Besting banking app for seven straight years – and it’s only getting better

The Arion app has given us a competitive edge and we fully intend to keep it. It is one of our most important service channels, and this year we launched a host of new features in the app. These included real time market data for equities trading in the app, limit orders and numerous pension related functions.

We also launched a virtual card for online purchases. The card is free of charge and makes online buying more secure, which is obviously one of our absolute priorities.

Accommodate our customers’ needs

Helping our customers when they invest in property is one of the most important services we can provide. High interest rates and soaring inflation have created a hostile environment for homeowners in Iceland. When interest rates were low, many borrowers locked into non-indexed mortgages for three to five years. You could say that these borrowers had found a safe haven in the high interest environment we have seen in the last few months and years.

Now, with the fixed rate period coming to an end for many people, some households might see a substantial increase in their monthly repayments. To accommodate the needs of these customers we have introduced two new options. Firstly, there is a payment holiday for one month a year, and secondly there is a so-called payment limit which means that we reduce the interest paid by up to 4 percentage points. The deferred interest payment is then added to the loan principal. This option is ideal for people who want to lower their monthly repayments but still want non-indexed loans. We have made a concerted effort to reach out to these customers so we can discuss with them what the available options are. It is important that people find out what’s on offer and decide what suits them best.

Whole community faces uncertain future

Frequent volcanic eruptions have unfortunately become part of our lives in Iceland. The Reykjanes Peninsula has stirred to life and an entire community has been temporarily made homeless. The people of Grindavík do not know when – or indeed whether – they will be allowed to return to their homes. In response to this uncertainty, we decided with other financial institutions in November to freeze mortgages in Grindavík for three months and to waive interest and indexation on the loans for this period. In early 2024 we decided to extend these measures for a further three months, until the end of April, as the uncertainty had not diminished. By doing this we hope to help alleviate the concerns the people of Grindavík are experiencing at the moment.

Women invest – a long-term initiative

In recent years we have placed great importance on gender equality at the Bank. In 2015, we were the first bank to gain equal pay certification from the union VR and later the Ministry of Welfare’s equal pay symbol. We have set a target of reducing the unexplained gender pay gap to below 1%; in 2023 it was 0.2% in favour of women. We have also set the target to reduce the ratio of the median value of total wages paid to men compared to the median value of total wages paid to women to below 1.3. The ratio has been decreasing in recent years and was down to 1.28 in 2023. But we can do even better and fully intend to do so.

In 2023, we looked into gender quality on the financial market. Being an active participant in the financial market is an important way of having an influence on society, while laying the foundations for one’s own future. By investing people contribute to the development and growth of society and the more people that take part, the more equal this growth will be. We carefully analyzed the investment market, and unfortunately it came as no surprise to discover that there is a great disparity between men and women in terms of savings, pensions and engagement in the financial market. We have therefore launched the long-term initiative Women invest whose aim is to promote investment by women. The initiative has got off to excellent start and there has been a full house at all the events we have organized so far.

All the photographs in this year’s Annual and Sustainability Report are taken from Arion’s Women invest campaign.

Financial health and sustainable value creation

In the last few years, we have engaged two ratings agencies to help us assess our performance in sustainability as we aspire to be frontrunners in this area. Once again, the Bank received an outstanding rating from Sustainalytics, which places us in the top 3% globally, both among regional banks and the almost 16,000 companies rated by the agency. For the third straight year, the Icelandic ratings agency Reitun gave us the highest rating it has given, 90 out of 100 points and the rating A3. This accomplishment is particularly pleasing as both companies are making their requirements stricter all the time.

The Bank is on a strong footing – good credit rating from Moody’s

In order to be able to perform for customers, shareholder and society, the Bank has to be profitable and financially robust. And we are. The Bank’s capital ratio was 24.1%, well above the regulatory minimum, and the leverage ratio was 12.4%, which is considerably higher than peer group banks.

Moody’s gave the Bank an Aa2 long-term rating for its euro-denominated covered bonds. The rating reflects the quality of Icelandic mortgages, the strong position and the robust framework around covered bonds in Iceland. Arion Bank was the first Icelandic bank to issue covered bonds in euros which now constitute an important source of funding for the Icelandic banking system. This is the highest rating achieved by an Icelandic issuer, and the fact that Arion Bank has been rated three notches higher than the Icelandic government represents a certain milestone.

Enormous thanks to the chairman of Arion Bank

Brynjólfur Bjarnason, who was first elected to the board of directors at a shareholders’ meeting in November 2014, and went on to be elected as chairman of the board in March 2019, will not stand for re-election to the board of directors at the Bank’s AGM 13 March 2024. This brings to close an important chapter and on behalf of the employees of Arion Bank I would like to thank Brynjólfur for his outstanding contribution.

Clear strategy and vision

The year 2023 was a good year, we further consolidated the Bank’s position and took vital steps towards preparing for the next phase. The road ahead is shaped by a clear purpose, mission and vision, and the future is full of promise.

I would like to thank my colleagues, customers, shareholders and the board of directors of Arion Bank for their invaluable support in 2023.