Chairman’s address

Profitable business

Over the last few years, we have made a focused effort to improve operational efficiency at the Bank, and the organizational and strategic changes introduced towards the end of 2019 have been pivotal in this respect. The changes were underpinned by the strengths and the mindset which have characterized Arion Bank and its predecessors. There was no need to completely overhaul the Bank’s strategy. Instead, certain focuses when it came to our strengths and traditions needed to be refined. These strategic adjustments were soon translated into results, and Arion Bank’s return on equity has exceeded our 13% target for the last three years, and the Bank has outperformed our main competitors in terms of ROE. These achievements have been recognized by the leading global finance news publication, The Banker, published by The Financial Times, which has named Arion as Bank of the Year in Iceland for the past three years.

Comprehensive financial services

One of our chief focuses in recent years has been to expand our product range by integrating the services offered by Arion Bank and our subsidiary Vörður, with the fund manager Stefnir already representing a key component of our service offering. This approach offers individuals, companies and investors a seamless spectrum of services and at the same time diversifies the Bank’s revenue streams. Varied sources of income protect the Bank against fluctuating demand for different services and therefore act as an effective risk management tool.

Leading provider of corporate services

Over the past few years, we have also achieved better synergy in our corporate services business, which is exactly what we were aiming for when we merged the Bank’s Corporate Banking and Investment Banking divisions in 2019. The key to enhanced corporate services has been closer teamwork between our specialists, not just in Corporate & Investment Banking but across other divisions and at our subsidiaries, Vörður and Stefnir. The close partnership between a bank and an insurance company, the bancassurance model, was a new step in Iceland and has brought us excellent results.

These changes to corporate services have yielded positive results in many areas. For example, Arion Bank has been in a class of its own in terms of IPOs on the Icelandic stock market. Last year the Bank participated in the listings of Arnarlax, Hampiðjan, Kaldalón and Ísfélagið, and has played a key role in nine of the last ten IPOS in Iceland.

Impressive performance against challenging market backdrop

For the eighth year in a row, Arion Bank had the highest market share in equities trading on Nasdaq Iceland. The Bank had approximately 20% of the total turnover on the equities market in 2023. The Bank also had the highest market share on the Nasdaq First North market, with a 24.9% share, and the second highest turnover in bonds on Nasdaq Iceland.

In 2023 we also saw a positive trend in demand for our pension services. In recent years we have placed great emphasis on making information on pensions easily accessible to customers in the Arion app, thus giving them a better overview of this crucial area of their finances. In addition to being able to stay on top of their pensions in the app, customers can now sign up for pension schemes and perform a range of other actions, quickly and conveniently. The number of new supplementary pension schemes signed up for in the app in 2023 far outstripped our expectations.

Assets under management at Arion Bank at year-end total ISK 1,383 billion, up ISK 85 billion from the previous year.

Best at meeting our customers’ needs

In 2023, we set ourselves the clear vision of being the best at meeting our customers’ needs. We want to be a market leader and the driver of success for our customers and society as a whole. We want to be the first choice for individuals, companies and investors. In actual fact, it is often the same person who performs all these roles; being part of a family and company and making investments. That’s how we want to outperform our competitors, and that’s where the diversity and accessibility of our service offering comes into its own.

There are few banks in Europe which offer as diverse a range of financial services as Arion Bank and its subsidiaries do, especially when you consider what is available to our customers via digital channels. Customers can attend to nearly all their day-to-day financial needs in the app and online banking, organize their savings, stay up to date with their pensions and buy and sell securities. One of the latest updates in the app now allows people with corporate accounts to switch easily between their personal and company’s accounts.

Diverse services make us strong competitors

The environment for financial institutions is highly dynamic. Competition comes from all directions, both in Iceland and abroad. In Iceland new financial institutions have sprung up online and achieved remarkable results. It can be complex for established banks to respond to such competition, but we are convinced that our broad service offering and the results we have achieved in digital services put us in a better position to compete. Arion Bank and our subsidiaries enjoy business relationships with around 190,000 people, and our goal is to leverage these strengths to further cement these connections for everyone’s benefit.

Sustainable value creation

In 2023, we defined our mission as being to help people 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 to be a trusted partner and to have a positive impact on our society, environment and the climate.

Sustainability is part of the Bank’s organization and comes under the responsibility of the board of directors and the CEO. As in previous years we are publishing in this Annual and Sustainability Account detailed information on sustainability in compliance with legislation and regulations, the Nasdaq ESG Reporting Guide and Global Reporting Initiative (GRI) and are also taking our first steps towards reporting under the European Sustainability Reporting Standard (ESRS). The standard forms part of the requirements for the forthcoming transposing of the Corporate Sustainability Reporting Directive (CSRD) into Icelandic law. We also look to the UN Sustainable Development Goals and the 10 Principles of the UN Global Compact, the United Nations’ corporate sustainability initiative. As we have done in recent years, we are publishing information on the Bank’s status in terms of implementing the Principles for Responsible Banking. We are also publishing a report on the Bank’s financed emissions and our first climate targets up to 2030.

Member of SBTi and Net-Zero Banking Alliance

Arion Bank has pledged to follow the methodology of the Science Based Targets initiative (SBTi) when setting emission reduction targets in the Bank’s lending activities and investments. The Bank has also joined the UN-convened Net-Zero Banking Alliance, a global group of banks committed to financing ambitious climate action to transition the real economy to net-zero greenhouse gas emissions by 2050. The Bank will work towards getting SBTi to validate its science-based climate targets within the next two years. These targets aim to keep global warming below 1.5 C° and for Arion Bank to be net zero by 2040.

Membership of both the Net-Zero Banking Alliance and SBTi represents a key step in the Bank’s sustainability journey. How a bank manages and shares its financial resources can have a decisive impact on the progress of sustainable development in individual countries and globally. Arion Bank’s environment and climate policy states that the Bank wants to help Iceland become carbon neutral by 2040 and joining these initiatives contributes towards reaching these targets.

The state is the biggest actor in the Icelandic financial market

The Icelandic government remains the biggest actor in the Icelandic financial market. Although steps have been taken to reduce the government’s holdings in financial institutions, it needs to go further because it is neither a normal nor sensible state of affairs when the Icelandic government fully owns one of the three main banks and has a major stake in a second. It is crucial for the development of an effective financial market that the government continue to unwind its involvement. By doing so it will boost investor confidence and attract foreign investment which can only be beneficial to the Icelandic stock market.

I would also like to reiterate my position that the government needs to make it easier for Icelandic banks to compete with international banks seeking to do business with Icelandic companies. International competitors pay lower taxes, have lower capital requirements and less restrictive financial regulation than Icelandic banks.

Solid foundations and a clear vision for the future

After having served on the board of directors of Arion Bank for a decade, the last five years of which as chairman, I feel it is the right time to step back. It has been a great pleasure to have been part of the Bank’s journey over the last ten years, a period in which the Bank has experienced many changes. The Bank has performed strongly, and its balance sheet is robust. I am confident that Arion is well placed to tackle the challenges it faces in the future – its foundations are solid and its vision for the future is clear.

I am very grateful to the Bank’s shareholders for their support. I would also like to thank the employees of Arion Bank, the board of directors and our customers for making our enjoyable time together such a success.