Arion Banki

• Arion Bank reports net earnings of ISK 7,091m in Q2, compared with ISK 10,050m in Q2 2022
• Return on equity in Q2 was 15.5%, compared with 22.6% in Q2 2022
• Earnings per share in ISK of 4.84 in Q2, compared with ISK of 6.70 in Q2 2022
• Net interest margin of 3.2%, compared with 3.1% in Q2 2022
• Solid quarter in all fee generating businesses in terms of fees and commission income, with total fees of ISK 4.2bn.
• Core operating income, defined as net interest income, net commission income and insurance service results (excluding opex of the insurance operation), increased by 8.0% compared with Q2 2022
• Other income positive due to ISK 1.6bn revaluation of the investment property Blikastadir
• Cost-to-core income ratio in Q2 was 39.4%, compared with 42.0% in Q2 2022
• The balance sheet increased by 3.6% from year-end 2022
• The Bank’s capital ratio was 23.9% and the CET1 ratio was 18.9% at the end of June
• Pillar II capital requirements was reduced from 3.5% to 2.1% at the end of June
• The insurance subsidiary Vördur adopted IFRS 17 Insurance Contracts 1 January 2023 resulting in change in presentation of insurance results and restated comparative figures

Arion Bank reported net earnings of ISK 7,091m in the second quarter of 2023 and ISK 13,382m during the first six months of the year. Return on equity was 15.5% for the quarter and 14.5% for the first six months.

Total assets amounted to ISK 1,518bn at the end of June, compared with ISK 1,466bn at the end of 2022. Loans to customers increased by 4.6% in the first six months of 2023. The increase was 7.9% in corporate lending and 1.8% in loans to individuals, mainly mortgages. Deposits from customers increased by 3.4% during the first six months, especially from individuals and larger corporates. Total equity amounted to ISK 186bn at the end of June. Total equity decreased from year-end due to a capital release of ISK 15.6bn which was partly offset by net earnings for the first half of 2023.

The Group's capital ratio, as calculated under the Financial Undertakings Act No. 161/2002, was 23.9% and the CET1 ratio was 18.9%. The ratios take into account the deduction of 50% of net earnings as foreseeable dividend in line with the Bank’s dividend policy. These ratios comfortably exceed the requirements made by the FSA and Icelandic law.

Benedikt Gíslason, CEO of Arion Bank
“Arion Bank’s second quarter financial results are line with our expectations and reflect the stability which has characterized the Bank’s operations in recent quarters. Return on equity in the quarter continues to exceed the Bank’s 13% target and all key financial targets were met. However, growth has slowed down in general, which is unsurprising given that economic growth in Iceland has also begun to slow down. Various positives can be found in the Icelandic economy at the moment. Inflation has finally begun to recede, while the international ratings agencies S&P Global Ratings and Moody’s have both recently upgraded the sovereign outlook from stable to positive.

In June the Financial Supervisory Authority of the Central Bank of Iceland published the results of its annual assessment of risks in the operations of Arion Bank and concluded that the additional capital requirement would be reduced by 1.4 percentage points. The FSA’s decision is positive for the Bank, and at the end of the second quarter the Bank’s CET 1 ratio was 18.9%, which is four percentage points higher than the minimum requirement. Arion Bank’s liquidity and funding positions also remain robust.

The partnership between Arion Bank and Vörður continues to go from strength to strength, and insurance premiums at Vörður increased in the second quarter by 14.4% compared with the same quarter last year. The highest growth rate was in corporate insurance which is due to the incorporation of Vördur’s corporate services division into the Bank’s Corporate & Investment Banking division. This move also helped to broaden Vördur’s revenue basis and diversify its risk.

Earlier in the month it was announced that the Danish company Coloplast had acquired the Icelandic startup company Kerecis. Kerecis is an excellent example of an innovation success story in Iceland, where a previously discarded raw material is now being transformed into a valuable medical product. It is vital that we continue to nurture innovation in this country as the IP industry has become the fourth pillar of the nation’s export revenue. The role of a bank is to take calculated risks alongside its retail and corporate customers, and this is something we do each and every day. We are delighted to have even been just a minor participant in this journey, and the Bank will recognize income of ISK 560 million in the third quarter from the sale of Kerecis. Several other Icelandic startups are doing amazing things today, companies such as Controlant and Amaroq Minerals, who we have worked closely with over the past few years, and we will watch how they perform over the next few years with great anticipation. In addition, various established companies which have made innovation integral to their business have been achieving excellent results, for example Hampidjan, which recently engaged Arion Bank to manage its IPO before making its return to the main market of Nasdaq Iceland.

During times of inflation, it has tended to be difficult to invest savings so that the investment retains its value with respect to inflation without it being tied up for three years. The situation changed in May when Arion Bank launched a new inflation-linked savings option for retail customers where the funds are subject to a notice period of only 90 days. Changes to legislation which came into effect on 1 June meant that inflation-linked savings were no longer subject to a minimum investment period of three years, and this enabled the Bank to offer a new type of account. The change in the law was great news for consumers and the new account has proven very popular among our customers.

In June Mosfellsbær municipality announced its new land use plan for the largest undeveloped piece of land in the capital city area, which is owned by Arion Bank. The 93-hectare area is set to undergo further development, and the secondary land use plan will be announced at a later stage. A total of 3,700 homes are planned to be built, a mixture of single family and multi-family residences, as well as 150 apartments for people aged 55 and over, schools, sports facilities and commercial property. After this important milestone was reached and uncertainty over the future of this key project has been reduced, the Bank has upgraded its valuation of the land and this had a positive impact on the quarterly results. We look forward to watching this area develop as it represents a much-needed addition to the housing market.”

Investor meeting / webcast in English on 27 July at 10:30 CEST / 9:30 BST / 8:30 GMT
Arion Bank will be hosting a meeting at the Bank’s headquarters in Borgartún 19, Reykjavík, on Thursday 27 July at 10:30 CEST / 8:30 GMT where CEO Benedikt Gíslason and CFO Ólafur Hrafn Höskuldsson will present the results and give an update on the economic environment. The meeting will take place in English and will also be streamed live.

The webcast will be accessible live on financialhearings and a link is also available on the Bank’s website under Investor Relations.

Participants attending virtually will be able to ask questions during the meeting through a message board, located below the video feed. Answers will be provided by presenters at the end of the webcast.

For any further information please contact Theodór Fridbertsson, Head of IR, tel.+354 856 6760, or Haraldur Gudni Eidsson, Head of Corporate Communications, tel. +354 856 7108.

Financial calendar
Arion Bank’s financial calendar is available on the Bank’s website.