CEO’s address

2022 will chiefly be remembered for the Russian invasion of Ukraine, the consequences it had for the people of that country and the economic fallout in Europe. In the wake of the conflict, historically high inflation has dogged the European economy, interest rates have soared and volatility has racked the asset markets. Iceland has in many ways been spared the effects of the conflict but we are not immune to the turbulence on the securities markets, both here in Iceland and on both sides of the Atlantic. Yet while the economic environment was challenging, Arion Bank performed solidly in 2022. The Bank reported net earnings of ISK 25.4 billion in 2022 and return on equity was 13.7%, beating the Bank’s 13% target.

We strive to be a good partner for companies and households. Our role is to help them with our knowledge, experience and capital and to enable them to reach their goals – to achieve success. Together we stimulate investment, development and market activity, bringing progress from which we all benefit. We seek to approach all our tasks responsibly and to understand the needs of our customers and the society in which we work.

Chief Executive Officer

Benedikt Gíslason

Stimulating construction of new homes

The housing shortage of the past few years has put pressure on prices on the housing market and fuelled inflation. Arion Bank achieved an important milestone during the year when it reached an agreement with the town of Mosfellsbær on the development of a sustainable community in the area. It represents the largest single piece of building land in Iceland and is owned by Arion Bank through the company Blikastaðaland ehf. The community is expected to be home to around 3,700 people. In addition Arion Bank is also financing the construction of around 1,600 homes.

Busy year in the corporate market

During the year Arion Bank partnered numerous companies on a range of exciting projects. These included the stock market listing of Nova, the acquisition of a 50% share in Annata and the acquisitions and planned de-listing of Origo, as well as the share capital increase and listings of Amaroq Minerals and Alvotech. Arion Bank has been involved in 60% of listings of Icelandic companies on the stock market in the last decade. Loans to companies grew strongly, up 23%, and this was despite the fact that the Bank had success in selling loans in line with our strategy on capital velocity.

Households investing despite higher interest rates

Central Bank policy rates increased by 4 percentage points in 2022, from 2% to 6%. Such a sharp rate hike undoubtedly has an impact on demand for credit. Nevertheless we lent around ISK 150 billion in mortgages during the year, helping a huge number of customers either refinance their homes or buy new properties. The fixed interest period on around 10% of non-indexed Arion Bank mortgages with fixed interest rates ends in 2023. This accounts for only 3% of the Bank’s mortgage portfolio. Borrowers are then given several options, i.e. they can choose indexed or non-indexed loans and fixed or variable interest. Indexed loans have lower debt service and customers can, if they choose, adjust the debt service by choosing a mixed loan, i.e. partly indexed and partly non-indexed. Homebuyers have never had such a wide choice of mortgage options as in the past few years.

Demand for car loans at Arion Bank continues to grow. The loan portfolio has grown 65% in three years and the Bank’s market share has gone from 15% to almost 40%. The focus on digital solutions combined with quick and good quality service has delivered excellent growth. The process for registering car loans has also been digitalized, meaning the entire car loan process, from application to paying out the loan, is now 100% automatic.

Strong performance on the markets

Arion Bank had the highest market share on Nasdaq Iceland in 2022, both in fixed income and equities trading, and it was the seventh year in succession that the Bank has ranked number one in equities turnover.

There was a good flow of capital into asset management and investment returns were satisfactory in difficult market conditions. Stefnir funds also attracted significant new capital from investors. Stefnir manages two of the highest yielding funds last year, while other Stefnir funds rank highly in all asset classes according to the Keldan website. Frjálsi Pension Fund, which is managed by Arion Bank, was named best pension fund in European countries with fewer than one million inhabitants by the publication IPE.

Strong united team offering diverse services

In mid-year the sale of Valitor was completed after a protracted sale and approval process. The sale has brought sharper definition to the Group’s focus. The employees of Vörður relocated to the headquarters of Arion Bank at the beginning of the year, bringing the teams of Vörður, Stefnir and Arion Bank even closer together. Various aspects of Vörður’s business will be integrated with the Bank’s operations, similar to the structure at Stefnir. Together the three companies are able to offer more diverse financial services than our competitors which can only be good news for our customers. The Group’s strength is embodied in the united team we form, with our broad service offering and wide customer base who rely on us for their financial needs.

Bancassurance takes off

The relocation of Vörður to Arion Bank’s headquarters and the closer cooperation between the companies has created potential for both companies to grow. We make a point of offering Arion Bank customers insurance from Vörður at favourable rates. All key insurance policies from Vörður are now available in the Arion app, and customers can get a detailed overview of their insurance policies in the app. Our app is a brilliant services and sales channel and offers endless opportunities.

Despite the fact it was a tough year in many ways for the insurance industry, premium growth was strong at Vörður, both from households and corporates. We continued to bring on board new customers and grow our market share. We were delighted to reach the targets we set at the start of the year on selling insurance through the Bank’s sales and service channels.

Convenient and personal digital services

The Arion app was named the best banking app in Iceland for the sixth year running by bank customers in a survey conducted by MMR. Over the past few years Arion Bank has released more than 30 digital innovations. The focus on digital services has made banking and finance more straightforward and convenient for retail and corporate customers alike. Studies of international banks show that Arion Bank is among the best performing banks globally in terms of digital services.

Although high quality digital services make banking easier for people, we continue to place great importance on being able to offer outstanding personalized services at the Bank’s headquarters and our branches across the country. Customers can obtain professional advice on savings, mortgages and pensions – things which matter to all of us. We are also committed to providing excellent services to high volume customers. To cater to this discerning group who require diverse and personal financial services we launched a new service called Premía and the customers invited to join have expressed great satisfaction with it.

Creative funding – positive credit rating from Moody’s

One of our major expense items is funding. We are in the enviable position of being free of pressing funding requirements in 2023. We have always been forward-thinking and creative when it comes to funding, and in the autumn we received The Covered Bond Report award for excellence for the first Icelandic issuance of covered bonds in euros in 2021. The Bank held two green bond issues in 2022, bringing the total to four since the publication of the green financing framework. The fact that we added a positive credit rating from Moody’s, the first of the major Icelandic banks, will also stand us in good stead.

Achieving our targets

All in all, 2022 was a good for year for Arion Bank. Return on equity was 13.7%, exceeding our 13% target. We also achieved nearly all of our operating targets during the year. The Bank’s performance in recent years has attracted attention and we have won several awards. Most recently we were named bank of the year in Iceland by The Banker, a leading global finance news publication published by the Financial Times, for the second year in succession. In terms of sustainability, we were ranked as one of the best performing companies globally by Sustainalytics, and once again we were rated outstanding by the ratings agency Reitun in terms of ESG performance, scoring 90 points out of a possible 100.

Your success

We want to help our customers succeed. Deliver success which helps them and our society to thrive. This is what success means to us. We aim for continuous improvement, to do better today than we did yesterday, to consolidate our relationships with our customers and to be better placed to serve them. We want to build solid long-term business relationships.

We look ahead full of optimism with ambitious targets and a clear vision for the future.

I would like to thank my colleagues and the board of directors for their invaluable contribution to a successful 2022.