Arion Bank performed well in 2015. The Bank reported net earnings of ISK 49.7 billion, with irregular items such as the sale of legacy holdings having a substantial positive impact. Return on equity was 28.1%. Core operations gained added strength and the Bank clearly felt the positive effects of renewed vigour in the Icelandic economy. We were especially pleased that the Banker magazine, published by The Financial Times, named Arion Bank as the bank of the year in Iceland for 2015.
Strong position on our key markets
The Bank’s core operations performed well in 2015 and we consolidated our position on our key markets. Commission income continued to grow and approximately 80% of such income is generated by providing services to our corporate clients. Equity is currently high at ISK 202 billion. Return on equity from regular operations was nevertheless satisfactory at 10.4%.
A watershed year
Irregular items had a profound impact on Arion Bank’s financial results in 2015. During the year several major recovery cases, which we had been working on for several years, were brought to a conclusion. Significant interests were at stake for the Bank. We are pleased to have been able to complete them successfully. The greatest impact on the financial results was the sale of shares in five companies in unrelated areas of business. In all the companies Arion Bank was a minority shareholder. The companies were listed on a stock exchange, except one of them which was sold following a open sales process.
This brought to an end the largest recovery projects Arion Bank has been tackling in recent years and 2015 therefore marked a watershed in the Bank’s history.
Höskuldur H. Ólafsson
CEO of Arion Bank
Given the highly positive impact of one-off events on the Bank's financial results, it is clear that this year’s return on equity of 28.1% is not a reliable indicator of the Bank’s future profitability. The 10.4% return on equity from regular operations probably gives a more accurate indication of the future taking into account the Bank's currnent equity position.
This brought to an end the largest recovery projects Arion Bank has been tackling in recent years and 2015 therefore marked a watershed in the Bank’s history.
Regeneration of the Icelandic stock market
From the outset it was our stated aim at Arion Bank to help develop a strong Icelandic stock market. We view it as a vital component of a robust economy. One of the most important steps we have taken in this regard has been to help all those companies we have acquired and which we believe should be on the stock market to go public. By arranging IPOs in Reitir, Eik and Síminn, Arion Bank gave the public the opportunity to invest in these companies and to become active participants in the Icelandic stock market.
Arion Bank has been involved in 60% of new listings in recent years. Three of these took place in 2015 and were the only listings on the main list of Nasdaq Iceland during the year. We are proud to have achieved this as it was neither straightforward nor something we could take for granted.
Arion Bank has been involved in 60% of new listings in recent years. Three of these took place in 2015 and were the only listings on the main list of Nasdaq Iceland during the year.
Crucial funding milestone achieved
During 2015 the Bank advanced its efforts to diversify its funding. Deposits remain the main source of funding but we have increased the weight of funding from other areas. Significant in this respect was the Bank’s €300 million bond issue in March. This was the first international bond issue to a broad range of investors by an Icelandic bank for several years. The Bank also issued bonds in Norwegian kroner and covered bonds in Icelandic krónur, inflation-linked and nominal. A milestone was achieved during the year when Standard and Poor’s upgraded the Bank's credit rating to investment grade. The Bank´s credit rating is now BBB-, with a positive outlook.
A milestone was achieved during the year when Standard and Poor’s upgraded the Bank's credit rating to BBB-, investment grade, with a positive outlook.
Growth in Retail Banking
Arion Bank won the tender to provide financial services at Keflavík International Airport. The Bank will open for business at Iceland’s largest airport in the spring of 2016. Arion Bank has never operated at the airport or in that region so this is a really positive step. To be able to offer financial services to a completely new group of customers at Iceland's main international airport at a time when tourism is booming is an enormously exciting challenge for us.
Arion Bank won the tender to provide financial services at Keflavík International Airport. The Bank will open for business at Iceland’s largest airport in the spring of 2016.
Arion Bank also opened a new branch in Siglufjördur following the merger with AFL Savings Bank. The Bank now has a strong presence in northern Iceland as it runs its pension administration service from Siglufjördur and has five branches in the region.
Enhancing customer service through lean management
Since 2012 we have introduced lean management throughout the Bank. We have made this a priority and now approximately 90% of employees have gone through the process. A fundamental component of lean management is the focus on continuous improvement and we are dedicated to this way of thinking. Our aim this year is make between five and six thousand continuous improvements in our day-to-day work, both big and small, with the intention of increasing efficiency for the benefit of our customers, since the primary objective of lean management is to offer better service to customers.
Arion Bank offers universal banking services
A key component of Arion Bank’s strategy is to offer customers – individuals, companies and investors – universal banking services. Arion Bank offers its retail services nationwide and enjoys strong working relationships with individuals and companies. In addition to this we have a team of credit specialists and sector experts whose aim is to attend to the borrowing needs of Iceland's largest companies. Arion Bank is a market leader in Iceland in asset management, both in terms of the size of the operation and the range of products offered. We have also been at the forefront in investment banking in Iceland, with the Bank arranging all three new listings on the Icelandic stock exchange during the year.
Arion Bank is a market leader in Iceland in asset management, both in terms of the size of the operation and the range of products offered.
The separation of investment banking and retail banking is discussed on a regular basis in Iceland. This debate has faded away in our neighbouring countries, as it is less relevant to smaller banks such as those operated in the Nordic region. The main tasks undertaken by Arion Bank’s Investment Banking division, in addition to research, are corporate advisory, e.g. on bond issues and stock exchange listings, and traditional capital markets activities, i.e. securities brokerage. Therefore the main activities are advisory services and facilitating the movement of capital and securities, and this has therefore nothing in common with the activities of investment companies, as some people have maintained. Nothing we do at Arion Bank under investment banking in any way jeopardizes our customers’ deposits. It is important to keep this in mind when discussing this topic, in addition to the fact that improvements to the framework governing the activities of financial institutions have imposed strict conditions on investment banking and reduced risk associated with it.
Dynamic subsidiaries support operations and augment services
Arion Bank has three subsidiaries which all perform an important role in providing our customers with universal financial services. These are the payment services company Valitor, the fund management company Stefnir and the insurance company OKKAR. The first two are leaders in their fields in Iceland and OKKAR is Iceland's oldest insurance company. In 2015 Arion Bank reached an agreement with BankNordic on the acquisition of the non-life insurance company Vördur. This transaction is subject to the approval of the regulators and this is likely to be finalized by mid-2016. The goal of this acquisition is to further consolidate the Bank's position as a universal bank by adding non-life insurance to the Bank’s range of products.
Arion Bank has three subsidiaries which all perform an important role in providing our customers with universal financial services.
Digital channels increasingly important
It is quite clear that information technology and digital services are going to play an increasingly central role in financial services. Banks need to be on their toes more than ever. We have focused heavily on this area in recent years to meet our customers’ needs. We have expanded our express banking services with a new generation of ATMs and Arion Online Bank is undergoing constant development and is an enormously popular service channel. The Arion app is fast becoming one of the most important service channels, and sessions using the app overtook the Online Bank for the first time in 2015. Digital channels will play an even more pivotal role in our product development and operations in the future. The future is certainly exciting for financial services.
Digital channels will play an even more pivotal role in our product development and operations in the future.
Arion Bank – for the future
In one way or another the future is always at the heart of financial services. This is a vision we share with our customers in various ways. We encourage our customers to save whenever they can, whether for a new house or their next summer holiday. One of the most important aspects of financial services is to help customers create financial security for the future. A fundamental part of this is financial education. Arion Bank has enjoyed a fruitful partnership with the Institute for Financial Literacy for several years and has been the institute's main financial backer.
We have also devoted a great deal of energy to nurturing innovation in Iceland. Arion Bank is a pioneer in Iceland in business accelerators. We have run the business accelerators Startup Reykjavík since 2012 and Startup Energy Reykjavík in cooperation with leading energy companies since 2013. Arion Bank has invested in each and every company to have gone through the accelerators, a total of 54. Startup Reykjavík was named the best business accelerator in the Nordic region at the Nordic Startup Awards. The fact that the companies which have passed through the business accelerators have raised more than ISK 1.7 billion, either in the form of equity or grants, is clear evidence of the success yielded by the business accelerators.
The fact that the companies which have passed through the business accelerators have raised more than ISK 1.7 billion, either in the form of equity or grants, is clear evidence of the success yielded by the business accelerators.
Arion Bank also invested ISK 1 billion in the fund Eyrir Sprotar during the year. Eyrir Sprotar is an investment fund which specializes in new companies which have strong international growth potential. The advent of business accelerators and investment funds such as Eyrir Sprotar has transformed the startup environment in Iceland in just a few years and we are proud of the contribution we have made.
We can make good things happen together - laying the foundations for an exciting future
Our role is to support our customers in the tasks they take on. This is how we add to our customers’ prosperity and contribute to the growth of the economy. The Bank is on a sound financial footing and is well prepared to support our customers in the future.
We have achieved excellent results in the past few years and 2015 is no exception. The future is exciting; definitive steps towards lifting the capital controls will be taken and Arion Bank will likely enter a formal sales process. We are well prepared because one of our tasks over the last few years has been to get the Bank ready to enter this critical phase. I would like to thank our employees and our customers for their excellent cooperation.