Targets and achievements
Arion Bank operates in accordance with clear financial targets which the Bank releases publicly. The Bank’s financial targets were updated at the end of 2021 and apply for the next three years. All the financial targets for 2021 were reached with the exception of 17% CET 1 ratio. The Bank’s dividend payments and share buybacks form part of the strategy to reach this target.
Targets for 2021
Arion Bank published its financial targets in releases to the stock market and in the Bank’s interim financial statements. The table below shows the financial targets for 2021 and the results that were achieved.
| Target | 2021 | |
|---|---|---|
| Return on equity | >10% | 14.7% |
| Operating income / REA | >6.7% | 7.6% |
| Loan growth | The loan book will grow in line with economic growth, with growth in mortgage lending expected to outpace corporate lending |
13.8% |
| Cost-to-income ratio | <45% | 44.4% |
| CET1 ratio | ~17% | 19.6% |
| Dividend payout ratio* | 50% | 79.0% |
* The Bank's dividend policy allows for a pay-out ratio of approximately 50% of net earnings attributable to shareholders through either dividends or buyback of the Bank’s shares or a combination of both. Additional distributions will be considered when Arion Bank’s capital levels are above the minimum requirements set by the regulators in addition to the Bank’s management buffer.
As the table illustrates, the Bank reached all its main operating targets in 2021. However, the 17% CET1 ratio was not achieved. At year-end the Bank had surplus capital of ISK 21 billion and the CET1 ratio was 19.6%. The release of surplus capital has proceeded more slowly than planned, partly due to the restrictions imposed on dividend payments due to the global pandemic.
Share buybacks and dividend payments totalled ISK 31.5 billion in 2021. The board of directors will propose at the Bank’s AGM on 16 March 2021 that dividends of ISK 22.5 billion be paid to the Bank’s shareholders. This is equivalent to ISK 15 a share. Furthermore, there may be a special dividend payment if the Icelandic Competition Authority approves the acquisition by Rapyd of the Bank’s subsidiary Valitor.
Updated 3-year targets
The board of directors approved the Bank’s new financial targets in December 2021 following the updating of the Bank’s business plan. The updated targets are shown below.
| New target | |
|---|---|
| Return on equity | >13% |
| Operating income / REA | >7.3% |
| Insurance premium growth | Premium growth (net of reinsurance) to exceed the growth of the domestic market by more than 3 percentage points |
| Loan growth | In line with nominal economic growth |
| Cost-to-income ratio | <45% |
| CET1 ratio | ~17% |
| Dividend payout ratio* | 50% |
* The Bank's dividend policy allows for a Pay-out ratio of approximately 50% of net earnings attributable to shareholders through either dividends or buy-back of the Bank’s shares or a combination of both. Additional distributions will be considered when Arion Bank’s capital levels are above the minimum requirements set by the regulators in addition to the Bank’s management buffer.
Setting clear targets is the key to success
In addition to these financial targets, the Bank and its divisions work towards a range of other targets. Many of them are integral to the Bank’s bonus scheme, and the employees can monitor how these targets develop throughout the year. Such indicators include knowledge of customers (KYC/AML), uptime of online banking and the app, and employer net promoter score.