CEO's address

The year 2021 showed quite clearly how the Bank’s interests are inextricably linked to those of our customers. When the Bank’s customers are prospering, then the Bank is prospering. Arion Bank engaged in numerous exciting projects with our customers this year. Business flourished on both the advisory and lending sides. It was a record year in terms of mortgage lending to retail customers, who were highly active on the property market. The Bank hit all its key operating targets during the year. We reported net earnings of ISK 28.6 billion and return on equity was 14.7% which was well above our targets.

Arion Bank was named Bank of the Year in Iceland by the financial publication The Banker and won Icelandic business awards at the end of the year. These awards are the result of the hard efforts of a dedicated team of employees during the year.

Shared progress

Our role is to support the Bank’s customers in their endeavours and to foster their growth and prosperity. In partnership with our customers and through their investments and growth, we are laying the foundations for progress in Iceland – for the benefit of the whole of society. During the year we teamed up with numerous companies on challenging and extensive engagements such as the IPOs of Arctic Fish, Play, Íslandsbanki and Solid Clouds. The Bank also participated in a number of loan and advisory transactions with major companies in the pharma, retail, telecom and construction sectors. We financed Norðurál’s investment in a new production line, which will significantly reduce energy consumption in the manufacture of aluminium rods and has a far lower carbon footprint than if the manufacturing process was located abroad. The loan was our first new green corporate loan under the comprehensive green financing framework which Arion Bank issued during the summer.

Focused strategic changes, hard work and ambition shown by a dedicated team of employees, simpler processes and greater responsibility delegated to employees have laid the groundwork for the excellent achievements of the Bank’s corporate business. We strive to be a committed partner because this is the key to shared success with our customers.

Surpassing our goals

The Bank reached all its key operating targets during the year. Return on equity was 14.7%, surpassing our 10% target for 2021. All the Bank’s business segments met their operating targets and a number of milestones were reached. For example, the Bank’s deposits outgrew deposits at our competitors. Our market share in vehicle loans to retail customers is at an all-time high, and green car loans were particularly popular. It was another record year in terms of mortgage lending, with a total of ISK 211 billion in mortgages, and the Bank’s mortgage portfolio grew by ISK 85 billion over the year.

Arion Bank had the highest market share in equities trading on Nasdaq Iceland for the sixth year in a row. A record number of customers joined our private banking service and assets under management at Private Banking grew by 30% and at Institutional Asset Management by 19%. Assets under management grew 19.5% during the year.

New service – Arion Premia

Arion Bank strives to serve customers who require a diverse range financial services and we aim to be their bank of choice. During the year we created a new service, Arion Premia, which is specifically designed for this group of customers. It has got off to an excellent start and now more than 2,000 customers are members of Arion Premia.

Best banking app once again

The Arion app was named the best banking app for the fifth year in a row by consumers in a survey by MMR. We are a market leader in digital services in Iceland and we intend to continue on this trajectory. During the year investing in shares and funds became possible using the Arion app and the number of equities trades via Arion online banking and the app more than trebled from the previous year. Using the app to manage one’s pensions continues to be a highly popular feature of the app, and sales of pension agreements and transfers of pension savings from our competitors have increased substantially. The response to these innovations underlines how our customers appreciate it when we are able to simplify a service which initially appears complex and daunting to many people. The ability to offer diverse financial services through one of the best digital channels in Iceland is and will remain one of our main strengths.

Advancing on the insurance market

Arion Bank and our subsidiary Vörður have resolved to take the partnership to the next level through shared sales channels and infrastructure. The partnership has got off to an excellent start and Vörður has now moved into Arion Bank’s headquarters at Borgartún 19. Combining forces has already resulted in growing insurance sales to both individuals and companies. The benefits are clear for all to see, and I am convinced that this partnership and synergy has enormous potential. Our state-of-the-art digital sales and services channels are central to this success. We can also see exciting opportunities for Vörður on the corporate market, where the Bank’s connections and experience can be put to good use.

Taking services to the next level

We introduced certain organizational changes during the year which underscore our desire to bring the Bank’s services to the next level. Early in the year, all corporate services in the Reykjavík area were merged, with the aim being to coordinate and enhance the service and to grow the Bank’s market share among SMEs. Then, in the autumn we created a new division called Customer Experience, which resulted in a new managing director joining the Bank’s executive committee. The aim is simply to further enhance customer experience through all the Bank’s service channels. It’s an important step in the process ahead of improving services and the customer experience.

Dealing with complex issues

For some time, companies which we were in the process of selling had a negative impact on the Bank’s financial results. These were the subsidiary Valitor and acquired companies such as the silicon plant at Helguvík and tour companies in Scandinavia. Key milestones were reached during the year when Rapyd agreed to acquire Valitor, Ferðaskrifstofa Íslands agreed to buy Heimsferðir and the Bank sold its share in the Danish tour operator Bravo Tours 1988. The sales of Valitor and Heimsferðir are subject to the approval of the Icelandic Competition Authority.

That leaves the silicon plant at Helguvík. Since 2018 the Bank has been working to get the affairs of the silicon plant in good order. Given the failures which characterized the plant’s operations, I can perfectly understand that many of the local residents had misgivings about continued activities at the site. However, there is a great deal of value in the company’s infrastructure at Helguvík, and it is our duty to ascertain whether this can be utilized sensibly, and one of the conditions for potential buyers of the plant is that they have a successful track record of running silicon plants. A programme for improvements has been designed to ensure that the plant meets the most stringent quality and environmental standards. We have held discussions with numerous interested parties and examined several options and spoken to the local authorities in Reykjanesbær about finding a new role for the site. However, these talks have not led to anything concrete. Now, at the beginning of 2022, Arion and PCC signed a letter of intent concerning PCC’s potential acquisition of the plant. PCC operates a silicon plant at Húsavík and therefore has the requisite experience of operating a silicon plant in harmony with the immediate environment in Iceland. Our firm intention is for the final outcome, whatever that might be, to be acceptable to all stakeholders.

The importance of diversity and equality

For many years Arion Bank has placed great importance on equality throughout its business. The main emphasis in recent years has been on ensuring that people are paid equal salaries for equally valuable jobs. The Bank first gained equal pay certification from the union VR in 2015 and was awarded the Ministry of Welfare’s equal pay symbol in 2018. In the last equal pay audit, the unexplained gender pay gap at the Bank was down to 0.1%. In 2020 the Bank signed a letter of intent concerning the Equality Scale, stating that we intend make a focused effort to balance out the gender ratio at senior management level. The Bank has also received the Equality Scale award in the last two years.

In 2021, the Bank received the highest rating – “excellent” – in the ESG risk assessment performed by the Icelandic ratings agency Reitun, an achievement we are proud of.

The Bank’s new equality and human rights policy and action plan place greater emphasis on balancing gender ratios at the Bank, not just at management level but throughout different job families, committees and business units. One of the measures we introduced during the year was to ensure that employees receive close to 80% of their salaries for six months during parental leave. The Bank will therefore provide employees on parental leave with additional financial support where applicable and in accordance with the rules of the parental leave fund. This is in addition to payments from the parental leave fund and contractual benefits, so that the salary during parental leave reaches close to 80% of normal salary. The Bank also encourages its employees to exercise their right to parental leave to the full. Our long-term goal by doing this is get more fathers to take paternity leave and to increase the number of women in management.

Innovation in the Bank’s funding

Arion Bank issued a milestone bond during the year, the Bank’s first covered bond issue in euros. The Bank had the best rates that any Icelandic issuer, including the Icelandic government, had obtained on the international credit markets in the last 13 years. The Bank also issued its inaugural green bonds, both in euros and Icelandic krónur. New issues such as these, and deposit growth, are vitally important as they reduce the Bank’s funding costs and further boost our ability to be competitive.

A strong team

The results achieved this year didn’t happen spontaneously. Our employees and customers form a united team which forges ahead and achieves success. With a clear vision, a remuneration policy in which the interests of our employees are aligned with those of other stakeholders, and ambitious targets, we enjoyed an excellent year and are determined to maintain this momentum.

I would like to thank the employees, the board of directors and our customers for their invaluable contribution to what has been achieved this year.