English Icelandic
Published: 2021-07-28 17:31:00 CEST
Arion banki hf.
Half Year financial report

Arion Bank’s Q2 2021 financial results

  • Arion Bank reports net earnings of ISK 7,816 million in Q2 2021
  • The results represent a significant improvement in all segments from Q2 2020
  • Return on equity in Q2 was 16.3%, compared with 10.5% in Q2 2020
  • Net interest margin of 2.9% in a low interest rate environment, same as in Q2 2020
  • Core revenues increased by 10.5% compared with Q2 2020
  • Cost-to-income ratio in Q2 was 42.5%, compared with 45.5% in Q2 2020
  • The Bank’s total assets increased by 3.9% from year-end 2020
  • Dividend payment and share buy-backs amounted to ISK 17.8 billion during H1 2021
  • The Bank will launch buy-back on 29 July for the total amount of ISK 4 billion, 50% of share buy-backs authorized by the Central Bank of Iceland
  • The Bank’s total capital ratio was 27.2% and the CET1 ratio was 22.7% on 30 June 2021
  • The Bank is very well positioned to distribute capital and meet the funding requirements of its customers
  • Bancassurance will be a key area at Arion Bank over the coming months when the insurance subsidiary Vördur moves into the Bank’s headquarters and will work closely with Retail Banking
  • On 1 July 2021 Arion Bank entered into a definitive agreement on the sale of Valitor hf.

Arion Bank reported net earnings of ISK 7,816 million in the second quarter with 16.3% return on equity. Return on equity, assuming 17% CET1 ratio, was 21.3% for the quarter.

Total assets amounted to ISK 1,218 billion at the end of the period, compared with ISK 1,173 billion at the end of 2020. Loans to customers increased by 2.6%from year end 2020 with mortgage lending increasing by 9.6% during this period. Liquid assets increased by 7.3% despite share buy-backs and dividend payments during the first half of 2021. On the liability side deposits increased by 6.3% from year-end 2020. Total equity amounted to ISK 194 billion at the end of the period. Total equity increased due to the reported net earnings but decreased due to dividend paid and share buy-backs.

The Bank’s total capital adequacy ratio was 27.2% and the CET1 ratio was 22.7% at the end of June 2021, assuming 50% dividend payments of net earnings in line with the dividend policy and buy-backs of ISK 8 billion, compared with 27.0% and 22.3% respectively at year-end 2020. The Bank’s capital ratios comfortably exceed the requirements set by law and the Financial Supervisory Authority of the Central Bank.

Benedikt Gíslason, CEO of Arion Bank
“Arion Bank performed excellently in the second quarter. Return on equity in Q2 of 16.3% was well above the Bank’s 10% ROE target, the third quarter in a row in which we have exceeded targets. It is therefore fair to say that the Bank has successfully adapted to the challenges in the current environment. The Bank’s capital ratio remains one of the highest in Europe and the liquidity ratio is stronger than at our European peers. The Bank has been authorized by the Financial Supervisory Authority of the Central Bank of Iceland to commence share buy-backs and will initiate a program to buy back ISK 4 billion of its own shares tomorrow, 29 July.

A key milestone was reached during the quarter with the successful launch of a new deposits and payment system, which will bring increased efficiency to the business and enable us to further enhance our services. One of our chief focuses remains to make financial services more accessible and convenient for our customers. We recently launched a new feature on the Arion app, which makes it easier for our customers to invest in Icelandic stocks and in Stefnir funds, while also providing the customer with a clearer overview of their investments. This solution was developed in response to increased interest among the general public in investing in securities.

Numerous successful stock offerings have been held in recent months. These include the IPOs of Fly Play and Solid Clouds, in which Arion Bank played a key role as the companies were listed on the First North market. It is pleasing to see that the financial markets have been thriving in recent months and that companies now have an increasingly diverse range of financing options. The Bank’s Corporate Finance division has enjoyed a solid quarter, with engagements including the management of the Iceland Seafood International bond offering. This transaction represented a certain milestone, being the first unsecured corporate bond offering in Iceland for more than a decade. Arion Bank also advised on a major bond transaction at Alvotech, the acquisition by Lyfsalinn ehf. of all share capital in Lyfjaval ehf, and also arranged the sale and the financing process when the private equity fund VEX I invested in AGR Dynamics. 

We recently concluded an agreement with the fintech company Rapyd on the acquisition of Valitor. The deal is subject to the approval of the regulatory authorities.  Valitor has been in a sale process for some time and I believe this is an excellent outcome for both the Bank and Valitor, which will gain new owners with great ambition and experience in the field of payment services. Rapyd is at the forefront of technological innovation and has complementary strengths to those of Valitor. The financial impact of the deal with Rapyd is positive but will not be recognized in the accounts until the approval of the regulators has been obtained.

Vörður, a subsidiary of Arion Bank, is a highly successful insurance company which has been expanding its market share in recent years. We have now started to further integrate the businesses of Vörður and Arion Bank to lay the foundations for an even stronger partnership and to advance on the insurance market. It will enable us to build on each other’s strengths and to make us a more robust team. Arion Bank will bring to the partnership its dynamic sales and service channels such as the Arion app. Vörður will remain an independent company with its own brands. 

At the beginning of July Arion Bank published a Green Financing Framework which applies to our funding and lending activities. The framework is integral to the Bank’s focus on financing projects associated with sustainable development and green infrastructure and supports the Bank’s environment and climate policy. It clearly sets out the conditions which the Bank’s loans need to meet in order to be considered environmentally friendly. In line with the framework, we have recently issued our inaugural green bond for a total of €300 million. The issue was oversubscribed and the pricing of the bond was the tightest that the Bank has received in recent years. Green bond issues such as this help expand the Bank's investor base, thus improving funding access on favourable terms, which will help the Bank offer better terms to its customers and is essential in order to enable the Bank to consolidate its offering of green products.” 

Investor webcast on 29 July at 10:30 CET (8:30 GMT)
Arion Bank will be hosting a webcast on Thursday 29 July at 10:30 CET (8:30 GMT) where CEO Benedikt Gíslason, CFO Stefán Pétursson, Deputy CFO Eggert Teitsson and Head of Investor Relations Theodór Fridbertsson will present the results and answer questions from participants. The webcast will take place in English and will be streamed live.

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

To participate in the webcast via telephone and ask questions please call in using the relevant number indicated below before the start of the webcast:
Sweden: +46 850 558 354
UK: +44 333 300 9271
USA: +1 646 722 4902
Iceland: +354 800 7437 (PIN 10135050#)

Arion Bank Condensed Consolidated Interim Financial Statements 30 June 2021.pdf
Q2 2021 Arion Bank Presentation Investor.pdf
Q2 2021 Press Release Arion Bank.pdf