The 2014 Annual General Meeting of Arion Bank was held today, Thursday 20 March, at the Bank's headquarters in Borgartún, Reykjavík. The agenda of the meeting contained normal AGM business and the Bank's annual financial statement was approved. The meeting approved changes to the Board’s salary, and the remuneration policy of Arion Bank was approved. It was also decided that Ernst & Young hf. would continue as the Bank’s auditors.
The following people were elected on to the Board of Directors at the meeting: Benedikt Olgeirsson, Björgvin Skúli Sigurdsson, Gudrún Johnsen, Kirstín Th. Flygenring, Måns Höglund, Monica Caneman and Thóra Hallgrímsdóttir. The majority of Directors, or four out of seven, are now women. Kirstín is the representative of Icelandic State Financial Investments on the Board, and the others were nominated by Kaupskil.
Björg Arnardóttir, Sigurlaug Ásta Jónsdóttir and Ólafur Örn Svansson were elected as Alternates.
The Board's proposal that a dividend of 60% of the Bank’s earnings, or ISK 7.8 billion, be paid out for 2013 was passed.
The report of the Board of Directors for 2013
Monica Caneman, Chairman of the Board of Directors of Arion Bank, read out the report of the Board of Directors. Monica discussed the various milestones which had been achieved at the Bank during the year. This including gaining access to the international credit markets. In early 2013 the Bank secured foreign funding through a successful unsecured bond offering in Norwegian kroner. By doing so, Arion Bank became the first Icelandic bank to raise foreign funding since 2007. Monica said that the issue was part of the Bank’s strategy to diversify the Bank’s funding and at the same time it was an important step to make the Bank better positioned to serve our customers. The Bank has also issued covered bonds in Iceland, both indexed and non-indexed instruments. Monica went on to discuss the credit rating which Arion Bank obtained at the beginning of 2014 from the international ratings agency Standard & Poor's. The credit rating BB+ with a stable outlook further opens the way for the Bank on the international credit markets.
She also discussed what she thought were the most pressing tasks for the authorities today. These tasks are to increase investment, both from within Iceland and from abroad, and to lift the capital controls. In her opinion too little progress has been made in this respect in the last year. Monica went on to say: “many of the words and actions of the authorities recently have not been enough to increase the confidence of Icelandic and foreign investors in the Icelandic economy. The operating environment of Icelandic companies, especially financial institutions, remains too volatile. The legal environment for financial institutions has undergone enormous change and the recent steep increase in the bank levy is a clear example of that. This represents a massive rise in taxes which are not calculated on revenue or earnings but on liabilities. If the authorities want Iceland to be home to robust financial institutions which are capable of supporting the Icelandic business sector, then they need to create greater stability in their operating environment.”
Monica said that it was positive that she had detected the good will of the current government and its willingness for cooperation and partnership, a willingness to provide strong support to the Icelandic business sector. With regard to the legal environment she underlined the importance of looking at Iceland's neighbours and the EU and to build on their experience, stating that a separate Icelandic regulatory framework was to be avoided as it distorts the competitiveness of Icelandic financial institutions and the business sector. Monica noted that in this respect the Icelandic banks appear to be subject to greater restrictions than similar companies in the Nordic region in terms of cooperation, for example when it comes to infrastructure. “By doing this we are missing an opportunity to reduce the costs of the entire financial system without compromising the necessary competition between companies. Such restrictions are a cause for concern because reducing the costs is a critical task for Icelandic banks and it is in everybody’s interests that they manage to do so,” said Monica.
Finally, Monica mentioned the recognition given the Bank by The Banker magazine, which is published by The Financial Times. Towards the end of 2013 the magazine named Arion Bank as bank of the year in Iceland for 2013. Monica pointed out that it was the first time since 2007 that an Icelandic bank had received such recognition. This is testament to what has been achieved in Iceland in developing the financial system. Monica said that Arion Bank was chosen for its solid results in recent years and also for its leading role in Iceland in terms of funding, its range of mortgages, debt recovery work and innovative service offering. She particularly thanked the employees of the Bank for what had been accomplished in the last few years.
Goals reached
Höskuldur H. Ólafsson, CEO, discussed the Bank’s 2013 financial results. Höskuldur said the results were satisfactory and broadly in line with estimates. He made special mention of the stability in the Bank’s core operations. He said that 9.2% return on equity was adequate, particularly in light of the huge increase in the bank tax, and said that the Bank was financially robust with a capital ratio of 23.6%.
Höskuldur said that it was positive that new loans in 2013 amounted to ISK 120 billion, a 60% increase over the previous year.
Although there were several one-off events and valuation changes during the year, their effect on the Bank’s results were decreasing. The net effect of such factors on the annual results was negative and return on equity on regular operations was 10.5%, 1.3 percentage points higher than annual return on equity.
Höskuldur also mentioned changes to Arion Bank’s loan portfolio which will reduce risk in the Bank’s operations. At the end of 2013 retail loans represented 49% of loans to customers, a satisfactory figure and something that the Bank has worked on in the last few years. In 2010 the ratio of retail loans was only 25% of total loans to customers. The key milestones in this respect were the takeover of the loan portfolios from Drómi, Frjálsi and Hilda at the end of 2013 and the Bank's acquisition of the Kaupthing mortgage portfolio in 2011. Höskuldur said that the aim had been to achieve a balance in the Bank's loan portfolio as retail loans tend to be well secured and represent less of a risk to the Bank. The mortgage market is an important market for Arion Bank and a key focus in recent years has been new products and the ability to offer customers good terms and interesting loan options.
Höskuldur also talked about the changes to the Bank’s funding during the year. The Bank has diversified and improved the quality of its funding by issuing news bonds in Iceland and abroad and also by lengthening the term of the Bank's deposits. Höskuldur said that although there was no immediate funding need, it was nevertheless important to make these changes in order to strengthen the Bank’s funding base for the future. These changes are designed to reduce risk at the Bank. The lower risk achieved by raising the proportion of retail loans and the increased quality of the funding is reflected by the lower net interest margin, which was 2.9% in 2013.
Höskuldur also brought up the sharp increase in public levies which left its mark on the Bank’s 2013 financial results. Arion Bank will pay ISK 6.6 billion in tax for 2013, of which almost ISK 2.9 billion was a bank tax, a special tax levied on financial companies. At the end of 2013 the government raised the tax rate sharply. The bank tax is calculated on the liabilities of financial institutions, which are mainly customer deposits. At the end of 2013 customer deposits at Arion Bank totalled almost ISK 472 billion or 60% of the Bank’s liabilities.
Höskuldur said that during the year there had been a keen emphasis on cost control and that the Bank's targets had been reached. Operating expenses would continue to be a focus in order to improve operating efficiency.
For further information please contact Haraldur Gudni Eidsson, Head of Communications division at Arion Bank, tel: +354 856 7108, haraldur.eidsson@arionbanki.is
