Arion Bank reported net earnings of ISK 21.7 billion, compared with ISK 49.7 billion in 2015. Return on equity was 10.5%, compared with 28.1% in 2015. Adjusted earnings amounted to ISK 9.7 billion, compared with ISK 14.1 billion in 2015. Adjusted return on equity was 4.7%, compared with 8.7% in 2015.
Total assets amounted to ISK 1,036.0 billion at the end of 2016, compared with ISK 1,011.0 billion at the end of 2015. Shareholders’ equity totalled ISK 211.2 billion at the end of 2016, compared with ISK 192.8 billion at the end of 2015. The Bank enjoys a strong financial position and the focus in 2016 has been on maintaining good liquidity during the period leading up to the lifting of the capital controls.
The Bank’s capital ratio at the end of the year was 27.1%, compared with 24.2% at the end of 2015. Tier 1 Capital increased during the year to 26.5%, compared with 23.4% at the end of 2015.
Highlights of the income statement and key performance indicators:
| In ISK million | 2016 | 2015 | Q4 2016 | Q4 2015 |
| Net interest income | 29,900 | 26,992 | 7,842 | 6,705 |
| Net commission income | 13,977 | 14,484 | 3,765 | 3,757 |
| Net financial income | 5,162 | 12,844 | 823 | 2,669 |
| Net insurance income | 1,395 | 761 | 731 | 216 |
| Share of profit of associates | 908 | 29,466 | 198 | 22,510 |
| Other operating income | 2,096 | 1,622 | 431 | 200 |
| Operating income | 53,438 | 86,169 | 13,790 | 36,057 |
| Salaries and related expense | (16,659) | (14,891) | (4,407) | (4,571) |
| Other operating expenses | (13,881) | (12,917) | (3,803) | (4,169) |
| Bank levy | (2,872) | (2,818) | (682) | (650) |
| Net impairment | 7,236 | (3,086) | 409 | (2,972) |
| Net earnings before taxes | 27,263 | 52,457 | 5,307 | 23,695 |
| Income tax | (6,410) | (3,135) | (1,149) | 504 |
| Net gain from disc. operations | 886 | 360 | 317 | 83 |
| Net earnings | 21,739 | 49,682 | 4,475 | 24,282 |
| KPI's: | ||||
| Return on equity (ROE) | 10.5% | 28.1% | 8.6% | 51.6% |
| Net interest margin (int. bearing assets) | 3.1% | 3.0% | 3.2% | 2.9% |
| Cost-to-income ratio | 57.2% | 32.3% | 59.5% | 24.2% |
| Tier 1 ratio | 26.5% | 23.4% | 26.5% | 23.4% |
Höskuldur H. Ólafsson, CEO of Arion Bank:
“Arion Bank’s financial results for 2016 were satisfactory and matched our expectations. The Bank performed well in its core operations and continued to consolidate its financial position. The capital ratio is 27.1% and the liquidity ratio is 171.3%, which is well above the regulatory requirements and very strong by international standards. Arion Bank is a universal financial institution, occupying a strong position on the retail and corporate markets, which is reflected by the structure of the Bank's loan portfolio. The Bank’s strong standing on our chosen markets and the diverse service offering result in effective risk distribution. Furthermore, the Bank’s robust capital position gives the Bank a broad authority to pay dividends or other disbursement of equity.
A key feature of 2016 was investing for the future in services demanded by our customers. The Bank’s acquisition of the insurance company Vördur, which was completed during the year, is a prime example of this. Vördur enjoys a strong position on the insurance market, has a 10% market share and is popular among its customers. The insurance services offered by Vördur are therefore key to Arion Bank’s strategy of offering universal financial services to its customers.
Information technology played a central role during the year. We focused on the IT set-up at the Bank and in January 2017 an agreement to outsource some services to Nýherji was reached. Nýherji is one of Iceland’s leading IT companies and is now responsible for operating the Bank’s IT systems. We continue to have a dedicated team in the Bank's IT division, the majority of whom are engaged in software development, and Arion Bank introduced a range of new digital solutions for its customers during the year. For example, customers can now obtain a confirmed credit appraisal via the Bank’s website in just a few minutes. We will continue in this direction as our customers want to be able to attend to their finances whenever and wherever it suits them and we will continue to do our utmost to meet their needs. Demand for financial services is thus evolving and we strive to develop alongside these changes.
During the spring Arion Bank opened a branch at Keflavík International Airport and in doing so took over all financial services at the airport, one of Iceland’s largest market places. Tourism has undergone enormous growth in Iceland and so this represents an exciting opportunity for us.
Our subsidiaries are integral to the Bank's strategy and product offering. Key subsidiaries besides Vördur are Iceland’s largest fund management company Stefnir and the payment services company Valitor. Valitor is vigorously expanding its operations in Denmark and the United Kingdom. Income from Valitor’s international operation grew by 50% in 2016 and now represents more than 60% of total revenue. The company has had a presence on these markets for many years and is now firmly establishing itself. By acquiring Vördur and investing in Valitor’s overseas business Arion Bank is laying stronger foundations for the Group and preparing for the future.
The Bank issued bonds in euros to a broad group of investors on two occasions during the year. At the beginning of 2017 the Bank tapped the second issue which now amounts to €500 million. The Bank’s terms on the international credit market have improved markedly recently, clear testament to the growing confidence of bond investors in the Bank and the Icelandic economy. Standard & Poor’s also upgraded the Bank’s credit rating from BBB-/A-3 to BBB/A-2 during the year.
It is disappointing that the authorities have decided to extend the bank levy, which was supposed to be a temporary measure but is now part of the long-term fiscal policy. The bank levy is a tax on banks’ funding. Other sectors in Iceland or international banks with operations in Iceland and which lend to Icelandic companies are not subject to such tax. This is a special tax which makes it difficult for banks to be competitive, both on the domestic market and also with international financial institutions on the Icelandic market. It means that banks are competing domestically with pension funds to provide mortgages, yet pension funds do not pay income tax, financial sector tax or the bank levy. It is clear that there is not a level playing field on this market with this kind of government intervention. In 2016 Arion Bank paid ISK 5 billion in taxes which other sectors are not subject to. The bank levy has had a limited impact on the banks’ pricing so far as it was only designed to be a temporary measure. As the bank levy is placed on the banks' funding, it results in higher costs for customers and eventually leads to higher interest rates in Iceland. It is important that this form of taxation be reviewed.
Last summer Kaupthing hf, which owns 87% of Arion Bank, and Arion Bank issued a joint statement in which it was announced that Arion Bank and Kaupthing were examining the options regarding Kaupthing’s shareholding in the Bank. An IPO was cited as one of the options being examined. We and Kaupthing continue to explore all options with respect to its shareholdings.”
Conference call in English
Arion Bank will be hosting a conference call in English on Tuesday 14 February at 1:00 pm GMT, where Stefán Pétursson, Chief Financial Officer, will discuss the highlights of the Bank’s financial results. People interested in participating can contact ir@arionbanki.is to obtain dial-in information.
For further information please contact Haraldur Gudni Eidsson of Arion Bank's Communications division at haraldur.eidsson@arionbanki.is, or tel. +354 444 7108.
