Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Investor Day (March 2024)
85 slides from Arion Banki Hf's investor day presentation, Mar 1, 2024
Slide 1: Capital Markets Day
Capital Markets Day 1 March 2024
Slide 2: Schedule
Schedule Arion Capital Markets Day 2024 Yer 3m Time Agenda Speaker 09:00 Building on a strong foundation Benedikt Gislason ° Attractive market - unique position - track record of delivering CEO 09:30 | Maintaining digital leadership eye easel . F q q Ilda Bra Benediktsdottir 09:45 | Enhancing the va
Slide 3: Building on a strong foundation
Building on a strong foundation Benedikt Gíslason CEO
Slide 4: Operating in an attractive market
Operating in And a track With a unique an attractive record of position market delivering
Slide 5: Opportunities for growth in a dynamic business climate
Opportunities for growth in a dynamic business climate Operating in an attractive market With a unique position And a track record of delivering Dynamic business climate Opportunities for growth • Iceland is among the top 15 most educated countries in the Record growth of the world Icelandic populat
Slide 6: Track record of solid economic growth
Track record of solid economic growth Operating in an attractive market With a unique position And a track record of delivering Iceland's thriving economy attracts an international workforce which has led to one of the highest rates of population growth in Europe contributing to robust and consisten
Slide 7: Favorable demographics foster growth
Favorable demographics foster growth Operating in an attractive market With a unique position And a track record of delivering With largest generation aged between 25-35, the demographics are deemed to be favorable for the foreseeable future Working age population Population age distribution Share o
Slide 8: Strong financial standing of private and public sectors
Strong financial standing of private and public sectors Operating in an attractive market With a unique position And a track record of delivering provides fertile ground for continued entrepreneurship and innovation Households' financial assets and liabilities Household and non-financial corporate d
Slide 9: Exports remain robust as tourism bounces back
Exports remain robust as tourism bounces back, fostering Operating in an attractive market With a unique position And a track record of delivering economic vitality Number of foreign tourists Exports -ISK bn per quarter, seasonally adjusted (Jan 2024 price levels) 3,500,000 600 3,000,000 500 2,500,0
Slide 10: Arion is positioned in the most attractive customer segments
Arion is positioned in the most attractive customer Operating in an attractive market With a unique position And a track record of delivering segments with a strong and diversified product offering Mortgages Mandatory pensions Car loans Integrated model with diverse key Supplementary pensions Consum
Slide 11: Strong financial and risk profile
Strong financial and risk profile Operating in an attractive market With a unique position And a track record of delivering Diverse income mix Diverse loan book Operating income 2023 Loans to customers YE 2023 CET1 19.7% Leverage ratio 12.4% ISK 64.2bn ISK 1,153bn LCR 192% Problem loans 1.7% 11
Slide 12: Focused strategic direction has enabled us to exceed medium-term targets
Focused strategic direction has enabled us to significantly Operating in an attractive market With a unique position And a track record of delivering exceed our medium-term targets ROE target of >10% reached in 2021 – revised target of >13% reached in 2022 and 2023 Target revised to cost to core inc
Slide 13: 2019 strategic focus areas remain the guiding light
2019 strategic focus areas remain the guiding light Capital Markets Day 2019 2019-2023 Next steps…. Updated strategic priorities Strong delivery Strategic refinements to secure long-term success • Increased operational efficiency through key 2019 2021 2023 cost initiatives The strategic priorities l
Slide 14: Significant momentum in customer satisfaction
Significant momentum in customer satisfaction in line with enhanced focus on a customer centric culture Continued focus on growing share of wallet Opportunities for growth Customer satisfaction in target client segments Revenue per customer Strategic priorities #1 #2 Be a leader in identifying and m
Slide 15: Strategic initiatives focused on leveraging our established framework
Strategic initiatives focused on leveraging our established framework Retail Bank / Insurance Corporate & Investment Bank Markets In the coming weeks we will be launching Optimized products and services for Premium and wealth management a new rewards program which ties corporates and SMEs following
Slide 16: The Arctic offers significant potential in the long term
The Arctic offers significant potential in the long term Key focus sectors • One third of rare earth metals and Continued measured and deliberate steps materials to position ourselves to play a key role in the Arctic region Fishing • ~40% of farmed salmon and related species • Arion is in a unique p
Slide 17: Continued progression of our development assets within Landey
Continued progression of our development assets within Landey Arnarland Blikastadir The land covers approximately 9 hectares and is located in the heart of the capital Blikastadir is the largest undeveloped plot of land in the capital area, covering area, in Garðabær. Development is ongoing and it i
Slide 18: Blikastadir is a long-term project with significant potential
Blikastadir is a long-term project with significant potential (Book value ISK 6.7bn) Local planning in progress This first phase area is expected to be approximately 30-35 ha. with around 1,200 units, divided between family housing and apartments. A new school will also be constructed in this phase.
Slide 19: A new approach to our development assets
A new approach to our development assets A combination of local market expertise and deep sector Robust real estate know- w “ -stop- ” company A strong real estate and development company that covers the entire real estate process from start to • Arion Bank is exploring the option of creating a new
Slide 20: Continued focus on sustainability
Continued focus on sustainability The Bank received strong ESG ratings and aims to be net zero by 2040 Next steps in our sustainability journey Aim to reduce financed emissions in the sectors which Sustainalytics places Arion Bank in the have the most impact in line with net zero target by top 5% of
Slide 21: Continued operational efficiency
Continued operational efficiency Cost-to-Core income (%) Continued focus on -17.6 pp. streamlining the Bank Cost-to-core income medium target of <45% Branch strategy has resulted in reduction of smaller branches and development of larger full-scale service branches New COO role fosters cross-unit co
Slide 22: Medium term targets
Medium term targets* Operating in With a unique And a track >13% Return on equity an attractive market position record of delivering >7.2% Core income over REA • Robust Icelandic economy with • Broad product offering with an • ROE above local competitors for <45% Cost to core income integrated banki
Slide 23: Maintaining digital leadership
Maintaining digital leadership Björn Björnsson CIO
Slide 24: Arion has spearheaded the delivery of digital financial services in Iceland
Arion has spearheaded the delivery of digital financial services in Iceland Front runner in building a comprehensive digital Recognized locally and platform for financial services (select examples) globally Digital loan applications Driven by customer Home loans and Car loans Best banking app in Ice
Slide 25: Maintaining tech leadership requires continued investment
Maintaining tech leadership requires continued investment with clear alignment to the Group’s strategy Key challenges Actively addressed A Breadth of offering stresses technology Ongoing infrastructure modernization with infrastructure and development capacity focus on cloud native technology and Sa
Slide 26: Ongoing infrastructure modernization with focus on cloud native
Ongoing infrastructure modernization with focus on cloud native A technology and SaaS – without outsized investment levels Special focus areas in Arion's technology stack 2024-2026 Lending Ongoing for all technology domains Modernization of services layer to cloud native technology • New services Pa
Slide 27: Increased investment in and higher productivity of digital development
Increased investment in and higher productivity of digital B development organization Mid ’ Agile@Scale transformation already delivering Continued investment in IT development Acceleration of Data ambitions with new Data improved productivity planned for ’ -’ organization reporting to CDAO # of tec
Slide 28: Continued investment in cybersecurity
Continued investment in cybersecurity C to address amplified and more advanced cyber and fraud activity Stronger security Fraud prevention • Upgrades to networking hardware and • AI based risk profiling of contextual data security layer for suspicious activity detection • Elevated DDoS security leve
Slide 29: Key takeaways
Key takeaways Information Technology IT infrastructure Step change in New CDAO role to Continued IT cost & investment modernization well deliveries from accelerate Data and commitment to planned at 14-14.5% progressed digital development AI ambitions invest in Cyber of Core Income No outsized invest
Slide 30: Enhancing the value of being a customer of Arion
Enhancing the value of being a customer of Arion Iða Brá Benediktsdóttir Deputy CEO and Managing Director of Retail Banking
Slide 31: Diverse revenue streams through comprehensive financial services to individuals
Diverse revenue streams through comprehensive financial services to individuals Loans to individuals represent 53% Net interest income represents Successful deposits strategy, of total loan book 76% of revenue robust NIM and stable deposits ISK 12bn EBT in 2023 Compared with ISK 9bn in 20211 Mortgag
Slide 32: Unique position, offering a full range of financial services
Unique position, offering a full range of financial services and products Arion Bank, Vörður, Stefnir, and the pension funds we Mandatory pension service have long-standing relationships with half of UCITS funds Institutional investor funds Supplementary pension Pension fund operations the Icelandic
Slide 33: Digital leader in financial services
Digital leader in financial services - Best financial app in Iceland 7 years in a row - Digital leader in global comparison regarding usage and digital sales The Arion app offers a broad range of financial services Loans Payments Mortgages Credit cards Overdrafts Debit cards Car Bills Short term Cla
Slide 34: Efficient branch network
Efficient branch network Ready to capitalize on well balanced digital and branch network Important changes to the branch network Increased cost efficiency with digital channels Significant changes in branch network and FTEs in the Migration of 11,000 customers to digital-only behaviour past decade h
Slide 35: Strong momentum in our bancassurance journey
Strong momentum in our bancassurance journey, with significant potential Personal service Arion Bank and Vörður’s service setup 136% increase in insurance sales integration successful through Arion sales teams in 2023 Integrating service representatives of Arion Arion Bank Contractors Vörður Bank an
Slide 36: Key initiatives rolled out in 2024
Key initiatives rolled out in 2024 enhancing the value of being a customer of Arion Arion Loyalty Arion Rewards Arion Family 36
Slide 37: Arion Rewards
Arion Rewards Rewards system for customers of the Arion Group with diverse financial services Our bancassurance journey continues with a new reward program focused on families Bancassurance rewards are created to fuel Vörður insurance sales and highlight the value of being a customer of the Group Ke
Slide 38: Arion Family
Arion Family New financial management features in our app and online bank Outstanding services to families by creating a financial overview, increasing financial education to improve financial health and creating a simple offering for parents to manage finances for their children and other family me
Slide 39: We encourage women to invest
We encourage women to invest Long-term initiative designed to empower women and support financial health was launched in January Women are historically less involved in • ’ Women Invest is a long-term decisions relating to capital markets and project with the aim of empowering women investments. Our
Slide 40: Key takeaways
Key takeaways Retail Bank Strong Momentum in Continuing our Arion Loyalty Remain digital foundation with customer Bancassurance starting with leader diversified satisfaction journey Bancassurance income streams Integrated bank with holistic Customer centric focus Consolidate Arion and Rewards and Fa
Slide 41: Leading market position with digital innovation
Leading market position with digital innovation Jóhann Möller Managing Director of Markets
Slide 42: Arion Bank has leading market position in Icelandic capital markets and asset management
Arion Bank has leading market position in Icelandic capital markets and asset management 19% market share of volume in #1 in equities #2 in bonds Capital markets 2023 8 consecutive years (#1 in 2022) ISK 157bn in assets under Increased AuM of 12.2% Bancassurance ratio of 30% Private Banking manageme
Slide 43: Solid AuM growth has driven durable revenue and earnings
Assets under management split YE 2023 Solid AuM growth has driven durable revenue and earnings The largest asset manager in the Icelandic market with ISK 1,383 bn (EUR 9.2bn) in ISK 1,383bn assets under management at year-end 2023 Estimated around 1/3 of domestic GDP 2023 Arion Bank has a long histo
Slide 44: Institutional asset management remains the cornerstone
Institutional asset management remains the cornerstone of our asset management business Market leader Historical roots Economies of scale Institutional assets under management (ISK bn) Arion Bank is the largest Legacy pension funds Highly scalable services institutional asset manager ’ and infrastru
Slide 45: Premia and private banking offer Iceland's most comprehensive services
Premia and private banking offer Iceland’s most comprehensive financial services to private clients Premia Premia and private banking value offering Premia is a service tailored to our high value market segment High value core clients High net worth clients ISK 157bn in AuM Through Premia, Arion aim
Slide 46: Clear leader in Icelandic capital markets
Clear leader in Icelandic capital markets Unrivalled deal flow and placing Universal product offering Unique retail features through power digital channels #1 in equities trading Leading position in equity and bond • Desk analyst Investors can trade Icelandic equities Eight consecutive years trading
Slide 47: Stefnir is a market leading fund management company
Stefnir is a market leading fund management company with a proven track record AuM of ISK 247bn Unique product Solid private equity Stefnir AuM by asset class (ISK bn) offering track record Stefnir, founded in 1996, is a Katla Fund Global Equity ’ PE investments have wholly owned subsidiary of (art.
Slide 48: The Arctic is a long-term growth opportunity
The Arctic is a long-term growth opportunity enabled through private equity and debt investments There is great investment need in the Arctic Arion Bank’s unique position and possible region in coming decades contribution in the area Fishing - Icelandic experience of building infrastructure and key
Slide 49: Arion's #1 app lays the foundation to our product offering
Arion’s #1 app lays the foundation to our comprehensive product offering UCITS funds Our clients benefit from Arion Institutional investor funds Private equity funds being a one-stop-shop for all Private debt funds financial services Deep market insights and investment opportunities Brokerage SMEs H
Slide 50: Key takeaways
Key takeaways Markets Leader in capital Diversified revenue Arion ecosystem Digital leadership Increase in Assets markets and asset streams basis for robust 360° enables scalable under Management to management service and financial business ISK 2,000bn in five health years 50
Slide 51: Delivering sustainable growth through client relations and capital management
Delivering sustainable growth through client relations and capital management Hákon Hrafn Gröndal Managing Director of Corporate & Investment Banking
Slide 52: We have made solid operational progress
We have made solid operational progress And have structured CIB to further support our focus areas ISK 19bn EBT in 2023 Compared with ISK 16bn in 20211 Large corporates SMEs and Corporate finance Operations and and leveraged bancassurance development finance Arion Group has a relationship with 59% A
Slide 53: Improved profitability driven by customer focus and clear pricing strategy
Improved profitability driven by customer focus and a clear pricing strategy 4.5% NIM On average 2023 Compared with less than 3.0% in 2019 80% delivering above ROE target ISK 5.6bn Total commission and financial income 2023 Compared with ISK 1.7bn in 2019 53
Slide 54: Capital velocity
Capital velocity The key to effective use of equity and support increased profitability CIB on balance exposure each year ISK bn 52% 6% Growth in on-balance lending 23% Since 2019 474 446 16% Improved 300% Capital efficiency (1%) 361 Increase in lending activity Compared with 2019 312 310 Driving IS
Slide 55: Our credit syndication focus is evolving
Our credit syndication focus is evolving Supporting strong returns without elevated risk profile Corporate credit sales 30% CAGR Corporate credit sold from 2021 Increased Improved Increased Credit funds corporate credit growth + 25% CAGR capital velocity utilization capacity 20% marketable We provid
Slide 56: Leading in Corporate Finance
Leading in Corporate Finance Advised on 80% of listings and equity public offerings since 2021 2023 Strategic focus Uplisting Support client ambitions Delisting Leading advisor in large transactions Equity raise Preferred partner in listings Project origination 2022 Focused on closing ratio Projects
Slide 57: There are further opportunities in the Arctic region
There are further opportunities in the Arctic region Our Arctic book represents 9.3% of total lending in 2023 (from 5.5% in 2020) Arctic loan book Increased diversification Arctic opportunities 2023 5% Continued lending activity 3% 3% 2% Supporting sustainable investment opportunities 28% Arctic sto
Slide 58: Our bancassurance strategy has come a long way
Our bancassurance strategy has come a long way With further opportunities on customer base Steady increase in corporate bancassurance We have built our strategic capabilities Broaden our customer 18% to 25.7% segments bancassurance A composite and more customer-centric product offering ratio since 2
Slide 59: All corporates merged under Corporate and Investment Banking
All corporates merged under Corporate and Investment Banking We are extending our focus towards all corporates Finetuning efficiency and increase service offerings We are focused on Operational excellence Through optimizing processes Product offering Cross selling and enhanced client relations Custo
Slide 60: Operational efficiency is a priority
Operational efficiency is a priority We are committed to increasing efficiency digitally and non-digitally Motivation Objectives 15 transformational Acting on customer feedback digital projects In-depth interviews with customers and committed in 2024 compared to 3 in 2022 systematic analysis of cust
Slide 61: Key takeaways
Key takeaways Corporate & Investment Bank We have cemented We will maintain We are ready Our culture There are a strong operation momentum and to build further is driven and considerable and solid ground client focus on our foundation solution oriented opportunities With clear focus on pricing, By s
Slide 62: Capturing the value of bancassurance
Capturing the value of bancassurance Guðbjörg Heiða Guðmundsdóttir CEO of Vörður insurance
Slide 63: Meet Arna
Meet Arna
Slide 64: During a lifetime, things happen
During a lifetime, things happen Fire ISK 4.3m Homeowner ISK 615k Home ISK 522k Car ISK 675k Pet ISK 89k Source: Average claim cost based on ’ data
Slide 65: Vörður is a general insurer in Iceland building on strong foundations
Vörður is a general insurer in Iceland building on strong foundations 14% CAGR since 2007 (ISK bn) 17.8 Vörður tryggingar is a general insurance company Insurance revenue offering holistic insurance solutions to individuals, families and corporate customers 14% ’ y b b provider of marine insurance i
Slide 66: Strong insurance revenue growth momentum and increasing market share
Strong insurance revenue growth momentum and increasing market share Our insurance revenues have consistently increased well over market growth over the past five years. There remain considerable growth opportunities, both in non-life insurance and in life and health insurance Main reasons for growt
Slide 67: Sustainable underwriting strategy allows for responsible future growth
Sustainable underwriting strategy allows for responsible future growth There are considerable growth opportunities through bancassurance value Combined ratio Cost ratio Reinsurance ratio Claims ratio proposition to individuals and having our corporate sales team within Arion ’ Corporate and Investme
Slide 68: Well balanced investment portfolio managed by Arion Bank
Well balanced investment portfolio managed by Arion Bank ’ Y b Breakdown of investment portfolio YE 2023 equity holdings Equity holdings 26% 27% Government bonds Vörður has historically maintained a liquid and relatively risk-averse b ’ b for an appropriate solvency ratio ISK 30.5bn Bonds in the por
Slide 69: Strategic priorities focus on growth opportunities and improved service
Strategic priorities focus on growth opportunities and improved service Strategic pillars Priority Description Description Starting point Corporate premiums (ISK bn) Integrated Corporate and Investment 26% 14% Corporate insurance Banking and insurance teams accelerate premium growth and deepen the 4
Slide 70: Bancassurance is a unique competitive advantage in the market
Bancassurance is a unique competitive advantage in the market The opportunity Our strategy to get there Our progress so far Next steps to further capturing the value • Large network of Arion Bank branches and service representatives • Excellent lead generation through Arion Bank branches of bancassu
Slide 71: Key takeaways
Key takeaways Strong momentum Clear strategic Unique position in sustainable priorities for holistic revenue growth bancassurance offering
Slide 72: Drivers of continued financial performance
Drivers of continued financial performance Ólafur Hrafn Höskuldsson CFO
Slide 73: Track record of delivering on financial targets
Track record of delivering on financial targets Deliberate and focused strategic direction has facilitated strong delivery on medium-term targets Significant milestones achieved Return on Equity 2019 strategic focus areas Increased operational efficiency through key cost initiatives 🗸 🗸…
Slide 74: Key initiatives to drive continued financial momentum
Key initiatives to drive continued financial momentum Projects outlined in earlier presentations have clear positive impact to financial performance Strategic projects with clear positive financial impact, around resilience, efficiency and growth opportunities IT Retail Banking Vörður Investment com
Slide 75: Economic outlook assumptions
Economic outlook assumptions Inflation Central Bank policy rate GDP growth Unemployment rate 75 Source: Arion Research & Central Bank of Iceland Note: Yearly averages
Slide 76: Net interest margin
Net interest margin Stability through the cycle and near-term tailwind Evolution of NIM Near-term NIM outlook Examples of strategic initiatives impacting NIM • Stability in net interest margin through the cycle around 3% Repricing of the fixed rate mortgages will Loyalty projects support customer re
Slide 77: Net fee and commission income
Net fee and commission income Continued momentum Evolution of fee and commission income Near-term outlook Strategic initiatives impacting fee generation • Robust growth over past five years with increase of 65% from 2019 Slower economic growth outlook is a near Capital velocity enhanced utilization
Slide 78: Vörður
Vörður Expected to deliver up to ISK 5bn in pre-tax profit, at a high return on capital employed The road to enhanced profitability Outlook Strategic initiatives impacting net of insurance insurance and financial income • ’ combined ratio was 97% in 2023 which is high in a historical perspective. At
Slide 79: Operating expenses
Operating expenses Ongoing efficiency drive Examples of strategic Evolution of OPEX initiatives impacting operating Near term OPEX outlook expenses Cost increase in recent years been below inflation and held relatively General inflationary pressures IT investment commitment supporting stable while s
Slide 80: Cost of Risk
Cost of Risk Solid position Evolution of Cost of Risk Near term Cost of Risk outlook Strategic initiatives impacting Cost of Risk • Current expected credit loss levels predict 30bps cost of risk in the near term, impacted by conservative IFRS 9 assumptions High interest rates are a near term Close d
Slide 81: Funding
Funding Navigating through multiple Near-term funding considerations capital and funding constraints Enhanced stability and diversity Covered bonds Regulatory constraints Deposits • Established domestic investor base and • MREL requirements inaugural euro covered bond in 2021 with • MREL- subordinat
Slide 82: Capital and credit rating
Capital and credit rating Ongoing strategic review on Arion’s optimal credit rating coverage Medium term capital target unchanged Issuer rating BBB Covered bond A+ Outlook Stable Arion is currently undertaking a review of the appropriate number of credit rating agencies Target capital structure over
Slide 83: Medium term targets
Medium term targets* Operating in With a unique And a track >13% Return on equity an attractive market position record of delivering >7.2% Core income over REA • Robust Icelandic economy with • Broad product offering with an • ROE above local competitors for <45% Cost to core income integrated banki
Slide 84: Q&A
Q&A
Slide 85: Disclaimer
Disclaimer This document has been prepared for information purposes only and should not be relied upon, or form the basis of any action or decision, by any person. Nothing in this document is, nor shall be relied on as, a promise or representation as to the future. In supplying this document, Arion