Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Arion Bank — Investor Day (2021)
96 slides from Arion Banki Hf's investor day presentation, 2021
Slide 1: Arion Bank Capital Markets Day
Arion Bank Capital Markets Day 8.30 Reception and breakfast 10.15 Efficiency and bancassurance Ida Brá Benediktsdóttir – MD of Retail Banking 9.00 A smaller but more profitable bank – what next? 10.35 Relevant and convenient Benedikt Gíslason – CEO customer experience From resilience to rebound Stei
Slide 2: A smaller but more profitable bank – what next?
A smaller but more profitable bank – what next? Benedikt Gíslason – CEO
Slide 3: Share price development
Share price development 3 Nasdaq Iceland – share price development
Slide 4: Most strategic ambitions fulfilled or exceeded since last CMD
Most strategic ambitions fulfilled or exceeded since last CMD Reported 2.6% ROE 9M 2019 2019 – bridge to > 10% ROE 2021 • Successful sale process of Valitor after significant organizational Discontinued changes. The sale is awaiting regulatory approval operation excluded Underlying and impairments •
Slide 5: Smaller but more efficient bank
Smaller but more efficient bank 6% NII / Credit risk 210% Cost / income 190% 5% 170% 4% 150% 3% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 130% 2019 2020 2021 110% 90% 115% REA - indexed 70% 105% 50% 95% 30% 85% 10% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2020 2021 2019 2020 202
Slide 6: Higher profitability with better risk-managed originate and distribute model
Higher profitability with introduction of better risk-managed “originate and distribute” model Return on equity Earnings per outstanding share 20% 5.3 4.9 15% 3.7 3.4 2.9 10% 2.3 5% 0.4 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 Q2 Q3 Q4 Q1 Q2 Q3 2019 2020 2021 2019 2020 2020 2020 2021 2021 2021 -5% -1.
Slide 7: Key focus
Key focus Financial aggregation, Operational efficiency Sustainability The Arctic region bancassurance and still very much a focus customer journey focus are the key themes for growth for the Group by which we aim to increase our market share in target client segments 7
Slide 8: Arion Bank a customer centric organization
Arion Bank Board of Directors a customer centric Internal Audit Sigríður Guðmundsdóttir organization CEO • Incorporates Vördur into both Retail banking Benedikt Gíslason and CIB • Emphasizes the customer experience in all Deputy CEO Ásgeir H. Reykfjörð Gylfason areas of the Bank CEO's Office HR / Co
Slide 9: More diversified than peers
More diversified than peers Strong transition of the Banks’ revenue streams from net interest income on lending to fees Well diversified income streams – operating income A balanced loan book split between corporates by type 9M 2021 (%) and individuals (%) 6% 13% 14% 5% 10% 8% 25% 34% 16% 31% 44% 44
Slide 10: Stable income stream based on diversified income lines
Stable income stream based on diversified income lines Strength of income streams tested during times of turmoil – good countercyclicality in business model Core income supported through significant growth Robust increase in return on risk exposure amount in net fee and commission income (ISK millio
Slide 11: Arion Bank’s sustainability journey
Arion Bank’s sustainability journey Establishment of a Green Financing Framework is an important milestone in Arion Bank’s sustainability journey Set-up of Green Financing Framework with SPO from Signatory to Principles for Cicero in 2021 and issuance Equal salary certification An updated equality R
Slide 12: The Arctic presents substantial and growing opportunities
The Arctic presents substantial and growing opportunities Relatively small population in the region but with significant impact globally One third of rare earth metals and materials in the world 10% of total aluminum production 12% of fish caught in the world are in the North Atlantic Ocean 40% of f
Slide 13: Iceland is uniquely positioned to become the financial hub in the Arctic
Iceland is uniquely positioned to become the financial hub in the Arctic Areas of competitiveness Business Human Financial Infrastructure Reputation Environment Capital Sector • Member of the EEA • Strategic location for • High education levels – • Strongly capitalized, • High level of innovation si
Slide 14: Going forward
Going forward Market share in target Financial aggregation Operational Efficiency Sustainability The Arctic region client segments and customer experience 14
Slide 15: Erna Bjorg Sverrisdottir - Chief Economist
Erna Bjorg Sverrisdottir - Chief Economist 4)
Slide 16: More resilient, stronger rebound
More resilient, stronger rebound GDP growth and Arion Bank’s economic forecasts 10% 5% 0% -5% -10% -15% 2019 2020 2021 GDP growth December 2020 June 2020 October 2020 March 2021 16 Sources: Statistics Iceland, Arion bank
Slide 17: Tourism in 2019
Tourism in 2019 Tourist arrivals via Keflavik International Airport - millions 35% of export revenues 2,5 2,0 1,5 8% direct contribution to GDP 1,0 0,5 - 14% of the labor force 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 17 Sources: Icelandic Tourist Board Statistics Iceland, Arion b
Slide 18: 2020: The perfect storm
2020: The perfect storm Tourist arrivals via Keflavik International Airport - millions 35% of export revenues 2,5 11% 2,0 1,5 8% direct contribution to GDP 1,0 4% 0,5 - 14% of the labor force 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 7% 18 Sources: Icelandic Tourist Board Statistic
Slide 19: Making a strange year (2020) even stranger, the Icelandic way
Making a strange year (2020) even stranger, the Icelandic way Registered unemployment Fiscal measures in response to COVID-19 - CBI’s key interest rates rate – partial benefits included % of GDP 12% 30% 10% 9% 25% 10% 8% 20% 7% 8% 6% 15% 6% 5% 10% 4% 4% 3% 5% 2% 2% 0% 1% Nordics EU USA UK Iceland 0%
Slide 20: Key interest rates lowered to 0.75%
Making Making a strange a strange year year (2020) (2020) the even stranger, even stranger, Icelandic way the Icelandic way Key interest rates were lowered to 0.75%, in Iceland… Who would have thought!? USD/ISK and inflation – CBI’s key interest rates YoY % change and inflation 10% 100% 9% 80% 8% 60
Slide 21: Iceland, the tourist destination
Iceland, the tourist destination Massive 30% drop in total exports, but still in line with expectations Exports of goods and services in 2020 - YoY % change 0% -5% -10% -15% -20% -25% -30% -35% 21 21 Source: IMF
Slide 22: Iceland, the consumer society
Iceland, the consumer society Exceeding expectations GDP in 2020 – YoY % change 0% -2% -4% -6% -8% -10% -12% 22 22 Source: IMF
Slide 23: How quickly the tides turn
How quickly the tides turn Registered unemployment Payment card turnover and private consumption – YoY % change 18% 16% 15% 14% 10% 12% 10% 5% 8% 0% 6% 4% -5% 2% -10% 0% -15% 2013 2014 2015 2016 2017 2018 2019 2020 2021 Unemployment rate Reduced employment ratio Payment card turnover Private consump
Slide 24: The stage is set for a strong domestic demand
The stage is set for a strong domestic demand Unemployment rate The wage index – YoY %-change Regular business investment – YoY %-change 12% 25% 9% Forecast Forecast Forecast 8% 20% 10% 7% 15% 8% 6% 10% 5% 6% 5% 4% 3% 0% 4% 2% -5% 2% 1% -10% 0% 0% 2018 2019 2020 2021 2022 2023 2024 2018 2019 2020 20
Slide 25: The stage is set for a strong domestic demand
The stage is set for a strong domestic demand Domestic demand – YoY %-change 6% Forecast 5% 4% 3% 2% 1% 0% -1% -2% -3% 2018 2019 2020 2021 2022 2023 2024 25 Sources: Statistics Iceland, Arion Bank
Slide 26: Housing prices driving inflation
Housing prices driving inflation Prompting the CBI to raise rates Inflation – contribution of underlying components CBI’s key interest rates 5% 7% Forecast 4% Forecast 6% 3% 5% 2% 4% 1% 0% 3% -1% 2% -2% 1% -3% 2017 2018 2019 2020 2021 2022 2023 2024 0% 2015 2016 2017 2018 2019 2020 2021 2022 2023 20
Slide 27: Rome wasn’t built in a day
Rome wasn’t built in a day The level of uncertainty is large, depending on the path the pandemic takes and political responses Tourist arrivals via Keflavik International Airport - millions 0,30 0,25 0,20 0,15 0,10 0,05 0,00 March February August June July September October May November December Apr
Slide 28: Rome wasn’t built in a day
Rome wasn’t built in a day The level of uncertainty is large, depending on the path the pandemic takes and political responses Tourist arrivals via Keflavik International Airport - millions 2,5 2,0 1,5 1,0 0,5 - 2017 2018 2019 2020 2021 2022 2023 2024 28 Sources: Icelandic Tourist Board, Arion Bank
Slide 29: Back with a bang
29 Sources: Statistics Iceland, Arion Bank Back with a bang 200 400 600 800 1000 1200 1400 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Capelin catch – thousand tonnes 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Slide 30: The often forgotten fourth pillar
The often forgotten fourth pillar One third of exports are “other exports” Exports – bn. ISK at constant exchange rate (2021)* Forecast 2.000 1.600 1.200 800 400 - 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Seafood Aluminium Tourism Other 30 Sources: Statistics Icelan
Slide 31: The króna support system
The króna support system Current account - % of GDP Net IIP* - % of GDP 9% 50% Forecast 8% 7% 0% 6% 5% -50% 4% 3% -100% 2% 1% -150% 0% -1% -200% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 CBI's net FX purchase – bn. EUR CBI’s net FX reserves – bn. EUR 4 6 3 5 3 4 2 2
Slide 32: Different versions of the same story
Different Different versions versions of the of thestory same same story In the current economic climate forecasts change often, resulting in In wide the current economic gap between forecasts,climate forecasts but the big change picture remains often, resulting in wide gap between forecasts, but th
Slide 33: Small economy, strong foundations
Small economy, strong foundations Household and non-financial corporate debt - % of GDP Old-age dependency ratio 60% 250% 50% Iceland EU 200% 150% 40% 100% 30% 50% 20% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 10% 0% 2020 2050 Households Non-fi
Slide 34: Key strategic goals improving significantly – momentum onwards
Key strategic goals improving significantly – momentum onwards Ásgeir Reykfjörd Gylfason – Deputy CEO and MD Corporate & Investment Banking
Slide 35: Arion Bank has come a long way since structural changes in 2019
Arion Bank has come a long way since structural changes were made in 2019 Corporate and Investment Banking’s NIM and ROE 3.6% 3.4% 3.1% 3.2% 3.3% 3.3% 3.1% 2.8% 2.9% NIM Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 35,0% 30.8% 27.5% 30,0% 24.9% 25.6% 23.7% 25,0% 19.2% 20,0
Slide 36: Other domestic banks have held their operational course
While Arion Bank has shown clear signs of improvement, other domestic banks have held their operational course CIB's NIM CIB’s ROE pre tax and excluding impairments 30,0% 3.6% 3.4% 25.6% 3.2% 3.3% 3.3% 23.7% 25,0% 2.8% 2.9% 3.1% 3.1% 19.2% 20,0% 15.9% 14.0% 15,0% 12.5% 11.3% 6.9% 10.1% 10,0% 5,0% 0,
Slide 37: Our mispricing has been addressed
Our mispricing has been addressed Two years ago, 80% of CB’s top 100 exposures returned ROE below our 10% target. Now, 80% of our 100 largest exposures return ROE above 10% Year-end 2019 Q3 2021 10% ROE target 0 20 40 60 80 100 0 20 40 60 80 100 37
Slide 38: Strategic thinking behind our geographical diversification
There is strategic thinking behind our geographical diversification Our strategy implies headroom for growth in foreign lending. But we want to be present where we have in-depth industrial knowledge and in economies that share similarities to ours Corporate Bank's exposure Foreign exposure Norway Ot
Slide 39: Green Financing Framework eligible categories and Nordurál case study
We focus on increased lending to green projects in line with our green financing framework Eligible categories under Arion Bank’s Green Financing Framework and Nordurál case study Sustainable fisheries Green buildings and aquaculture Energy efficiency • Commercial real estate with certification (BRE
Slide 40: Iceland is developing fast in terms of foreign direct investment
Iceland is developing fast in terms of foreign direct investment Throughout the years a local partner has always been needed on journeys with foreign investors. Arion Bank is going to be the investors’ first choice on such journeys 1960 1970 1980 1990 2000 2005 2010 2015 2020 1960- 2009- 2016- 2020-
Slide 41: The emergence of the economy’s fourth pillar; IP based industry
The emergence of the economy’s fourth pillar; IP based industry offers great opportunities – and challenges 180 Splitup of foreign currency income (ISK bn) The industry serves both as a standalone economic pillar, but 160 also provides key support to other elements of the economy 140 120 100 80 Lend
Slide 42: Icelandic equity market taking major steps towards maturity
The Icelandic equity market is taking major steps towards more matured market Arion Bank’s Corporate Finance is at the forefront of that development Arion Bank’s Corporate Finance Corporate Finance's fee development 103% Advised on more than half of public equity offerings of domestic Advisory Worko
Slide 43: Fully equipped to participate in a turnaround in corporate activity
We are fully equipped to participate in a turnaround in corporate activity Corporate lending (YoY change) • Throughout last upswing in the economy, domestic 20% corporate activity increased significantly, at most 16% YoY. • With the economic forecast now assuming up to 6.5% 15% increase in GDP, we e
Slide 44: Going forward
Going forward We’ve adjusted all our There is momentum We have shown that we The economy is on a In Q3 2019, we looked processes, policies, onwards, which offer are now well placed to whirlwind journey. inwards and embarked strategies and pricing great opportunities for look outwards General turnaro
Slide 45: Coffee break
Relevant and competitive Coffee break customer / kaffihlé experience Arion Bank - Capital Markets Day
Slide 46: Future Growth on Solid Foundations
Future Growth on Solid Foundations Margrét Sveinsdóttir - MD of Markets
Slide 47: Strong position in every business area
Strong position in every business area The largest asset manager in Iceland and key player in Capital Markets The largest asset manager in Iceland with ISK Value creation through economics of scale Institutional Pension Fund 1,291 bn. in assets under management (AuM) at with highly experienced emplo
Slide 48: Good operational mix
Good operational mix Historically focused on institutional and HNW investors Well diversified asset mix Strong institutional investor base Impressive growth in Private Banking AuM AuM – Group level, 30.09.2021 AuM – Group level, 30.09.2021 Index, 2018 = 100 6% 8% 17% 150 38% AuM AuM 140 ISK 1,291 bn
Slide 49: Strong partnership and full range service offering to pension funds
With a strong partnership and full range service offering to pension funds Arion Bank is well positioned to capture future growth Icelandic pension system’s robust growth expected to continue 1 Arion Bank Institutional AM growing parallel with the pension system ISK bn. Net assets2. Index, 2018 = 10
Slide 50: Digital solutions have transformed the customers’ experience
Digital solutions have transformed the customers’ experience Successful launch of pension funds in the Arion App From paper to digital, customer pension onboarding 100% • New agreements to Arion supplementary pension up 80% by 121.5% since the app’s launch1,2 60% Digital 40% Paper 20% • Alongside di
Slide 51: Digital solutions: Stefnir funds and equity trading in the Arion App
Digital solutions have transformed the customers’ experience Successful launch of Stefnir funds and equity trading in the Arion App Massive growth in number of fund investors Index, YE19 = 100 Stefnir – Icelandic Growth Fund Stefnir – FI Opportunity Fund • The only app in Iceland offering equity 180
Slide 52: Going forward
Going forward Committed to our Capture growth parallel to Continue our partnership Promote the broad Leverage on our successful Increasing leadership in Asset the pension system with approach and long-term product offerings of digital solutions to strengthen operational efficiency Management and opp
Slide 53: Efficiency and bancassurance
Efficiency and bancassurance Ida Brá Benediktsdóttir – MD Retail Banking
Slide 54: Retail Banking overview
Retail Banking overview We service a broad range of customers through Other loans to individuals SME’s our banking, pension and insurance services 11% 9% 163,000 ISK Loan portfolio 547bn 80% 112,000 Mortgage loans SME’s 16% 40,000 ISK 30,000 Deposit portfolio 291bn 21,700 8,700 84% Individuals Arion
Slide 55: Digital excellence in Retail Banking
Digital excellence in Retail Banking Digital interactions 20211 Website Online banking/insurance App More than 44 million Arion Vördur 9,000,000 374,000 Arion Vördur 5,500,000 117,000 Arion 28,700,000 Vördur 0 interactions annually Traditional interactions 20211 99% digital Telephone calls Branches
Slide 56: Mortgages are the pillar of Arion Bank’s retail banking business
Mortgages are the pillar of Arion Bank’s retail banking business The Bank’s new lending has Strong net growth of the multiplied in just a few years mortgage portfolio Mortgage portfolio 2016 ISK 47bn 2016 ISK 284bn • Defaults and write-downs on mortgage loans +100% have been minimal 2017 ISK 94bn 20
Slide 57: Composition of the Mortgage Portfolio has changed rapidly
Composition of the Mortgage Portfolio has changed rapidly From 79% CPI linked to 46% in five years Type of interest Product development focusing on flexibility 2016 79% 21% 2016 52% 8% 13% 27% Arion has focused on flexible mortgages, e.g.: 2017 77% 23% 2017 • Reduced repayments for customers on pare
Slide 58: Digitization of the government’s part of the lending process
Great opportunities in the digitization of the government’s part of the lending process Registration of title Digital bonds Today the most time consuming part of the lending process is registering the loan documents at the District Commissioners. This process is being Arion Bank expects to save 20%
Slide 59: Digital solution led to massive cost reduction in car loans
Digital solution led to massive cost reduction in car loans and greater customer experience New car loans annually Car loans portfolio Arion Bank has increased its market share in car loans significantly in recent years 2016 ISK 4.4bn 2016 ISK 7.1bn Since 2016, the car loan portfolio has doubled in
Slide 60: Consumer finance increases after Covid decrease
Consumer finance increases after Covid decrease Consumer finance has increased by 10% This year more than 80% of all this year, mostly due to increased private approved consumer loans have Consumer finance consumption been automatically accepted • An automated credit algorithm was introduced in -8%
Slide 61: Deposit base strengthened and Green Deposits successful
Arion Bank’s deposit base has strengthened in recent years and recently launched Green Deposits have been successful Deposits increased in Covid economy New Green Deposits were introduced in June 2020 While customers have remained at home, their savings in Green accounts are for people who want to c
Slide 62: Digital services are changing customer behavior
Digital services are changing customer behavior, with Covid expediting the development sharply Branch visits have decreased …while usage of digital and online services dramatically in recent years… have increased constantly -49% +7% 31,132 2019 September 100,285 2019 September 93,823 2021 September
Slide 63: Digital users have increased by 21% since 2017
Digital users have increased by 21% since 2017 Monthly digital users Monthly App users App engagement increases significantly +21% 100,285 50,767 80,249 Total digital users 83,123 50,241 42% 47% 1 - 10 Login pr. month 33,446 23,860 Monthly online bank users 61,443 38% 11 - 20 Login pr. month 38% 30,
Slide 64: Significant improvement in operating efficiency from digital journey
Significant improvement in operating efficiency mostly because of Arion Bank’s digital journey Number of branches FTEs in Retail Banking -38% -42% 24 367 Strong emphasis on digital solutions has 21 317 1 19 led to increased use of the Bank’s self- 3 287 258 2 16 15 service channels 214 23 This appro
Slide 65: Arion Premía
Arion Premía Arion Premía is a service tailored to a Through Arion Premía, the Bank aims target segment of high net worth to improve the customer experience individuals and loyalty by offering first class service and best available rates on premium With Arion Premía, the goal is to products, leading
Slide 66: Vördur insurance – A success story
Vördur insurance A success story
Slide 67: Strong distribution network and increased opportunities to cross-sell
Strong distribution network and increased opportunities to cross-sell More than 44 million annual interactions with Arion Bank and Vördur clients Digital interactions 20211 Strong growth in Digital Core Product Sales Website Online banking/insurance App 28% 27% 41% 63% Arion Vördur Arion Vördur 78%
Slide 68: The opportunity for bancassurance is unique
The opportunity for bancassurance is unique Bancassurance ratios Individuals Corporates 32% 18% 68
Slide 69: How do we get there?
How do we get there? One-stop shopping with a broad Increased cost efficiency to enable range of financial and insurance competitive advantage and drive products under a strong brand profitable growth • Extension of the existing relationship with their bank • Shared offices and services • Lower acqu
Slide 70: Going forward
Going forward Achieve Customer Journey Continue to develop digitization Increased co-operation with third party to Increased market share Optimization by integrating into and automation in banking and source and implement solutions for our in target client segments broader customer journeys and insu
Slide 71: Relevant and convenient customer experience
Relevant and convenient customer experience Steinunn Hlíf Sigurdardóttir - MD Customer Experience
Slide 72: Customer experience is about bringing value to the customer and the business
Customer experience is about bringing value to the customer and the business Customer experience Customer needs Business goals Value Personal Growth Customer Efficiency & Simplicity Convenience loyalty effectiveness 72
Slide 73: Why focus on customer experience?
Why focus on customer experience? Huge investment in recent years in digital services in the banking sector but often lacking sufficient focus on overall needs and expectations of customers “This year’s survey reveals a “Financial institutions that invest in dramatic shift in priorities. Five the cu
Slide 74: Modern marketing is data, analytics and automation
Modern marketing is data, analytics and automation
Slide 75: Data driven culture
Data driven culture More convenient and relevant service Emphasis Goals & approach Develop satisfaction and loyalty Target clients within a profitable and growing target segment Arion Premía Power internal and external growth by Personalized service leveraging personalized products and services alig
Slide 76: Personalized recommendations through different platforms
Personalized recommendations through different platforms Recent developments • Mobile App top banners General massages to the customer base or tailored communication to a specific audience • Smart product banners Cross-platform banners showing relevant products to customers in need • Assistant recom
Slide 77: Convenience for all age groups
Convenience for all age groups 90-day digital activity by age 100% 90% 91% 90% 87% 83% 80% 70% 65% 60% 50% 40% 30% 21% 20% 10% 0% <18 18-24 25-34 35-50 51-65 >65 90 day active digital users in each age band / active customers in each age bankd /June 2021) 77
Slide 78: We are industry leaders in banking innovation
We are industry leaders in banking innovation Our app is consistently chosen the best mobile banking solution Which bank has the best mobile solution: 55% 52% 52% 50% 50% Honorary Prize 31% 24% 25% 24% 25% 25% 22% 23% 19% 16% 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021
Slide 79: Dramatic increase in digital sales
Dramatic increase in digital sales Core banking products Digital sales continue to increase steadily. Digital sales per 1,000 active Online sales as % of total (savings accounts, current accounts & customers has increased by 436% credit cards)1 2024 between 2016-2020 goal 100% The results show Arion
Slide 80: A new-world marketer, driven by purpose & consumer-centricity
A new-world marketer driven by purpose & consumer centricity Our ambition for communication OUR AMBITION FOR COMMUNICATION A new-world marketer, driven by purpose & New-world marketing The opportunity for Arion consumer-centricity. • Tailoring individual experiences • Be a partner to each customer •
Slide 81: Going forward
Going forward Convenient Relevant Key metrics 90% of onboarding processes of Arion has fully automated personalized • NPS standardized products are available recommendation system in place to • CSAT through digital channels and processed drive recommendation for Retail and • POC surveys straight thr
Slide 82: Key drivers of the Group’s financial profile
Key drivers of the Group’s financial profile Ólafur Hrafn Höskuldsson - CFO
Slide 83: Tying this all together
Tying this all together Robust financial position reflective of a focused strategy and allows for ambitious capital optimization plan into next year 1 2 3 4 ✓ Strong earnings ✓ Evolution of the ✓ Simplification of balance ✓ Strong operating momentum momentum composition of income sheet along with a
Slide 84: Operational targets exceeded and momentum in capital optimization
1 Operational targets exceeded and momentum in capital optimization Financial KPIs demonstrate key trends Momentum in return on equity Business units all exceeding required return Loan growth has been driven by mortgages on allocated capital 18% 16% 19.5% 9% 6% 5%* 2% 7.9% 15.2% 6.5% 2.6% -4% 0.6% -
Slide 85: Demonstrated commitment to return surplus capital
1 Demonstrated commitment to return surplus capital Leader in distribution to shareholders in Iceland Communicated and actual capital release to shareholders in 2021 as percentage of Risk Exposure Amount (in bps) Iceland Nordics EU Buy-back 456 Dividend 428 131 275 270 419 33 232 221 296 129 236 105
Slide 86: Composition of income reflective of strategic direction
2 Composition of income reflective of strategic direction Operating income / REA a key KPI with commissions and insurance income a continued growth area Significant increase in operating income Net fee and commission income have become a larger Net fee and commission and insurance income for 9M gene
Slide 87: Defensive NIM management through rate decrease
2 Defensive NIM management through rate decrease Projected rate increases combined with strategic efforts expected to be positive drivers going forward Arion Bank has navigated a dramatic policy rate Deposit margins have been compressed by lowering of decrease with a stable net interest margin the C
Slide 88: Important milestones in simplifying the balance sheet
3 Important milestones in simplifying the balance sheet Strong momentum in sale of held-for-sale and other assets since 2019 with limited impact on current operations and balance sheet Book value of held for sale assets Held-for-sale assets (in ISK million) 24,363 • Significant restructuring of the
Slide 89: Risk profile of balance sheet improving and economic outlook constructive
3 Risk profile of balance sheet improving and economic outlook constructive Increased portion of mortgages in total loan book reducing normalized Cost of Risk and moratorium assets now mostly performing Loan book composition Development of non-performing loans, moratoria and forbearance (total loan
Slide 90: Operating expenses have been realigned
3 Operating expenses have been realigned and the largest cost pillars have been greatly reduced in recent years Expense items as a percentage of operating income1 Salaries have decreased as a percentage of operating income. IT investment, including capitalized salaries Effective incentive scheme lim
Slide 91: Funding profile supportive for continued operational trajectory
4 Funding profile supportive for continued operational trajectory Significant deposit momentum has supported the funding mix and will to a large extent guide growth capacity going forward Funding composition Loans-to-deposits ratio 100% 179% 15% 157% 18% 145% 140% 3% 1% • Significant increase in dep
Slide 92: EUR covered issue a potential important avenue for future funding
4 EUR covered issue a potential important avenue for future funding Immediate FX funding cost benefit while future role in mortgage financing reliant on re-emergence of swap market Positive development of wholesale funding Euro Covered Bond issuance from selected non- Currency composition of outstan
Slide 93: Strong operating momentum allows ambitious target for capital release
4 Strong operating momentum along with a robust funding position allows for an ambitious target for capital release Approx. ISK 60bn of surplus capital1 ISK 22.1bn ISK 25.5bn • In the first 9 months of 2021, the Bank has distributed ISK 24.7% 25.5bn in dividend and buy-backs 23.6% 2.4% • The Bank ha
Slide 94: Medium term targets / Coffee break and Q&A
Medium term Relevant targets and competitive Coffee and Q&Abreak customer / kaffihlé experience Arion banki - Capital Markets Day
Slide 95: Arion Bank’s medium-term targets
Arion Bank’s medium-term targets Capital optimization in combination with continued operational momentum a priority for 2022. Loan growth driven by funding and market dynamics Medium term targets 9M 2021 2022 priorities Return on equity Exceed 10% 15.2% Return on equity on optimized 19.5% CET1 Retai
Slide 96: 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, Ario