Arion Banki hf · OMXICE:ARION
Arion Banki hf — Arion Bank — Investor Presentation (February 2017)
119 slides from Arion Banki hf's investor presentation, Feb 15, 2017
Slide 1: Company presentation 15 February 2017
Company presentation 15 February 2017
Slide 2: Iceland at glance – strong and modern economy
Iceland at glance – strong and modern economy… Strong economy with further upsides • Iceland became fully independent from Central location Denmark in 1944 1944 Full independence from • The second half of the 20th century saw Denmark substantial economic growth driven primarily by the fishing indust
Slide 3: with positive economic fundamentals
with positive economic fundamentals… Economic recovery since 2010 Unemployment rate significantly General government gross debt with strong outlook below other countries (% of GDP) • High standards of living % Real GDP growth, year-on-year1 % Average unemployment rate % of GDP • Strong culture and I
Slide 4: …supporting a growing and stable banking sector
…supporting a growing and stable banking sector • Highly consolidated The Icelandic banking sector is highly concentrated High correlation between GDP and banking sector growth banking sector Market shares 2015, % GDP Growth vs. Banking Sector concentrated around 3 Indexed numbers based on 2009 main
Slide 5: Ownership structure
Ownership structure Arion Bank is operated at arms length from its owners • Arion Bank is owned by Kaupthing (87%) through its subsidiary Kaupskil KAUPTHING EHF GOVERNMENT • The Government of Iceland has a 13% share through The Icelandic 100% 100% State Financial Investments THE ICELANDIC STATE • Ka
Slide 6: A leading universal relationship bank in Iceland
A leading universal relationship bank in Iceland with a differentiated and innovative approach Retail Banking Corporate Banking Investment Banking Asset Management ~ 29% market share1 Leading lender to large corporates A leading capital markets house Largest player in the Icelandic Largest
Slide 7: A universal relationship bank
A universal relationship bank • Primary emphasis on corporations and individuals seeking a variety of financial solutions • Focus on building and strengthening long-term customer relationships by delivering excellent service and tailored solutions • Operations in the greater Reykjavík area as well a
Slide 8: Experienced management team
Experienced management team Proven track record in Höskuldur H. Ólafsson – Chief Executive Officer Freyr Thórdarson – MD of Corporate Banking Former CEO at Valitor hf. – Visa Iceland (2006-2010) Senior Director Nordic Credit Portfolio at Kaupthing Bank’s Resolution strategy execution Previou
Slide 9: Fully restructured bank, with potential for further value creation
Fully restructured bank, with potential for further value creation 2010-2012: 2013-2014: 2015+ 2010 2016 “Restructuring of the bank and “Streamlining and building of the “Strengthening market leadership Loan portfolio composition its customers” business” and harvesting full value potential” 25 % 53
Slide 10: Strategic and innovative approach – proven track record
Strategic and innovative approach – proven track record Driving Efficiency First Mover in the Industry Diversified Portfolio of Businesses and Digitalisation Pioneer on the Icelandic capital markets, Clear leadership in rolling out new Long-standing leadership in asset leading 8 out of 13 IPOs
Slide 11: Retail bank
Retail bank
Slide 12: Retail bank overview
Retail bank overview A leading and innovative Retail bank in Iceland 2016 Description Strong market share in the retail business Retail Bank provides comprehensive financial services to individuals 29%3 (individuals) and small- and medium-sized companies (SMEs)1 • Market share during the past thre
Slide 13: Key financials
Key financials1 Growing portfolio and improving bottom line Balance sheet Operating income ISK Bn ISK M Growth in loans partly due to acquisitions of AFL, Drómi and loan transfers from Corporate Bank 18,670 16,346 141 14,565 15,277 3,537 232 332 2,656 413 443 460 2,333 382 2,275 300 257 264 269 13,8
Slide 14: Retail bank in group context
Retail bank in group context Largest group contributor and well diversified loan book Loan book split Deposits split Arion Bank ISK Bn 460 Retail Bank Arion Bank Retail Bank 2016 2016 25% 6% Real estate 16% 25% 34% 35% Wholesale and retail trades Households 333 18% Seafood 66% 78% Services 17% Indus
Slide 15: Flexible and optimised branch network
Flexible and optimised branch network Optimisation in the branch network is an ongoing project Arion Bank branches around Iceland Tourism hot spots in Iceland1 Arion Bank branch locations have an agricultural heritage background - Strategic positioning in key tourism areas In 2009 Arion Bank had
Slide 16: Channel diversification
Channel diversification Digitalisation driving efficiency Opening account – digital sales Active online bank users1 Active Arion Bank app users1 Major changes in customer behaviour in +40% +4% +6% +5% +20% recent years +27% 2,948 73,769 77,178 +29% 66,788 69,299 34,232 Full upside potential to b
Slide 17: Strategic initiatives
Strategic initiatives Good track record and successful implementation Focus on good customer service with less cost and adjusting to rapid changes in customer needs Recent actions to reduce opening hours and the total size of branches by either moving to smaller branches, Retail branch optimisat
Slide 18: Capture market opportunities based on leading franchise
Capture market opportunities based on leading franchise Strong customer focus and diverse product offerings Objectives Mortgages Retain leading position among the three largest banks and pension funds by market share SME Continue growth in market share Decreasing cost Better service at lower c
Slide 19: Key take-aways
Key take-aways Strong and stable market position with particular strength in the mortgage loans segment Full market coverage with good opportunities ahead, i.e., insurance products Solid income base – new income opportunities through Keflavik airport branch (tourism) Investing in advanced di
Slide 20: Valitor
Valitor
Slide 21: Valitor snapshot
Valitor snapshot A growth company in the international markets Overview Established in 1983, Valitor is the 2nd largest card payments company in Iceland1, providing both card acquiring and issuing 270 m2 Transactions processed in 2016 services Expanded internationally since 2003 as one of the
Slide 22: Successful international strategy driving growth
Successful international strategy driving growth Significant, but selective European penetration Partner channel Direct channel Iceland Total Coverage Principal partner to fintech End-to-end e-commerce and card Dir. Par. Direct channel Partner channel leaders and renowned payment present solutio
Slide 23: Corporate banking
Corporate banking
Slide 24: Corporate banking overview
Corporate banking overview A well-positioned Icelandic corporate bank Description 2016 Strong market share in corporate lending incl. SME 24% 2016(1) Stable market share over the last three years with Full service corporate bank, targeted at larger corporates across all 22%-24% share industry sect
Slide 25: Corporate Bank is trusted by market leaders
Arion Bank’s Corporate Bank is trusted by market leaders Credentials in major industry sectors and across clients1 Retail and Services Clients #1 Food retailer #1 Telecom operator #1 Largest private #2 IT company media company (Largest out of 2 majors) (Largest out of 3 majors) (Second largest out o
Slide 26: Key financials
Key financials1 Steady increase of loan volume, platform stabilised in 2015 and ready for future growth Balance sheet2 Operating income ISK Bn ISK M Driven by valuation change 271 248 on investment properties 239 240 Margin and prepayment fees closely 9,315 9,481 managed. 7,798 Operating 685 7,012 R
Slide 27: Corporate Banking in group context
Corporate Banking in group context Well diversified corporate loan book Loan book split Deposits split Arion Bank, 2016 Corporate Banking Arion Bank, 2016 Corporate Banking 4% 10% 12% 34% 34% 5%7% 20% 66% 7% 93% 7% 21% 15% 24% 9% 6% 27% Real estate Financial services Seafood Real estate Corporate Ba
Slide 28: Corporate Banking in Iceland
Corporate Banking in Iceland Stable market share Corporate lending demand at high levels Growing Icelandic total bank corporate lending5 ISK Bn Iceland is a relatively young and growing economy with a projected average GDP growth of 4%1 and increasing investment demand 1,797 Icelandic corporates
Slide 29: Leveraging universal relationship banking services
Leveraging universal relationship banking services Leadership in complex transactions Enterprise Successful Description Cross-selling approach Key achievement Value cross-selling $78 m Silicon smelter and silicon metal Successful win of equity raise and CB and IB Deliver the whole bank and
Slide 30: Strategy and focus areas
Strategy and focus areas Objectives Be the logical first call when it comes to large transactions due to integrated, tailored Lead in large transactions services offering Further diversify loan Keep client retention rates high (currently over 80%1) and be selective when sourcing portfolio deals
Slide 31: Key take-aways
Key take-aways Proven ability to deliver large and complex deals Loyal customer base Strategy for profitable growth Successful cross-selling Dedicated and experienced team Leadership positioning across sectors 31
Slide 32: Investment bank
Investment bank hee) Pe miaie iN
Slide 33: Leading full service investment banking franchise
Leading full service investment banking franchise Service large corporates, institutions and individuals Description #1 Equity brokerage (trading volumes) Offers full spectrum of investment banking services and is a leading Icelandic broker, IPO and M&A advisor and securities trading house Manag
Slide 34: Investment banking business subdivisions
Investment banking business subdivisions Full Service offering with strong team of banking professionals Capital markets Corporate finance Research Securities brokerage: equity, fixed income, swaps and M&A advisory: acquisitions, takeovers, divestitures, Macro and equity research forwards as w
Slide 35: Key financials
Key financials1 Balanced income stream with consistent growth Operating income Net fee and commission income ISK M ISK M High return from sale of 2,160 27,180 2,050 legacy 1,872 1,698 holdings 928 1,043 791 1,059 11,167 4,326 2,534 1,121 1,117 907 813 2013 2014 2015 2016 2013 2014 2015 2016 Corporat
Slide 36: Leveraging universal relationship banking services
Leveraging universal relationship banking services Arion Bank’s Investment Bank leverages bank infrastructure, service offerings and balance sheet to enable projects Company Products sold Participation in Advisory buy side acquisition through Securing credit Sales advisory IPO and listing SF IV Skel
Slide 37: Capture market opportunities based on leading franchise
Capture market opportunities based on leading franchise Strong customer focus and diverse product offerings Objectives Utilise entire Arion Bank’s customer network to market Arion Bank’s product offerings unavailable to Leverage the universal relationship smaller boutiques banking model Offer un
Slide 38: Key take-aways
Key take-aways Experienced employees with a good track record Increased opportunities in M&A and capital markets are expected from easing of the capital controls Leading player in IPOs and equity brokerage with a strong position in FX brokerage and fixed income Diverse product range and able
Slide 39: Asset management & Stefnir
Asset management & Stefnir
Slide 40: Introduction
Introduction 2 pillar Asset management Established in 1980s with ISK 1,055 billion in AuM in 2016 Combined Group Composed of 2 distinct legal entities, Arion Bank Asset Management Division and Stefnir, a fund management company Leading asset management franchise in Iceland1 Core focus on pen
Slide 41: Key financials (incl. Stefnir)
Key financials (incl. Stefnir) Increasing assets under management and profitability Assets under Management Operating income ISK Bn ISK M 1,055 4,882 997 4,345 895 924 4,144 3,701 400 408 414 404 597 646 482 520 2013 2014 2015 2016 2013 2014 2015 2016 Asset Management Stefnir1(1) Stefnir Operating e
Slide 42: Icelandic asset management market
Icelandic asset management market National savings largely within the pension system Market characteristics Competitive landscape Savings in Iceland dominated and driven by pension funds Stefnir is the largest fund management company in Iceland2 with ISK 408 Expected continued inflow into pens
Slide 43: A unique service offered to pension funds
A unique service offered to pension funds Long track record of managing funds Comparison of Frjalsi1 pension fund with peers Extensive services in branches and service centres Geometric average returns2 (annualised) as of YE 2015 Services Own website Marketing and sales 9.0% 9.3% Team-based
Slide 44: International cooperation
International cooperation Capital controls easing creates new opportunities • Asset management and Stefnir are well-positioned to capture AuM allocated to international investments opportunities resulting from the easing of capital controls As of 31/12/2016 • Institutional investors and retail clien
Slide 45: Icelandic Pension System
Icelandic Pension System Robust growth expected to continue Development of the pension system’s size1 % of GDP Strong organic growth in pension funds due to favourable demographics 500% New legislation could further increase inflow and postpone outflow 375% Second largest pension funds system
Slide 46: Clear strategy and focus areas
Clear strategy and focus areas Main drivers of future results Objectives Retain close Maintain market position and prudent growth in AuM client relationship Maintain employee motivation Highly skilled people in each position continuously motivated Capture investments Prudent investment results
Slide 47: Key take-aways
Key take-aways Experienced employees with team approach to investment decisions Long-term relationships with our clients Long-term track record in generating returns and in products and services offering Largest player in the Icelandic asset management industry Increased inflow from existi
Slide 48: Financial Performance
Financial Performance
Slide 49: Summary of financial performance
Summary of financial performance Diversified income streams and healthy margins Diversified business model across a Total operating income (adjusted) Net interest margin1 wide spectrum of comprehensive financial product and services Total operating income (adjusted) ISK Bn offering 2.9% 2.8% 2.9%
Slide 50: Summary of financial performance
Summary of financial performance Good profitability underpinned by strong fundamentals Substantial growth of equity due Net earnings Total equity to profit generation as well as one ISK Bn ISK Bn off income items Dividend payments have been 49.7 201.9 211.4 modest as the majority owner has not h
Slide 51: Summary of financial performance
Summary of financial performance Good profitability underpinned by strong fundamentals Total operating income growth driven Income statement (adjusted)1 by strong growth in fee and ISK Bn commission income coupled with 2013 2014 2015 2016 stability in net interest income Net interest income 27.0 2
Slide 52: P&L details: net interest income
P&L details: net interest income Stable margins driven by disciplined lending as well as funding and liquidity management Emphasis on margins rather than volumes in lending Interest income - Interest expense ISK Bn ISK Bn activities 56.9 54.5 61.7 50.9 9.7 8.0 Increased focus on funding 5.1 5.1
Slide 53: P&L details: net fee and commission income
P&L details: net fee and commission income Emphasis on commission income growth in all lines of business High growth in net fee and commission income from cards Net commission income breakdown Net fee and commission income since 2013 relating to expansion 2016 ISK Bn of Valitor in the Nordics and
Slide 54: P&L details: Valitor financials
P&L details: Valitor financials1 Offering diversification and international growth opportunities 30 years of payments tech competence in a highly International acquiring volume Operating profit (EBITDA + net interest) competitive market ISK Bn, 2015 ISK Bn, 2015 Tech platform strength Internat
Slide 55: P&L details: Net financial income
P&L details: Net financial income Net financial income largely relates to divestitures of holdings Sequity trong investment Net financial income Bond holdings return on positions following listing of several companies ISK Bn ISK Bn 80.3 Equity holdings decreased 12.8 69.6 76.9 during the year, m
Slide 56: P&L details: Total operating expenses
P&L details: Total operating expenses Increase in expenses relating to increased salaries and activities Increase in salaries and related Total operating expense Cost-to-income ratio expenses due to expansion of Bank’s operations, by opening a ISK Bn major new branch at Keflavík 30.5 27.0 28.2 Int
Slide 57: Tax expense
Tax expense Financial institutions in Iceland face a stringent tax burden Icelandic corporate income tax Taxes Effective income tax rate rate is 20% ISK Bn Financial institutions pay additional taxes: 10.1 6% additional income tax on taxable income above ISK 1 Bn 0.8 Bank levy of 0.376% on t
Slide 58: Strong balance sheet
Strong balance sheet Strong, simple and high quality balance sheet ISK Bn, 2016 Total assets: ISK 1,036 Bn Total liabilities & equity Other and intangibles: 3% Other1 27 Intangibles 11 Cash & cash 88 equivalents 211 Equity ISK 285 Bn, of which ISK 193 Bn liquidity reserve Financial assets 117 (47% o
Slide 59: Balance sheet development
Balance sheet development Strong, simple and high quality balance sheet ISK Bn Good liquidity position Assets 2016 2015 2014 2013 2012 Positive increase in loans to Cash & balances with CB 88 48 21 38 30 customers Loans to credit institutions 80 87 109 102 101 Investments in associates Loans t
Slide 60: Loan portfolio overview
Loan portfolio overview Well balanced between loans to individuals and corporates Loans to individuals Continued growth in customer loans Mortgage loan-to-value ratio represent 47% of total loans to customers ISK Bn Reducing average LTV % Total 680 712 Corporate loans are 636 648 35% 2015 2016 d
Slide 61: High quality mortgage portfolio
High quality mortgage portfolio Full range of mortgage products with strong position in the market Offers full range of Mortgage loans by region Improving credit quality mortgage products and Mortgage loans in +90 days default (%) maintains a strong position 2016 in the market 2% 7% The quality
Slide 62: Overview of the corporate & SME loan book
Overview of the corporate & SME loan book Good diversification in the corporate & SME loan book Good pipeline for corporate Strong growth in corporate lending Loans to corporate by sector loans ISK Bn 2016, % Strong demand from export SME Real Estate & Construction industries that generally
Slide 63: Asset quality improvements
Asset quality improvements High quality credit profile and problem loan ratios now narrowing in on the Nordic banks Much effort has been made Continuously improving credit quality… …and strong coverage since 2010 to improve asset Problem loans Coverage ratio quality resulting in % (%) continued im
Slide 64: Simple and solid balance sheet
Simple and solid balance sheet Diversified funding platform with high degree of equity ISK Bn, 2016 Total assets Total liabilities & equity: ISK 1,036 Bn Other1 27 Intangibles 11 Cash & cash 88 Large equity base equivalents 211 Equity 20% of the total balance sheet Financial assets 117 73 Other2 Oth
Slide 65: Conservative maturity schedule
Conservative maturity schedule Focus on introducing Arion Bank to new investors Arion Bank concluded a EUR International funding Limited near-term re-financing needs 300 M EMTN benchmarks in April and November 2016 • Two new Euro benchmarks (EUR 300M ISK Bn, 2016 Covered bonds, other borrowings an
Slide 66: Recent issue in the Eurobond market
Recent issue in the Eurobond market Successful EUR benchmark transactions Senior unsecured bonds Distribution by geography On 3 March 2015, Arion Bank Spread (bps) over Mid-Swaps 2016 launched its inaugural euro 300 Arion 3.125% 2018 100% 12% Other senior unsecured benchmark Landsbanki 3% 2018 7%
Slide 67: Overview of deposits
Overview of deposits Stable deposit base as Arion Deposits development Average deposit yields Bank continues to diversify its funding base ISK Bn Deposit interest expense % avg. deposits Reduced concentration of 472 455 469 demand deposits 412 3.8% Kaupthing moved ISK 41 Bn 3.3% 3.2% 3.4% equi
Slide 68: Solid capital adequacy and strong liquidity position
Solid capital adequacy and strong liquidity position Strong capital position and Capital adequacy ratio Leverage ratio leverage ratios %, ISK Bn % 17.9% Diversified funding platform 721 696 808 753 16.7% 15.4% with high degree of equity 14.5% 26.3% 27.1% – First mover in re-entry 23.6% 24.2% 4.5
Slide 69: Capital structure and requirements
Capital structure and requirements The Bank’s total capital ratio was 27.1% at year end 2016. Final CRD IV adoption in the fall of 2016 had limited effects At Q4 of 2017, the combined capital buffer requirement will reach 8.4%, with a recent add-on from the Financial Stability Board to the count
Slide 70: Capital management strategy and dividend policy
Capital management strategy and dividend policy ARION BANK‘S DIVIDEND POLICY • Based on the Arion Bank‘s expected financial performance over the medium term, Arion Bank aims to pay an annual dividend before special distributions, in line with a payout ratio around 50% of net earnings attributable to
Slide 71: Medium term targets
Medium term targets CET 1 Ratio (Subject to regulatory Decrease to circa 17% requirements) Prudent lending to outpace economic growth Loan Growth in the next few years RoE Reach double digit returns Dividend Payout ratio of circa 50% of net earnings Policy attributable to shareholders Cost to Income
Slide 72: Arion Bank strategic path
Arion Bank strategic path The path to double digit return on equity in the medium term Further grow loan portfolio on the back of Commission income growth through Valitor’s the underlying growth in the Icelandic Card Loan growth international expansion economy payments Continued implementation
Slide 73: Arion Bank in a nutshell
Arion Bank in a nutshell Icelandic focused universal relationship bank Track record and Long-standing history established platform to with client base build on Progressive approach Good profitability with first mover underpinned by strong attitude fundamentals 73 Ability to pay dividends
Slide 74: Appendix
Appendix 74
Slide 75: Appreciation of the ISK caused by underlying macro-economic factors
Appreciation of the ISK caused by underlying macro-economic factors Growth in tourism, increased FX inflow, current account surplus and positive IIP drives the appreciation The Icelandic krona strengthened EUR/ISK vs USD/ISK FX market turnover considerably last year Bn ISK monthly basis – Increase
Slide 76: Retail Banking
RETAIL BANKING 76 15.02.2017
Slide 77: Introduction to Icelandic retail banking market
Introduction to Icelandic retail banking market Characteristics of the mortgage loans market Description Mortgage loans market ISK Bn The Icelandic mortgage loans market Iceland is and is expected to remain a homeowner´s market. Rent prices have been 637 599 on the rise, pushing more people into b
Slide 78: Mortgage loans to individuals
Mortgage loans to individuals Split of new mortgage loans in Maintaining market share in an increasingly competitive market 2016 ~69% CPI linked vs. ~31% non- CPI linked Arion Bank initiatives Arion Bank mortgage loans volume – individuals Arion Bank has a full range of mortgage products and stron
Slide 79: Focus on SMEs
Focus on SMEs Significant growth profile driving portfolio diversification Key highlights SME loans by geographic area and industry sector1 ISK Bn 2016 Significant rise in SME loan volumes from ISK 67 Bn in 2013 to ISK 127 Bn in 2016 31,276 SME loan book in Arion Bank traditionally relatively sm
Slide 80: Deposits from customers
Deposits from customers Opportunity to grow through leveraging strong mortgage loans customer base Key highlights Total deposits volume in Retail Bank ISK Bn 300 264 269 Bank customers in Iceland are accustomed to keeping deposits with 249 257 19 22 20 20 their main bank 26 ₋ Opportunity to attrac
Slide 81: Loan portfolio management
Loan portfolio management A conservative loan portfolio management Limited exposure to holding companies Retail Banking provides, and has in its loan book, loans to holding companies. Holding companies are categorized under "Financial Sector“ with other loans. Loans classed under “Financial Sect
Slide 82: Corporate Banking
CORPORATE BANKING 82 15.02.2017
Slide 83: Corporate banking market and competition
Corporate banking market and competition Proactive and successful Approach to market developments Key highlights Credit risk analysis Weighted net interest rate Corporate Banking Post crisis material margin pressure in high quality credits unfolded due to increased competition from pension funds as
Slide 84: Product offering overview
Product offering overview Diversified book Key highlights – term loans Term loans outstanding Outstanding in ISK Bn2 Term loans are the highest volume product in all client sectors and drives both income and NIM 238.1 203.5 202.1 210.3 Competitive and price sensitive market 38.9% New investmen
Slide 85: Product offering overview
Product offering overview Services growing and complementing credit risk Key highlights Commissions income breakdown %, M 38.9 38.6 Focus on commission income has resulted in a clear positive trend of 32.5 increasing commission income per FTE as well as its relative contribution 22.7 11.7% 16.3% 2
Slide 86: Corporate Banking and risk management
Corporate Banking and risk management Low risk profile Loans secured with listed or unlisted securities Loans secured by listed securities Collateral value of the cash and securities securing loans to customers amounts to approximately ISK 20 billion Majority of loans are to corporates and onl
Slide 87: Investment Banking
INVESTMENT BANKING 87 15.02.2017
Slide 88: Introduction to Icelandic Investment banking market
Introduction to Icelandic Investment banking market Recent strong IPO market driving trading volume Highlights Bonds new issues and market share1 ISK Bn, % Small and geographically isolated with few local competitors 35 60 43 33 Iceland’s investment banking market is comprised of the three 187 2
Slide 89: Corporate Finance
Corporate Finance Leading advisory track record Highlights Involved in 8 out of 13 IPOs since 2011 Description 2011 2013 2014 2015 2016 Focus on large fee paying clients Leading player in building up the equity market Strategic initiatives in terms of focus on product and sector mix in accorda
Slide 90: Capital markets
Capital markets Leading market position in equity and strong market position in FX and bonds Description Nasdaq Iceland: Equities 2016 Leading in equity brokerage and strong position in FX brokerage and % of market turnover bond issuances market Equity and bond desks servicing pension funds, AM
Slide 91: Research team
Research team Leading research capabilities Team Publications # of publications Independent research team of six strong analysts covering 6 the Icelandic economy and securities markets 207 217 187 2 Meetings per week with clients 118 130 104 89 87 83 7 Industries covered 2014 2015 2016 Market briefi
Slide 92: Swap agreements and equity holdings
Swap agreements and equity holdings Forwards and swaps1 Shareholdings and equity instruments with variable income The Bank's total assets in listed shares which are not in the trading book amounts to ISK 9.1 billion and private equity is ISK 10.6 billion at the end of 2016. In addition the Bank ow
Slide 93: Equity holdings contd.
Equity holdings contd. Listed equities Four of the largest listed shareholdings are administered by the CEO’s office and are the responsibility of the Bank's investment board, see table below. Company Shares Book value as of YE2016 Reitir fasteignafélag hf. 42,864,221 4,007,804,664 HB Grandi hf. 9
Slide 94: Asset Management and Stefnir
ASSET MANAGEMENT AND STEFNIR 94 15.02.2017
Slide 95: A comprehensive Product and Services offering
A comprehensive Product and Services offering Full range of investment products and services for clients with varying investment objectives Core focus on pension funds, institutional investors and HNW clients Largest number of investment professionals in Iceland1 Dedication to long-term clie
Slide 96: Stefnir
Stefnir Fund overview and performance UCITS, non-UCITS and instit. investor funds (AuM ISK 352 Bn)1 Private equity and real estate funds (AuM ISK 56 Bn)1 Funds: 6 AuM (ISK Bn): 83 Fund size at inception (ISK Bn): 3.4 Fixed income Wide fund range SIA I (PE) Exits: 3 (2 IPOs and one trade sa
Slide 97: Stefnir
Stefnir Strategic growth and customer satisfaction • Stefnir has achieved financial and market share growth through long- Preferred partner of institutional clients term strategic planning by its board of directors implemented since 2009 with emphasis on a healthy revenue mix 2016 Client Survey Resu
Slide 98: Private banking
Private banking Tailor made personal service to clients 2016 client survey results 1 Special focus on Ultra High Net Worth (UHNW) clients in Iceland Healthy growth in PB AuM All things considered, how satisfied or unsatisfied are you with Arion Bank Private Tailor made and highly personal serv
Slide 99: Financial Performance
FINANCIAL PERFORMANCE 99 15.02.2017
Slide 100: Overview of covered bonds
Overview of covered bonds Arion Bank’s covered bonds programme Covered bonds development ISK Bn Arion Bank has set up a EUR 1 Bn programme for the issuance of covered bonds In 2011, Arion Bank was licensed by the Icelandic Financial Supervisory Authority 161 to issue covered bonds 133 136 129 –
Slide 101: Overview of senior unsecured bonds
Overview of senior unsecured bonds Arion Bank’s senior unsecured bonds Senior unsecured bonds development 2016 ISK Bn Year Maturity 164 Currency Issued Maturity Type Terms of interest Size (ISK Bn) USD 2016 2017 At maturity Floating, 3 month LIBOR +1.93% 3,406 EUR 2009 2018 Amortising Floating, EURI
Slide 102: Details on P&L adjustments
Details on P&L adjustments Details on revenue adjustments Adjusted operating expenses and net earnings • Net interest income: Adjustments mainly refer to calculated net • Total operating expenses: Adjustments relate to fines from interest income earned in Treasury, had Arion not held non-core compet
Slide 103: Details on P&L adjusted (cont’d)
Details on P&L adjusted (cont’d) Adjusted revenues Adjusted operating expenses and net earnings In ISK million 2013 2014 2015 2016 In ISK million 2013 2014 2015 2016 Net i nteres t i ncome 23,800 24,220 26,992 29,900 Opera ting expens es (25,395) (27,042) (28,196) (30,540) Cha nges 3,157 2,642 1,347
Slide 104: Information Technology
INFORMATION TECHNOLOGY 104 15.02.2017
Slide 105: Core banking systems overview
Core banking systems overview • Current situation • Currently Arion Bank uses RB system (along with other banks) as its core banking system for deposits, and all payment instructions are settled through the RB system • RB is a centralised cash settlement system in Iceland (IT service centre for the
Slide 106: Information technology overview
Information technology overview Focus on reliable operations, digitalisation and customer satisfaction Reliable and efficient operations IT reliability and efficiency – key management focal points Reduction of impacting incidents from 53%1 year 2010 ₋ Ongoing maintenance and development of systems c
Slide 107: Focus on automation
Focus on automation Results in simplification Three-to-one loan system migration scheme Achieving operational efficiency - In 2009, Arion Bank had three loan systems in operation: RB UT, SAP CML Migration to Libra Loan. Reduction in maintenance cost (ISK M)1. and Libra Loan, each servicing a diffe
Slide 108: Digitalised banking Framework
Digitalised banking Framework With strong customer focus Increasing digital impact Initiatives Active online bank users1 Active Arion Bank app users1 Gives customers quick access to their daily banking +4% +6% +5% +20% Arion Bank Further functionality continuously being added. High customer 73,7
Slide 109: Risk Management
RISK MANAGEMENT 109 15.02.2017
Slide 110: Risk management for Arion Bank
Risk management for Arion Bank Risk Management integrated across the entire Bank Board of Directors is ultimately responsible for: Board of Directors – Setting the Bank‘s risk and governance policies – Articulating its risk appetite Internal Audit – Ensuring effective internal control and manageme
Slide 111: Risk appetite
Risk appetite Clearly articulated risk appetite cascaded down to risk limits Within risk The objective of the risk Example risk appetite metrics 31.12.2016 Legal limit appetite? appetite framework is to Credit risk provide a common framework to the board of directors and the Largest exposure – gro
Slide 112: Stress testing overview
Stress testing overview Stress test results are incorporated into the review of risk appetite and limits Stress tests framework Stress tests performed The Bank’s stress testing Stressed scenarios provided by the CBI in framework is aligned with FME Central Bank & collaboration with the FME Annua
Slide 113: Stress testing
Stress testing Stress tests results are incorporated into the review of risk appetite and limits Capital controls liquidity stress testing Arion Bank has performed a number of stress tests in relation to capital controls Scenarios have assumed full outflow of deposits from entities in winding-up
Slide 114: Risk management
Risk management Problem loans & other Early Warning System for potential problem loans For Problem loans that are not categorized in 90 days default then the the main monitoring measures other than checking the list of defaulters (which contains loans to borrowers more than 30 days in default) are
Slide 115: Risk management systems
Risk management systems Arion Bank utilises a number of effective and sophisticated systems to manage risk Risk-adjusted performance Credit rating model to monitor Return on metric developments of credit risk Internal ★★★ % Allocated Capital (ROAC) ★★ Rating System Estimate customer’s probabil
Slide 116: IFRS 9 Readiness
IFRS 9 Readiness Steering committee overseeing the implementation process Currently analysing change from IAS 39 to IFRS 9 on current processes and being reviewed and updated accordingly Implementation Quantitative Impact Study (“QIS”) to measure potential effects of the change in impairment m
Slide 117: Valitor Appendix
VALITOR APPENDIX 117 15.02.2017
Slide 118: Full and well diversified product range
Full and well diversified product range Valitor card acquiring services Valitor card issuing services Offers both card-present and e-commerce acquiring services to Valitor issues both physical and virtual cards on behalf of banks and merchants, ISOs (independent sales organisations), payment pro
Slide 119: 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