Arion Bank's financial results for 2013

| Source: Arion banki hf.

Arion Bank reported net earnings of ISK 12.7 billion in 2013, compared with ISK 17.1 billion in 2012. Return on equity was 9.2%, compared with 13.8% in 2012. Return on equity from core operations was 10.5% in 2013, compared with 11.4% in 2012. Total assets amounted to ISK 938.9 billion, compared with ISK 900.7 billion at the end of 2012. New loans increased by 60% between years to almost ISK 120 billion. Total loans to customers grew by 12%, particularly as a result of new loans related to the settlement of the Drómi bond, and totalled ISK 636 billion, compared with ISK 567 billion at the end of 2012. Arion Bank has now reduced operational risk by securing long term funding and by increasing the proportion of retail loans, which represented 49% of total loans to customers at the end of the year. The Consolidated Financial Statements of Arion Bank have been audited by the Bank’s auditor, Ernst & Young ehf.

Earnings during the fourth quarter amounted to ISK 2.5 billion, the same as in the fourth quarter of 2012. Return on equity in the fourth quarter was 7.4%, compared with 8.2% in the same period of 2012. Return on equity based on core operations was 7.7%, compared with 7.9% in the same period of 2012.

The capital ratio at the end of 2013 was 23.6%, compared to 24.3% at the end of 2012. 

Highlights of the annual financial statement:

  • Net earnings of ISK 12.7 billion, compared with ISK 17.1 billion in 2012.
  • Earnings in the fourth quarter of ISK 2.5 billion, the same as in the fourth quarter of 2012.
  • Earnings from core activities of ISK 11.5 billion, compared with ISK 13.5 billion in 2012.
  • Net operating income decreased to ISK 44.3 billion in 2013, compared with ISK 49.5 billion in 2012. The main reasons are a lower interest-rate differential and exchange rate losses owing to the appreciation of the Icelandic króna. Other income is lower on account of lower valuation changes on assets.
  • Net interest income of ISK 23.8 billion, slightly lower than in 2012 due to the higher funding cost and lower inflation.
  • Net valuation change negative by ISK 680 million. Net valuation change on loans positive by ISK 159 million. This is offset by an expense of ISK 839 million relating to intangible assets.
  • Return on equity was 9.2%, compared with 13.8% in 2012. Return on equity from core operations was 10.5%, compared with 11.4% in 2012.
  • The interest-rate differential as a percentage of the average interest-bearing assets was 2.9%, compared with 3.4% in 2012.
  • The cost-to-income ratio was 57.3%, compared with 49.8% in 2012. The high ratio is primarily explained by a decrease in operating income, particularly net interest income. The cost-to-income ratio in core operations was 61.2%, compared with 55.5% in 2012.
  • Income and bank taxes totalled ISK 6.0 billion, compared with ISK 4.7 billion in 2012. This represents an increase of ISK 1.3 billion despite the fact that the group’s earnings were lower in 2013.
  • Loans to customers of ISK 635.8 billion at the end of 2013, an increase of 12% from the end of 2012, particularly as a result of new loans taken over by the Bank in relation to an agreement between Arion Bank and ESÍ ehf. on the settlement of a bond issued by Drómi hf. in 2009 in connection with the transfer of deposits from SPRON to Arion Bank.
  • Total assets of ISK 938.9 billion, compared with ISK 900.7 billion at the end of 2012.
  • Total equity at the end of 2013 of ISK 144.9 billion, compared with ISK 130.9 billion at the end of 2012.

Höskuldur H. Ólafsson, CEO of Arion Bank:

Arion Bank’s core operations were stable, solid and in line with our projections in 2013. Return on equity is 9.2% which is satisfactory given the huge increase in the bank tax, and the capital ratio is strong at 23.6%. We have seen a surge in demand for the Bank’s basic services. New loans increased by 60% in 2013 from the previous year and totalled ISK 120 billion.

We have now managed to structure the balance sheet as we intended. Systematic efforts to raise the proportion of loans to individuals have led to significant growth in this area. In 2010, loans to individuals represented 25% of total loans. This figure is now around 50%. Key steps in this process were the acquisition of Kaupthing's mortgage portfolio in 2011, and then at the end of 2013 the acquisition of the retail loan portfolio from ESÍ (the holding company of the Central Bank of Iceland), including the so-called Drómi portfolio. At the same time the Bank has significantly increased its share of new loans on the mortgage market, a market where the Bank has played a leading role.  Our objective has been to have a balanced loan portfolio with a low level of risk - a good mix of retail and corporate loans. This change is reflected in the lower interest margin, which measured 2.9% in 2013.

Although they have decreased, one-off events and valuation changes on assets still have a considerable effect on the Bank’s operations. Return on equity from core operations is slightly higher than return on equity after taking into account such factors, or around 10.5%. The underlying business is performing well but we aim to do even better.

The huge increase in public levies left its mark on the financial results. Arion Bank paid ISK 6.6 billion in tax in 2013, of which almost ISK 2.9 billion was a bank tax, a separate tax levied on financial companies. At the end of 2013 the government raised the tax rate sharply in order to fund a debt relief programme for indexed mortgages. The bank tax is calculated on the liabilities of financial institutions, which are mainly retail and corporate deposits. Actions which place such a heavy burden on financial institutions are bound to have an effect on their operations and services. It is largely a tax on deposits and as such will have a negative effect on the terms and services which financial institutions can offer their customers.

We will continue to seek opportunities to streamline the business and to strengthen the Bank's ability to compete for new customers. We are focusing on the interfaces between the Bank and our customers who require basic services: our branches, the online bank and the app.  Changes will be made in response to the wishes and needs of our customers. We will increase the number of available options, improve efficiency, charge reasonable fees and develop long-term business relationships.  The opening of a new service centre at Borgartún 18, Reykjavik in mid-2014 will be an integral part of this development.

A great deal has been achieved in terms of building up the Bank in recent years, achievements we are proud of and which have not gone unnoticed. In 2013 Arion Bank became the first Icelandic bank since 2007 to raise funding on the international markets. Around 60 investors from several countries bought bonds issued by the Bank denominated in Norwegian kroner. Recently Arion Bank became the first bank in Iceland for more than five years to be rated by the international ratings agency Standard & Poor’s.  The Bank is rated BB+, which is only one level below the rating assigned to the Republic of Iceland. Another pleasing development during the year was when the Banker magazine, which is published by The Financial Times, named Arion Bank as the bank of the year in Iceland for 2013. This was the first time since 2007 that the magazine had given an award to an Icelandic bank. All of us who work at Arion Bank are proud of this recognition.


Conference call in English

Arion Bank will be hosting a conference call in English tomorrow, Thursday 27 February at 13:00 GMT (14:00 CET), where Stefán Pétursson, CFO, will present the annual results.

Those who would like to participate in the conference call can send an e-mail to and will then receive instructions with dial in details.

For further information please contact Haraldur Gudni Eidsson of Arion Bank's Communications division at, or tel. +354 856 7108.