Highlights of 2020

Rapid response to changing circumstances

Last spring Arion Bank responded swiftly to the sudden downturn in the Icelandic economy and was the first bank in Iceland to offer its customers a payment holiday on their loans. Thousands of customers took up this option, approximately 2,000 retail customers and 500 companies. As a result loans to retail customers totalling ISK 55 billion and corporate loans amounting to ISK 87 billion were subject to payment holidays during the year. However, at the end of the year only ISK 9 billion in retail loans and ISK 26 billion in corporate loans were subject to a payment holiday.

In an effort to help companies suffering a huge shortfall in revenue due to the pandemic, the government announced state guaranteed loans provided by the banking system to customers meeting certain conditions. Companies in the travel industry formed a significant proportion of the companies taking advantage of these measures since the demand for their services all but disappeared. The raft of measures included supplementary loans for larger corporations and business support loans for SMEs. Arion Bank provided three supplementary loans totalling ISK 1.3 billion and more than 300 business support loans amounting to approximately ISK 3 billion.

Limited services at the branches – the app and the Call Centre fill the gap

The ban on mass gatherings introduced by the authorities in response to the pandemic meant that the Bank was forced to close its branches to anybody who did not have an appointment. The number of branch visits therefore plummeted, down 55% between years, which in turn led to a surge in the use of other service channels. The focus in recent years on digital services proved invaluable in these circumstances.

In all, 99% of our service interactions with customers were through digital channels. The app remains the Bank’s most popular service channel, and at 86,000 the number of users has never been higher. Call Centre traffic reached new heights during the year and employees from around the country joined forces with the Call Centre team to ensure that customers received the service they needed. Phone calls increased by 24%, e-mails by 27% and there was a 110% rise in webchat traffic.

During the year the Bank merged branches in southern Iceland and corporate services in the Reykjavík area were merged in a central location at Borgartún. The Bank’s headquarters in Borgartún is now home to a team of corporate business specialists who provide a full spectrum of corporate services to companies throughout the Reykjavík area and also provide support to corporate business teams throughout Iceland.

Iceland’s best app – pensions in the app

The Arion app got even better over the year with the addition of new features. Users can now get a comprehensive overview of their pensions and can set up supplementary pensions savings in the app. It was the fourth year in a row that surveys of bank customers in Iceland named our app the best banking app. An assessment performed by Finalta, a subsidiary of the international consultancy McKinsey, also indicates that Arion Bank is a global leader in developing digital services among financial institutions. The Bank received a special award from the jury at the Icelandic Web Awards for being a trailblazer in digital services in Iceland, and insurance in the app was named tech solution of the year.

Interest rate cuts and growth in mortgage and deposits – ISK 5 billion in Green Deposits

Interest rate cuts in Iceland triggered a surge in demand for mortgages. In 2020 new mortgages amounted to ISK 200 billion, more than double the figure for 2019. In other words approximately half of the Bank’s mortgages were loans made in 2020. Arion Bank launched new products such as supplementary mortgages for people who want to take a loan from a pension fund and special loans for people whose earnings are in a foreign currency.

Despite falling interest rates the Bank made great advances on the deposits market. Deposits grew by 15% over the year and the Bank added to its market share on the deposits market. Deposits remain the Bank’s most important source of funding.

Arion Bank’s green journey continued apace during the year, and in mid-year the Bank launched green deposits for retail and corporate customers who want to contribute to a more environmentally friendly future. Arion Bank is the first financial institution in Iceland to give its customers this option. The response from customers was excellent and more than ISK 5 billion was deposited in the account. The deposits have been used to finance green car loans which have also surpassed all expectations. Due to the popularity of the account during the early part of 2021 it was decided to expand the range of projects that the deposits will be used to finance. The Bank also became the first bank Iceland to offer green mortgages, not least to encourage the building of environmentally certified housing.

Strong backing for dynamic companies

There was intense activity on the corporate loans market, driven to a great extent by the low interest environment, and the Bank loaned ISK 440 billion to companies in 2020, much of which was related to refinancing. The Bank also helped many companies raise funding in the market by issuing bonds, commercial paper and shares. Arion Bank co-managed the takeover bid for all shares issued by Skeljungur.

Strong returns in asset management

The Arion Bank Group is one of the largest players on the Icelandic asset management market, with ISK 1,131 billion in assets under management. Investment returns in 2020 were solid and assets under management grew by ISK 100 billion. Assets of institutional investors are at an all-time high and the pension funds yielded decent returns, ranging from 4-17%.

Arion Bank was the leading equities broker in Iceland for the fifth year in succession.

Implementation of new deposit and payment system continues

One of the main tasks during 2020 was the ongoing implementation of SOPRA, the Bank’s new deposit and payment system. It is one of the most massive IT projects the Bank has undertaken in recent years. The project requires close teamwork both inside and outside the Bank and things have gone smoothly despite the fact that many people have been working from home. The implementation of SOPRA is scheduled to be completed in the first half of 2021.

Balance sheet

Arion Bank became the first Icelandic financial institution to issue bonds eligible as Additional Tier 1 capital under the Financial Undertakings Act No. 161/2002 when it issued $100 million bonds in February. The bonds have no fixed maturity date and can be called by Arion Bank in five years. The bond issue was oversubscribed, with orders received from over 90 investors from the UK, Switzerland and Scandinavia with total demand of around $500 million.

In November 2020 Arion Bank issued new 3.5 year senior unsecured bonds for a total of €300 million. The bond offering was oversubscribed, and orders were received from more than 50 investors with total demand around €500 million. At the same time a tender offer took place for €300 million of a €500 million issue maturing in December 2021.
At the beginning of 2021 the Financial Supervisory Authority of the Central Bank of Iceland authorized the Bank’s buyback of own shares. At a meeting of the board of directors of Arion Bank on 10 February the board authorized the Bank to initiate a share buyback programme in Iceland and Sweden (in the form of SDRs). Despite the buyback and a dividend of ISK 3 billion Arion Bank is one of the most financially robust banks in Europe at year-end.