Asset Management and Arion Bank’s subsidiaries are leading players on the Icelandic asset management market, with assets under management of ISK 1,055 billion. Asset Management comprises Institutional Asset Management, Private Banking, Investment Services and Pension Funds Administration. It manages financial assets on behalf of its clients in accordance with predetermined investment strategies. The division is also the main fund distributor for Stefnir hf., selling to individuals, companies, institutions and institutional investors, as well as offering funds of international fund managers. Asset Management also manages pension funds. Asset Management had 33 full-time employees at the end of 2016. The managing director is Margrét Sveinsdóttir.
Broad range of services to cater for different needs
Asset Management specializes in providing a full spectrum of investment opportunities for clients with varying investment objectives. The focus is on having a broad range of products and services tailored to our clients’ needs. The division’s employees have decades of experience and expertise of the financial markets and asset management. The main emphasis is on offering personal services, laying the foundation for strong, long-term and financially rewarding relationships with our clients.
The main emphasis is on offering personal services, laying the foundation for strong, long-term and financially rewarding relationships with our clients.
Assets under management at the Group level grew 5.8% year-on-year, or ISK 58 billion, mainly as a result of inflow of new capital from current and new clients. Sales of Stefnir funds via the online bank grew strongly, indicating a strong public interest in mutual funds and a readiness to use digital channels to invest.
Assets under management at the Group level grew 5.8% year-on-year, or ISK 58 billion, mainly as a result of inflow of new capital from current and new clients.
Focus on sustainability
Asset Management is a participant on the securities market on behalf of the Bank's customers. It is vital that the Bank performs this role responsibly as the securities markets are important for society. Offering first-class services through digital channels is central to this. This enables customers to invest in funds whenever and wherever it suits them at their own convenience.
Asset Management promotes sustainable banking in many different ways:
- Information meetings on pensions were held all around the country for working people, students and pensioners.
- Measures were taken to reduce the use of paper, e.g. by issuing statements electronically and by sending newsletters by e-mail instead of regular mail.
- Detailed information packages sent to customers, including information on how to use private pensions to reduce mortgages or for first-time home owners to invest in property.
- Increased focus on regular savings to accumulate assets.
Frjálsi Pension Fund continues to perform well
Frjálsi Pension Fund, which is managed by Arion Bank, continued to perform well and was named the best pension fund in its class in Europe by the respected publication Investment & Pensions Europe (IPE). Frjálsi was also nominated for the award of best pension fund in Europe, the first time it has been nominated in this category. In recent years the fund has won ten international awards.
Continued benefits for our customers
The lifting of the capital controls will result in a period of great opportunities for investors. The Icelandic securities market will also undergo considerable changes with the implementation of the MiFID II directive and MiFIR regulation. Asset Management will continue to seek ways to create and identify the best possible investment opportunities for our clients. Our mission remains to generate benefits for our customers with satisfactory returns, using our professional approach and targeted risk management, and guided at all times by our customers’ best interests.
Corporate Banking provides comprehensive financial services and complete solutions to some of Iceland’s largest companies. The division offers solutions in funding, deposits, payment services and value-added digital services. Many of Iceland’s leading companies have a successful business relationship with Corporate Banking dating back many years. Fostering effective communication with clients and gaining an in-depth knowledge of their needs are essential for developing long-lasting relationships. Corporate Banking had 28 full-time employees at the end of 2016. The managing director is Freyr Thórdarson.
About Corporate Banking
The division is divided into three specialist sector teams and a credit analysis and structuring team. The sector teams are trade and services, real estate and energy, and seafood. Each team is made up of a service manager and account managers who work closely with clients, arranging funding and providing other services. The role of credit analysis and structuring is to provide advice and assistance on credit facilities, risk analysis and negotiations, and other related services to the clients. Corporate Banking collaborates closely with other divisions, such as Retail Banking, Vehicle and Equipment Financing, Capital Markets and Corporate Finance. Corporate Banking’s account managers play a key role in providing advice and facilitating solutions and universal banking services for our clients.
Main tasks and highlights of the yar
Arion Bank supported a wide range of our clients’ activities during the year and it was particularly satisfying to see some of the projects we had funded in previous years taking their first steps in 2016. The improving economic climate stimulated increased investment by the Bank’s clients. Competition was substantial in 2016 but demand for credit was high and in fact in excess of the amount available in the economy. Corporate Banking concentrated on cultivating its relationships with existing clients.
The improving economic climate stimulated increased investment by the Bank’s clients
The seafood team provides services to Iceland's largest seafood companies whose activities include fishing, processing, salmon farming and sales of marine products. The team is also responsible for implementing the Bank’s strategy of prudently funding projects in the international seafood markets with the aim of diversifying the client base in the seafood industry and thereby to spread the risk in the Bank’s loan portfolio accordingly. Icelandic seafood companies have been investing in the sector in recent years, and in 2016 the Bank helped to finance a freezer plant, the acquisition and building of fishing vessels, and contributed to the growth of companies with fishing quotas and fish processing companies. Corporate Banking has collaborated with international banks on the funding of several projects, bringing clear benefits to our clients by lowering their funding costs.
Projects in the real estate sector were prominent just as in the previous year. These tasks included the construction of large apartment complexes, the expansion of clients’ property portfolios and future engagements linked to the building of hotels in the Reykjavík area. The real estate and energy team followed up on several long-term projects during the year, including infrastructure development in various areas, energy-intense industry and pharmaceutics. The team has collaborated closely with Investment Banking on delivering customized solutions in extensive engagements for the Bank’s clients.
The team has collaborated closely with Investment Banking on delivering customized solutions in extensive engagements for the Bank’s clients
The trade and services team provides services to major clients in a variety of sectors, including manufacturing, tourism, IT, investment and insurance. During the year the team helped support client growth, both in Iceland and overseas, and also attracted new clients. The team stepped up its activities in the tourism sector by welcoming dynamic travel companies to the client base. There was continued focus on services, other than loans, and this was reflected by the growth in commission in the division and the Bank as a whole.
The Corporate Banking employees were active participants at conferences on the tourist industry, real estate, the seafood industry, lean management and also contributed to the Bank's sustainability policy, provided backing for Iceland Geothermal and organized a seminar on the allocation of fishing quotas.
In 2017 Corporate Banking will continue to define its role in the Bank’s sustainable banking strategy and further support the Bank’s strategy on responsible investment and lending.
Activities during the year
Interest-bearing assets amounted to ISK 248 billion, of which loans to customers amounted to ISK 243 billion* at the end of 2016, or 35% of total loans at Arion Bank and 66% of corporate loans. There was a substantial volume of new loans although the value of Corporate Banking's loan portfolio in foreign currencies decreased owing to the exchange rate. Corporate Banking participated in a wide range of projects with its clients and developed new business relationships. Approximately 6% of loans were made to new clients of the Bank.
Interest-bearing assets amounted to ISK 248 billion, of which loans to customers amounted to ISK 243 billion* at the end of 2016, or 35% of total loans at Arion Bank and 66% of corporate loans
*At parent company.
The division’s loan portfolio broadly spans the Icelandic business sector and this conforms with the division’s strategy. The largest sectors in Corporate Banking’s loan portfolio are real estate and related business (34%), fishing industry (22%), trade and services (14%) and telecommunications and IT (10%). In recent years the tourist industry has grown massively in Iceland, as a percentage of GDP, in terms of export income, as a contributor to economic growth, job creation and investment. The sector has now become one of Iceland's leading industries. As it is a growth industry, Corporate Banking has taken cautious steps in increasing loans to the tourist industry and the sector accounts for just under 4% of the division's interest-bearing assets and 6.7% of the Bank's total loans to legal entities.
The division’s loan portfolio broadly spans the Icelandic business sector and this conforms with the division’s strategy
The year ahead
This year has begun with the same momentum as at the end of 2016. Most economic indicators are positive and the mood in the business sector is upbeat. Demand for credit remains strong and there is little sign of a drop off in the near future. This year we expect to remain active in the energy sector and continue our investments in the seafood industry. Tourism is experiencing massive growth and this is likely to have some kind of knock-on effect in the business sector. The exchange rate of the Icelandic króna could present some challenges to those sectors most sensitive to it. It will also be interesting to see whether investment of foreign capital will contribute to business sector development and also to see which direction the discussion on the private funding of public projects takes.
Demand for credit remains strong and there is little sign of a drop off in the near future
In such circumstances it is important to make considered decisions on loans, and be prudent in choosing which projects we want to be involved in, for our benefit and the benefit of our clients. We need to take the long-term view and assess the impact of these projects on the economy and the business sector. Our existing clients will remain the focal point at Corporate Banking when choosing which engagements we wish to pursue and the products we wish to offer.
The main role of Investment Banking at Arion Bank is to bring together buyers and sellers on the financial market and to advise companies and investors on how to develop their business. The main services provided by Investment Banking are securities and FX brokerage, corporate finance and research. Investment Banking had 30 full-time employees at the end of 2016. The managing director since February 2016 is Ida Brá Benediktsdóttir.
At Investment Banking we have an experienced team professionals at our disposal. Investment Banking had a diverse range of engagements in 2016, including the listing of Skeljungur on the main market of Nasdaq Iceland and the raising of funding for the construction of the Marriott Edition hotel adjacent to Harpa Concert Hall. Capital Market had the highest market share in equities brokerage and the fixed income and foreign exchange brokerages also performed well. This strong showing was confirmed when Arion Bank was named best investment bank in Iceland in 2016 by Euromoney.
Arion Bank was named best investment bank in Iceland in 2016 by Euromoney
Corporate Finance provides M&A advisory services and is a leading arranger of stock market listings on Nasdaq Iceland. Corporate Finance’s clients include some of the largest companies and major investors in Iceland. Our team has extensive experience with a variety of educational and professional backgrounds and a proven track record of success.
Corporate Finance’s clients include some of the largest companies and major investors in Iceland
The year 2016 proved yet again to be an eventful year for Corporate Finance. In the first half of the year the property company Reitir completed its acquisition of a real estate portfolio owned by funds managed by Stefnir, and Corporate Finance advised on the transaction. In mid-2016 the sale was finalized of an 80% interest in Kolufell, a company which will manage the construction of residential property adjacent to the Harpa Concert Hall. Equity and debt financing was secured for the proposed construction of the Marriott Edition hotel next to Harpa Concert Hall and the Bank advised on this deal. In October the competition authorities gave the final approval for the Bank's acquisition of the insurance company Vördur, with Corporate Finance again advising the Bank on this process. At the end of the year Corporate Finance arranged the IPO of Skeljungur on the main market of Nasdaq Iceland and over the last two years it has arranged all four IPOs on this stock exchange. The division also arranged regular bond issues by Reitir and the energy utility Orkuveita Reykjavíkur.
At the end of the year Corporate Finance arranged the IPO of Skeljungur on the main market of Nasdaq Iceland and over the last two years it has arranged all four IPOs on this stock exchange
The economic outlook is bright and we aim to consolidate our position as a leading adviser to corporates and investors and thereby to support the ongoing development of the Icelandic business sector and financial markets. Over the past few years the Bank has made every effort to strengthen the securities market by arranging the IPOs of eight of the 13 companies listed on the main list of Nasdaq Iceland. Corporate Finance has also advised and introduced various new products and issuers on the corporate bond market. In 2017 we will adopt the same course and contribute to the Icelandic business sector by continuing to provide top quality services to our clients.
Capital Markets brokers financial instruments for the Bank’s international and Icelandic clients. The increase in the number of listings on Nasdaq Iceland has added depth to the Icelandic stock market. Arion Bank occupies a strong position in terms of securities turnover on the main market of Nasdaq Iceland and had the highest share of market participants on the equities market in 2016. Equities Trading participated in the IPO of Skeljungur on the main market of Nasdaq Iceland and Fixed Income Trading was involved in the primary sale of bonds for the town of Gardabær, Reitir and Orkuveita Reykjavíkur. Trading on the foreign exchange market has been increasing and the product range has been expanding. Arion Bank has been at the forefront of offering its clients products to hedge risk.
Arion Bank had largest market share on equities market in 2016
The main aim of Capital Markets has been to provide its growing client base with good services and access to expert knowledge. The focus in the medium term will continue to be on product development, offering clients further opportunities to invest and distribute risk. In the next few weeks a new product for customers of Arion Bank will be launched, giving them access to the market via their online bank accounts and enabling them to trade directly with Icelandic equities on the stock market.
Capital Markets has maintained strong links with international equities brokers and our experts will continue to provide assistance to our clients on international securities transactions.
Arion Research publishes macro research on the Icelandic economy, as well as research on individual sectors and companies.
Arion Research publishes reports and presentations, participates in meetings and answers queries posed to the Bank. Material published by Arion Research is intended for the general public, selected clients or the Bank’s employees and is always based on publicly available information. Arion Research works closely with other divisions to provide services to Arion Bank’s customers.
One of the objectives of Arion Research is to encourage and advance public debate on the Icelandic economy. Arion Research is staffed by a team of experts who have the necessary education, dedication and experience to provide in-depth analysis of economic issues, getting to the heart of what really matters and being able to present their material in an accessible manner. Arion Research is independent of the other divisions of the Bank.
One of the objectives of Arion Research is to encourage and advance public debate on the Icelandic economy. Arion Research is staffed by a team of experts who have the necessary education, dedication and experience to provide in-depth analysis of economic issues
In 2016 the department organized five seminars and conferences for the public and investors at the Bank’s headquarters at which topics such as the real estate market and the tourist sector were analyzed and Arion Research’s economic forecasts were presented. The department’s specialists also presented their research at numerous meetings with Arion Bank’s clients across the country. During the year Arion Research published 83 Economic Updates and 104 research reports on listed companies.
Investment Banking has played an extensive role in the growth of the Icelandic financial market in recent years. It has been one of the leading forces behind the restoration of the Icelandic securities market and has helped many of Iceland's largest companies restructure their finances. The debt of Icelandic companies as a percentage of GDP is at its lowest level for a long time. Household debt has followed the same pattern and government debt has been reduced massively since the estates of the failed banks were settled, combined with strong GDP growth.
Investment Banking has played an extensive role in the growth of the Icelandic financial market in recent years. It has been one of the leading forces behind the restoration of the Icelandic securities market and has helped many of Iceland's largest companies restructure their finances
The focus on reducing debt has gone hand in hand with cautious investment. While there are signs that investment is picking up, particularly in the business sector, it is abundantly clear that there is pent-up need for new investment, not least in infrastructure. In the next few years investment is likely to take off. The public and private sectors can be expected to take advantage of favourable conditions on the securities market. We can look to our neighbouring countries as a model and also build on our own experience.
The fact that the positive financial environment for companies and investors coincides with pent-up investment need is excellent news for the securities market. The Icelandic equities market is relatively small by international standards and the corporate bond market is even smaller, despite the broad similarity in structure, and thus there is good growth potential.
The significant steps taken towards the lifting of the capital controls present an opportunity for Icelandic companies to expand their business overseas and enable companies and investors to distribute and reduce risk. At the same time increasing numbers of international investors are seeking opportunities to invest in Icelandic business and infrastructure despite the restrictions which remain in place.
Contributing to the development of the Icelandic financial market has long been integral to Arion Bank’s strategy. Our strong position, with a solid market share and diverse product offering, depends on this strategy and the qualified and experienced team we have at Arion Bank. Investment Banking is built on strong foundations and fully intends to maintain its key positon on the market.
Retail Banking provides high quality financial services to retail customers and small and medium-sized enterprises through our branch network across Iceland. The Bank operates 24 branches and service points in Iceland as well as a call centre. Our mission is to meet the needs of our customers by providing a diverse product offering and professional financial advice. Retail Banking had 358 full-time employees at the end of 2016. The managing director is Helgi Bjarnason.
We advise our customers on deposits and loans, savings, payment cards, pension savings, insurance, securities and funds through our branches and call centre. In recent years we have been continuously adding to our product range and given the branches higher credit granting limits, thus moving the power to make decisions closer to our customers.
The key tasks in recent years have been linked to the implementation of lean management with the ultimate aim of offering even better services. The voice of our customers is central to our business and we have worked hard to make sure that our customers' opinions are heard and taken on board by key people at the Bank when we are developing goods and services. Ensuring that our employees are fully up to speed with all the latest product developments has also been a priority. We have continued our efforts to improve operating efficiency by reducing the number of branches and slimming down the administrative structure.
There has been a keen focus on the implementation of lean management with the aim of offering even better services.
We have devised a new layout and design for our branches and six branches have already been opened with the new look. These changes will be rolled out to other branches over the next few years. This new strategy supports the Bank’s focus on value-added service and rapid service channels such as ATMs, online banking and the app. At the same time the Bank will be taking measures to rationalize the branch structure, for example by reducing square metres and prioritizing self-service channels. In order to reduce the Bank’s ecological footprint, all marketing and promotional material in the branches is now in digital, not printed, format.
On 1 May Arion Bank took over all banking operations at Keflavík International Airport. The design and launch of the branch and the services it provides required meticulous planning, and the Bank has branches in both the departure lounge and arrivals hall as well as 14 ATMs located throughout the airport. Keflavík International Airport is one of Iceland's primary market places and since the branch opened more than 250,000 people have been served there. The Bank has also introduced innovative products for tourists and Icelandic customers can now order foreign currency and pick it up at the airport on their way abroad.
On 1 May Arion Bank took over all banking operations at Keflavík International Airport
In October 2016 the Icelandic Competition Authority approved Arion Bank’s acquisition of the insurance company Vördur, giving us the exciting opportunity to further diversify our product range. By offering insurance products as part of the financial advice package we have the chance to strengthen business relationships and increase customer satisfaction.
Our employees are well aware of their role and responsibility to our customers and the society in which we work. Employee training therefore remains as important as ever. During the year six employees qualified as financial advisers after completing a course held in cooperation with Reykjavík University. A total of 54 employees have now gained this qualification. This qualification standardizes the requirements made of financial advisers and ensures that they possess the requisite expertise and skills to do their job. It lays the foundations for an even closer partnership with our insurance subsidiary, Vördur, and the aim is to incorporate life and health insurance advice into the package when customers apply for a mortgage.
This qualification standardizes the requirements made of financial advisers and ensures that they possess the requisite expertise and skills to do their job
In the last few years the Bank has greatly expanded its services to SMEs by transferring the authority to make decisions to the branches and simultaneously developing industry expertise among branch employees. Loans to SMEs have increased by 91% since 2013 and grew by 5.8% last year. The loan portfolio is well diversified and the main sectors represented are property management and construction, seafood, and retail and wholesale. The Bank also has a significant market share in agriculture and trade and services.
Loans to SMEs have increased by 91% since 2013 and grew by 5.8% last year
The future is digital
Our ability to offer outstanding digital services is one of Arion Bank’s key strengths. We have come a long way in this respect, with innovations including automatic credit appraisals, a convenient new way of becoming a customer of the Bank, credit card payment plans in the app and online banking and new ways to open accounts and get cards online. The app is continually improving and gaining popularity and now almost half of our customers use the app on a regular basis. This development mirrors the changes in habits and requirements of customers and is designed to make things easier, save customers the trip to their branch and simply give them what they want, any time, any place.
This development mirrors the changes in habits and requirements of customers and is designed to make things easier
The focus on digital services therefore ties in closely with the Bank's policy on sustainable banking and is a key factor in reducing the ecological footprint of the Bank and our customers. We will continue along this route in 2017 and will launch a whole range of new digital solutions.