Arion Bank Consolidated Financial Statements 2024
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Notes to the Consolidated Financial Statements ..................................................................................................................................
5-year overview ....................................................................................................................................................................................
Appendices (unaudited) ........................................................................................................................................................................
Independent Auditor's report ................................................................................................................................................................
Contents
Consolidated Income Statement ...........................................................................................................................................................
Consolidated Statement of Cash Flows ................................................................................................................................................
Arion Bank highlights ............................................................................................................................................................................
Endorsement and statement by the Board of Directors and the CEO ...................................................................................................
Consolidated Statement of Financial Position .......................................................................................................................................
Consolidated Statement of Comprehensive Income .............................................................................................................................
Consolidated Statement of Changes in Equity ......................................................................................................................................
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Arion Bank
Highlights 2024
13.2%
Return on
equity
47.2%
Cost-to-core
income
18.2%
CET1 ratio
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Return on equity (%)
Net interest margin (%)
Cost-to-Core income ratio (%)
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CET1 ratio (%)
LCR ratio (%)
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Total assets (ISK bn)
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Long term: A3
Covered bond: Aa1
Outlook: Stable
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Loans to customers by sector
Arion Bank Consolidated Financial Statements 2024
About Arion Bank
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Operations during the year
2024
Return on equity 13.2%
Core operating income / REA 7.1%
Insurance revenue growth (YoY) 10.6%
Combined ratio 88.9%
Cost-to-core income ratio 47.2%
Arion Bank's medium-term financial targets compared with the operational results for the year
61%
Dividend pay-out ratio
Arion Bank's medium-term financial targets
Exceed 13%
Exceed 7.2%
In excess of market growth (9.6% in 9M 2024)
Below 95%
Pay-out ratio of approximately 50% of net earnings attributable to shareholders through either
dividends or buyback of the Bank's shares or a combination of both
150-250 bps management buffer (~16.8 - 17.8%)
Below 45%
Endorsement and statement
by the Board of Directors and the CEO
The Consolidated Financial Statements of Arion Bank for the year ended 31 December 2024 include the Consolidated Financial Statements of
Arion Bank ("the Bank") and its subsidiaries, together referred to as "the Group".
Income Statement
Net earnings amounted to ISK 26.1 billion and return on equity was 13.2% in 2024, compared with ISK 25.7 billion and 13.6% respectively in
2023. Earnings per share were ISK 18.31, compared with ISK 17.80 in 2023. Core income, defined as net interest income, net commission
income and insurance service results (excluding opex), increased by 4.6%, compared with the previous year, mainly due to insurance service
results. Net interest income increased by 3.6%, compared with the previous year, and the net interest margin was 3.1%, the same as for the
year 2023. The composition of the loan book has changed, resulting in a steep increase in the proportion of CPI-linked loans, which in turn
amplifies fluctuations in net interest income. The real interest rate remains very high and the competition for deposits is intense, which results in
increased funding costs for the Bank. Net commission income decreased by 6.3% between years, impacted by the closure of the Keflavík
International Airport branch and a change in the classification of insurance revenue from cards. The operation of Vördur improved significantly,
contributing standalone net results of ISK 3.7 billion in 2024. Insurance revenues continued to grow, increasing by 10.6% between years, while
claims increased by 3.1%. Net financial income amounted to ISK 2.8 billion, a solid performance driven by the investment portfolio of Vördur.
Other operating income was negatively affected by the ISK 355 million fair value change of the Helguvík development plot. Operating expenses,
including operating expenses of the insurance operation, increased by 10.3% compared with the previous year, partly due to the higher cost of
the variable incentive scheme compared with the previous year and a fine of ISK 585 million following a settlement with the regulator in June.
Inflation measured 4.8% between years. The cost-to-income ratio was 42.6%, compared with 40.0% in 2023, while the cost-to-core income ratio
was 47.2%, compared with 44.7% in 2023. Impairments were calculated at 9bps for the year. The effective income tax rate was 25.4%.
Arion Bank and its subsidiaries provide comprehensive financial services to the people of Iceland. Arion Bank’s role is to help those who want to
achieve success in Iceland and the Arctic through smart and reliable financial solutions which enhance financial health and create sustainable
value. Arion Bank places great importance on developing long-term relationships with its clients and is a market leader as a provider of cutting-
edge and modern banking services.
Arion Bank provides services to individuals, corporates and investors in three business segments: Retail Banking, Corporate & Investment
Banking, and Markets. The service offering is further augmented by the subsidiaries Stefnir and Vördur. Stefnir is one of the largest fund
management companies in Iceland, and Vördur is the fastest growing insurance company in Iceland, providing non-life and life insurance. The
Bank also offers pension services and manages several pensions funds. Arion’s service offering is therefore highly diverse.
The diverse service offering creates a broad revenue base, and the loan portfolio is well diversified between retail and corporate customers. The
high percentage of mortgages and the healthy distribution of loans across different sectors contribute towards risk management.
The Group is a market leader in terms of digital solutions and innovation, and the majority of the Group’s services can be obtained using the
Arion app. The broad spectrum of digital services makes banking more convenient for customers and also makes the business more cost
efficient. The Bank is a leading service provider and advisor to corporate customers and investors and has been a key figure in invigorating the
Icelandic stock market.
Arion Bank has adopted a clear policy on sustainable operations and environmental and climate issues. A wide range of green financial
services, such as green car loans, deposits, corporate loans and mortgages, is available to its customers. Arion Bank has in addition published
a sustainable financing framework which addresses the Bank’s funding and lending activities.
Arion Bank is a financially robust bank which aspires to operate profitably in harmony with society and the environment. The Bank is committed
to paying competitive dividends and is listed on Nasdaq Iceland and Nasdaq Stockholm.
Balance Sheet
CET1 ratio above regulatory
capital requirements
293 bps
Arion Bank's balance sheet grew by 6.1% from year-end 2023. Loans to customers increased by 6.7% from year-end 2023, with an 8.6%
increase in corporate lending and 5.0% growth in loans to individuals, mainly mortgages. Deposits increased by 8.2%, primarily individuals and
SMEs. Total equity amounted to ISK 207,086 million at the end of the year and increased by 3.9% during the year. The Group's capital ratio, as
calculated under the Financial Undertakings Act No. 161/2002, was 22.6% and the CET1 ratio was 18.2% assuming around ISK 16 billion
dividend payment and ISK 3 billion buyback of own shares approved by the Board and the FSA. These ratios comfortably exceed the
requirements made by the FSA and Icelandic law. The liquidity position was strong at year-end and well above the regulatory minimum.
4
Arion Bank Consolidated Financial Statements 2024
Endorsement and statement
by the Board of Directors and the CEO
Economic outlook
Outlook for the Bank
Employees
Iceland's economy experienced both highs and lows in 2024. According to preliminary figures from the National Accounts, GDP contracted by
1% in the first nine months of the year, a result that significantly underperformed analysts’ expectations. Exports played a key role, with the
capelin failure having significant negative effects in the first quarter and the tourism industry facing a challenging operational environment.
Additionally, soft private consumption figures surprised analysts, as household consumption increased by only 0.2% between years in the first
nine months. Despite the substantial efforts undertaken by the government around the volcanic eruptions on the Reykjanes Peninsula, which
heavily impacted public consumption, and resilient investment, it is likely that the GDP results for 2024 will not meet analysts’ expectations. In
this context it is worth reiterating that these are preliminary figures from the National Accounts and continued upward revisions are expected in
the coming quarters, mainly because the preliminary figures are at odds with high-frequency indicators.
The Group had 858 full-time equivalent positions at the end of the year, compared with 822 at the end of 2023.
Household consumption increased by 0.8% between years in the third quarter, marking a reversal from the previous quarters. Payment card
turnover figures indicate that private consumption has continued to gather steam, with the total payment card turnover of Icelandic consumers
rising by 6.1% between years, in real terms, in the fourth quarter. Household consumption is expected to increase significantly this year, owing
to faster real disposable income growth than previously estimated. Consequently, the savings rate of households is somewhat higher than initial
figures suggested, and net wealth has continued to grow. Furthermore, labour market conditions support ongoing private consumption growth;
unemployment is low, and wages are rising.
Nevertheless, tension in the labour market has eased, and demand for labour is expected to fall in some cases, such as in tourism, where the
number of jobs has decreased between years. After a rocky start to the year, tourism managed to make up some ground in the second half of
the year, with nearly 2.3 million tourists visiting the country in 2024. However, the sector's contribution to export growth was negative, as
preliminary data indicate that the length of stay and average spending per tourist decreased between years. Thus, other industries had to pick
up the slack, a challenge that both aquaculture and pharmaceuticals met head-on. Most anticipate a similar trend in 2025, with tourism fighting
to hold its ground while other sectors are on the offensive.
Arion Bank and Vördur have in place an incentive scheme which came into effect in 2021 for employees of Arion Bank and Vördur. The scheme
is in compliance with the FSA’s rules on remuneration policies for financial institutions. The scheme is divided into two parts. Firstly, employees
can receive up to 10% of their fixed salary in the form of a cash payment. Secondly, a limited group can receive up to 25% of their fixed salary
as payment in the form of shares or share options in the Bank. The key metric used to determine whether remuneration will be paid for the
relevant year, in part or in full, is whether the Bank’s return on equity in the relevant year is higher than the weighted ROE of the Bank’s main
competitors. Stefnir has a separate incentive scheme where other criteria are used as a basis. Since 2021 Arion Bank has had in place a share
option plan for all employees of the Bank, and the subsidiaries Vördur and Stefnir, which is considered important for aligning the interests of
employees with the long-term interests of the Bank. The share option plan was initially for five years and employees are entitled to buy shares
for up to ISK 1,500,000 each year. The purchase price is determined by the Bank’s average share price 10 days before the share option
agreement is signed. Further disclosure on the incentive scheme can be found in Note 13.
The tight monetary stance appears to have slowed economic activity and reduced inflationary pressure. Inflation declined steadily throughout
the year, reaching 4.8% at the year-end. Underlying inflation declined as well, albeit at a slower pace, and the scope and frequency of price
hikes continued to subside. The Monetary Policy Committee seized the opportunity to reduce interest rates by 0.75 percentage points in the
fourth quarter, from 9.25% to 8.5%, in two steps. Further rate cuts are expected, but the battle isn't over – the Central Bank operates under a
2.5% inflation target – which means that monetary policy will probably remain tight in 2025 as the economic outlook is quite good.
In recent years, Arion has followed a strategy designed to take a leading role in our markets, the success of our customers and society as a
whole. This vision builds on long-term client relationships, diverse products and services and strong teamwork which form the basis of a
seamless customer experience and sustainable value creation. The Group’s performance over the past few years indicates that we are on the
right track.
The external operating environment continues to evolve and pose challenges. As before, Arion benefits from its diverse revenue streams and
sound infrastructure, while also retaining the flexibility to respond to the shifting environment. The economy in 2024 has been impacted by
inflation and elevated interest rates. It is important to see strong signs indicating progress towards the stabilization of the economy. The reduced
policy rates from the Central Bank at the end of the year were positive steps and there are expectations of further reductions in the near term
which will support the Icelandic economy and in turn the customers of Arion.
Arion Bank remains in a strong position to manage these changes in the external operating environment, having strong and diverse revenue
streams, a very strong capital position by international standards and robust liquidity and funding positions.
5
Arion Bank Consolidated Financial Statements 2024
Endorsement and statement
by the Board of Directors and the CEO
Funding and liquidity
Capital adequacy and dividends
In October 2024, Arion Bank issued 3-year green senior preferred bonds amounting to NOK 500 million and SEK 500 million. The bonds are
floating rate and were priced at a spread of 120bps over 3-month NIBOR and STIBOR.
Arion Bank continued to issue covered bonds which are secured in accordance with the Covered Bond Act No. 11/2008. In 2024 the Bank
issued covered bonds amounting to ISK 50.7 billion, of which ISK 8.96 billion were for own use.
In 2024 Moody’s affirmed the Bank’s A3 rating for senior unsecured debt and upgraded its rating for covered bonds from Aa2 to Aa1, following
the upgrading of the Icelandic sovereign rating.
Arion Bank's dividend policy states that the Bank aims to pay 50% of net earnings in dividends and that additional dividend or share buybacks
can be considered when the Bank's capital levels exceed the minimum regulatory requirements together with the Bank's management buffer. In
the medium-term, the Bank aims to maintain capital adequacy ratios 150-250bps above total regulatory requirements.
In September 2024, the Bank issued additional Tier 1 bonds amounting to $125 million. The bonds have a fixed coupon of 8.125% and have a
standalone and consolidated 5.125% CET1 trigger with equity conversion. The issuance strengthens the Bank’s own funds and helps maintain
an optimal capital structure.
Following a thorough review of its ratings needs, the Bank ended its rating relationship with S&P Global Ratings during Q2 and now operates
with a sole credit rating from Moody's Ratings. Among the factors considered in the review were how peer banks of similar size in the Nordic
region are rated, what ratings methodologies best support the Bank's future bancassurance model, and what investors and other stakeholders
expect in terms of high quality, recognized ratings. Arion Bank is currently rated A3 with a stable outlook by Moody's.
On 19 December 2024 the Financial Supervisory Authority of the Central Bank of Iceland granted Arion Bank authorization of an amount up to
ISK 3.0bn, to buy back own shares and reduce its share capital. Arion Bank's Board of Directors has approved the buyback of own shares in
accordance with the above and authorized the management to decide on the timing and execution of any share buyback.
On 10 July 2024, the FSA published the result of the Supervisory Review and Evaluation Process (SREP) for Arion Bank, based on financial
information at year-end 2023. The additional capital requirement under Pillar 2 is set at 1.8% of total risk-weighted exposure amount (REA), a
decrease of 0.3pp from the previous year.
In December 2024 the Central Bank reduced the systemic risk buffer from 3% to 2%, while simultaneously increasing the level of the capital
buffer for systemically important institutions from 2% to 3%. The net result for Arion Bank is a slight increase in its combined capital buffer
requirement.
Arion Bank's capital position is very strong and will remain so for the foreseeable future. This underpins the Bank's ability to support its
customers and the Icelandic economy, as it faces challenging economic conditions owing to a number of factors including geopolitical tensions,
high interest rates, and high inflation.
The Group's capital adequacy ratio on 31 December 2024 was 22.6% and the CET1 ratio was 18.2%. The ratios account for a deduction due to
a dividend payment of ISK 16.0 bn (representing 61% of 2024 net earnings) to be made in Q1 2025, as well as an ISK 3.0bn buyback program.
This compares to a regulatory capital requirement of 19.6% and CET1 requirement of 15.3%, including the combined buffer requirement. The
Group's REA increased by ISK 77.1bn in 2024. This was driven primarily by an ISK 65.8bn increase in loan portfolio REA. REA changes for
other factors were less material.
The Resolution Authority of the Central Bank of Iceland presented the Bank with updated MREL requirements in October 2024, based on year-
end 2023 financials. The MREL requirements are 19.6% of REA excluding own funds used to meet the combined buffer requirement and 6.0%
of TEM. At year-end 2024, the levels for these ratios were 26.0% and 21.6%, respectively. Additionally, the Resolution Authority has introduced
a subordinated MREL requirement of 13.5% which will apply to the Bank from 1 August 2026.
The proposed dividend for 2024, which will be subject to the approval of the Annual General Meeting on 12 March 2025, is equivalent to ISK
11.5 per share or around ISK 16 billion, net of own shares. In March 2024, Arion Bank paid a dividend of ISK 9.0 per share, approximately ISK
13.1 billion.
The Group’s liquidity position remains strong, and deposits continue to grow. The Bank’s liquidity position was above the required minimum, and
the liquidity ratio at year-end 2024 was 181%, with the minimum requirement being 100%.
In May 2024 Arion Bank issued €300 million senior preferred notes with a maturity of 4.5 years. The notes pay a coupon of 4.625% which
corresponds to a spread of 175bps over mid-swaps in euros.
6
Arion Bank Consolidated Financial Statements 2024
Endorsement and statement
by the Board of Directors and the CEO
Arion Bank's ownership
Risk management
Governance
There are five Board sub-committees: The Board Audit Committee, the Board Risk Committee, the Board Credit Committee, the Board
Remuneration Committee and the Board Tech Committee. One of the committee members on the Board Audit Committee is not a Board
member and is independent of the Bank and its shareholders.
The main roles of the Board, as further specified in the rules of procedure of the Board, include setting the Bank's strategy, supervising financial
affairs and accounting, and ensuring that appropriate internal controls are in place. The Board ensures that the Bank has active Internal Audit,
Compliance and Risk Management departments. The Internal Auditor is appointed by the Board of Directors and works independently of other
departments of the Bank in accordance with a charter from the Board. The Internal Auditor provides independent and objective assurance and
advice designed to add value and improve the Bank's operations. The Compliance Officer, who reports directly to the CEO, works independently
within the Bank in accordance with a charter from the Board. The main role of Compliance is to ensure that the Bank has in place proactive
measures to reduce the risk of rules being breached in the course of its activities. Compliance is also responsible for coordinating the Bank’s
measures against money laundering and terrorist financing. The duties of Compliance are carried out under a risk-based compliance plan
approved by the Board of Directors, including a monitoring and training schedule for employees which addresses the laws and rules under which
the Bank operates.
In 2024 the nominal value of Arion Bank's share capital was increased by ISK 53,198,719 in order to cover the exercising of issued warrants.
Arion Bank's share capital thus increased from ISK 1,460 million to ISK 1,513 million in 2024. A corresponding increase was made in December
2023, amounting to 224,359 shares.
The main venue at which the Board report information to the shareholders and propose decisions is at legally convened shareholders’ meetings.
The Bank provides an effective and accessible arrangement for communications between shareholders and the Board of Directors between
those meetings. Any information sensitive to the market will be released through a MAR press release, unless legal conditions for delaying
public disclosure apply. Arion Bank also arranges quarterly meetings where the interim financial results are presented. The Bank has also held
its capital markets day, most recently in March 2024, where the management team discussed the Group’s performance and key focus areas
going forward.
Gildi lífeyrissjódur was the largest shareholder in Arion Bank with a shareholding of 9.17% at the end of the year and Arion Bank held 6.65% of
its own shares. The number of shareholders was 10,200 at the end of the year, compared with 10,906 at the beginning of the year. Further
information on Arion Bank's shareholders can be found in Note 38.
The Group faces various risks arising from its day-to-day operations as a financial institution. Managing risk is therefore a core activity within the
Group. The key to effective risk management is a process of on-going identification of significant risk, quantification of risk exposure, actions to
limit risk and constant monitoring of risk. This process of risk management and the ability to manage and price risk factors is critical to the
Group's continuing profitability as well as ensuring that the Group's exposure to risk remains within acceptable levels. The Board of Directors is
ultimately responsible for the Bank’s risk management framework and ensuring that satisfactory risk policies and governance structure for
controlling the Bank’s risk exposure are in place. The Group’s risk management, its structure and main risk factors are described in the notes
and in the Bank’s unaudited Pillar 3 Risk Disclosures.
At the Bank’s AGM on 13 March 2024, five members were elected to serve on the Board of Directors until the next AGM, three women and two
men. Paul Horner was elected Chairman of the Board. Additionally, two Alternate Directors (one woman and one man) were elected. All
Directors and Alternates are independent of Arion Bank, its management and major shareholders. The Board’s composition as regards gender
representation complies with statutory requirements, which stipulate that companies employing more than 50 people must ensure that the
gender ratio of the board of directors and alternate board is no less than 40%.
The Board of Directors of Arion Bank places great importance on good corporate governance and a corporate culture which fosters open and
honest relations between the Bank, its shareholders, and other stakeholders. The Board of Directors is the supreme authority in the affairs of the
Bank between shareholders’ meetings and tends to those operations of the Bank which are not considered part of the day-to-day business, i.e.,
taking decisions on issues which are unusual or of a significant nature. The Board of Directors appoints a Chief Executive Officer who is
responsible for the day-to-day operations in accordance with a strategy set out by the Board. The CEO hires the Executive Management.
Corporate governance at Arion Bank is described in more detail in the Bank's Corporate Governance Statement which is contained in the
unaudited appendix to the Financial Statement and on the website www.arionbanki.is. The Corporate Governance Statement is based on
legislation, regulations, and recognised guidelines in force when the Bank's annual financial statements are adopted by the Board of Directors,
prepared in accordance with the Guidelines on Corporate Governance, 6th edition, issued by the Icelandic Chamber of Commerce, SA –
Business Iceland and Nasdaq Iceland in February 2021. Corporate governance at Arion Bank complies with the guidelines with two exceptions,
which are explained in more detail in the Corporate Governance Statement.
7
Arion Bank Consolidated Financial Statements 2024
Endorsement and statement
by the Board of Directors and the CEO
Sustainability and non-financial reporting
-
-
-
-
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Arion Bank and its subsidiaries engage in extensive partnerships in the field of sustainability and social responsibility, both in Iceland and
abroad, and are signatories to numerous international treaties and declarations. For example, the Bank is a signatory to the UN Global
Compact, the UN Principles for Responsible Banking (UN PRB), and the UN Principles for Responsible Investment UN PRI), and Stefnir is also
a signatory to the latter. Arion Bank became a signatory to the Science Based Targets initiative (SBTi) and the UN-convened Net-Zero Banking
Alliance at the end of 2023 and is working on getting its science-based climate targets validated by SBTi in 2025.
In Iceland, the Bank and Vörður are active partners of Festa – Center for Sustainability, and the Bank is one of the founding members of Green
by Iceland, a joint business and government forum on climate issues and green solutions. Arion Bank, Stefnir and Vörður are founding members
of IcelandSIF, the Iceland Sustainable Investment Forum.
Arion Bank has adopted an environment and climate policy and has set itself targets. The policy, which was updated at the beginning of 2024
and approved by the Bank’s sustainability committee, spells out the importance of the Bank minimizing the negative environmental impact of its
activities and greenhouse gas emissions. The policy states that the Bank will focus its attention on financing projects on sustainable
development and green infrastructure, support Iceland’s ambitious plans to have net zero emissions by 2040 and aim to be net zero itself the
same year.
Percentage of sustainable lending will be at least 20% of the Bank’s total loan book.
Reduce greenhouse gas emissions from own activities (Scopes 1 & 2) by 80% calculated from 2015 and remaining emissions will be
carbon offset.
Continuous efforts to get a more accurate picture of emissions from acquired goods and services (Scope 3) in the Bank’s activities.
Aim to reduce financed emissions in the sectors which have the most impact (Scope 3) in line with the net zero target by 2040.
Targets on financed emissions should be validated by SBTi.
Arion Bank’s environmental accounts now include information on Stefnir and Vörður for the first time. The Bank aims to reduce greenhouse gas
emissions from its own activities by at least 80% by 2030 (Scopes 1 and 2). Excellent progress has been made and by the end of 2024, the
Bank had reduced emissions from its own activities by 70.1% compared to the reference year 2015, i.e. Scopes 1 and 2. Of this total, total
emissions from vehicles decreased by 64.7% and from own business premises by 75.1%. Vörður and Stefnir refer to the Bank’s environmental
targets when setting their own targets. Total emissions of greenhouse gases in 2024 at Arion Bank, Stefnir and Vörður amounted to 745 tCO2e.
The proportion of total emissions is highest at Arion Bank or 91%, followed by 7% at Vörður and 2% at Stefnir.
Policy and environment and climate action
Arion Bank’s environment and climate targets until 2030:
Arion Bank and its subsidiaries Vörður and Stefnir place great importance on environmental and social issues and good corporate governance
in their operations. The Bank's role is to help people who want to achieve success in Iceland and the Arctic through smart and reliable financial
solutions which enhance financial health and create sustainable value.
Arion Bank’s sustainability policy bears the title Together we make good things happen and signifies that the Bank wants to act as a role model
in responsible and profitable business practices, taking into account the environment, the economy and society. We aim to ensure that social
responsibility and sustainability are integral parts of the Bank's day-to-day activities, its decision-making and processes. The Bank’s code of
ethics serves as a key to responsible conduct and decision-making at Arion Bank. The subsidiaries Vörður and Stefnir have also adopted
sustainability policies in line with the parent company’ policy.
Arion Bank has a sustainability committee and the management of risk in connection with ESG factors was defined as part of the Bank’s risk
management system. The CEO is the chairman of the committee, whose role is to monitor the Bank’s performance in connection with its policy
and commitment on sustainability and to ensure that ESG factors are considered in decisions and plans made by the Bank. The sustainable
financing committee and equality committee are sub-committees of this committee.
Stefnir operates an ESG committee. The managing director appoints an ESG committee comprising employees involved in the funds’
investment process. The ESG committee works in accordance with rules of procedure, provides support on asset allocation and ensures that
Stefnir works in accordance with the established criteria on responsible investment. The ESG committee determines the ethical standards for
investments which must be adhered to when funds are taking investment decisions.
Vörður has a sustainability group appointed by the operations manager. The group works in accordance with relevant procedures, provides
support and restraint in the field of sustainability, particularly when it comes to preventative measures and claims. The group sets targets on how
to advance sustainability within the company.
Arion Bank has selected six UN Sustainable Development Goals which it intends to focus on. These goals are number 5 on gender equality;
number 7 on affordable and clean energy; number 8 on decent work and economic growth; number 9 on industry, innovation and infrastructure;
number 12 on responsible consumption and production; and number 13 on climate action. Vörður and Stefnir have also selected UN SDGs to
emphasize in their operations.
Arion Bank and Vörður have in place an incentive scheme for permanent employees which is based on clear targets and subject to strict
conditions in accordance with current law and regulations. In 2024, as in previous years, both financial and non-financial indicators were
included in the scheme. Non-financial indicators are linked to results in areas such as customer satisfaction, know-your-customer, enhanced
due diligence, learning and development and equality. ESG factors are also taken into account in the remuneration scheme of Stefnir.
Partnerships in sustainability
8
Arion Bank Consolidated Financial Statements 2024
Endorsement and statement
by the Board of Directors and the CEO
-
-
-
-
-
-
-
Arion Bank is a signatory to the Partnership for Carbon Accounting Financials (PCAF). This is a global partnership of financial institutions that
work together to develop and implement a harmonized approach to assess and disclose the greenhouse gas emissions associated with their
loans and own investments (Scope 3). Every year we publish information on the carbon footprint of financed emissions according to PCAF
methodology, thereby promoting transparency in the progress made in climate issues. The calculations are based on the most recent and
reliable data available at any given time, but the data is at least a year old since more recent data is unavailable.
Total financed emissions from the Bank’s lending and investments in 2023, including sovereign bonds (without land-use), amounted to 289
ktCO2e which is 18% higher than the previous year but around 2% lower than in 2021. Total financed emissions, excluding emissions from
sovereign bonds, came to 161 ktCO2e, up 5% from 2022.
Sovereign bonds (with land-use) alone produce emissions of approximately 171 tCO2e and are the largest single factor in the Bank’s financed
emissions. Emissions from sovereign bonds vary greatly between countries, particularly taking into account land-use. Therefore, the
composition of the portfolio has a fundamental effect. Apart from changes to sovereign bonds, the increase between 2022 and 2023 is mainly
due to loan growth at the Bank and increased own investments.
The emissions intensity of operating income increased slightly, from 4.5 tCO2e/ISKm to 4.7 tCO2e/ISKm which indicates a higher environmental
impact per profit centre since 2022, but a 10% reduction between 2021 and 2023. The main reason for the increase between 2022 and 2023 is
the change in composition of sovereign bonds in the Bank’s asset portfolio.
Emissions from business loans represent 90% of total emissions from the Bank’s loans. These emissions increased by approximately 3%
between years, from 140 ktCO2e to 144.4 ktCO2e. The emissions intensity of business loans did decrease slightly, however, between years
from 0.29 tCO2e/ISKm to 0.28 tCO2e/ISKm which means that each ISK 1 million the Bank lent in 2023 resulted in relatively lower emissions
than in 2022. Emissions intensity is used to measure results because while amounts may change, percentages remain comparable and provide
a better picture than if the emissions figures for each category were referred to.
Fishing industry 28%
Energy 30%
Transportation 28%
Agriculture 5%
Aluminium production 26%
Coal – maintain 0%
Oil – maintain 0%
Stefnir also calculated the financed emissions of greenhouse gases from assets in funds managed by Stefnir and the results were published in a
report (stefnir.is/fjarmognud-losun). The report contains information on the emissions intensity of each ISK 1 million invested in specific funds.
Financed emissions
Sustainable finance
In 2024 Arion Bank issued a sustainable financing framework which replaced the Bank’s green financing framework which came out in 2021.
The new framework is built on the foundations of the green financial framework but is more extensive. Lending to projects in the circular
economy is now incorporated into the framework, as are projects which have a particularly positive impact on society. Examples of such loans
are mortgages to first-time buyers, loans to educational institutes and health clinics and to SMEs which are majority owned by women and/or
immigrants.
The purpose of issuing a sustainable financial framework is to help Icelandic society have a positive impact. The goal is for 20% of the Bank’s
total loans to be classified under the sustainable financing framework by 2030. We are already on track and the total book value of sustainable
lending was approximately ISK 191 billion last year. Green loans accounted for approximately ISK 145 billion of this total and allocations to
projects having a positive social impact came to around ISK 46 billion. Therefore, approximately 15.5% of the Bank’s loans are classed as
sustainable loans, 11.8% of this being green loans and loans with a positive social impact 3.7%. The Bank is able to fund itself on this basis with
green and/or sustainable bond issues and deposits. Over the last few years, the Bank has held five green issues, one of which was in 2024.
In 2024, Arion Bank signed a guaranteed agreement with the European Investment Fund, EIF. The agreement opens up opportunities for the
Bank to finance start-ups and projects which are in the initial stages at SMEs. The framework is financed by the InvestEU scheme where the
focus is on sustainability, innovation and digitalization, as well as culture and creative industries. Loans under the framework have better terms
due to the EIF guarantee and their goal is to promote sustainability and environmental issues, the digitalization of society and culture.
In addition, the Bank has published sustainability policies on its lending to different sectors and to projects in the Arctic and has thus committed
to support its customers. The policies align with the Bank’s focuses and obligations in respect of sustainability, and they have been approved by
the Bank’s sustainability committee.
Women Invest is a long-term project organized by Arion Bank, the aim of which is to increase participation by women in investment and to
promote financial literacy. The foundations for the project were laid in 2023 when Arion Bank resolved to place a special focus on equal gender
participation in the financial market. The initiative was formally launched in January 2024 with a well-attended opening event, backed up by an
advertising campaign, learning events around the country and the publication of educational material, articles and inspirational interviews on the
project’s website. The initiative has proven to be a great success, with a total of 4,000 women attending 45 learning events linked to the project
during the year. The subjects covered by the events were diverse and every region of the country was visited during the campaign, while
focused conversations were had with a range of professional groups of women.
Arion Bank has set targets on reducing the emissions intensity of lending in the following sectors until 2030:
9
Arion Bank Consolidated Financial Statements 2024
Endorsement and statement
by the Board of Directors and the CEO
There is zero tolerance of bullying, gender-based or sexual harassment or other types of violence at Arion. The Bank has an anti-bullying team
which is responsible for overseeing the Bank’s policy, procedures and training in connection with tackling bullying, gender-based or sexual
harassment or violence. During the year all employees took courses on this subject, while the management underwent extensive guidance on
the issue. All new employees take a digital course on this subject when they start work.
The Bank has introduced a policy on actions against financial crime, such as money laundering, terrorist financing, bribery and corruption or
market abuse. Under the Bank’s anti-bribery and corruption policy there is zero tolerance of any form of bribery and corruption, and procedures
should be in place which ensure that employees report all incidents linked to such conduct. The Bank is aware that risk linked to bribery and
corruption is generally present in all areas of financial activities and the main risks have been identified at the Bank, which re-evaluates its
measures regularly in response to the risk at any given time. This focus supports the UN Sustainable Development Goal number 16 which aims
to reduce illegal capital flows, bribery and corruption. Further information on measures against bribery and corruption is contained in the Bank’s
2024 Pillar 3 Risk Disclosures.
Equality and human rights
The results of the surveys this year indicated that our employees are generally happy at work and satisfied with their working environment. The
average score in the Arion Index this year was 4.43 on a scale of 1-5 and was 4.31 at Vörður and 4.4 at Stefnir.
It is Arion’s policy to respect human rights and equality throughout its activities. In 2024, the Bank’s equality and human rights policy was
updated and expanded to include Vörður and Stefnir. A new action plan was also published at the same time, and it applies for the next three
years. The objective of the policy and action plan is to create an environment where people of similar education, work experience and
responsibility have equal opportunities and terms, irrespective of gender, gender identity, sexual orientation, origin, nationality, skin colour, age,
disability or religion or other factor.
The policy and the action plan are approved by the Group’s senior management. The CEO is a member of the equality committee and is
responsible for the advancement of equality issues within the Group. He appoints an equality committee comprising employees from Arion
Bank, Vörður and Stefnir.
The equality action plan places emphasis on balancing gender ratios throughout the Group, not just at management level but throughout
different job families, committees and business units. The gender ratio among all management at Arion Bank is 48% women and 52% men and
the trend has been positive between years. When Vörður and Stefnir are included the gender ratio is 48.7% women and 51.3% men.
Arion’s policy is for all employees to enjoy the same terms for the same jobs or equally valuable jobs and to ensure that no unjustified wage gap
exists. Equal pay means that pay levels are determined in advance and that there is no discrimination on the basis of gender or other factors. It
must also be ensured that all decisions on salaries are in compliance with collective wage agreements.
Arion works in accordance with an equal pay system and the companies in the Group have equal pay certification. Vörður first gained equal pay
certification in 2014, Arion Bank in 2015 and Stefnir in 2024. All companies in the Group now use the same equal pay system and the equal pay
audit was therefore carried out on a group basis for the first time. The results of the pay equity analysis indicated that the gender pay gap is
0.4% and is in line with our target that the total deviation is not more than 1%.
We have also set the target to reduce the ratio of median male compensation to median female compensation to below 1.3, and this target was
updated in the new plan which applies until 2027 to 1.25 for the Group. The ratio of median male compensation to median female compensation
was 1.26 at Arion Bank in 2024, compared with 1.28 in 2023. When Vörður and Stefnir are included, the ratio was 1.24 in 2024.
During the year we introduced diversity and inclusivity software called Alda. This is a solution designed to promote an inclusive work culture,
which both acknowledges and supports diversity. A survey was conducted among all our employees on their experience of our work culture
which measured how inclusive our workplace is. The survey produced an inclusivity score at Arion of 3.77 on a scale of 0-5, which is higher than
Alda’s inclusivity index which measures results from 68 companies.
Measures against bribery and corruption
Human Resources
The human resources policy of Arion Bank and its subsidiaries Stefnir and Vörður seeks to create a positive and motivational working
environment and support its employees. We endeavour to attract and retain outstanding employees and help them develop professionally and
personally. We have adopted a learning and development policy whose aim is to enhance and maintain our employees’ expertise and skills. We
underline the importance of employees having knowledge at all times of the laws and regulations applicable to their area of work. Employees are
encouraged to show initiative and be responsible for ensuring that they have the requisite knowledge and skills.
The Arion, Vörður and Stefnir indices are surveys which are sent to all employees every two months, and they measure how employees
experience their own work, working environment and well-being at work. The aim is to give employees a voice to give feedback quickly and
easily and to create a channel to identify opportunities to make improvements and to respond to any issues quickly and securely. The HR team
and management analyze the results and gain an insight into the strengths and challenges of each team.
The campaign has produced tangible results in its very first year. Asset portfolios owned by women have grown at almost three times the rate of
asset portfolios owned by men. Subscriptions to Stefnir funds have also grown 19% among women, more than double the increase among male
investors (7%). Trading by women also increased by 11% in 2024, double the rate of increase in trading by men. Such growth in trading
underlines the high level of interest in investment among women, and it is only natural that the amounts involved are lower initially and that
investments will increase gradually.
Further information on statistics and the status of targets and key performance indicators can be found on the Bank’s website
(www.arionbanki.is/konur).
10
Arion Bank Consolidated Financial Statements 2024
Endorsement and statement
by the Board of Directors and the CEO
Arion Bank is also rated by the international ratings agency Morningstar Sustainalytics, which specializes in rating risk related to ESG issues.
The rating was positive, and the Bank is considered to be one of the best performing banks globally in this area. The Bank scored 9.2 points on
a scale from 0-100, with a lower score signifying lower risk. Morningstar Sustainalytics therefore believes there is minimal risk of significant
financial damage due to ESG issues at the Bank. Arion Bank is in the top 4% of more than 1,000 banks worldwide which have been rated by
Morningstar Sustainalytics and in the top 2% of more than 560 regional banks.
Further information on sustainability and non-financial information can be found in the 2024 Annual and Sustainability Report which will be
available on the Bank’s website on 19 February 2025.
Due diligence process
Arion Bank’s activities are governed by the provisions of the Annual Accounts Act on non-financial reporting, Article 66 d. Information in the
2024 Annual and Sustainability Report has been prepared and published in accordance with the Global Reporting Initiative standard, GRI
Standards, which helps companies and institutions share information on sustainability in a transparent and comparable way.
When sharing information on sustainability in operations, the ESG reporting guide for the Nasdaq Nordic exchange and the 10 Principles of the
UN Global Compact are also used as a reference. The Bank also looks to the UN Sustainable Development Goals. The report contains a status
update on the progress made in introducing Principles for Responsible Banking (PRB), of which Arion Bank was a founding member in 2019.
Arion Bank has commenced the implementation of the European Sustainability Reporting Standard (ESRS). The standard forms part of the
requirements for the forthcoming transposing of the Corporate Sustainability Reporting Directive (CSRD) into Icelandic law, and reporting on the
basis of the directive applies to the whole Group. This year we are therefore providing more in-depth coverage of the Bank’s subsidiaries in
terms of sustainability in the 2024 Annual and Sustainability Report and releasing the updated results of double materiality assessments which
now also apply to Vörður and Stefnir. This coverage addresses in greater detail the requirements made in ESRS, and we are also publishing a
reference table based on the standard for the first time. The implementation process is well under way and work on it will continue in 2025.
Sustainability legislation incorporating the EU Taxonomy came into effect in Iceland in 2023. Information disclosed in accordance with the EU
Taxonomy is published in an annex to the consolidated financial statements.
Arion Bank’s Pillar 3 Risk Disclosures describe the main risk factors in the Bank’s operations, including sustainability risk, and it contains
comprehensive information on the Bank’s risk management and capital management strategies. It also contains information on the Bank’s
governance structure with respect to risk and the remuneration policy.
Deloitte provides an opinion with limited assurance on sustainability in the 2024 Annual and Sustainability Report in accordance with GRI
Standards and Nasdaq Guidelines.
Arion Bank received an outstanding ESG rating from Reitun in October, placing us in category A3 which is the fifth year in a row we have
achieved this distinction. The rating is based on the Bank’s performance in environmental, social and governance (ESG) issues in its
operations. The Bank again scored 90 out of a possible 100 points, thus meeting the stricter requirements made this year. 90 points is the
highest score Reitun has given, and the Bank is one of only four issuers in category A3. Around 40 Icelandic issuers have been assessed.
Risks associated with sustainability
At the end of 2024 the Bank’s annual risk assessment commenced. It is integral to the Bank’s risk framework and is carried out parallel to the
annual risk assessment process. Inherent risk relating to human resources and social factors is generally rated as low. The main risks concern
the ability and development of employees, as well as equality and diversity. The key environmental risks were considered to be greenwashing
and the environmental and climate impact of lending and investment. The main governance risks were found to be anti-money laundering
measures and violations relating to know-your-customer and data protection. The management of these risks at the Bank was generally rated as
adequate or strong.
Arion Bank’s risk policy on sustainability has been approved by the board of directors and is reviewed annually. Key performance indicators
relating to ESG factors are part of the risk report to the Board, and the Bank’s risk appetite with respect to these factors has been defined.
During the year a sustainability risk group was set up which works on behalf of the Bank’s sustainability committee and consists of
representatives from Arion Bank, Vörður, and Stefnir. The group meets regularly in order to assess sustainability risk relating to the key sectors
in the loan book and investments and to coordinate the presentation and use of data.
The Bank’s credit policy places an emphasis on sustainability and the credit rules stipulate that ESG factors should be assessed when a credit
rating is required, or a company meets the conditions of Article 66d of the Annual Accounts Act. Risk Management introduced a baseline
assessment of sustainability risk for the key sectors in the loan book to the Bank’s credit rating system. The assessment is used as a
benchmark and credit and fund managers are asked to evaluate each project with reference to the baseline risk assessment. This procedure
ensures that the same methodology is used when assessing sustainability risk across the Group.
In compliance with Article 5 of SFDR, a new section has been added to the Bank’s remuneration policy which states how the policy is consistent
with the integration of sustainability risk in the Bank’s activities. The policy explains how the remuneration policy, e.g. through the Bank’s
incentive scheme, ensures that people integrate sustainability risk into the investment decision process and investment advice. The same
applies to the remuneration policies of Stefnir and Vörður.
During the year Arion Bank created an exclusion list of business activities which the Bank will not invest in (own investments), provide corporate
advisory services to and/or lend money to. In addition, the Bank will not do business with entities engaging in activities considered illegal under
the law and regulations of the country in which the activities are taking place. Arion Bank’s exclusion list can be viewed on the Bank’s website.
Stefnir integrates ESG into the investment process of funds managed by the company and specially screens for companies which do not align
with the established ethical standards. These standards can be seen on Stefnir’s website.
11
Arion Bank Consolidated Financial Statements 2024
Endorsement and statement
by the Board of Directors and the CEO
Endorsement of the Board of Directors and the Chief Executive Officer
The Board of Directors and the CEO have today discussed the Consolidated Financial Statements of Arion Bank for the year ended 31
December 2024 and confirm them by means of their signatures. The Board of Directors and the CEO recommend that the Consolidated
Financial Statements be approved at the Annual General Meeting of Arion Bank.
Reykjavík, 12 February 2025
Board of Directors
Paul Horner, Chairman
The Consolidated Financial Statements of Arion Bank for the year ended 31 December 2024 have been prepared in accordance with
International Financial Reporting Standards as adopted by the European Union and additional requirements in the Icelandic Financial
Statements Act, Financial Undertakings Act and Rules on Accounting for Credit Institutions.
It is our opinion that the Consolidated Financial Statements give a true and fair view of the financial performance and cash flow of the Group for
the year ended 31 December 2024 and its financial position as at 31 December 2024. Furthermore, in our opinion the Consolidated Financial
Statements and the Endorsement of the Board of Directors and the CEO give a fair view of the development and performance of the Group's
operations and its position and describe the principal risks and uncertainties faced by the Group.
In our opinion, the Consolidated Financial Statements of Arion Bank hf. for the year 2024 with the file name RIL4VBPDB0M7Z3KXSF19-2024-12-
31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulation.
Kristín Pétursdóttir, Vice Chairman
Gunnar Sturluson
Liv Fiksdahl
Chief Executive Officer
Benedikt Gíslason
Steinunn K. Thórdardóttir
12
Arion Bank Consolidated Financial Statements 2024
Opinion
Basis for Opinion
Key Audit Matters
Impairment charges for loans and provisions for guarantees
Based on the best of our knowledge and belief, no prohibited services referred to in the EU Audit Regulation 537/2014 Article 5.1 has been
provided. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
How the matter was addressed in the audit
Key Audit Matters
Loans to customers for the Group amounted to ISK 1,239,410 million
at 31 December 2024, and the total allowance account for the Group
amounted to ISK 9,866 million (including off-balance positions) at 31
December 2024.
The Group evaluate it´s impairment on loans based of IFRS 9
resulting in impairment charges are recognised when losses are
expected based on forecasting models.
Management has provided further information about the accounting
policies for expected credit losses in Note 59 and about loan
impairment charges and provisions for guarantees in Notes 16 and
44.
Measurement of loan impairment charges for loans and provisions
for guarantees is deemed a key audit matter as the determination of
assumptions for expected credit losses is subjective due to the level
of judgement applied by Management.
The most significant judgements are:
• Assumptions used in the expected credit loss models to assess the
credit risk related to the exposure and the expected future cash flows
of the customer.
• Timely identification of exposures with significant increase in credit
risk and credit impaired exposures.
• Valuation of collateral and assumptions used for manually assessed
credit-impaired exposures.
Based on our risk assessment and industry knowledge, we have
examined the impairment charges for loans and provisions for
guarantees and evaluated the methodology applied as well as the
assumptions made according to the description of the key audit
matter.
As part of our audit, we have examined the Group’s implementation of
IFRS 9. As part of our review of the implementation we performed
substantive procedures on the Group’s impairment models and
reviewed the methodology implemented for expected credit loss
calculations. We used risk modelling specialists as well as IFRS
specialists as part of our audit.
Our examination included the following elements:
• Testing of key controls over key assumptions used in the expected
credit loss models to assess the credit risk related to the exposure
and the expected future cash flows of the customer.
• Substantively testing evidence to support the assumptions used in
the expected credit loss models applied in stage allocation,
assumptions applied to derive lifetime possibility of default and
methods applied to derive loss given default.
• Testing of key controls and substantive testing of timely identification
of exposures with significant increase in credit risk and timely
identification of credit impaired exposures.
• Testing of key controls over models and manual processes for
valuation of collateral used in the expected credit loss calculations.
• Substantively testing evidence to support appropriate determination
of assumptions for loan impairment charges and provisions for
guarantees including valuation of collateral and assumptions of future
cash flows on manually assessed credit impaired exposures.
Independent Auditor's report
To the Shareholders and the Board of Directors of Arion Bank hf.
In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of Arion Bank
hf. as at December 31, 2024, its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements, as applicable, in the Act on Annual
Accounts, the Act on Financial Undertakings and rules on accounting for credit institutions.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial
statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have audited the consolidated financial statements of Arion Bank hf. for the year ended December 31, 2024 which comprise the
consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consolidated
statement of changes in equity, consolidated statement of cash flows for the year then ended and the notes to the consolidated financial
statements, including a summary of material accounting policies.
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of
Arion Bank hf. in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA
Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in Iceland, and we have
fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.
Our opinion in this report on the consolidated financial statements is consistent with the content of the additional report that has been submitted
to the parent company´s audit committee in accordance with the EU Audit Regulation 537/2014 Article 11.
13
Arion Bank Consolidated Financial Statements 2024
Independent Auditor's report
Reliability of information from IT systems relevant to financial reporting
Other information
Responsibilities of the Board of Directors and the CEO for the Consolidated Financial Statements
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
•
•
•
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We
also:
The Group’s financial reporting is highly dependent on IT systems
supporting the overall financial reporting process, due to the
significant number of transactions processed through various
systems needed to support the Group’s operations.
In the process of preparing the consolidated financial statements the
Group uses data from number of complex IT systems. The accuracy
and completeness of transactions is important to support the
reliability of financial reporting.
Due to the importance of data from IT systems to support the
financial reporting we consider their reliability a key audit matter.
The procedures performed to respond to the key audit matter included
the following, amongst others;
• We obtained an understanding of the Group’s IT systems and
environment that support the overall financial reporting process
• We reviewed the design, implementation and effectiveness of
control activities, as appropriate, related to access management,
change management, accuracy of key automated calculations and
operation for the systems considered important for the audit. Deloitte
IT audit specialists were involved in the audit
• For IT systems that are outsourced and are relevant to the audit we
obtained and assessed the ISAE 3402 report issued by the service
organisation
Key Audit Matters
How the matter was addressed in the audit
The Board of Directors and CEO are responsible for the other information. The other information comprises the unaudited appendix to the
Financial Statements, 5-year overview, key figures, unaudited quarterly statements in note number 6 and Endorsement and statements by the
Board of Directors and the CEO.
Our opinion on the consolidated financial Statements does not cover the other information and we do not and will not express any form of
assurance conclusion thereon, except the confirmation regarding the Endorsement and the statement by the Board of Directors and the CEO as
stated below.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this
other information; we are required to report that fact. We have nothing to report in this regard.
In accordance with Paragraph 2 article 104 of the Icelandic Financial Statement Act no. 3/2006, we confirm to the best of our knowledge that the
accompanying report of the board of directors includes all information required by the Icelandic Financial Statement Act that is not disclosed
elsewhere in the consolidated financial statements.
The Board of Directors and the CEO are responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and additional requirements, as applicable, in the
Act on Annual Accounts, the Act on Financial Undertakings and rules on accounting for credit institutions, and for such internal control as the
Board of Directors and the CEO determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of Directors and the CEO are responsible for assessing Arion Bank hf.’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the Board of Directors and the CEO either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these consolidated financial statements.
The board of directors and the audit committee shall supervise the preparation and presentation of the consolidated financial statements.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of Arion Bank hf.'s internal control.
14
Arion Bank Consolidated Financial Statements 2024
Independent Auditor's report
•
•
•
Report on other legal and regulatory requirements
Report on European single electronic format (ESEF Regulation)
Appointment of auditor
From the matters communicated with the Board of Directors and the Audit Committee, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
As part of our audit of the consolidated financial statements of Arion Bank hf. we performed procedures to be able to issue an opinion on
whether the consolidated financial statements of Arion Bank hf. for the year 2024 with the file name RIL4VBPDB0M7Z3KXSF19-2024-12-31-
en.zip is prepared, in all material respects, in compliance with laws no. 20/2021 disclosure obligation of issuers of securities and the obligation to
flag relating to requirements regarding European single electronic format regulation EU 2019/815 which include requirements related to the
preparation of the Consolidated Financial Statements in XHTML format and iXBRL markup.
Deloitte ehf. was appointed auditor of Arion Bank hf. By the general meeting of shareholders on 13 March 2024. Deloitte have been elected as
auditor of the Group since the general meeting 2015.
In our opinion, the Consolidated Financial Statements of Arion Bank hf. for the year 2024 with the file name RIL4VBPDB0M7Z3KXSF19-2024-12-
31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulation.
Gunnar Thorvardarson
State Authorized Public Accountant
Management is responsible for preparing the consolidated financial statements in compliance with laws no. 20/2021 disclosure obligation of
issuers of securities and the obligation to flag. This responsibility includes preparing the consolidated financial statements in a XHTML format in
accordance to EU regulation 2019/815 on the European single electronic format (ESEF regulation).
Our responsibility is to obtain reasonable assurance, based on evidence that we have obtained, on whether the consolidated financial
statements is prepared in all material respects, in compliance with the ESEF Regulation, and to issue a report that includes our opinion. The
nature, timing and extent of procedures selected depend on the auditor's judgement, including the assessment of the risks of material
departures from the requirement set out in the ESEF regulation, whether due to fraud or error.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether
the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to
express an opinion on the consolidated and separate financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Board of Directors and the Audit Committee regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Board of Directors and the Audit Committee a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
In addition to our work as the auditors of Arion Bank hf., Deloitte has provided the Bank with permitted additional services such as review of
interim financial statements and other assurance engagement. Deloitte has in place internal procedures in order to ensure its independence
before acceptance of additional services. Deloitte has confirmed in writing to the Audit Committee that we are independent of Arion banki hf.
Deloitte ehf.
Kópavogur, 12 February 2025
15
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Consolidated Income Statement
Notes 2024 2023
132,259 123,116
(85,957) (78,431)
7
46,302 44,685
19,171 20,120
(3,811) (3,731)
8
15,360 16,389
19,669 17,416
(17,503) (17,264)
9
2,166 152
10 2,845 1,366
11 (222) 1,589
2,623 2,955
66,451 64,181
12-14 (28,328) (25,701)
15 (1,924) (1,796)
16 (1,131) (1,348)
35,068 35,336
17 (8,919) (9,595)
26,149 25,741
18 (37) (4)
26,112 25,737
Attributable to
26,111 25,755
1 (18)
26,112 25,737
Earnings per share 19
18.31 17.80
18.09 16.89
Net impairment ...........................................................................................................................................
Income tax expense ...................................................................................................................................
Shareholders of Arion Bank hf. ..................................................................................................................
Net earnings from continuing operations ...............................................................................................
Net earnings .............................................................................................................................................
Earnings before income tax .....................................................................................................................
Net earnings .............................................................................................................................................
Basic earnings per share attribuatable to shareholders of Arion Bank (ISK) ...............................................
Diluted earnings per share attributalbe to shareholders of Arion Bank (ISK) ...............................................
Non-controlling interest ..............................................................................................................................
Discontinued operations held for sale, net of income tax ............................................................................
Insurance service expenses .......................................................................................................................
Net financial income ...................................................................................................................................
Bank levy ...................................................................................................................................................
Interest income ..........................................................................................................................................
Interest expense ........................................................................................................................................
Fee and commission income ......................................................................................................................
Net interest income ..................................................................................................................................
Other operating income ..............................................................................................................................
Operating expenses ...................................................................................................................................
Fee and commission expense ....................................................................................................................
Insurance revenue .....................................................................................................................................
Net fee and commission income .............................................................................................................
Insurance service results ........................................................................................................................
Other net operating income .....................................................................................................................
Operating income .....................................................................................................................................
The accompanying Notes are an integral part of these Consolidated Financial Statements
16
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Consolidated Statement of Comprehensive Income
Notes 2024 2023
26,112 25,737
274 697
10 99 (15)
Changes to reserve for financial instruments at FV through OCI
373 682
26,485 26,419
Attributable to
26,484 26,437
1 (18)
Total comprehensive income
26,485 26,419
Comprehensive income per share 19
18.57 18.27
18.35 17.34
Net change in FV of financial assets carried at FV through OCI, net of tax .......................................................
transferred to the income statement ................................................................................................................
that is or may be reclassified subsequently to the income statement .......................................................
Shareholders of Arion Bank ..............................................................................................................................
Non-controlling interest .....................................................................................................................................
Basic compreh. income per share attributable to shareholders of Arion Bank (ISK) ..........................................
Diluted compreh. income per share attributable to shareholders of Arion Bank (ISK) ........................................
Net realized loss (gain) on financial assets carried at FV through OCI, net of tax
Total comprehensive income .........................................................................................................................
Net earnings ....................................................................................................................................................
The accompanying Notes are an integral part of these Consolidated Financial Statements
17
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Consolidated Statement of Financial Position
Assets Notes
20 124,094 102,095
21 25,690 28,835
22 1,230,058 1,152,789
23-25 206,417 205,706
25 9,387 9,493
27 814 789
28 7,688 8,051
29 2 39
30 111 62
31 14,006 17,813
1,618,267 1,525,672
Liabilities
24 6,618 2,771
24 857,443 792,710
24 8,394 11,646
29 11,060 11,169
32 49,950 46,336
24,33 433,178 420,460
24,34 44,538 41,279
1,411,181 1,326,371
Equity
37 5,686 10,634
13,949 12,283
186,947 175,881
206,582 198,798
504 503
207,086 199,301
1,618,267 1,525,672
The accompanying Notes are an integral part of these Consolidated Financial Statements
Loans to customers ......................................................................................................................
Financial instruments ...................................................................................................................
Subordinated liabilities .................................................................................................................
Total Equity .................................................................................................................................
Total Liabilities and Equity ........................................................................................................
Non-controlling interest ................................................................................................................
Other liabilities ..............................................................................................................................
Borrowings ...................................................................................................................................
Share capital and share premium .................................................................................................
Other reserves .............................................................................................................................
Retained earnings ........................................................................................................................
Total Shareholders' Equity ........................................................................................................
Total Liabilities ...........................................................................................................................
Tax liabilities .................................................................................................................................
Investment property .....................................................................................................................
Deposits .......................................................................................................................................
Financial liabilities at fair value .....................................................................................................
Investments in associates ............................................................................................................
Intangible assets ..........................................................................................................................
Tax assets ....................................................................................................................................
Other assets .................................................................................................................................
Due to credit institutions and Central Bank ...................................................................................
Assets and disposal groups held for sale .....................................................................................
Total Assets ................................................................................................................................
31.12.2023
31.12.2024
Cash and balances with Central Bank ..........................................................................................
Loans to credit institutions ............................................................................................................
18
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Debt invest-
Gain in ments at
Non-
subs. & Gain in Capitalized fair value cont-
Share Share Share Warrants assoc., securities, develop- thr. OCI, Statutory Retained holders' rolling Total
capital premium option reserve unrealized unrealized ment cost unrealized reserve earnings equity interest equity
1,446 9,188 408 825 7,772 1,462 880 (701) 1,637 175,881 198,798 503 199,301
26,111 26,111 1 26,112
274 274 274
99 99 99
- - - - - - - 373 - 26,111 26,484 1 26,485
(13,058) (13,058) (13,058)
(90) (12,362) (12,452) (12,452)
53 6,187 6,240 6,240
162 162 162
2 280 (40) 242 242
(119) 119 - -
1 165 166 166
816 (825) 9 - -
3,185 (949) (121) (2,115) - -
1,412 4,274 411 - 10,957 513 759 (328) 1,637 186,947 206,582 504 207,086
The accompanying Notes are an integral part of these Consolidated Financial Statements
Net change in fair value ........................................
Consolidated Statement of Changes in Equity
Total
share-
Net earnings .........................................................
Restricted reserves
Equity 1 January 2024 ........................................
Net realized loss transferred to P/L .......................
Total comprehensive income .............................
Transactions with owners
Dividend paid ......................................................
Purchase of treasury shares ...............................
Share capital increase ........................................
Share option charge ...........................................
Share option vested ............................................
Share option forfeited .........................................
Incentive scheme ...............................................
Warrants excercised ...........................................
Changes in reserves ...........................................
Equity 31 December 2024 ...................................
19
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Consolidated Statement of Changes in Equity
Debt invest-
Gain in ments at
Non-
subs. & Gain in Capitalized fair value cont-
Share Share Share Warrants assoc., securities, develop- thr. OCI, Statutory Retained
holders' rolling Total
capital premium option reserve unrealized unrealized ment cost unrealized reserve earnings equity interest equity
1,466 11,906 339 828 6,308 1,941 1,002 (1,383) 1,637 163,263 187,307 649 187,956
25,755 25,755 (18) 25,737
697 697 697
(15) (15) (15)
- - - - - - - 682 - 25,755 26,437 (18) 26,419
(12,357) (12,357) (12,357)
(22) (3,237) (3,259) (3,259)
- 27 27 27
197 197 197
1 295 (45) 251 251
(83) 83 - -
1 194 195 195
3 (3) - -
- (128) (128)
1,464 (479) (122) (862) - -
1,446 9,188 408 825 7,772 1,462 880 (701) 1,637 175,881 198,798 503 199,301
The accompanying Notes are an integral part of these Consolidated Financial Statements
Net change in fair value ........................................
Net realized gain transferred to P/L .......................
Total comprehensive income .............................
Transactions with owners
Dividend paid ......................................................
Purchase of treasury shares ...............................
Share capital increase ........................................
Share option charge ...........................................
Share option vested ............................................
Share option forfeited .........................................
Incentive scheme ...............................................
Warrants excercised ...........................................
Liquidation of a subsidiary ..................................
Changes in reserves ...........................................
Equity 31 December 2023 ...................................
Restricted reserves
Total
share-
Equity 1 January 2023 ........................................
Net earnings .........................................................
20
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Operating activities
2024 2023
26,112 25,737
(38,148) (31,229)
211 1,857
(55,406) (46,794)
(4,890) (10,807)
68,876 30,375
16,946 57
(9,433) (16,695)
102,793 96,849
(74,623) (52,369)
146 285
(8,990) (8,633)
23,593 (11,367)
Investing activities
(1) (72)
(233) -
(622) (470)
27 22
(325) (457)
(1,154) (977)
Financing activities
6,240 27
(13,058) (12,357)
(12,452) (3,259)
19,735 -
(10,471) -
(6,775) (6,586)
242 251
- (128)
(16,539) (22,052)
5,901 (34,396)
114,993 150,131
(3,584) (742)
117,310 114,993
Cash and cash equivalents
124,094 102,095
25,690 28,624
(32,474) (15,726)
117,310 114,993
* Interest paid includes interest on deposits at the end of the year.
The accompanying Notes are an integral part of these Consolidated Financial Statements
Financial instruments and financial liabilities at fair value .......................................................................................
Loans to credit institutions, excluding bank accounts .............................................................................................
Loans to customers ................................................................................................................................................
Proceeds from sale of property and equipment .........................................................................................................
Acquisition of property and equipment .......................................................................................................................
Net cash from (used in) operating activities ..........................................................................................................
Increased share capital of associates ........................................................................................................................
Deposits .................................................................................................................................................................
Borrowings .............................................................................................................................................................
Cash and cash equivalents .....................................................................................................................................
Cash and cash equivalents .....................................................................................................................................
Issued subordinated liabilities ....................................................................................................................................
Interest paid* .............................................................................................................................................................
Net cash used in investing activities ......................................................................................................................
Settlement of subordinated liabilities .........................................................................................................................
Bank accounts ...........................................................................................................................................................
Cash and cash equivalents at beginnning of the year ................................................................................................
Effect of exchange rate changes on cash and cash equivalent ..................................................................................
Issued new share capital ...........................................................................................................................................
Acquisition of investment property .............................................................................................................................
Liquidation of subsidiaries .........................................................................................................................................
Interest received ........................................................................................................................................................
Acquisition of intangible assets ..................................................................................................................................
Mandatory reserve deposit with Central Bank ............................................................................................................
Cash and balances with Central Bank .......................................................................................................................
Other changes in operating assets and liabilities ....................................................................................................
Proceeds from vested share option ...........................................................................................................................
Dividend received ......................................................................................................................................................
Income tax paid .........................................................................................................................................................
Purchase of treasury stock ........................................................................................................................................
Dividend paid to shareholders of Arion Bank .............................................................................................................
Net cash used in financing activities .....................................................................................................................
Net increase (decrease) in cash and cash equivalents ..............................................................................................
Repurchase of subordinated liabilities .......................................................................................................................
Consolidated Statement of Cash flows
Net earnings ..............................................................................................................................................................
Non-cash items included in net earnings ...................................................................................................................
Changes in operating assets and liabilities
21
Arion Bank Consolidated Financial Statements 2024
page page
General information
Basis of preparation .......................................................... 23 Offsetting financial assets and financial liabilities .............. 44
Changes in accounting policies ......................................... 23 Investment in associates .................................................. 44
Material accounting estimates and judgments Intangible assets .............................................................. 45
in applying accounting policies ....................................... 23 Tax assets and tax liabilities ............................................. 46
The Group ........................................................................ 24 Assets and disposal groups held for sale .......................... 46
Other assets ..................................................................... 47
Operating segment reporting Other liabilities .................................................................. 48
Operating segments ......................................................... 25 Borrowings ....................................................................... 49
Subordinated liabilities ...................................................... 49
Quarterly statements Liabilities arising from financial activities .......................... 50
Operations by quarters ..................................................... 28 Pledged assets ................................................................. 50
Equity ............................................................................... 51
Notes to the Consolidated Income Statement
Net interest income ........................................................... 29 Other information
Net fee and commission income ....................................... 30 Shareholders of Arion Bank .............................................. 53
Insurance service results .................................................. 30 Legal matters ................................................................... 53
Net financial income ......................................................... 31 Events after the reporting period ...................................... 54
Other operating income .................................................... 31
Operating expenses .......................................................... 32 Off Balance sheet information
Personnel and salaries ..................................................... 32 Commitments ................................................................... 55
Other operating expense ................................................... 33 Assets under management and under custody ................. 55
Bank levy .......................................................................... 34
Net impairment ................................................................. 34 Related party
Income tax expense .......................................................... 34 Related party .................................................................... 55
Discontinued operations held for sale, net of income tax .. 35
Earnings per share ........................................................... 35 Risk management disclosures
Credit risk ......................................................................... 57
Notes to the Consolidated Statement of Market risk ........................................................................ 69
Financial Position Liquidity and Funding risk ................................................. 75
Cash and balances with Central Bank ............................... 36 Capital management ........................................................ 79
Loans to credit institutions ................................................ 36 Operational risk ................................................................ 81
Loans to customers .......................................................... 36 Sustainability risk .............................................................. 82
Financial instruments ........................................................ 36
Financial assets and financial liabilities ............................. 37 Material accounting policies 83
Fair value hierarchy .......................................................... 39
Notes to the Consolidated Financial Statements
Contents
22
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
General information
1. Basis of preparation
Statement of compliance
Basis of measurement
Functional and presentation currency
2. Changes in accounting policies
3.
Significant accounting estimates and judgements in applying accounting policies
Estimates and assumptions
- investment properties are measured at fair value; and
Notes to the Consolidated Financial Statements
The same accounting policies, presentation and methods of computation are followed in these Consolidated Financial Statements as were
applied in the Consolidated Financial Statements for the year ended 31 December 2023.
- bonds and debt instruments, shares and equity instruments, short positions in listed bonds and equities, derivatives and certain loans to
customers. For details on the accounting policy, see Note 59;
Arion Bank hf., the Parent Company, was established on 18 October 2008 and is incorporated and domiciled in Iceland. The registered office
of Arion Bank hf. is located at Borgartún 19, Reykjavík. The Consolidated Financial Statements for the year ended 31 December 2024
comprise the Parent Company and its subsidiaries (together referred to as "the Group").
The Consolidated Financial Statements were approved and authorized for publication by the Board of Directors of Arion Bank on 12
February 2025.
In preparing the Consolidated Financial Statements, the Group has applied the concept of materiality to the presentation and level of
disclosure. Only essential and mandatory information is disclosed which is relevant to an understanding by the reader of the Consolidated
Financial Statements.
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as
adopted by the European Union and additional requirements in the Icelandic Financial Statements Act, Financial Undertakings Act and rules
on Accounting for Credit Institutions.
The Consolidated Financial Statements have been prepared on a historical cost basis except for the following:
- non-current assets and disposal groups held for sale are stated at the lower of their carrying amounts and fair value, less cost to sell.
The Consolidated Financial Statements are presented in Icelandic krona (ISK), which is the Parent Company's functional currency, rounded
to the nearest million, unless otherwise stated. At the end of the year the exchange rate of the ISK against USD was 138.99 and 143.89 for
EUR (31.12.2023: USD 135.82 and EUR 150.13).
The preparation of the Consolidated Financial Statements requires management to make judgments, estimates and assumptions that affect
the reported amount of revenues, expenses, assets and liabilities, and the accompanying disclosures, as well as the disclosure of contingent
liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying
amount of assets or liabilities affected in future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The
Group based its assumptions and estimates on parameters available when the Consolidated Financial Statement were prepared. Existing
circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are
beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
Amendments to standards effective from 1 January 2024 did not have a material impact on theses Consolidated Financial Statements. The
Group has not early adopted any standards, interpretations or amendments that have been issued but are not effective, see Note 77.
23
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
3. Significant accounting estimates and judgements in applying accounting policies, continued
Impairment of financial assets
Macroeconomic outlook
Impairment of intangible assets
Revaluation of investment properties
4. The Group
Notes to the Consolidated Financial Statements
The carrying amounts of goodwill, infrastructure and customer relationship and related agreements are reviewed annually to determine
whether there is any indication of impairment. If any such indication exists the asset's recoverable amount is estimated. An impairment loss
is recognized if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized in the Consolidated
Income Statement. The recoverable amount of an asset is the greater of its value in use and its fair value less cost to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
The Group carries its investment properties at fair value, with changes in fair value being recognized in the income statement. For
investment properties, either a valuation methodology based on present value calculations is used, as there is a lack of comparable market
data because of the nature of the properties, or the investment properties are valued by reference to transactions involving properties of a
similar nature, location and condition.
The economy has slowed down markedly in recent quarters, with preliminary figures indicating a modest 1.0% economic contraction in the
first three quarters of 2024. However, analysts including the Central Bank have called the figures into question, with most expecting a
revision which might push economic growth into positive territory. The slowdown comes as the Central Bank has kept its real interest rates
at or above 4% over the last year in an effort to bring down inflation. As inflation has subsided, the CBI has started to cut nominal rates but
has not loosened its monetary stance.
Despite the economic contraction according to National Accounts, other indicators suggest a robust economy. The labor market appears to
be practically immune to the monetary policy, as unemployment has only increased at a snail’s pace, measuring 3.5% in 2024 according to
the Directorate of Labour. Only tourism seems to be losing steam in the job market, but the public sector is picking up the slack. Although
private consumption has somewhat stagnated, payment card turnover is increasing as households reallocate their funds away from cars
and toward travel and online shopping.
The book value of financial assets which fall under the impairment requirements of IFRS 9 are presented net of expected credit losses in
the statement of financial position. On a monthly basis expected credit losses for stages 1 and 2 are recalculated for each asset, the
calculations are based on probability of default (PD), loss given default (LGD) and exposure at default (EAD) models. Stage 3 calculations
are based on LGD and EAD parameters. In addition to the model outcomes, the assessment of expected credit losses is based on three
key factors: management's assumptions regarding the development of macroeconomic factors over the next five years, how those factors
affect each model and how to estimate a significant increase in credit risk. The assumptions for macroeconomic development are
incorporated into each model for three scenarios: a base case, an optimistic case, and a pessimistic case. Management estimates the
probability weight for each scenario used for calculations of the probability weighted expected credit losses. The amount of expected credit
losses to be recognized is dependent on the Bank's definition of significant increase in credit risk, which controls the impairment stage each
asset is allocated to. Management has estimated factors to measure significant increase in credit risk from origination, by comparison of
changes in PD values, annualized lifetime PD values, days past due and watch list. For further information see Note 59.
Shares in the main subsidiaries in which Arion Bank holds a direct interestEquity interestOperating activityCurrency 2024 2023Eignabjarg ehf., Borgartún 19, Reykjavík, Iceland ............................................Holding companyISK 100.0% 100.0% Landey ehf., Borgartún 19, Reykjavík, Iceland ..................................................Real estateISK 100.0% 100.0% Leiguskjól ehf., Bjargargata 1, Reykjavík, Iceland .............................................Rental guaranteeISK 51.0% 51.0% Stefnir hf., Borgartún 19, Reykjavík, Iceland .....................................................Asset managementISK 100.0% 100.0% Vördur tryggingar hf., Borgartún 19, Reykjavík, Iceland ....................................InsuranceISK 100.0% 100.0% Landey ehf. holds a 51% shareholding in its subsidiary Arnarland ehf. and recognizes minority interest accordingly.
24
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
Operating segment reporting
5. Operating segments
Markets & Stefnir
Corporate & Investment Banking (CIB)
Retail Banking
Treasury
Other subsidiaries
Supporting units
Markets & Stefnir comprise Asset Management and Capital Markets. Asset Management manages financial assets on behalf of its
customers according to a pre-determined investment strategy. Asset Management also handles the operation and development of
securities and pension funds. Asset management comprises Institutional Asset Management, Premia Services and operations and
development and sales and services. Premía Services are divided into three service streams, Premia, Premia - Private banking and
Premia - Treasury and provide customers with comprehensive and personal financial services. The operation of Stefnir hf. is presented
under the segment. Stefnir hf. is an independently operating financial company owned by Arion Bank and manages a broad range of mutual
funds, investment funds and institutional investor funds for investors. Markets also offers comprehensive selection off funds from some of
the leading international fund management companies. Capital Markets is a securities brokerage and brokers listed securities transactions
for the Bank’s international and domestic clients on all the world’s major securities exchanges.
Segment information is presented in respect of the Group's operating segments and is based on the Group's management and internal
reporting structure. The business units are segmented according to customers, products and services characteristics. Segment
performance is evaluated based on earnings before tax.
Inter segment pricing is determined on an arm's length basis. Operating segments pay and receive interest to and from Treasury on an
arm's length basis to reflect the allocation of capital, funding cost and relevant risk premium.
Corporate Banking's experienced account managers specialize in key economic sectors such as retail and services, seafood, energy and
real estate. The division serves companies ranging from SMEs to large cap´s and provides full range lending and insurance products,
including guarantees, deposit accounts, payment solutions, and a variety of value-added digital solutions. The Corporate portfolio
composition is diversified between sectors, customers and currencies which include international exposures, partly through syndicates with
other Icelandic or international banks.
Arion Bank‘s Corporate Finance works closely with Corporate Banking and provides the Bank’s clients with comprehensive financial
advisory services, with a key focus on M&A advisory, private placements, IPOs and other offerings of securities.
Retail Banking provides a diverse range of financial services in 12 branches and service points across Iceland in addition to service centre
and digital solutions both in the Arion app and online banking. These services include deposits and loans, savings, payment cards,
pensions, insurance, securities and funds. In order to improve efficiency the branch network is split into four regions, and smaller branches
can therefore benefit from the strength of larger units within each region.
Corporate & Investment Banking provides comprehensive financial services to companies and investors with focus on meeting the needs
of each client, both in Iceland and internationally. The division is divided into Corporate Banking, Corporate Finance and Corporate
Insurance.
The corporate segment of the insurance subsidiary Vördur is part of Corporate & Investment Banking.
Supporting units include the Bank's headquarters which carry out support functions such as the CEO office, Risk Management, Finance
(excluding Treasury), IT and Operations & Culture. The information presented relating to the supporting units does not represent an
operating segment. A significant proportion of expenses from support functions is allocated to operating segments in a separate line in the
operating segment overview.
The individuals segment of the insurance subsidiary Vördur is part of Retail Banking.
Subsidiaries include the subsidiaries Landey ehf., which holds the main part of the Group's investment property and other smaller entities of
the Group. The subsidiaries Stakksberg and Sólbjarg (both subsidiaries of Eignabjarg) are classified as disposal groups held for sale in
accordance with IFRS 5.
Treasury is responsible for the Bank's funding, liquidity and asset-and-liability management. Treasury oversees the internal funds‘s transfer
pricing and manages the relationship with investors, credit rating agencies and financial institutions. Market making activities in domestic
securities and FX as well as FX brokerage sits within Treasury.
25
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
5. Operating segments, continued
Notes to the Consolidated Financial Statements
Retail Subsidi- Supporting2024 CIB Banking aries excl. unitsMarkets including including Stefnir and and elimi-Income Statement and Stefnir insurance insurance Treasury Vördur nations TotalNet interest income ......................................................1,257 26,058 15,053 4,088 (194) 40 46,302 Net fee and commission income ..................................5,315 5,226 3,723 672 292 132 15,360 Insurance service results .............................................- 49 1,777 - - 340 2,166 Net financial income .....................................................94 1,348 1,973 (580) 23 (13) 2,845 Other operating income ................................................4 1 45 - (309) 37 (222)Operating income .......................................................6,670 32,682 22,571 4,180 (188) 536 66,451 Operating expenses .....................................................(2,793) (2,161) (3,182) (917) (409) (18,866) (28,328)Allocated expenses ......................................................(2,894) (5,538) (8,538) (1,463) (123) 18,556 - Bank levy .....................................................................(46) (694) (829) (355) - - (1,924)Net impairment .............................................................(24) (1,016) (71) (20) - - (1,131)Earnings before income tax .......................................913 23,273 9,951 1,425 (720) 226 35,068 Net seg. rev. from ext. customers ................................3,390 41,751 41,236 (20,279) 39 314 66,451 Net seg. rev. from other segments ...............................3,280 (9,069) (18,665) 24,459 (227) 222 - Operating income .......................................................6,670 32,682 22,571 4,180 (188) 536 66,451 Balance SheetLoans to customers ......................................................6,105 588,483 634,959 4 - 507 1,230,058 Financial instruments ...................................................25,317 12,040 24,337 147,478 117 (2,872) 206,417 Other external assets ...................................................6,521 1,897 4,826 141,379 19,215 7,954 181,792 Internal assets .............................................................63,261 - - 261,499 - (324,760) - Total assets ................................................................101,204 602,420 664,122 550,360 19,332 (319,171) 1,618,267 Deposits .......................................................................87,630 394,512 355,787 22,003 - (2,489) 857,443 Other external liabilities ................................................4,569 12,668 18,975 501,793 7,655 8,078 553,738 Internal liabilities ..........................................................- 89,732 232,639 - 2,389 (324,760) - Total liabilities ............................................................92,199 496,912 607,401 523,796 10,044 (319,171) 1,411,181 Allocated equity .........................................................9,005 105,508 56,721 26,564 9,288 - 207,086
26
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
5. Operating segments, continued
Income taxes and discontinued operations held for sale are excluded from the profit and loss segment information.
RetailSubsidi- Supporting2023 CIB Banking aries excl. unitsMarkets including including Stefnir and and elimi-Income Statement and Stefnir insurance insurance Treasury Vördur nations TotalNet interest income ......................................................1,011 20,989 19,504 3,394 (251) 38 44,685 Net fee and commission income ..................................5,494 4,906 4,612 771 169 437 16,389 Insurance service results .............................................- (508) 718 - - (58) 152 Net financial income .....................................................74 687 783 (91) (65) (22) 1,366 Other operating income ................................................6 (7) 41 6 1,627 (84) 1,589 Operating income .......................................................6,585 26,067 25,658 4,080 1,480 311 64,181 Operating expenses .....................................................(2,714) (1,479) (3,759) (757) (397) (16,595) (25,701)Allocated expenses ......................................................(2,352) (4,141) (8,582) (1,252) (67) 16,394 - Bank levy .....................................................................(44) (586) (823) (353) - 10 (1,796)Net impairment .............................................................(13) (950) (526) 6 128 7 (1,348)Earnings before income tax .......................................1,462 18,911 11,968 1,724 1,144 127 35,336 Net seg. rev. from ext. customers ................................2,005 36,578 49,681 (25,844) 1,747 14 64,181 Net seg. rev. from other segments ...............................4,580 (10,511) (24,023) 29,924 (267) 297 - Operating income .......................................................6,585 26,067 25,658 4,080 1,480 311 64,181 Balance SheetLoans to customers ......................................................4,690 474,382 674,364 4 - (651) 1,152,789 Financial instruments ...................................................27,538 11,168 21,342 148,612 107 (3,061) 205,706 Other external assets ...................................................6,507 1,358 6,088 119,912 12,437 20,875 167,177 Internal assets .............................................................57,584 - - 286,793 5,189 (349,566) - Total assets ................................................................96,319 486,908 701,794 555,321 17,733 (332,403) 1,525,672 Deposits .......................................................................84,424 309,145 362,517 40,257 - (3,633) 792,710 Other external liabilities ................................................3,078 8,796 17,762 474,624 8,605 20,796 533,661 Internal liabilities ..........................................................- 87,543 262,023 - - (349,566) - Total liabilities ............................................................87,502 405,484 642,302 514,881 8,605 (332,403) 1,326,371 Allocated equity .........................................................56,608 826 67,914 34,490 34,812 4,061 8,817 81,424 59,492 40,440 9,128 - 199,301
27
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
Notes to the Consolidated Income Statement
Quarterly statements
6. Operations by quarters, unaudited
The half-year results were reviewed by the Bank's auditors. Other quarterly statements and the split between quarters were not audited or
reviewed by the Bank's auditors.
2024 Q1 Q2 Q3 Q4 TotalNet interest income ............................................................................................11,245 11,948 11,863 11,246 46,302 Net fee and commission income ........................................................................3,365 3,979 3,880 4,136 15,360 Insurance service results ...................................................................................(215) 523 1,532 326 2,166 Net financial income ..........................................................................................29 99 524 2,193 2,845 Other operating income .....................................................................................50 38 (313) 3 (222)Operating income ............................................................................................14,474 16,587 17,486 17,904 66,451 Operating expenses ...........................................................................................(6,554) (7,154) (6,021) (8,599) (28,328)Bank levy ...........................................................................................................(460) (476) (500) (488) (1,924)Net impairment ..................................................................................................(315) (775) (954) 913 (1,131)Earnings before income tax ............................................................................7,145 8,182 10,011 9,730 35,068 Income tax expense ..........................................................................................(2,704) (2,671) (2,114) (1,430) (8,919)Net earnings from continuing operations .......................................................4,441 5,511 7,897 8,300 26,149 Discontinued operations, net of tax ....................................................................(9) (11) (6) (11) (37)Net earnings .....................................................................................................4,432 5,500 7,891 8,289 26,112 2023Net interest income ............................................................................................10,994 11,426 10,918 11,347 44,685 Net fee and commission income ........................................................................4,451 4,187 3,848 3,903 16,389 Insurance service results ...................................................................................(721) 762 395 (284) 152 Net financial income ..........................................................................................796 (617) (183) 1,370 1,366 Other operating income .....................................................................................19 1,586 8 (24) 1,589 Operating income ............................................................................................15,539 17,344 14,986 16,312 64,181 Operating expenses ...........................................................................................(6,470) (6,009) (5,392) (7,830) (25,701)Bank levy ...........................................................................................................(449) (457) (468) (422) (1,796)Net impairment ..................................................................................................(52) (568) (741) 13 (1,348)Earnings before income tax ............................................................................8,568 10,310 8,385 8,073 35,336 Income tax expense ..........................................................................................(2,287) (3,226) (2,274) (1,808) (9,595)Net earnings from continuing operations .......................................................6,281 7,084 6,111 6,265 25,741 Discontinued operations, net of tax ....................................................................10 7 20 (41) (4)Net earnings .....................................................................................................6,291 7,091 6,131 6,224 25,737
28
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
7. Net interest income
Interest spread
2024 2023
3.1% 3.1%
Net interest income calculated using the effective interest rate method were ISK 125,974 million during the year (2023: ISK 117,334 million).
Interest spread (the ratio of net interest income to the average carrying amount of interest bearing assets) .............
2024 Amortized Fair value Fair valueInterest incomecost thr. P/L thr. OCI TotalCash and balances with Central Bank ..................................................................................7,752 - - 7,752 Loans to credit institutions ....................................................................................................1,242 - - 1,242 Loans to customers ..............................................................................................................115,425 65 - 115,490 Securities .............................................................................................................................- 1,532 6,147 7,679 Other ....................................................................................................................................96 - - 96 Interest income ...................................................................................................................124,515 1,597 6,147 132,259 Interest expenseDeposits ...............................................................................................................................(53,865) - - (53,865)Borrowings ............................................................................................................................(22,372) (5,542) - (27,914)Subordinated liabilities ..........................................................................................................(3,396) (647) - (4,043)Other ....................................................................................................................................(135) - - (135)Interest expense .................................................................................................................(79,768) (6,189) - (85,957)Net interest income ............................................................................................................44,747 (4,592) 6,147 46,302 2023Interest incomeCash and balances with Central Bank ..................................................................................5,747 - - 5,747 Loans to credit institutions ....................................................................................................1,462 13 - 1,475 Loans to customers ..............................................................................................................109,260 - - 109,260 Securities .............................................................................................................................- 1,589 4,983 6,572 Other ....................................................................................................................................62 - - 62 Interest income ...................................................................................................................116,531 1,602 4,983 123,116 Interest expenseDeposits ...............................................................................................................................(46,268) - - (46,268)Borrowings ............................................................................................................................(22,189) (5,176) - (27,365)Subordinated liabilities ..........................................................................................................(4,107) (544) - (4,651)Other ....................................................................................................................................(147) - - (147)Interest expense .................................................................................................................(72,711) (5,720) - (78,431)Net interest income ............................................................................................................43,820 (4,118) 4,983 44,685
29
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
8. Net fee and commission income
Operation results of Vördur
Combined ratio
88.9% 97.0%
Combined ratio of Vördur, including insurance revenue from the Group .....................................................................
Asset management fees are earned by the Group for trust and fiduciary activities where the Group holds or invests assets on behalf of the
customers.
Fee and commission income on collection and payment services is generated billing services, such as issuing invoices and payment
collection notices, wire transfer services and other payment services.
Vördur's operation resulted in a profit of ISK 3,675 million, with a return on equity of 30.8% for the year 2024, compared with a profit of ISK
840 million for 2023 and a return on equity of 8.7%.
Commission expense from insurance operation is transferred to insurance service results in accordance with IFRS 17.
2024 2023Insurance service results ............................................................................................................................................2,166 152 Elimination and reclassification ..................................................................................................................................23 386 Insurance service results according to the Financial Statements of Vördur ................................................................2,189 538 Investment return .......................................................................................................................................................3,260 1,080 Net financial loss from insurance contracts ................................................................................................................(1,063) (607)Total investment return ...............................................................................................................................................2,197 474 Other income .............................................................................................................................................................11 11 Earnings before income tax .....................................................................................................................................4,397 1,023 Income tax .................................................................................................................................................................(721) (183)Net earnings .............................................................................................................................................................3,675 840
Fee and commission income from lending and financial guarantees is mainly related to lending activities, extension fees, advisory services
and documentation, notification and payment fees plus fees from the issuing of guarantees on behalf of customers.
Other fee and commission income is mainly fees relating to sale, custody and market making on the Icelandic stock exchange.
Commission from cards and payment solutions is mainly from the Bank's issuance of credit and debit cards and other card related
commission, e.g. yearly fee on cards and transaction fees.
20242023Net NetIncome Expense income Income Expense incomeAsset management .........................................................................5,346 (563) 4,783 5,473 (591) 4,882 Capital markets and corporate finance ............................................1,787 (40) 1,747 2,596 (36) 2,560 Lending and financial guarantees ....................................................4,326 - 4,326 4,028 - 4,028 Collection and payment services .....................................................1,590 (109) 1,481 1,586 (80) 1,506 Cards and payment solution ............................................................5,286 (2,617) 2,669 5,523 (2,617) 2,906 Other ..............................................................................................836 (839) (3) 914 (776) 138 Commission expense from insurance operation ..............................- 357 357 - 369 369 Net fee and commission income ..................................................19,171 (3,811) 15,360 20,120 (3,731) 16,389
9. Insurance service results2024 2023Insurance revenue .....................................................................................................................................................19,669 17,416 Incurred claims ...........................................................................................................................................................(13,723) (13,316)Service expenses .......................................................................................................................................................(3,749) (3,411)Insurance service expenses .......................................................................................................................................(17,472) (16,727)Net expense from reinsurance contracts held .............................................................................................................(31) (537)Insurance service results ........................................................................................................................................2,166 152
Fee and commission income from capital markets and corporate finance includes miscellaneous corporate finance services plus
commission from capital markets relating to sales of shares, bonds, FX and derivatives.
30
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
11. Other operating income
Real estates and other assets classified as assets held for sale are generally the result of foreclosures on companies and individuals.
10. Net financial income2024 2023Net gain on financial assets and financial liabilities mandatorily measured at fair value through the income statement ...............................................................................................................4,686 1,167 Loss on prepayments of borrowings ...........................................................................................................................(182) (89)Net loss on fair value hedge of interest rate swap ......................................................................................................(383) (45)Net realized (loss) gain on financial assets carried at fair value through OCI ..............................................................(134) 20 Net financial loss from insurance contracts ................................................................................................................(1,063) (607)Net foreign exchange (loss) gain ................................................................................................................................(79) 920 Net financial income .................................................................................................................................................2,845 1,366 Net gain on financial assets and financial liabilities mandatorily measured at fair value through the income statementEquity instruments ......................................................................................................................................................2,778 586 Debt instruments ........................................................................................................................................................1,866 896 Derivatives .................................................................................................................................................................56 (315)Loans .........................................................................................................................................................................(14) - Net gain on financial assets and financial liabilities mandatorily measured at fair value through the income statement ....................................................................4,686 1,167 Net loss on fair value hedge of interest rate swapFair value change of interest rate swaps designated as hedging instruments .............................................................4,867 6,645 Fair value change on bonds issued by the Group attributable to interest rate risk ......................................................(5,250) (6,690)Net loss on fair value hedge of interest rate swap .................................................................................................(383) (45)
2024 2023Fair value changes on investment property ................................................................................................................(339) 1,569 Net gain (loss) on disposal of assets ..........................................................................................................................1 (1)Net gain (loss) on assets held for sale ........................................................................................................................7 (7)Share of profit (loss) of associates .............................................................................................................................24 (70)Other income .............................................................................................................................................................85 98 Other operating income ...........................................................................................................................................(222) 1,589 Net gain (loss) on assets held for sale Net gain from real estates and other assets ...............................................................................................................16 - Expense related to real estates and other assets .......................................................................................................(9) (7)Net gain (loss) on assets held for sale ....................................................................................................................7 (7)
31
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
12. Operating expenses
13. Personnel and salaries
* Members of the Executive Committee are listed in Note 43.
2024 2023Salaries and related expenses ...................................................................................................................................18,694 16,777 Other operating expenses ..........................................................................................................................................13,026 11,968 Operating expenses from insurance operation ...........................................................................................................(3,392) (3,044)Operating expenses .................................................................................................................................................28,328 25,701
*** Steinunn K. Thórdardóttir also serves on the Board of Vördur.
* Fixed remuneration represents Board Member compensation for their attendance at meetings of the Board of Directors.
The 2024 Annual General Meeting of the Bank held on 13 March 2024 approved the monthly salaries for 2024 for the Chairman, Vice
Chairman and for other Board Members of amounts ISK 1,130,000, ISK 847,500 and ISK 565,000 (2023: ISK 1,100,000; 825,000; 550,000)
respectively. Alternate Board Members receive a payment of ISK 565,000 per year and ISK 282,500 for each meeting attended but cannot
exceed ISK 565,000 per month (2023: ISK 550,000 per year, ISK 275,000 for each meeting but cannot exceed ISK 525,000 per month).
Board members residing outside of Iceland receive a further ISK 365,000 for each Board meeting they attend in person (2023: ISK
350,000). In addition, it was approved to pay Board Members who serve on board committees of the Bank a maximum of ISK 235,000
(2023: ISK 225,000) per month for each committee they serve on and the Chairman of the board committees ISK 352,500 (2023: ISK
337,500).
2024 2023Number of employeesAverage number of full-time equivalent positions during the year ...............................................................................836 794 Full-time equivalent positions at the end of the year ...................................................................................................858 822 Salaries and related expensesSalaries ......................................................................................................................................................................12,914 11,832 Incentive scheme .......................................................................................................................................................1,410 1,041 Share-based payment expenses ................................................................................................................................162 197 Defined contribution pension plans ............................................................................................................................2,096 1,895 Salary-related expenses .............................................................................................................................................2,112 1,812 Salaries and related expenses .................................................................................................................................18,694 16,777 20242023Remuneration to the Board of DirectorsFixed Additional Fixed Additionalremuner- remuner- Pension remuner- remuner- Pensionation* ation**contributionTotal remuneration .................................. 61.4 63.5 8.3 133.2 59.4 58.4 8.2 126.0 Total ation* ation**contributionTotalPaul Horner, Chairman ............................. 17.2 13.7 - 30.9 13.6 12.0 - 25.6 Kristín Pétursdóttir, Vice Chairman ........... 9.5 12.2 2.5 24.1 5.2 6.1 1.3 12.6 Gunnar Sturluson, Director ....................... 6.7 9.8 1.9 18.4 6.5 9.3 1.8 17.7 Liv Fiksdahl, Director ................................ 10.7 11.2 - 21.9 10.0 10.7 - 20.6 Steinunn K. Thórdardóttir, Director*** ........ 13.5 12.9 3.0 29.5 9.9 9.3 2.2 21.4 Brynjólfur Bjarnason (until 13 March '24) ... 2.7 2.2 0.6 5.4 13.1 10.7 2.7 26.5 Alternate directors of the Board ................. 1.1 1.5 0.3 3.0 1.1 0.4 0.2 1.6
Board Members receive remuneration for their involvement in board committees. In addition to 13 Board meetings (2023: 13) during the
year 7 Board Credit Committee meetings (2023: 7), 5 Board Audit Committee meetings (2023: 5), 8 Board Risk Committee meetings (2023:
9), 5 Board Remuneration Committee meetings (2023: 5) and 5 Board Tech committee meetings (2023: 4) were held.
Remuneration to key management personnel20242023Performance- Performance-based Pension based PensionSalaries paymentscontributionTotal Salaries paymentscontributionTotalBenedikt Gíslason, CEO ........................... 68.4 6.1 10.5 85.0 68.0 8.0 10.7 86.7 Members of the Executive Committee* ..... 350.7 30.6 54.2 435.4 356.2 34.2 55.1 445.5 Former members of Executive Committee 7.0 3.8 1.5 12.3 10.9 6.2 2.5 19.5 Other key employees ................................ 66.1 - 9.9 75.9 58.6 - 8.9 67.5 Total remuneration .................................. 492.2 40.5 76.0 608.7 493.7 48.4 77.1 619.2
** Additional remuneration represents Board Member compensation for their participation in Board Committees.
32
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
13. Personnel and salaries, continued
Incentive schemes
Share-based payment expense
14. Other operating expenses
Arion Bank has in place a share option plan for all employees of the Bank, Vördur and Stefnir, approved at the Banks annual general
meeting. A total expense of ISK 162 million was recognised in the Income Statement during the year (2023: ISK 197 million). Estimated
remaining expenses due the share option contracts are ISK 105 million and will be expensed over the next two years. For further
information on the share option program, see Note 37.
The current incentive scheme for Arion Bank hf. and Vördur came into effect in 2021. The scheme is in compliance with the FSA’s rules on
remuneration policy for financial institutions. The scheme is divided into two parts. Firstly, employees can receive up to 10% of their fixed
salary for each fiscal year in the form of a cash payment. Secondly, a limited group can receive up to 25% of their fixed salary as a payment
in the form of shares or share options in the Bank. Of this 25%, a total of 20% will be settled instantly with cash, 40% will be settled instantly
with shares subject to a 3-year lock-up period and the remaining 40% will be settled with shares or share options after 4-5 years or a total of
20% will be settled instantly with cash and the remaining 80% will be settled with share options after 4-5 years. Deferred incentive scheme
payments from the fiscal years 2021-2023 will be settled in 2025-2029. The key metric used to determine whether incentive scheme
payments will be paid by the Bank, in part or in full, is whether the Bank’s return on equity is higher than the weighted ROE of the Bank’s
main competitors. Other supporting metrics include ROE and cost-to-income ratio vs target, compliance, staff NPS etc. Stefnir hf. has a
special incentive scheme where other criteria are used as a basis.
* Included ISK 585 million fine following settlement with the Financial supervision of the Central Bank in June 2024.
In 2024 the Group made ISK 1,813 million provision for the incentive scheme, including salary-related expenses (2023: ISK 1,354 million).
At year end the Group's accrual for the incentive scheme payments amounted to ISK 2,853 million (31.12.2023: ISK 2,113 million).
Auditor's feeAudit and review of the Consolidated Financial Statements for the relevant fiscal year ..............................................189 176 Other audit related services for the relevant fiscal year ..............................................................................................17 23 Other services from auditors ......................................................................................................................................13 5 Auditor's fee .............................................................................................................................................................219 204
2024 2023IT expenses ...............................................................................................................................................................5,074 4,631 Professional services .................................................................................................................................................1,435 1,271 Marketing ...................................................................................................................................................................1,215 1,167 Housing expenses ......................................................................................................................................................502 599 Other administration expenses* ..................................................................................................................................3,103 2,414 Depreciation and impairment of property and equipment ............................................................................................573 550 Depreciation of right of use asset ...............................................................................................................................139 134 Amortization of intangible assets ................................................................................................................................985 1,202 Other operating expenses .......................................................................................................................................13,026 11,968
33
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
15. Bank levy
16. Net impairment
17. Income tax expense
Other value changes of loans to individuals and corporates are mainly due to release of discount from loans acquired with discount during
the years 2008 to 2013, both due to impairments and other discount rate than reflected in the interest rates of the loans. There are no
further discounts related to the aforementioned loans on balance.
Tax exempt revenues / loss consist mainly of profit / loss from equity positions.
Financial undertakings pay 6% additional tax on taxable profit exceeding ISK 1 billion.
The Bank levy is 0.145% on total debts excluding tax liabilities, in excess of ISK 50 billion. The tax is assessed on Financial Undertakings
but non-financial subsidiaries are exempt from this tax.
2024 2023Net impairment on financial instruments and value changes on loansNet impairment on loans to customers and financial institutions .................................................................................(1,738) (1,735)Net impairment on other financial instruments at FVOCI ............................................................................................- 2 Other value changes of loans - corporates .................................................................................................................83 24 Other value changes of loans - individuals .................................................................................................................524 361 Net impairment .........................................................................................................................................................(1,131) (1,348)Net impairment by customer typeIndividuals ..................................................................................................................................................................1 (417)Corporates .................................................................................................................................................................(1,132) (931)Net impairment .........................................................................................................................................................(1,131) (1,348)
2024 2023Current tax expense ...................................................................................................................................................9,651 9,389 Deferred tax expense .................................................................................................................................................(732) 206 Current tax expense .................................................................................................................................................8,919 9,595 Reconciliation of effective tax rate20242023Earnings before income tax ..................................................................................................35,068 35,336 Income tax using the Icelandic corporate tax rate .................................................................21.0% 7,364 20.0% 7,067 Additional 6% tax on Financial Undertakings ........................................................................5.6% 1,977 5.7% 2,015 Non-deductible expenses .....................................................................................................0.5% 163 0.2% 57 Tax exempt revenues / loss ..................................................................................................(1.9%) (664) 0.2% 69 Non-deductible taxes (Bank levy) .........................................................................................1.1% 385 1.0% 359 Tax incentives not recognized in the Income Statement .......................................................(0.2%) (78) (0.5%) (161)Other changes ......................................................................................................................(0.7%) (228) 0.5% 189 Effective tax rate .................................................................................................................25.4% 8,919 27.2% 9,595
34
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
18. Discontinued operations held for sale, net of income tax
19. Earnings per share
Sólbjarg ehf. and Stakksberg ehf., subsidiary of Eignabjarg, are classified as held for sale.
Basic earnings per share is based on net earnings attritutable to the shareholders of Arion Bank and the weighted average number of
shares outstanding during the period. Diluted earnings per share is calculated by adjusting the weighted average number of outstanding
shares to assume conversion of all dilutive potential ordinary shares. Arion Bank issued warrants and stock options that had dilutive effects.
2024 2023Net loss from discontinued operations held for sale ....................................................................................................(37) (7)Income tax expense ...................................................................................................................................................- 3 Discontinued operations held for sale, net of income tax .....................................................................................(37) (4)
ContinuedDiscontinuedoperations operationsNet Earnings2024 2023 2024 2023 2024 2023Net earnings attributable to the shareholders of Arion Bank ............26,148 25,759 (37) (4) 26,111 25,755 Total comprehensive income attributable to the shareholders .........26,521 26,441 (37) (4) 26,484 26,437 Weighted average number of outstanding shares (millions) ............1,426 1,447 1,426 1,447 1,426 1,447 Weighted average number of outstanding shares including options and warrants (2023) (millions) ..........................1,443 1,525 1,443 1,525 1,443 1,525 Basic earnings per share (ISK) ....................................................18.33 17.80 (0.03) (0.00) 18.31 17.80 Diluted earnings per share (ISK) ..................................................18.12 16.89 (0.03) (0.00) 18.09 16.89 Basic comprehensive income per share (ISK) ............................18.59 18.27 (0.03) (0.00) 18.57 18.27 Diluted comprehensive income per share (ISK) ..........................18.38 17.34 (0.03) (0.00) 18.35 17.34
35
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
Notes to the Consolidated Statement of Financial Position
20. Cash and balances with Central Bank
21. Loans to credit institutions
23. Financial instruments
Further analysis of loans is provided in Risk management disclosures.
2024 2023Cash on hand .............................................................................................................................................................2,481 4,190 Cash with Central Bank ..............................................................................................................................................89,139 82,179 Mandatory reserve deposit with Central Bank .............................................................................................................32,474 15,726 Cash and balances with Central Bank ....................................................................................................................124,094 102,095
The total book value of pledged loans that were pledged against outstanding borrowings was ISK 304 billion at the end of the year
(31.12.2023: ISK 359 billion). Pledged loans comprised mortgage loans to individuals.
2024 2023Bank accounts ...........................................................................................................................................................25,690 28,624 Other loans ................................................................................................................................................................- 211 Loans to credit institutions ......................................................................................................................................25,690 28,835
The mandatory reserve deposit with the Central Bank is not available for the Group to use in its daily operations. The minimum interest-free
fixed reserve requirement of the Central Bank increased from 2% to 3% in May 2024.
2024 2023Bonds and debt instruments .......................................................................................................................................158,735 157,197 Shares and equity instruments with variable income ..................................................................................................18,470 17,656 Derivatives .................................................................................................................................................................6,715 6,602 Securities used for economic hedging ........................................................................................................................22,497 24,251 Financial instruments ..............................................................................................................................................206,417 205,706
22. Loans to customersIndividualsCorporatesTotalGross Gross Grosscarrying Book carrying Book carrying Book2024 amount value amount value amount valueOverdrafts .......................................................................................14,575 13,925 42,233 41,222 56,808 55,147 Credit cards ....................................................................................16,873 16,647 2,297 2,230 19,170 18,877 Loans to customers at fair value .....................................................- - 1,751 1,313 1,751 1,313 Mortgage loans ...............................................................................571,525 570,842 74,287 73,712 645,812 644,554 Construction loans ..........................................................................- - 49,508 48,806 49,508 48,806 Capital lease ...................................................................................1,298 1,283 7,344 7,295 8,642 8,578 Other loans .....................................................................................37,627 36,707 420,092 416,076 457,719 452,783 Loans to customers ......................................................................641,898 639,404 597,512 590,654 1,239,410 1,230,058 2023Overdrafts .......................................................................................13,840 13,232 43,013 42,129 56,853 55,361 Credit cards ....................................................................................15,972 15,783 2,062 2,010 18,034 17,793 Mortgage loans ...............................................................................550,269 549,371 68,840 68,277 619,109 617,648 Construction loans ..........................................................................- - 49,267 49,031 49,267 49,031 Capital lease ...................................................................................2,352 2,331 6,893 6,832 9,245 9,163 Other loans .....................................................................................29,184 28,427 379,648 375,366 408,832 403,793 Loans to customers ......................................................................611,617 609,144 549,723 543,645 1,161,340 1,152,789
36
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
24. Financial assets and financial liabilities
* Including effect from hedge accounting derivatives.
2024Fair value Fair valueFinancial assetsAmortized through throughcost OCI P/L TotalLoansCash and balances with Central Bank ..................................................................................124,094 - - 124,094 Loans to credit institutions ....................................................................................................25,690 - - 25,690 Loans to customers ..............................................................................................................1,228,745 - 1,313 1,230,058 Loans ...................................................................................................................................1,378,529 - 1,313 1,379,842 Bonds and debt instrumentsListed ....................................................................................................................................- 126,898 31,217 158,115 Unlisted ................................................................................................................................- - 620 620 Bonds and debt instruments ..............................................................................................- 126,898 31,837 158,735 Shares and equity instruments with variable incomeListed ....................................................................................................................................- - 11,499 11,499 Unlisted ................................................................................................................................- - 6,291 6,291 Bond funds with variable income, unlisted ............................................................................- - 680 680 Shares and equity instruments with variable income ......................................................- - 18,470 18,470 DerivativesOTC derivatives ....................................................................................................................- - 3,685 3,685 Derivatives used for hedge accounting .................................................................................- - 3,030 3,030 Derivatives ..........................................................................................................................- - 6,715 6,715 Securities used for economic hedgingBonds and debt instruments, listed .......................................................................................- - 2,664 2,664 Shares and equity instruments with variable income, listed ..................................................- - 19,833 19,833 Securities used for economic hedging ..............................................................................- - 22,497 22,497 Other financial assetsAccounts receivable .............................................................................................................2,552 - - 2,552 Other financial assets ...........................................................................................................5,924 - - 5,924 Other financial assets ........................................................................................................8,476 - - 8,476 Financial assets ..................................................................................................................1,387,005 126,898 80,832 1,594,735 Financial liabilitiesDue to credit institutions and Central Bank ...........................................................................6,618 - - 6,618 Deposits ...............................................................................................................................857,443 - - 857,443 Borrowings * .........................................................................................................................433,178 - - 433,178 Subordinated liabilities * .......................................................................................................44,538 - - 44,538 Derivatives ...........................................................................................................................- - 4,096 4,096 Derivatives used for hedge accounting .................................................................................- - 4,298 4,298 Other financial liabilities ........................................................................................................10,631 - - 10,631 Financial liabilities ..............................................................................................................1,352,408 - 8,394 1,360,802
37
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
24. Financial assets and financial liabilities, continued
* Including effect from hedge accounting derivatives.
2023Fair value Fair valueFinancial assetsAmortized through throughcost OCI P/L TotalLoansCash and balances with Central Bank ..................................................................................102,095 - - 102,095 Loans to credit institutions ....................................................................................................28,835 - - 28,835 Loans to customers ..............................................................................................................1,152,789 - - 1,152,789 Loans ...................................................................................................................................1,283,719 - - 1,283,719 Bonds and debt instrumentsListed ....................................................................................................................................- 129,564 27,059 156,623 Unlisted ................................................................................................................................- - 574 574 Bonds and debt instruments ..............................................................................................- 129,564 27,633 157,197 Shares and equity instruments with variable incomeListed ....................................................................................................................................- - 7,093 7,093 Unlisted ................................................................................................................................- - 9,961 9,961 Bond funds with variable income, unlisted ............................................................................- - 602 602 Shares and equity instruments with variable income ......................................................- - 17,656 17,656 DerivativesOTC derivatives ....................................................................................................................- - 4,539 4,539 Derivatives used for hedge accounting .................................................................................- - 2,063 2,063 Derivatives ..........................................................................................................................- - 6,602 6,602 Securities used for economic hedgingBonds and debt instruments, listed .......................................................................................- - 2,195 2,195 Shares and equity instruments with variable income, listed ..................................................- - 22,056 22,056 Securities used for economic hedging ..............................................................................- - 24,251 24,251 Other financial assetsAccounts receivable .............................................................................................................1,765 - - 1,765 Other financial assets ...........................................................................................................10,423 - - 10,423 Other financial assets ........................................................................................................12,188 - - 12,188 Financial assets ..................................................................................................................1,295,907 129,564 76,142 1,501,613 Financial liabilitiesDue to credit institutions and Central Bank ...........................................................................2,771 - - 2,771 Deposits ...............................................................................................................................792,710 - - 792,710 Borrowings * .........................................................................................................................420,460 - - 420,460 Subordinated liabilities * .......................................................................................................41,279 - - 41,279 Short position in bonds .........................................................................................................- - 61 61 Derivatives ...........................................................................................................................- - 2,332 2,332 Derivatives used for hedge accounting .................................................................................- - 9,253 9,253 Other financial liabilities ........................................................................................................10,790 - - 10,790 Financial liabilities ..............................................................................................................1,268,010 - 11,646 1,279,656
38
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
24. Financial assets and financial liabilities, continued
25. Fair value hierarchy
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
The Group uses the following hierarchy for determining and disclosing the fair value of assets and liabilities by valuation technique:
Level 2: valuation techniques for which all significant inputs are market observable, either directly or indirectly; and
Level 3: valuation techniques which include significant inputs that are not based on observable market data.
For assets and liabilities that are recognized at fair value on a recurring basis, the Group determines whether transfers have occurred
between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
Assets and liabilities recorded at fair value by level of the fair value hierarchy2024Assets at fair valueLevel 1 Level 2 Level 3 TotalLoans to customers ..............................................................................................................- - 1,313 1,313 Bonds and debt instruments .................................................................................................155,316 3,414 5 158,735 Shares and equity instruments with variable income .............................................................9,269 7,546 1,655 18,470 Derivatives ...........................................................................................................................- 3,685 - 3,685 Derivatives used for hedge accounting .................................................................................- 3,030 - 3,030 Securities used for economic hedging ..................................................................................21,585 912 - 22,497 Investment property ..............................................................................................................- - 9,387 9,387 Assets at fair value .............................................................................................................186,170 18,587 12,360 217,117 Derivatives used for hedge accounting .................................................................................- 4,298 - 4,298 Liabilities at fair value ........................................................................................................- 4,298 - 4,298
The total amount of pledged bonds was ISK 3.1 billion at the end of the year (31.12.2023: ISK 3.0 billion). Pledged bonds comprise
Icelandic Government Bonds that were pledged against funding received and included in Due to credit institutions and Central Bank as well
as short positions included in Financial liabilities at fair value.
Manda-Fair value torily atBonds and debt instruments measured at fair value, specified by issuerthrough fair valueOCI thr. P/L Total2024Financial and insurance activities ............................................................................................................975 8,494 9,469 Public sector ............................................................................................................................................125,923 20,257 146,180 Corporates ..............................................................................................................................................- 3,086 3,086 Bonds and debt instruments at fair value ............................................................................................126,898 31,837 158,735 2023Financial and insurance activities ............................................................................................................1,386 10,363 11,749 Public sector ............................................................................................................................................128,178 14,077 142,255 Corporates ..............................................................................................................................................- 3,193 3,193 Bonds and debt instruments at fair value ............................................................................................129,564 27,633 157,197
39
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
25. Fair value hierarchy, continued
Methods for establishing fair value
Transfers from Level 1 to Level 2 amounted to ISK 2,767 million during the year (2023: Transfers from Level 1 to Level 2 ISK 697 million).
For listed and liquid stocks and bonds, certain financial derivatives and other market traded securities, the fair value is derived directly from
quoted market prices. These instruments are disclosed under Financial instruments and Financial liabilities at fair value in the Statement of
Financial Position.
Fair value of assets and liabilities
The fair value of asset and liabilities is the amount at which the asset and liability could be exchanged in a current transaction between
willing parties, i.e. not during a forced sale or liquidation. The existence of published price quotations in an active market is the best
evidence of fair value and when they exist they are used by the Group to measure assets and liabilities. If quoted prices for an asset fail to
represent actual and regularly occurring transactions in active market transactions or if quoted prices are not available at all, fair value is
established by using an appropriate valuation technique.
Level 2 instruments include unlisted shares, unlisted funds with underlying bonds and equity holdings (share certificates), unlisted and less
liquid listed bonds and all OTC derivatives.
Level 1: Fair value established from quoted market prices
For assets and liabilities for which quoted prices on active markets are not available, the fair value is derived using various valuation
techniques. This applies in particular to OTC derivatives such as options, swaps, futures and unlisted equities but also some other assets
and liabilities.
In some cases, the carrying value of an asset in Note 24 is used as an approximation for the fair value of the asset. This is straight forward
for cash and cash equivalents but is also used for short term investments and borrowings to highly rated counterparties, such as credit
institutions, on contracts that feature interest close to or equal to market rates and expose the Group to little or no credit risk.
For assets and liabilities, for which the market is not active, the Group applies valuation techniques to attain a fair value using as much
market information as available. Valuation techniques include using recent market transactions between knowledgeable and willing parties,
if available, reference to current fair value of another instrument that is substantially the same, discounted cash flow analysis, option pricing
models or other commonly accepted valuation techniques used by market participants to price the instrument.
Level 2: Fair value established using valuation techniques with observable market information
The best evidence of the fair value of an asset and liability at initial recognition is the transaction price, unless the fair value can be
evidenced by comparison with other observable current market transactions, or is based on a valuation technique whose variables include
only data from observable markets.
In most cases the valuation is based on theoretical financial models, such as the Black Scholes model or variations thereof. These
techniques also include forward pricing and swap models using present value calculations.
2023Assets at fair valueLevel 1 Level 2 Level 3 TotalBonds and debt instruments .................................................................................................153,485 3,685 27 157,197 Shares and equity instruments with variable income .............................................................7,082 6,979 3,595 17,656 Derivatives ...........................................................................................................................- 4,539 - 4,539 Derivatives used for hedge accounting .................................................................................- 2,063 - 2,063 Securities used for economic hedging ..................................................................................23,848 403 - 24,251 Investment property ..............................................................................................................- - 9,493 9,493 Assets at fair value .............................................................................................................184,415 17,669 13,115 215,199 Liabilities at fair valueShort position in equity used for economic hedging ..............................................................61 - - 61 Derivatives ...........................................................................................................................- 2,332 - 2,332 Derivatives used for hedge accounting .................................................................................- 9,253 - 9,253 Liabilities at fair value ........................................................................................................61 11,585 - 11,646
40
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
25. Fair value hierarchy, continued
Level 3: Fair value established using valuation techniques with significant unobservable market information
Equity instruments that do not have a quoted market price are evaluated using methods and guidelines from pertinent international
organizations. In most cases intrinsic value is the basis for the assessment but other factors, such as cash flow analysis, can also modify
the results.
In some cases there is little or no market data to rely on for fair value calculations. The most common valuation technique is present value
calculations. Such calculations involve the estimation of future cash flow and the assessment of appropriate discount rate. The discount
rate should both reflect current market rates and the uncertainty in the future cash flow. In such cases internal models and methods are
used to calculate the fair value. The models may be statistical in nature, based on internal or external history of assets with similar
characteristics and/or based on internal knowledge and experience. For example, the credit margin on most loans to customers which, is
added to the current and suitable interest rate to arrive at an appropriate discount rate, is estimated using credit rating and loss parameters
in case of default that have been derived from internal models.
The Group applies management valuation for determining fair value of investment properties. Management valuation is either based on
recent transactions and offers for similar assets or present value calculations which involve estimation of future cash flow and the
assessment of appropriate discount rate.
Movements in Level 3 assets measured at fair valueInvestmentFinancial assets2024propertyLoans Bonds Shares TotalBalance at the beginning of the year ..................................................................9,493 - 27 3,595 13,115 Net fair value changes .......................................................................................(339) 51 (20) 468 160 Additions ............................................................................................................233 1,262 - 26 1,521 Disposals ...........................................................................................................- - (2) (2,434) (2,436)Balance at the end of the year .........................................................................9,387 1,313 5 1,655 12,360 2023Balance at the beginning of the year ..................................................................7,862 - 102 1,932 9,896 Net fair value changes .......................................................................................1,569 - (72) 652 2,149 Additions ............................................................................................................62 - - 1,858 1,920 Disposals ...........................................................................................................- - (3) (975) (978)Transfers into Level 3 ........................................................................................- - - 128 128 Balance at the end of the year .........................................................................9,493 - 27 3,595 13,115 Line items where effects of Level 3 assets are recognized in the Income StatementInvestmentFinancial assets2024propertyLoans Bonds Shares TotalNet interest income ............................................................................................- 65 - - 65 Net financial income ..........................................................................................- (14) (20) 468 434 Other operating income .....................................................................................(339) - - - (339)Effects recognized in the Income Statement ..................................................(339) 51 (20) 468 160 2023Net financial income ..........................................................................................- - (72) 652 580 Other operating income .....................................................................................1,569 - - - 1,569 Effects recognized in the Income Statement ..................................................1,569 - (72) 652 2,149
41
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
25. Fair value hierarchy, continued
Carrying values and fair values of financial assets and financial liabilities not carried at fair value2024Carrying Fair UnrealizedFinancial assets not carried at fair valuevalue value (loss) gainCash and balances with Central Bank .....................................................................................................124,094 124,094 - Loans to credit institutions .......................................................................................................................25,690 25,690 - Loans to customers .................................................................................................................................1,228,745 1,222,223 (6,522)Other financial assets ..............................................................................................................................8,476 8,476 - Financial assets not carried at fair value .............................................................................................1,387,005 1,380,483 (6,522)Financial liabilities not carried at fair valueDue to credit institutions and Central Bank ..............................................................................................6,618 6,618 - Deposits ..................................................................................................................................................857,443 857,443 - Borrowings ..............................................................................................................................................433,178 429,199 3,979 Subordinated liabilities .............................................................................................................................44,538 48,226 (3,688)Other financial liabilities ...........................................................................................................................10,631 10,631 - Financial liabilities not carried at fair value .........................................................................................1,352,408 1,352,117 291 2023Financial assets not carried at fair valueCash and balances with Central Bank .....................................................................................................102,095 102,095 - Loans to credit institutions .......................................................................................................................28,835 28,835 - Loans to customers .................................................................................................................................1,152,789 1,145,363 (7,426)Other financial assets ..............................................................................................................................12,188 12,188 - Financial assets not carried at fair value .............................................................................................1,295,907 1,288,481 (7,426)Financial liabilities not carried at fair valueDue to credit institutions and Central Bank ..............................................................................................2,771 2,771 - Deposits ..................................................................................................................................................792,710 792,710 - Borrowings ..............................................................................................................................................420,460 419,008 1,452 Subordinated liabilities .............................................................................................................................41,279 41,154 125 Other financial liabilities ...........................................................................................................................10,790 10,790 - Financial liabilities not carried at fair value .........................................................................................1,268,010 1,266,433 1,577 Loans to customers largely bear variable interest rates. Those loans, including corporate loans, are presented at book value as theygenerally have a short duration and very limited interest rate risk. Loans with fixed interest rates, mainly retail mortgages, are estimated byusing the discount cash flow method with the interest rates offered on new loans, taking into account loan to value. Defaulted loans arepresented at book value as no future cash flow is expected on them. Instead they are written down according to their estimated potentialrecovery value.DerivativesNotionalFair value2024valueAssets LiabilitiesForward exchange rate agreements ........................................................................................................60,780 180 1,286 Fair value hedge of interest rate swap .....................................................................................................235,504 3,030 4,297 Interest rate and exchange rate agreements ...........................................................................................43,027 235 791 Bond swap agreements ...........................................................................................................................3,243 87 2 Share swap agreements ..........................................................................................................................20,789 2,596 2,018 Options - purchased agreements .............................................................................................................- 587 - Derivatives .............................................................................................................................................363,343 6,715 8,394 2023Forward exchange rate agreements ........................................................................................................54,756 414 236 Fair value hedge of interest rate swap .....................................................................................................235,726 2,063 9,253 Interest rate and exchange rate agreements ...........................................................................................47,377 998 1,017 Bond swap agreements ...........................................................................................................................2,218 67 50 Share swap agreements ..........................................................................................................................24,689 3,060 1,029 Derivatives .............................................................................................................................................364,766 6,602 11,585
42
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
25. Fair value hierarchy, continued
on FV
- - 213
- - 157
- 94 441
- 988 1,621
- 2,953 1,955
1,977 - (25)
27 - 26
1,026 - 1,090
- 263 (611)
- - 76
- 228 650
- 583 307
- 534 354
- 5,183 3,205
- 2,725 1,617
2,063 - 436
Gain (loss)
The effectiveness of each hedge is measured regularly with linear regression. The relationship between fair value changes of an interest
rate swap on the one hand and a borrowing on the other hand is examined. In all cases the effectiveness is within limits, or between 93-
105%.
Fair value hedge of interest rate swapThe Group applies fair value hedge accounting only with respect to interest rate swaps in EUR and USD, whereby the Group pays floatingrate interest and receives fixed rate interest, with identical cash flows to the borrowings and subordinated liabilities. The interest rate swapsare hedging the exposure of changes in the fair value of certain fixed-rate EUR and USD bonds, see Notes 33 and 34, arising from changesin EURIBOR and SOFR benchmark interest rates. The effectiveness of each hedge is measured regularly with linear regression. The relationship between fair value changes of an interestrate swap on the one hand and a borrowing on the other hand is examined.During 2024 the slope for the regression line was in all cases within the range of 0.93-1.05 and the regression coefficient was at least 0.97.During 2023, the slope of the regression line was in all cases within the range of 0.92-1.08 and the regression coefficient was at least 0.94.In all cases the effectiveness is within limits in 2024 and 2023.Gain (loss)Notional MaturityFair value2024ValuedateAssets LiabilitieschangesInterest rates swaps - EUR .............................................................- - Interest rates swaps - EUR .............................................................- - Interest rates swaps - USD .............................................................13,899 6-12 mthInterest rates swaps - EUR .............................................................43,168 6-12 mthInterest rates swaps - EUR .............................................................71,947 1-5 yearsInterest rates swaps - EUR .............................................................43,168 1-5 yearsInterest rates swaps - USD .............................................................2,780 1-5 yearsInterest rates swaps - EUR .............................................................43,168 1-5 yearsInterest rates swaps - USD .............................................................17,374 1-5 years3,030 4,298 4,867 2023Interest rates swaps - EUR .............................................................- - Interest rates swaps - EUR .............................................................11,957 3-6 mthInterest rates swaps - EUR .............................................................45,040 6-12 mthInterest rates swaps - USD .............................................................13,582 1-5 yearsInterest rates swaps - EUR .............................................................75,067 1-5 yearsInterest rates swaps - EUR .............................................................45,040 1-5 yearsInterest rates swaps - EUR .............................................................45,040 1-5 years2,063 9,253 6,645 Hedged borrowings and subordinated liabilities Accumulated Bookfair valueon FV2024valueAssets LiabilitieschangesEUR 300 million - issued 2020 - 4 years ...............................................................................- - - (205)USD 100 million - issued 2020 - Perpetual ............................................................................3,150 - - (615)EUR 500 million - issued 2021 - 5 years ...............................................................................68,775 2,395 - (1,948)EUR 300 million - issued 2021 - 4 years ...............................................................................42,597 646 - (1,619)EUR 300 million - issued 2022 - 2 years ...............................................................................- - - (469)EUR 300 million - issued 2023 - 3 years ...............................................................................45,384 - 397 24 USD 21 million - issued 2024 - 3 years .................................................................................2,989 - 27 (27)EUR 300 million - issued 2024 - 4 years ...............................................................................44,272 - 1,039 (1,087)USD 125 million - issued 2024 - Perpetual ............................................................................16,854 705 - 696 Hedged borrowings and subordinated liabilities ..............................................................224,021 3,746 1,463 (5,250)2023EUR 300 million - issued 2018 - 5 years ...............................................................................- - - (156)EUR 300 million - issued 2020 - 4 years ...............................................................................11,776 206 - (632)USD 100 million - issued 2020 - Perpetual ............................................................................13,216 608 - (336)EUR 500 million - issued 2021 - 5 years ...............................................................................69,338 4,455 - (3,207)EUR 300 million - issued 2021 - 4 years ...............................................................................42,740 2,303 - (1,612)EUR 300 million - issued 2022 - 2 years ...............................................................................44,552 471 - (305)EUR 300 million - issued 2023 - 3 years ...............................................................................47,326 - 443 (442)Hedged borrowings and subordinated liabilities ..............................................................228,948 8,043 443 (6,690)
43
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
26. Offsetting financial assets and financial liabilities
Total assets
27. Investments in associates
Reverse repurchase agreements and repurchase agreements are recognized within the line items Financial instruments and Due to credit
institutions and Central Bank respectively.
2024 2023Carrying amount at the beginning of the year .............................................................................................................789 787 Increased share capital ..............................................................................................................................................1 72 Share of profit (loss) of associates .............................................................................................................................24 (70)Investment in associates .........................................................................................................................................814 789 The Group's interest in its principal associatesBílafrágangur ehf., Lágmúli 5, Reykjavík, Iceland .......................................................................................................33.4% 33.4% Háblær ehf., Sudurlandsbraut 18, Reykjavík, Iceland .................................................................................................31.8% 31.8% Reiknistofa bankanna hf., Dalvegur 30, Reykjavík, Iceland ........................................................................................23.0% 23.0% SER eignarhaldsfélag ehf., Borgartún 19, Reykjavík ..................................................................................................35.3% 35.3%
Financial assets subject to enforceable master netting arrangements and similar arrangementsNetting potential not Assets subject to netting recognized in the arrangementsBalance SheetAssets not Assets Assets after subject toGross assets Nettings recognized consideration enforceable recognizedbefore with gross on Balance Financial Collateral of netting netting arr- on Balance2024nettings liabilities Sheet, net liabilities received potential angements Sheet, netReverse repurchase agreements .............. 16,469 (10,383) 6,086 10,383 - 16,469 - 6,086 Derivatives ................................................ 4,523 - 4,523 (2,015) (2,504) 4 2,192 6,715 Total assets ............................................. 20,992 (10,383) 10,609 8,368 (2,504) 16,473 2,192 12,801 2023Reverse repurchase agreements .............. 16,982 (10,164) 6,818 10,164 - 16,982 - 6,818 Derivatives ................................................ 4,640 - 4,640 (2,114) (341) 2,185 1,962 6,602 Total assets ............................................. 21,622 (10,164) 11,458 8,050 - 19,167 1,962 13,420 Financial liabilities subject to enforceable master netting arrangements and similar arrangementsNetting potential not Liabilities subject to netting recognized in the arrangementsBalance SheetLiabilitiesLiabilities notTotalGross Liabilities after subject to liabilitiesliabilities Nettings recognized consideration enforceable recognizedbefore with gross on Balance Financial Collateral of netting netting arr- on balance2024nettings assets Sheet, net assets pledged potential angements sheetRepurchase agreements ........................... - (10,383) (10,383) 10,383 - - - (10,383)Derivatives ................................................ 7,131 - 7,131 (2,015) (4,327) 789 1,263 8,394 Total liabilities ......................................... 7,131 (10,383) (3,252) 8,368 (4,327) 789 1,263 (1,989)2023Repurchase agreements ........................... - (10,164) (10,164) 10,164 - - - (10,164)Derivatives ................................................ 12,138 - 12,138 (2,114) (7,171) 2,853 (553) 11,585 Total liabilities ......................................... 12,138 (10,164) 1,974 8,050 (7,171) 2,853 (553) 1,421
44
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
28. Intangible assets
Policies applied to the Group's intangible assets
Software Total
Impairment testing
Discount and growth rates
Discount Growth Discount Growth
rates rates rates rates
14.3% 3.5-15% 14.3% 3.5%
14.3% 4.0% 14.3% 4.0%
Asset Management operation ...............................................................................................
2023
2024
Goodwill related to the insurance operation is recognized among assets in the operating segments Corporate & Investment Banking and
Retail Banking. Goodwill related to the subsidiary Leiguskjól is recognized in the operating segment Other subsidiaries, see Note 5.
Amortization method .......................................................................
Customer relationships and related agreements are connected to business relationships and agreements which the Bank acquired in
subsidiaries. The asset is based on the assumption that business relationships and agreements generate regular payments and earnings to
the relevant business segments. The lifetime of these agreements is based on the experience of the Group and the industry. As a result,
these agreements are assessed as having an identified useful lifetime.
Acquired software and internally developed software is capitalized on the basis of the cost of acquiring and bringing the software into
service. Expenditure on internally developed software is recognized as an asset when the Group is able to demonstrate its intention and
ability to complete the development and use the software in a manner that will generate future economic benefits, and when it can reliably
measure the costs to complete the development. The capitalized costs of internally developed software include external expenses directly
attributable to developing the software and salary and salary related expenses of implementation of core systems. Capitalized costs of
software are amortized over its useful life. Computer software licenses and internally developed software recognized as intangible assets
are amortized over their useful life, which is estimated to be 3-10 years.
Acquired
Useful lives .....................................................................................
Acquired and internally
generated
Software
Acquired
Finite 3-10 years
Impairment test
Undefined
and related agreements
Infrastructure, which is capitalized as an intangible asset, is related to the asset management operation and branding of the insurance
operation. The business activity is based on years of developing expertise and systems, during which a valuable platform has been created
for future growth. An impairment test is performed annually.
Intangible assets comprise the following categories: Goodwill, which arises on business combinations; Infrastructure, Customer
relationships and related agreements which are identified during the acquisition of subsidiaries and related to the activities of the
businesses being acquired; and Software, which is acquired (i.e. software licenses) and expenses of implementation.
Internally generated or acquired .....................................................
Straight-line basis
over 3-10 years
Goodwill
and infrastructure
Customer relationship
Straight-line basis over
6-15 years and
impairment test
Finite 6-15 years
and undefined
CustomerrelationshipInfra- and related2024Goodwill structure agreementsBalance at the beginning of the year ..................................................................730 2,383 487 4,451 8,051 Additions ............................................................................................................- - - 622 622 Amortization .......................................................................................................- - (60) (925) (985)Balance at the end of the year .........................................................................730 2,383 427 4,148 7,688 2023Balance at the beginning of the year ..................................................................730 2,383 547 5,123 8,783 Additions ............................................................................................................- - - 470 470 Amortization .......................................................................................................- - (60) (1,142) (1,202)Balance at the end of the year .........................................................................730 2,383 487 4,451 8,051
Insurance operation ..............................................................................................................
The model used, to determine the recoverable amount, is most sensitive to changes in the forecast earnings available to shareholders over
a five-year period, the cost of equity and to changes in the growth rate. As a result of this analysis no impairment was recognized in 2024
(2023: nil).
The methodology for impairment testing on the Infrastructure and Customer relationship, which is part of intangible assets, is based on
discounted cash flow model which uses inputs that consider features of the business and the environment.
45
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
29. Tax assets and tax liabilities
30. Assets and disposal groups held for sale
Real estates and other assets classified as assets held for sale are generally the result of foreclosures on companies and individuals.
2024 2023Real estate and other assets ......................................................................................................................................111 62 Assets and disposal groups held for sale ..............................................................................................................111 62
20242023Assets Liabilities Assets LiabilitiesCurrent tax ............................................................................................................................- 9,887 - 9,227 Deferred tax ..........................................................................................................................2 1,173 39 1,942 Tax assets and tax liabilities ..............................................................................................2 11,060 39 11,169 Deferred tax assets and tax liabilities are attributable to the following:Investment property and property and equipment .................................................................1 (1,180) - (1,227)Financial assets ....................................................................................................................313 - - (361)Other assets and liabilities ....................................................................................................33 (249) 27 (295)Deferred tax related to foreign exchange gain ......................................................................6 (376) 2 (207)Tax loss carry forward ...........................................................................................................281 - 158 - 634 (1,805) 187 (2,090)Set-off of deferred tax assets together with tax liabilities of the same taxable entities ...........(632) 632 (148) 148 Deferred tax assets and tax liabilities ...............................................................................2 (1,173) 39 (1,942)
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which
the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be
recognized, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies.
RecognizedRecognizedChanges in deferred tax assets and tax liabilities throughin incomeAt 1 Jan.equity statementAt 31 Dec.2024Investment property and property and equipment .................................................................(1,227) - 48 (1,179)Financial assets ....................................................................................................................(361) - 674 313 Other assets and liabilities ....................................................................................................(268) - 52 (216)Deferred foreign exchange differences .................................................................................(205) - (165) (370)Tax loss carry forward ...........................................................................................................158 - 123 281 Change in deferred tax assets and tax liabilities ..............................................................(1,903) - 732 (1,171)2023Investment property and property and equipment .................................................................(999) - (228) (1,227)Financial assets ....................................................................................................................(510) - 149 (361)Other assets and liabilities ....................................................................................................(267) - (1) (268)Deferred foreign exchange differences .................................................................................(78) - (127) (205)Tax loss carry forward ...........................................................................................................157 - 1 158 Change in deferred tax assets and tax liabilities ..............................................................(1,697) - (206) (1,903)
46
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
31. Other assets
Right-of-use asset is due to real estates for own use.
The official real estate value (Registers Iceland) amounted to ISK 4,399 million at the end of the year (2023: ISK 4,223 million) and the
insurance value amounts to ISK 8,318 million (2023: ISK 8,093 million).
2024 2023Property and equipment .............................................................................................................................................3,403 3,672 Right-of-use asset ......................................................................................................................................................808 872 Accounts receivable ...................................................................................................................................................2,552 1,765 Unsettled securities trading ........................................................................................................................................2,342 7,781 Sundry assets ............................................................................................................................................................4,901 3,723 Other assets .............................................................................................................................................................14,006 17,813 Property and equipment Real Equip- Total Total estate ment 2024 2023Gross carrying amount at the beginning of the year ..............................................................2,727 3,806 6,533 6,373 Additions ..............................................................................................................................- 325 325 457 Disposals ..............................................................................................................................- (27) (27) (29)Write-offs ..............................................................................................................................- (179) (179) (266)Gross carrying amount at the end of the year ..................................................................2,727 3,925 6,652 6,535 Accumulated depreciation at the beginning of the year .........................................................(1,117) (1,744) (2,861) (2,586)Depreciation .........................................................................................................................(74) (481) (555) (513)Disposals ..............................................................................................................................- 6 6 7 Write-offs ..............................................................................................................................- 161 161 229 Accumulated depreciation at the end of the year .............................................................(1,191) (2,058) (3,249) (2,863)Property and equipment .....................................................................................................1,536 1,867 3,403 3,672
2024 2023Right-of-use assetBalance at the beginning of the year ..........................................................................................................................872 745 New lease agreements ...............................................................................................................................................36 230 Lease agreements terminated ....................................................................................................................................- (15)Indexation ..................................................................................................................................................................39 46 Depreciation ...............................................................................................................................................................(139) (134)Right-of-use asset ....................................................................................................................................................808 872
47
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
32. Other liabilities
2024 2023Accounts payable .......................................................................................................................................................1,402 1,274 Unsettled securities trading ........................................................................................................................................2,550 2,474 Insurance contract liabilities .......................................................................................................................................21,478 20,196 Withholding tax ..........................................................................................................................................................7,329 6,026 Bank levy ...................................................................................................................................................................1,925 1,807 Accrued expenses ......................................................................................................................................................6,136 4,895 Prepaid income ..........................................................................................................................................................1,475 1,547 Impairment of off-balance items .................................................................................................................................511 363 Lease liability ..............................................................................................................................................................975 1,074 Sundry liabilities .........................................................................................................................................................6,169 6,680 Other liabilities .........................................................................................................................................................49,950 46,336 2024 2023Insurance contract liabilitiesLiabilities for remaining coverage ...............................................................................................................................3,851 3,910 Liabilities for incurred claims ......................................................................................................................................16,819 15,597 Risk adjustment .........................................................................................................................................................808 689 Insurance contract liabilities ...................................................................................................................................21,478 20,196 2024 2023Lease liabilityBalance at the beginning of the year ..........................................................................................................................1,074 970 New and extended lease agreements .........................................................................................................................37 230 Lease agreements terminated ....................................................................................................................................- (15)Indexation ..................................................................................................................................................................47 63 Interest expense .........................................................................................................................................................53 45 Lease payments .........................................................................................................................................................(236) (219)Lease liability ............................................................................................................................................................975 1,074
48
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
33. Borrowings
12,887 -
12,663 12,440
- 11,776
42,597 42,740
2,451 2,683
3,775 4,059
45,384 47,326
3,129 3,425
2,989 -
6,324 -
6,185 -
12,580 8,772
44,272 -
34. Subordinated liabilities
- 4,096
- 3,046
6,607 6,312
905 908
735 766
11,195 10,685
2,249 2,249
2,843 -
3,150 13,217
16,854 -
* The Group applies fair value hedge accounting to these bond issuances and uses certain foreign currency denominated interest rate swaps as hedging
instruments, see Note 25.
The book value of listed bonds was ISK 433 billion at the end of the year (31.12.2023: ISK 420 billion). The market value of those bonds
was ISK 429 billion (31.12.2023: ISK 419 billion). The Group repurchased own debts amounting to ISK 62 billion during the year with a net
loss of ISK 182 million recognized in the Income Statement (2023: ISK 89 million profit).
* The Group applies fair value hedge accounting to these bond issuances and uses certain foreign currency denominated interest rate swaps as hedging
instruments, see Note 25. The interest rate swaps are hedging the Group’s exposure to fair value changes of these fixed-rate bonds in EUR arising from changes in
interest rates.
First Maturity 2024 2023Currency, original nominal value issued Maturity type Terms of interestARION CB 24 ISK 28,900 million .............. 2019 2024At maturity Fixed 6.00% ..................................- 13,664 ARION CBI 25, ISK 37,940 million ............ 2017 2025At maturity Fixed CPI linked 3.00% .................34,805 50,880 ARION CBI 26 ISK 17,080 million ............. 2019 2026At maturity Fixed CPI linked 2.00% .................21,775 20,628 ARION CB EUR 500 million * .................... 2021 2026At maturity Fixed EUR 0.05% ..........................68,775 69,337 ARION CB 27, ISK 53,100 million ............. 2022 2027At maturity Fixed 5.50% ..................................25,652 17,680 ARION CBI 28, ISK 17,940 million ............ 2024 2028 At maturity Fixed CPI linked 4.25% .................ARION CBI 29, ISK 27,200 million ............ 2014 2029At maturity Fixed CPI linked 3.50% .................39,939 38,239 ARION CBI 30, ISK 31,920 million ............ 2023 2030At maturity Fixed CPI linked 2.75% .................31,896 10,204 ARION CBI 48, ISK 11,680 million ............ 2018 2048 Amortizing Fixed CPI linked 2.50% .................Statutory covered bonds ..........................................................................................................................................248,392 233,072 EUR 300 million * ...................................... 2020 2024 At maturity Fixed 0.625 % ...............................EUR 300 million Green * ........................... 2022 2024At maturity Fixed 4.875% ................................- 44,552 ARION 24 1020 Green (ISK 6,020m) ........ 2022 2024At maturity Floating REIBOR 3M +0.70% ........- 6,105 EUR 300 million Green * ........................... 2021 2025 At maturity Fixed 0.375% ...............................NOK 550 million ........................................ 2022 2025At maturity Floating OIBOR 3M +2.35% ..........6,783 7,417 SEK 230 million ........................................ 2022 2025At maturity Floating STIBOR 3M +2.35% ........2,906 3,128 NOK 200 million ........................................ 2023 2025 At maturity Floating OIBOR 3M +2.55% ..........ARION 26 1222 Green (ISK 5,760m) ........ 2021 2026At maturity Fixed 4.70% ..................................5,411 5,405 SEK 300 million ........................................ 2023 2026 At maturity Floating STIBOR 3M +3.00% ........EUR 300 million* ....................................... 2023 2026 At maturity Fixed 7.25% ..................................NOK 250 million ........................................ 2017 2027 At maturity Fixed 3.40% .................................USD 21 million* ......................................... 2024 2027 At maturity Fixed 6.25% ..................................SEK 500 million Green .............................. 2024 2027 At maturity Floating STIBOR 3M +1.20% ........NOK 500 million Green ............................ 2024 2027 At maturity Floating OIBOR 3M +1.20% ..........ARION 28 1512, ISK 12,060 million .......... 2023 2028 At maturity Fixed CPI linked 4.35% .................EUR 300 million * ...................................... 2024 2028 At maturity Fixed 4.625% ................................Senior unsecured bonds ..........................................................................................................................................184,786 187,388 Borrowings ...............................................................................................................................................................433,178 420,460
First call 2024 2023Currency, original nominal value Issued Maturity date Terms of interestNOK 300 million ........................................ 2019 2029 9 Jul '24 Floating NIBOR +3.65% ................SEK 225 million ........................................ 2019 2029 20 Dec '24 Floating 3 mth STIBOR +3.70% ....ARION T2I 30 ISK 4,800 million ................ 2019 2030 4 Jan '25 Fixed CPI linked 3.875% ...............ARION T2 30 ISK 880 million .................... 2019 2030 4 Jan '25 Fixed 6.75% ..................................EUR 5 million ............................................ 2019 2031 6 Mar '26 Fixed 3.24% .................................ARION T2I ISK 33 9,860 million ................ 2022 2033 15 Dec '28 Fixed CPI linked 4.95% ................ARION T2 33 ISK 2,240 million ................. 2022 2033 15 Dec '28 Fixed 9.25% .................................SEK 225 million ........................................ 2024 2034 20 Nov '29 Floating 3 mth STIBOR +2.65% ....Tier 2 subordinated liabilities ..................................................................................................................................24,534 28,062 ARION AT1 USD 100 million * .................. 2020 Perpetual 26 Aug '25 Fixed 6.25% ..................................ARION AT1 USD 125 million * .................. 2024 Perpetual 24 Mar '30 Fixed 8.125% ................................Additional Tier 1 subordinated liabilities ...............................................................................................................20,004 13,217 Subordinated liabilities ............................................................................................................................................44,538 41,279
Additional Tier 1 and Tier 2 subordinated liabilities are eligible as regulatory capital under the Icelandic Financial Undertakings Act No.
161/2002.
49
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
35. Liabilities arising from financial activities
The Group has pledged assets against due to credit institutions and borrowings, both issued covered bonds and other issued bonds and
loan agreements undir Icelandic law. Pledged loans comprised mortgage loans to individuals. The book value of those liabilities were ISK
248 billion at year end (31.12.2023: ISK 233 billion).
The Group has issued covered bonds amounting to ISK 78 billion that can be used for repo borrowings at the Central Bank of Iceland, the
European Central Bank or sold if market conditions are favorable (31.12.2023: ISK 58 billion). Pledged assets against those covered bonds
are ISK 90 billion (31.12.2023: ISK 70 billion).
The Group has pledged bonds against short term lending from the Central Bank of Iceland and against short positions, related to swap
agreements, to hedge market risk of those assets to ensure the clearing of the Icelandic payment system. Moreover, it has pledged cash in
foreign banks and financial institutions, mainly as collateral for trades under ISDA agreements to hedge market risk.
36. Pledged assets2024 2023Pledged assets against liabilitiesAssets, pledged as collateral against borrowings .......................................................................................................398,505 380,860 Assets pledged as a collateral against loans from banks and other financial liabilities ................................................7,452 10,582 Pledged assets against liabilities ............................................................................................................................405,957 391,442 Thereof pledged assets against issued covered bonds held by the Bank ...................................................................(105,265) (86,682)Assets against repoed issued bonds ..........................................................................................................................15,429 16,585 Pledged assets against liabilities on balance .........................................................................................................316,121 321,345
NetNon-cash changescash Interest Foreign Effect2024 At 1 Jan. flows expenses exchange from hedgeAt 31 Dec.Covered bonds in ISK - CPI linked...................................................132,391 10,580 10,994 - - 153,965 Covered bonds in ISK......................................................................31,344 (7,455) 1,763 - - 25,652 Covered bonds in FX.......................................................................69,337 (4,660) 3,125 2,971 (1,998) 68,775 Senior unsecured bonds in FX.........................................................167,106 (15,407) 10,295 7,864 (3,063) 166,795 Senior unsecured bonds in ISK........................................................11,510 (6,905) 806 - - 5,411 Senior unsecured bonds in ISK - CPI linked.....................................8,772 2,877 931 - - 12,580 Subordinated bond T2 in ISK - CPI linked........................................16,997 (795) 1,600 - - 17,802 Subordinated bond T2 ISK...............................................................3,157 (267) 264 - - 3,154 Subordinated bond T2 FX................................................................7,908 (5,099) 430 339 - 3,578 Subordinated bond AT1 FX..............................................................13,217 5,265 1,749 (421) 194 20,004 Liabilities arising from financial activities...................................461,739 (21,866) 31,957 10,753 (4,867) 477,716 2023Covered bonds in ISK - CPI linked...................................................113,833 5,849 12,709 - - 132,391 Covered bonds in ISK......................................................................32,794 (3,689) 2,239 - - 31,344 Covered bonds in FX.......................................................................66,231 (5,475) 5,681 (368) 3,268 69,337 Senior unsecured bonds in FX.........................................................168,261 (9,597) 5,858 (2,082) 4,666 167,106 Senior unsecured bonds in ISK........................................................11,444 (778) 844 - - 11,510 Senior unsecured bonds in ISK - CPI linked.....................................- 8,740 32 - - 8,772 Subordinated bond T2 in ISK - CPI linked........................................15,735 (750) 2,012 - - 16,997 Subordinated bond T2 ISK...............................................................3,156 (266) 267 - - 3,157 Subordinated bond T2 FX................................................................15,044 (7,527) 937 (565) 19 7,908 Subordinated bond AT1 FX..............................................................13,396 (1,598) 1,437 (395) 377 13,217 Liabilities arising from financial activities...................................439,894 (15,091) 32,016 (3,410) 8,330 461,739
50
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
37. Equity
Share capital and share premium
Own shares / issued share capital ............. 6.65% 0.95%
Share options
In accordance with the Bank's dividend policy Arion Bank has in place a regular buyback program. In 2024 the FSA authorized the Bank to
initiate share buy-back programs in Iceland and Sweden amounting up to a total of 94.2 million shares or up to ISK 12.5 billion, of which
38.5 million shares or up to ISK 5.0 billion were subject to conditions that it could only be used to buy back shares resulting from a share
issuance due to exercise of outstanding warrants in August 2024. The program ended in September 2024. In 2022 the FSA authorized a
buyback program amounting up to a total of 57.3 million shares or up to ISK 10 billion. The program ended in June 2023.
In 2024 the nominal value of Arion Bank's share capital was increased by ISK 53,198,719 in order to cover the exercising of issued
warrants. Corresponding increase was made in December 2023, amounting to ISK 224,359. Arion Bank's share capital thus increased from
ISK 1,460 million to ISK 1,513 million in 2024. At the AGM 2023 a motion was passed to reduce the Bank’s share capital by ISK 50 million.
The reduction was effective 25 April 2023.
Arion Bank has in place a share option plan for all employees of the Bank, Vördur and Stefnir, approved at the Banks annual general
meeting, under which employees may be granted options to purchase ordinary shares. The annual maximum purchase price for each
employee is ISK 1.5 million, in line with Article 10 of the Income Tax Act no. 90/2003, at an exercise price determined by the Bank’s
average share price 10 days prior to issue date. The employee must remain continuously employed with Arion Bank until the expiring date.
The options carry neither rights to dividends nor voting rights and are valued using the Black-Scholes pricing model.
Share Own Share Total Share Own Share Totalcapital shares premium 2024 capital shares premium 2023Balance at the beginning of the year ......... 1,460 (14) 9,188 10,634 1,510 (45) 11,907 13,372 Issued new share capital ........................... 53 - 6,187 6,240 - - 27 27 Share capital reduction ............................. - - - - (50) 50 - - Purchase of treasury shares ..................... - (90) (12,362) (12,452) - (22) (3,238) (3,260)Share option vested ...................................- 2 280 282 - 2 295 297 Incentive scheme ......................................- 1 165 166 - 1 194 195 Warrants excercised ................................. - - 816 816 - - 3 3 Balance at the end of the year ................ 1,513 (101) 4,273 5,686 1,460 (14) 9,187 10,634
According to the Bank's Articles of Association, total share capital amounts to ISK 1,513 million, with par value of ISK 1 per share. The
holders of ordinary shares are entitled to receive dividends as approved by the AGM and are entitled to one vote per share at shareholders'
meetings.
The following share option contracts are in existence at year end.Number Exerciseof shares Exercise price(in ths.) year (ISK)Issued in 2021 (ISK 600,000) - employees of Arion Bank ........................................................................5,190 2025-2026 95.50 Issued in 2023 (ISK 900,000) - employees of Arion Bank ........................................................................5,175 2025-2026 153.75 Issued in 2023 (ISK 1,500,000) - employees of Arion Bank .....................................................................3,493 2025-2026 153.75 Issued in 2024 (ISK 1,500,000) - employees of Arion Bank .....................................................................1,618 2025-2026 155.75 Issued in 2023 (ISK 1,500,000) - employees of subsidiaries ....................................................................1,306 2025-2026 140.56 Issued in 2024 (ISK 1,500,000) - employees of subsidiaries ....................................................................335 2025-2026 143.36 17,116
51
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
37. Equity, continued
Warrants
Movements in share options during the year.20242023Weighted WeightedNumberaverageNumberaverageof sharescontractof sharescontract(in ths.) rate (in ths.) rateOutstanding at the beginning of the year ..............................................................................24,435 136.3 30,882 143.2 Share options granted ..........................................................................................................1,953 153.6 16,349 153.8 Share options forfeited ..........................................................................................................(6,766) 148.2 (20,152) 168.2 Share options exercised, WAVG share price ISK 154.3 at exercise date (2023: 151.79) ......(2,506) 96.7 (2,644) 95.5 Outstanding share options at the end of the year ............................................................17,116 135.1 24,435 136.2
To meet the Bank's obligations on the basis of the share option plan, the Bank will issue new share capital or deliver treasury shares. Arion
Bank has no legal or constructive obligation to repurchase or settle the options in cash.
The warrants reserve represents the consideration received for outstanding warrants. Arion Bank issued 54 million warrants on 9 March
2021. The purchase price of the warrants amounted to ISK 15.6 per warrant, resulting in a total sale price of ISK 842.4 million. The warrant
issuing represented approximately 3% of the Bank's total share capital and the Bank was obliged to issue new shares when the warrants
were exercised. Approximately 48.5% of the total issue was sold to around 150 employees of the Group and 51.5% to professional
investors. The exercise period ran from Q4 2023 to Q3 2024. Arion Bank received notification of the exercising of warrants relating to a total
of 51,087,696 new shares, amounting to ISK 6 billion, during the final exercise period which concluded on 24 August 2024. There are no
outstanding warrants at the end of the year 2024.
No share options are exercisable at year end. Next exercise periods are in February 2025 and May 2025.
All outstanding share options, if exercised, represent approximately 1.1% of the total issued shares.
52
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
Other information
38. Shareholders of Arion Bank
Number
of shares
39. Legal matters
Contingent liabilities
Legal proceedings regarding damages
The Group has formal controls and policies in place for managing legal claims. Once professional advice has been obtained and the
likelihood and amount of loss reasonably estimated, the Group makes adjustments, if appropriate, to account for any adverse effects the
claims may have on its financial standing. Should the Group conclude that it is to the detriment of the Group's case to disclose such
potential amounts, relating to the legal claims raised, it elects not to do so. At the end of the period, the Group had several unresolved legal
claims.
At the end of the year the Group's employees held a shareholding of 1.15% in Arion Bank (31.12.2023: 0.83%). The Board of Directors and
key management personnel shareholding is as follows:
In a lawsuit brought in June 2013, Kortaþjónustan hf. claimed damages from Arion Bank hf., Íslandsbanki hf., Landsbankinn hf., Borgun hf.
and Valitor hf. in the amount of ISK 1.2 billion plus interest. The lawsuit is a result of damage Kortaþjónustan hf. contended the five parties
caused the company due to violations of the Competition Act. In June 2017 the Supreme Court dismissed the case on procedural grounds.
Since then, Kortaþjónustan hf. and subsequently its largest shareholder EC-Clear have tried to initiate five lawsuits against the same
defendants which have all been dismissed, the last one in March 2021. In September 2021 EC-Clear has once again brought the same
matter of dispute, claiming damages in the amount of ISK 922 million plus interest, against the same defendants. In September 2022 the
District Court dismissed the claims. EC-Clear appealed the dismissal but with a ruling in January 2023 the Court of Appeal rejected the
District Court’s ruling and ruled that the case should be heard on its merits by the District Court. Should the defendants be found liable for
damages, they would be jointly responsible. Therefore, the Bank has not made any provision.
* Key management personnel are defined in Note 43.
2024 2023Gildi lífeyrissjódur .......................................................................................................................................................9.17% 9.85% Lífeyrissjódur verzlunarmanna ....................................................................................................................................9.06% 9.62% Lífeyrissjódur starfsmanna ríkisins .............................................................................................................................8.79% 9.02% Arion banki hf. ............................................................................................................................................................6.65% 0.95% Brú lífeyrissjódur ........................................................................................................................................................5.31% 5.38% Stodir hf. ....................................................................................................................................................................5.29% 4.34% Frjálsi lífeyrissjódurinn ................................................................................................................................................3.60% 3.91% Vanguard ...................................................................................................................................................................3.59% 3.55% Birta lífeyrissjódur .......................................................................................................................................................3.15% 3.58% Stapi lífeyrissjódur ......................................................................................................................................................3.02% 2.85% Hvalur hf. ...................................................................................................................................................................2.43% 2.24% Festa lífeyrissjódur .....................................................................................................................................................2.25% 2.52% Stefnir funds ...............................................................................................................................................................2.08% 2.38% Almenni lífeyrissjódur .................................................................................................................................................1.63% 2.30% Íslandsbanki hf. ..........................................................................................................................................................1.52% 1.23% Lífsverk Pension fund .................................................................................................................................................1.51% 1.52% Íslandssjódir ...............................................................................................................................................................1.01% 0.00% Landsbréf hf. ..............................................................................................................................................................0.94% 1.09% Landsbankinn hf. ........................................................................................................................................................0.92% 1.06% Sjóvá tryggingar .........................................................................................................................................................0.46% 1.66% Other shareholders with less than 1% shareholding ...................................................................................................27.62% 30.94% 100.0% 100.0%
20242023Number Warrants / Optionsof shares optionsSteinunn K. Thórdardóttir, Director .......................................................................................- 12,000 - 12,000 Alternate directors of the Board ............................................................................................- 32,000 - - Benedikt Gíslason, CEO .......................................................................................................24,273 3,133,450 997,947 2,561,783 Key management personnel* ................................................................................................189,171 3,138,856 4,038,815 971,648
53
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
39. Legal matters, continued
Consumer Association‘s class-action lawsuit
Other legal proceedings
Legal matters concluded
On-site inspection by the Central Bank
TravelCo Nordic
40. Events after the reporting period
The Financial Supervisory Authority of the Central Bank of Iceland (the “FSA”) did an on-site inspection at the Bank in 2022 into AML/CTF
procedures. Following the inspection, the FSA identified and reported deficiencies in the Bank's compliance with the relevant AML Act and
regulations. In August 2023, following receipt of FSA´s final report, the Bank requested that the matter be concluded by way of settlement.
The matter has been concluded with the FSA by means of settlement where the Bank agreed to paying a fine of ISK 585 million.
The estate of TravelCo Nordic filed a case against TravelCo hf. and the Bank in Denmark claiming payment in solidum in the amount of
DKK 58.1 million plus interest. The bankruptcy estate alleged that the Bank, as owner of Heimsferdir ehf. and Terra Nova Sól ehf., contrived
the sale of the companies to its subsidiary, Sólbjarg ehf., without real payment. The transaction the bankruptcy estate was referring to is in
fact the legal and lawful enforcement of security (i.e. share pledges) by the Bank over the shares in Heimsferdir hf. and Terra Nova Sól ehf.
following a default on a facilities agreement to TravelCo hf. as borrower. Following the enforcement, the Bank moved the companies to its
holding company, Sólbjarg ehf., and the Bank remained the beneficial owner of the companies. With a judgement in April 2024 the Bank
was acquitted of the estate’s claim.
As a follow up after receiving the letter Arion Bank undertook a review of its contractual terms and processes for interest rate decisions
concluding that no changes were required and that the Association’s arguments are unfounded. A response was sent to the Consumer
Association in September of 2020. According to information published on the Consumer Association’s website, all three banks rejected the
Association’s arguments.
No event has arisen after the reporting period and up to the approval of these Consolidated Financial Statements that require additional
disclosures.
Cases have also been filed against Landsbankinn and Íslandsbanki. In those cases, the District Court of Reykjavík approved to get an
advisory opinion of the EFTA court regarding interpretation of certain provisions of EU directives concerning the legitimacy of the
contractual terms on variable rate mortgages to individuals. In May of 2024, the EFTA court delivered an advisory opinion in forementioned
cases. In short, the opinion was unfavourable to Landsbankinn and Íslandsbanki and stated that clauses such as those at issue, on
changes of variable interest rate, must be regarded as unfair within the meaning of Article 3(1) of Directive 93/13/EEC. However, it would be
only for the national courts to conduct a fairness assessment deciding the binding effects on the terms in dispute. In November 2024, the
district court issued a verdict in the Íslandsbanki case, in which Íslandsbanki was acquitted of the consumer’s claims.
The Consumer Association of Iceland sent a letter to Arion Bank, Íslandsbanki and Landsbankinn in April of 2020 urging the banks to review
its contractual terms on variable rate mortgages to individuals. The letter called for revised terms and compensation to borrowers who,
according to the Association, have suffered damage. The Association’s argument is that the standard contractual terms lack proper legal
grounds, as the parameters for interest rate decisions lack transparency and predictability, thus causing a contractual imbalance to the
detriment of the consumer.
Since 2008 Arion Bank has formally been a party to proceedings in Luxembourg, commenced against the Luxembourg company R Capital
S.á r.l. and its beneficial owner, Mr. Umberto Ronsisvalle, for the collection of EUR 6 million plus interest. During this time, Kaupthing ehf.
has been the beneficial owner of the claim, with Arion Bank’s involvement limited to being the formal party to the proceedings while enjoying
indemnity from Kaupthing. The reason for the setup is a decision by the Icelandic Financial Supervisory Authority in 2009 during the split of
Kaupthing to the “new” and “old” bank. In 2019, a counterclaim was made against Arion Bank in the proceedings, for the net sum of EUR 24
million plus interest, with the Bank continuing to enjoy full indemnity from Kaupthing. In September 2021, Kaupthing and Arion Bank agreed
that all rights and liabilities in the Luxembourg proceedings would be transferred to Arion Bank. The Bank is still held harmless for any
liabilities associated with the claims and has therefore not made any provision.
In May 2021, the Consumer Association published an article on its website calling for participants in a class action lawsuit. The intention is
to commence court proceedings against the Icelandic banks to provide court precedent for loans with variable rates. Arion Bank has
received requests for information from a legal firm representing approximately 1,200 individuals. One case was filed against the Bank and
with a judgement of the District Court of Reykjavík on 7 February 2023, the Bank was acquitted. The plaintiffs have appealed the judgement
to the Court of Appeal and a hearing was held in January of 2025.
Following the EFTA court opinion, the Bank requested an independent opinion on its legal position. The Bank still considers its legal position
in the case to be strong. It is the Bank´s opinion that the clauses on variable interest rate in the Bank´s contracts as well as the clause in
the court case of the Bank, varies from the clauses at dispute in the cases of Landsbankinn and Íslandsbanki.
The Bank has however made a preliminary assessment of potential impact of an adverse ruling in Icelandic courts on the Bank´s loan
portfolio, considering different scenarios, that leads to the approximate amount of ISK 15-19 billion. The preliminary assessment does not
include an assessment of the impact on the Bank´s interest rate risk should an adverse final court ruling be that the initial contractual
interest rates be applied throughout the duration of the respective loans.
Considering the above-mentioned District Court’s judgements, an outside opinion commissioned by the Bank on its legal position and the
unknown precedential effect of an eventual judgement by the Court of Appeal and the Supreme Court, the Bank has not made any
provision.
54
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
Off balance sheet information
41. Commitments
42. Assets under management and under custody
Related party
43. Related party
Shareholders with significant influence are shareholders that have the power to participate in the finanical and operating decisions of Arion
Bank but do not control those policies. At the end of the year no shareholder was defined as related party with an influence over the Group
(31.12.2023: none).
Transactions with related parties have been conducted on an arm's length basis. There have been no further guarantees provided or
received for related party receivables or payables.
For information on the Group's associated companies, see Note 27.
Arion Bank defines related party as shareholders with significant influence over the Group, the key management personnel and the Group's
associated companies.
Assets under management represent the total market value of the financial assets which the Group manages on behalf of its customers.
The Group, acting as custodian, is responsible for safeguarding a firm's or individual's financial assets, hold in safekeeping securities such
as stocks, bonds and securities funds, arrange the settlement of trades and movements of securities, process corporate actions such as
income on bonds and dividends on shares; and pricing on securities.
2024 2023Assets under management .........................................................................................................................................1,632,701 1,383,134 Assets under custody .................................................................................................................................................1,699,260 1,233,011
The key management personnel includes the Board of Directors, the Executive Committee of Arion Bank and heads of other internal
control functions, as well as their close family members and legal entities controlled by them. The Executive Committee consists of the
CEO, Managing Directors of Retail banking, CIB, Markets, Finance, Risk, IT and Operations & culture. For compensation, pension and
other transactions with the Board of Directors and the Executive Committee, see Notes 13 and 38.
Key managementAssociatedpersonnelcompanies2024 2023 2024 2023Loans ...................................................................................................................................229 249 340 348 Other assets .........................................................................................................................3 2 - - Total assets .........................................................................................................................232 251 340 348 Deposits ...............................................................................................................................(1,385) (780) (157) (91)Other liabilities ......................................................................................................................- - (28) (37)Total liabilities ....................................................................................................................(1,385) (780) (186) (128)Interest income .....................................................................................................................19 15 39 16 Interest expenses .................................................................................................................(49) (53) (6) (2)Commission income .............................................................................................................14 10 - 4 Commission expenses ..........................................................................................................- - (74) (105)Other income ........................................................................................................................11 9 - - Other expenses ....................................................................................................................(2) - (1,361) (1,311)Net expenses ......................................................................................................................(7) (19) (1,402) (1,398)
2024 2023Financial guarantees, unused credit facilities and undrawn loan commitmentsFinancial guarantees ..................................................................................................................................................21,804 21,763 Unused overdrafts ......................................................................................................................................................74,270 61,951 Undrawn loan commitments .......................................................................................................................................67,658 69,188 Financial guarantees, unused credit facilities and undrawn loan commitments .................................................163,732 152,902
55
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Risk management disclosures
Further information on risk management and capital adequacy is provided in the Annual Financial Statements for 2024, in the Pillar 3 Risk
Disclosures for 2024 and in the quarterly Additional Pillar 3 Risk Disclosures. These documents are available on the Bank's website,
www.arionbank.com.
Notes to the Consolidated Financial Statements
The Board of Directors is ultimately responsible for the Bank's risk management framework and for ensuring that satisfactory risk policies
and governance are in place. Each subsidiary is responsible for its own risk management framework but adheres to the Bank's ownership
policies which outline the Group's internal control policy, risk appetite and reporting mechanisms. The Board sets the risk appetite for the
Bank, and in some cases the Group, which is translated into exposure limits and targets monitored by the Bank's Risk Management
division.
The Chief Executive Officer (CEO) is responsible for sustaining an effective risk management framework, processes and controls as well as
maintaining a high level of risk awareness among employees, making risk everyone's business.
The Bank operates several committees to manage risk. The Board Risk Committee (BRIC) is responsible for supervising the Bank's risk
management framework, risk appetite and the internal capital and liquidity adequacy assessment processes (ICAAP/ILAAP). The Board
Credit Committee (BCC) approves certain proposals for credit origination, debt cancellation, underwriting and investments, while the Board
of Directors is the supreme authority for cases which entail deviations from risk appetite or strategy. On the management level the CEO has
established six primary risk committees. The Asset and Liability Committee (ALCO) is responsible for managing asset-liability mismatches,
liquidity and funding risk, market risk, capital adequacy, and decides on underwriting and investment exposures. The Operational Risk
Committee (ORCO) is responsible for managing operational risk, which includes information security, financial crime, regulatory compliance
and data management. The Arion Credit Committee (ACC) administers the Bank's credit rules and decides on the origination of credit while
the Arion Composition and Debt Cancellation Committee (ADC) is the principal authority for debt cancellation, debt restructuring and
composition agreements. ACC and ADC operate within limits set by the BCC. The Sustainability Committee ensures that the Bank's
strategy and decision-making are aligned with the Bank's commitments in relation to the environmental, social and governance (ESG)
agenda. The committee oversees the Bank's Green Financing Framework. Finally, the Executive Risk Committee (ERCO), chaired by the
CRO, oversees the implementation of risk policies, ensures that the Bank's limit framework adheres to the risk appetite, reviews the Bank's
ICAAP, ILAAP and stress testing, and approves economic scenarios, credit models and specific provisions under IFRS9. The Executive
Committee is concerned with business and strategic risk.
The Bank's Internal Audit conducts independent reviews of the Bank's and several subsidiaries' operations, risk management framework,
processes and measurements. Internal Audit discusses its results with management and reports its findings and recommendations to the
Board Audit Committee (BAC) and to the Board of Directors.
The Bank’s Risk Management division is headed by the Chief Risk Officer. It is independent and centralized and reports directly to the
CEO. Risk Management is divided into four units. Balance Sheet Risk and Models is responsible for the quantification of risk on a portfolio
level, including risk modelling and reporting; Operational and Sustainability Risk facilitates and monitors the management of risk and
controls in the first line and supports the Bank's quantification and management of sustainability risk; and Credit Risk supports the Bank's
credit transaction process, participates in credit decisions and monitors credit quality. The Security Team maintains and monitors the
effectiveness of the Bank’s defences against risks associated with IT security, physical security and external cyber fraud.
Arion Bank is a small bank in international context but classified as systemically important in Iceland. The Group operates in a small
economy which is subject to sectoral concentration, fluctuations in capital flows, and exchange rate volatility. Among the Group’s most
significant risks are credit risk, concentration risk, liquidity risk, interest rate risk, cyber risk, third party risk, business risk and reputational
risk. These risk factors are to the largest extent encountered within the parent company. Through the Bank's subsidiaries, the Group bears
risk arising from insurance activities and fund management.
Risk management is a core activity within the Group as it faces various risks arising from its day to day operations. The key to effective risk
management is a process of on-going identification of significant risks, quantification of risk exposures, actions to limit risk and regular
monitoring. This process, and the ability to evaluate, manage and correctly price the risk encountered is critical to the Group's continuing
profitability, and ensures that risk exposures remain within acceptable levels.
The Bank's Compliance function is headed by the Compliance Officer. It is independent and centralized and the Compliance Officer reports
directly to the CEO. The Compliance function manages the Bank's conduct and compliance risk, including risk relating to data protection
and financial crime.
56
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk
Exposure to credit risk
The value of collateral is based on estimated market value. The valuation of real estate is based on market price, valuation model, or the
opinion of internal or external specialists. The valuation of fishing vessels takes into account related fishing quotas. The quality of collateral
is evaluated in the lending process with regards to specialization, location, age and condition and possibilities for reuse.
Collateral value is monitored and action is taken to remedy insufficient collateral coverage where the underlying agreement provides for
such remedies. Collateral value is reviewed to ensure the adequacy of the allowance for impairment losses. Collateral values shown are
capped by the related book value amount.
- Other collateral: Fixed and current assets including vehicles, equipment, inventory and trade receivables
- Vessels: Ships with assigned fishing quota and other vessels
Credit risk is managed and controlled by setting limits on the amount of risk the Group is willing to accept for individual counterparties,
group of connected clients, industries, geographies and loan types, and by monitoring exposures in relation to such limits. The Group seeks
to limit its total credit risk through diversification of the loan portfolio across sectors and by limiting large exposures to groups of connected
clients.
Credit risk arises when the Group commits its funds, resulting in capital or earnings being dependent on counterparty, issuer or borrower
performance. Loans to customers are the largest source of credit risk. Credit risk is also inherent in other types of assets, such as loans to
credit institutions, bonds, derivatives and off-balance sheet items such as commitments and guarantees.
Managing and analyzing the Group's loan portfolio is of utmost importance. Great emphasis is placed on the quality of the credit portfolio,
by maintaining a strict credit process, by critically inspecting loan applications, by actively monitoring the credit portfolio and by identifying
and reacting to possible problem loans at an early stage as well as by restructuring impaired credits.
The Group grants credit based on well-informed lending decisions and seeks to build business relationships with customers that have good
repayment capacity and are backed by strong collateral. The risk level of each credit is considered in the pricing.
The following table shows the maximum exposure to credit risk for the components of the Statement of Financial Position before the effect
of mitigation due to collateral agreements or other credit enhancements. The table also shows related collateral and credit enhancements.
The amount and type of collateral required depends on an assessment of the credit risk of the counterparty and the exposure type. The
main types of collateral obtained are as follows:
- Real estate: Residential property, commercial real estate and land
- Cash and securities: Cash, treasury notes and bills, asset backed bonds, listed equity, and funds that consist of eligible securities
Credit risk is the risk that the Group will incur a loss because its customers or counterparties fail to discharge their contractual obligations.
57
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk, continued
Maximum exposure to credit risk and collateral held against different types of financial instruments subject to the impairment requirementsof IFRS 9CollateralMaximum Cash and Real Other Total 2024exposure securities estate Vessels collateral collateralCash and balances with Central Bank ...........................................124,094 - - - - - Loans to credit institutions at amortized cost ................................25,690 - - - - - Loans to customers at amortized cost ..........................................1,228,745 12,589 931,451 63,466 117,745 1,125,251 Individuals .................................................................................639,404 526 584,014 23 20,342 604,905 Mortgages ..........................................................................................570,842 404 569,959 - - 570,363 Other ..................................................................................................68,562 122 14,055 23 20,342 34,542 Corporates ................................................................................589,341 12,063 347,437 63,443 97,403 520,346 Real estate activities .........................................................................117,929 1,610 113,229 - 1,582 116,421 Construction ......................................................................................84,419 198 74,662 17 4,104 78,981 Fishing industry .................................................................................87,696 1,124 17,612 60,155 6,838 85,729 Commerce and services ....................................................................74,814 899 28,035 1,235 31,004 61,173 Accommodation and food service activities ......................................47,755 14 42,570 - 4,173 46,757 Financial and insurance activities ......................................................52,600 7,435 16,455 - 16,220 40,110 Industry, energy and manufacturing ..................................................61,481 750 38,534 - 17,607 56,891 Transportation ...................................................................................10,249 4 1,189 2,031 6,636 9,860 Information and communication technology ......................................30,633 16 1,437 - 8,534 9,987 Public sector ......................................................................................9,509 13 2,224 5 187 2,429 Agriculture and forestry .....................................................................12,256 - 11,490 - 518 12,008 Other assets with credit risk ..........................................................8,476 - - - - - Financial guarantees ....................................................................21,804 2,335 4,212 280 4,688 11,515 Undrawn loan commitments and unused overdrafts ....................141,928 - - - - - Fair value through OCI .................................................................126,898 - - - - - Government bonds ....................................................................125,923 - - - - - Bonds issued by financial institutions and corporates ................975 - - - - - Balance at the end of the year ...................................................1,677,635 14,924 935,663 63,746 122,433 1,136,766 2023Cash and balances with Central Bank ...........................................102,095 - - - - - Loans to credit institutions at amortized cost ................................28,835 - - - - - Loans to customers at amortized cost ..........................................1,152,789 24,586 871,682 55,265 118,627 1,070,160 Individuals .................................................................................609,144 329 558,862 16 17,026 576,233 Mortgages ..........................................................................................549,371 15 548,962 - 33 549,010 Other ..................................................................................................59,773 314 9,900 16 16,993 27,223 Corporates ................................................................................543,645 24,257 312,820 55,249 101,601 493,927 Real estate activities .........................................................................114,101 2,027 108,604 28 1,621 112,280 Construction ......................................................................................77,728 433 72,143 30 3,177 75,783 Fishing industry .................................................................................82,772 972 14,085 53,137 11,188 79,382 Commerce and services ....................................................................66,143 213 23,447 1,223 32,549 57,432 Accommodation and food service activities ......................................46,368 14 38,150 - 4,775 42,939 Financial and insurance activities ......................................................41,517 19,732 6,701 - 13,914 40,347 Industry, energy and manufacturing ..................................................54,796 791 34,318 22 16,531 51,662 Transportation ...................................................................................8,460 - 1,254 803 4,026 6,083 Information and communication technology ......................................26,012 65 1,422 - 12,912 14,399 Public sector ......................................................................................14,212 10 2,235 6 202 2,453 Agriculture and forestry .....................................................................11,536 - 10,461 - 706 11,167 Other assets with credit risk ..........................................................12,188 - - - - - Financial guarantees ....................................................................21,763 2,973 4,644 292 6,216 14,125 Undrawn loan commitments and unused overdrafts ....................131,139 - - - - - Fair value through OCI .................................................................129,564 - - - - - Government bonds ....................................................................128,178 - - - - - Bonds issued by financial institutions and corporates ................1,386 - - - - - Balance at the end of the year ...................................................1,578,373 27,559 876,326 55,557 124,843 1,084,285
58
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk, continued
LTV ratio for residential mortgage lending
Collateral for financial assets in stage 3
Collateral repossessed
At the end of the year, the gross carrying amount of assets in stage 3 was ISK 28,568 million (31.12.2023: ISK 19,857 million) with ISK
25,856 million in collateral (31.12.2023: ISK 17,465 million), thereof ISK 24,587 million in real estate (31.12.2023: ISK 16,036 million).
The following table describes the loan to value (LTV) and impairment status of the Group's residential mortgage portfolio. LTV is calculated
as the ratio of the total exposure of individual borrowers to the value of the pledged real estate without adjusting for possible costs of
obtaining and selling the collateral. An exposure to a particular borrower appears in a single row in the table (whole-loan approach). The
residential real estate valuation model used gives an estimate of current value on a monthly basis. This model is used when the market
The following table gives an alternative representation of the loan to value profile of the mortgage portfolio. Here, each exposure is split into
pieces and each piece is placed into the appropriate LTV bucket. A single exposure can therefore be spread between several rows in the
table (loan-splitting approach).
The Group took possession of assets due to foreclosures. The total value of real estate the Group took possession of during the year and
still holds at the end of the year is ISK 79 million (31.12.2023: ISK 25 million). Assets aquired due to foreclosure are held for sale, see Note
30.
transaction value becomes older than 2 years.Thereof in Stage 32024 2023 2024 2023Less than 50% ....................................................................................................................233,652 205,543 2,647 2,215 50-60% ...............................................................................................................................113,874 105,773 1,531 888 60-70% ...............................................................................................................................96,331 100,722 1,185 1,374 70-80% ...............................................................................................................................75,063 75,783 1,269 1,166 80-90% ...............................................................................................................................48,341 57,165 344 339 90-100% .............................................................................................................................2,075 3,332 135 130 More than 100% ..................................................................................................................2,172 1,951 319 305 Not classified ......................................................................................................................17 - - - Gross carrying amount at the end of the year .................................................................571,525 550,269 7,430 6,417
Thereof in Stage 32024 2023 2024 2023Less than 55% ....................................................................................................................514,309 487,095 6,484 5,457 55-70% ...............................................................................................................................42,063 45,134 589 620 70-80% ...............................................................................................................................11,461 13,198 165 183 80-90% ...............................................................................................................................2,694 3,777 63 72 90-100% .............................................................................................................................434 642 27 41 More than 100% ..................................................................................................................560 423 102 44 Not classified ......................................................................................................................4 - - - Gross carrying amount at the end of the year .................................................................571,525 550,269 7,430 6,417
59
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk, continued
Large exposures
Credit quality
The Group had no large exposure at the end of the year (31.12.2023: no large exposure).
The Group uses internal credit ratings and external credit ratings, if available, to monitor credit risk. The Group's internal credit rating
system rates customers through application of statistical models based on a variety of information that has been determined to be
predictive of default. This includes demographic, behavioral, financial and economic data, coupled with qualitative expert judgment for large
corporate exposures. Six exposure type models rate individuals' exposures – mortgages, consumer loans, auto loans, guarantees, loans to
individuals for work purposes, and other loans. The models are validated annually and recalibrated and updated with current data with the
aim of maintaining their predictive power. Year-on-year changes in risk classification of loans may in part be due to model refinement.
External ratings are primarily used for marketable securities and loans to credit institutions. For further information on the rating scales
used, see Note 59.
The following tables show financial instruments subject to the impairment requirements of IFRS 9 broken down by rating scale, where risk
class 5, DD, represents exposures in default. Assets carried at fair value through profit and loss are not subject to the impairment
requirements of IFRS 9. The tables below sum up the gross carrying amount of assets by rating class and impairment stage. The gross
carrying amount net of loss allowance is the book value of the underlying assets. For off-balance sheet exposures, the nominal amount is
shown. FVOCI stands for fair value through other comprehensive income.
Exposures that are 'Unrated' are typically due to newly formed entities, entities for which the Bank's rating models are not applicable or no
external rating is available.
A large exposure is defined as an exposure to a group of financially related borrowers which is equal to or exceeds 10% of the Group's Tier
1 capital according to the Financial Undertakings Act No. 161/2002. The legal maximum for individual large exposures is 25% of Tier 1
capital, net of eligible credit risk mitigation.
60
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk, continued
FVOCI
Credit quality profile for financial instruments subject to IFRS 9 impairment requirementsFinancial Cash and Loans to instru-2024balances credit ments atwith CB institutionsLoans to credit institutions, securities and cashInvestment grade ...................................................................................................................................124,094 25,690 126,901 Non-investment grade ............................................................................................................................- - - Gross carrying amount ........................................................................................................................124,094 25,690 126,901 Loss allowance .......................................................................................................................................- - (3)Book value ............................................................................................................................................124,094 25,690 126,898 Loans to customersStage 1 Stage 2 Stage 3 POCI Total Risk class 0 - (Grades AAA to A-) ....................................................................436,790 93 - 52 436,935 Risk class 1 - (Grades BBB+ to BBB-) ............................................................323,053 1,783 - 155 324,991 Risk class 2 - (Grades BB+ to BB-) ..................................................................250,011 26,076 - 32 276,119 Risk class 3 to 4 - (Grades B+ to CCC-) ..........................................................108,985 62,430 - 24 171,439 Risk class 5 - (DD) ...........................................................................................- - 28,388 180 28,568 Unrated ............................................................................................................45 - - - 45 Gross carrying amount ..................................................................................1,118,884 90,382 28,388 443 1,238,097 Loss allowance ................................................................................................(2,282) (1,746) (5,323) (1) (9,352)Book value ......................................................................................................1,116,602 88,636 23,065 442 1,228,745 Loans to customers - IndividualsRisk class 0 - (Grades AAA to A-) ..............................................................337,617 93 - 52 337,762 Risk class 1 - (Grades BBB+ to BBB-) ......................................................215,576 215 - 155 215,946 Risk class 2 - (Grades BB+ to BB-) ............................................................41,708 17,943 - 32 59,683 Risk class 3 to 4 - (Grades B+ to CCC-) ....................................................9,477 9,305 - 24 18,806 Risk class 5 - (DD) .....................................................................................- - 9,514 180 9,694 Unrated ......................................................................................................7 - - - 7 Gross carrying amount ............................................................................604,385 27,556 9,514 443 641,898 Loss allowance ..........................................................................................(545) (410) (1,538) (1) (2,494)Book value ................................................................................................603,840 27,146 7,976 442 639,404 Loans to customers - Corporates and public sector entitiesRisk class 0 - (Grades AAA to A-) ..............................................................99,173 - - - 99,173 Risk class 1 - (Grades BBB+ to BBB-) ......................................................107,477 1,568 - - 109,045 Risk class 2 - (Grades BB+ to BB-) ............................................................208,303 8,133 - - 216,436 Risk class 3 to 4 - (Grades B+ to CCC-) ....................................................99,508 53,125 - - 152,633 Risk class 5 - (DD) .....................................................................................- - 18,874 - 18,874 Gross carrying amount ............................................................................514,499 62,826 18,874 - 596,199 Loss allowance ..........................................................................................(1,737) (1,336) (3,785) - (6,858)Book value ................................................................................................512,762 61,490 15,089 - 589,341 Loan commitments, guarantees and unused credit facilitiesRisk class 0 to 1 (Grades AAA to BBB-) ..........................................................82,245 5 - - 82,250 Risk class 2 to 4 (Grades BB+ to CCC-) .........................................................71,991 5,370 544 - 77,905 Unrated ............................................................................................................3,577 - - - 3,577 Nominal ..........................................................................................................157,813 5,375 544 - 163,732 Loss allowance ................................................................................................(399) (112) - - (511)Nominal less loss allowance .........................................................................157,414 5,263 544 - 163,221
61
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk, continued
Financial Cash and Loans to instru-2023balances credit ments atwith CB institutions FVOCILoans to credit institutions, securities and cashInvestment grade ...................................................................................................................................102,095 28,835 129,567 Non-investment grade ............................................................................................................................- - - Gross carrying amount ........................................................................................................................102,095 28,835 129,567 Loss allowance .......................................................................................................................................- - (3)Book value ............................................................................................................................................102,095 28,835 129,564 Loans to customersStage 1 Stage 2 Stage 3 POCI Total Risk class 0 - (Grades AAA to A-) ....................................................................407,636 4,102 - 6 411,744 Risk class 1 - (Grades BBB+ to BBB-) ............................................................321,459 997 - 162 322,618 Risk class 2 - (Grades BB+ to BB-) ..................................................................229,165 27,870 - 23 257,058 Risk class 3 to 4 - (Grades B+ to CCC-) ..........................................................90,096 59,724 - 5 149,825 Risk class 5 - (DD) ...........................................................................................- - 19,610 247 19,857 Unrated ............................................................................................................238 - - - 238 Gross carrying amount ..................................................................................1,048,594 92,693 19,610 443 1,161,340 Loss allowance ................................................................................................(2,348) (2,091) (4,020) (92) (8,551)Book value ......................................................................................................1,046,246 90,602 15,590 351 1,152,789 Loans to customers - IndividualsRisk class 0 - (Grades AAA to A-) ..............................................................310,023 373 - 6 310,402 Risk class 1 - (Grades BBB+ to BBB-) ......................................................208,557 689 - 162 209,408 Risk class 2 - (Grades BB+ to BB-) ............................................................42,480 19,203 - 23 61,706 Risk class 3 to 4 - (Grades B+ to CCC-) ....................................................10,777 10,835 - 5 21,617 Risk class 5 - (DD) .....................................................................................- - 8,320 156 8,476 Unrated ......................................................................................................8 - - - 8 Gross carrying amount ............................................................................571,845 31,100 8,320 352 611,617 Loss allowance ..........................................................................................(559) (532) (1,381) (1) (2,473)Book value ................................................................................................571,286 30,568 6,939 351 609,144 Loans to customers - Corporates and public sector entitiesRisk class 0 - (Grades AAA to A-) ..............................................................97,613 3,729 - - 101,342 Risk class 1 - (Grades BBB+ to BBB-) ......................................................112,902 308 - - 113,210 Risk class 2 - (Grades BB+ to BB-) ............................................................186,685 8,667 - - 195,352 Risk class 3 to 4 - (Grades B+ to CCC-) ....................................................79,319 48,889 - - 128,208 Risk class 5 - (DD) .....................................................................................- - 11,290 91 11,381 Unrated ......................................................................................................230 - - - 230 Gross carrying amount ............................................................................476,749 61,593 11,290 91 549,723 Loss allowance ..........................................................................................(1,789) (1,559) (2,639) (91) (6,078)Book value ................................................................................................474,960 60,034 8,651 - 543,645 Loan commitments, guarantees and unused credit facilitiesRisk class 0 to 1 - (Grades AAA to BBB-) ........................................................91,232 30 - - 91,262 Risk class 2 to 4 - (Grades BB+ to CCC-) .......................................................51,795 4,660 292 - 56,747 Unrated ............................................................................................................4,893 - - - 4,893 Nominal ..........................................................................................................147,920 4,690 292 - 152,902 Loss allowance ................................................................................................(236) (125) (2) - (363)Nominal less loss allowance .........................................................................147,684 4,565 290 - 152,539
62
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk, continued
Sector split, gross carrying value and loss allowance for financial instruments subject to IFRS 9 impairment requirementsStage 1Stage 2Stage 3Gross Gross Gross Carrying Loss Carrying Loss Carrying Loss Book2024amount allowance amount allowance amount allowance valueLoans to credit instit., securities & cash .....................276,685 (3) - - - - 276,682 Loans to individuals ...................................................604,385 (545) 27,819 (410) 9,694 (1,539) 639,404 Mortgages ..............................................................540,494 (162) 23,600 (229) 7,431 (292) 570,842 Other .....................................................................63,891 (383) 4,219 (181) 2,263 (1,247) 68,562 Loans to corporates and public sector entities ...........514,499 (1,737) 62,826 (1,336) 18,874 (3,785) 589,341 Real estate activities ..............................................107,012 (239) 8,418 (62) 3,667 (867) 117,929 Construction ..........................................................70,037 (342) 7,317 (93) 8,588 (1,088) 84,419 Fishing industry ......................................................79,542 (66) 6,992 (135) 2,427 (1,064) 87,696 Commerce and services ........................................66,003 (279) 7,923 (160) 1,694 (367) 74,814 Accommodation and food service activities ............34,515 (107) 12,408 (417) 1,544 (188) 47,755 Financial and insurance activities ...........................41,791 (272) 11,235 (155) 1 - 52,600 Industry, energy and manufacturing .......................60,593 (101) 631 (48) 517 (111) 61,481 Transportation ........................................................6,119 (13) 4,207 (79) 23 (8) 10,249 Information and communication technology ...........28,960 (259) 1,981 (147) 162 (64) 30,633 Public Sector .........................................................9,145 (27) 344 (4) 51 - 9,509 Agriculture and forestry ..........................................10,782 (32) 1,370 (36) 200 (28) 12,256 Balance at the end of the year ................................1,395,569 (2,285) 90,645 (1,746) 28,568 (5,324) 1,505,427 2023Loans to credit instit., securities & cash .....................260,497 (3) - - - - 260,494 Loans to individuals ...................................................571,845 (559) 31,296 (532) 8,476 (1,382) 609,144 Mortgages ..............................................................516,885 (233) 26,967 (351) 6,417 (314) 549,371 Other .....................................................................54,960 (326) 4,329 (181) 2,059 (1,068) 59,773 Loans to corporates and public sector entities ...........476,749 (1,789) 61,593 (1,559) 11,381 (2,730) 543,645 Real estate activities ..............................................100,610 (327) 10,633 (233) 4,369 (951) 114,101 Construction ..........................................................72,394 (386) 5,255 (52) 572 (55) 77,728 Fishing industry ......................................................73,245 (121) 8,922 (48) 1,519 (745) 82,772 Commerce and services ........................................60,232 (195) 4,812 (192) 1,865 (379) 66,143 Accommodation and food service activities ............34,276 (148) 11,257 (425) 1,816 (408) 46,368 Financial and insurance activities ...........................30,072 (214) 11,797 (261) 128 (5) 41,517 Industry, energy and manufacturing .......................52,771 (98) 1,811 (88) 458 (58) 54,796 Transportation ........................................................4,389 (19) 4,058 (89) 141 (20) 8,460 Information and communication technology ...........24,621 (202) 1,636 (145) 179 (77) 26,012 Public Sector .........................................................14,075 (59) 200 (4) 1 (1) 14,212 Agriculture and forestry ..........................................10,064 (20) 1,212 (22) 333 (31) 11,536 Balance at the end of the year ................................1,309,091 (2,351) 92,889 (2,091) 19,857 (4,112) 1,413,283
63
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk, continued
Net remeasurement of loss allowance
New financial assets, originated or purchased
Derecognitions and maturities
Write-offs
The table below reconciles the opening and closing allowance balance for loans to customers and debt securities at amortized cost and
FVOCI and loan commitments, guarantees and unused credit facilities by impairment stages. The reconciliation includes:
** During the year the loss allowance balance for stage 3 loans was raised by ISK 961 million due to unwinding of interest income.
*** During the year an amount of ISK 892 million was written off but is still subject to enforcement activities subject to Icelandic law.
Transfers of financial assets between impairment stages
All transfers are presumed to occur before any corresponding remeasurement of the loss allowance.
Include purchases and originations and reflect the allowance related to assets newly recognized during the year.
Comprise the impact of changes in model inputs or assumptions, including changes in forward-looking macroeconomic conditions, partial
repayments and additional draws on existing facilities, inflation, changes in the measurement following a transfer between stages, effects of
foreign exchange rate changes, impairment of interest income due to impaired debt instruments and unwinding of the time value discount
due to the passage of time.
* These amounts are a combination of all impairments, including an allowance for loan commitments and guarantees presented as a liability in these Condensed
Consolidated Interim Financial Statements. Following a change in approach from 30.06.2024, the amounts represent the difference between the loss allowance at
the beginning of the year and at the reporting date, ignoring other intra-period changes. Comparative figures have been changed accordingly.
The amount after net remeasurements of loss allowance written off during the year.
**** Loss allowance for all assets other than cash, bonds and loans to credit institutions.
Reflect the allowance related to assets derecognized during the period without a credit loss being incurred, including those assets that were
derecognized following a modification of terms.
2024Stage 1 Stage 2 Stage 3 POCI Total Impairment loss allowance *Balance at the beginning of the year ................................................................(2,584) (2,216) (4,022) (92) (8,914)Transfers of financial assets:Transfers to Stage 1 (12-month ECL) .......................................................(744) 536 208 - - Transfers to Stage 2 (lifetime ECL) ............................................................131 (178) 47 - - Transfers to Stage 3 (credit impaired financial assets) ...............................94 140 (234) - - Net remeasurement of loss allowance ** ..........................................................886 (263) (2,494) - (1,871)New financial assets, originated or purchased .................................................(1,108) (658) (649) - (2,415)Derecognitions and maturities ..........................................................................524 664 845 91 2,124 Write-offs *** ....................................................................................................120 117 976 - 1,213 Impairment loss allowance **** .....................................................................(2,681) (1,858) (5,323) (1) (9,863)Impairment loss allowances for assets only carrying 12-month ECL ................(3) - - - (3)Total impairment loss allowance ..................................................................(2,684) (1,858) (5,323) (1) (9,866)
64
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk, continued
Impairment loss allowance for loans to customersStage 1 Stage 2 Stage 3 POCI Total Balance at the beginning of the year ..........................................................(2,348) (2,091) (4,020) (92) (8,551)Transfers of financial assets:Transfers to Stage 1 (12-month ECL) .................................................(666) 458 208 - - Transfers to Stage 2 (lifetime ECL) ......................................................121 (168) 47 - - Transfers to Stage 3 (credit impaired financial assets) .........................90 138 (228) - - Net remeasurement of loss allowance .......................................................792 (230) (2,500) - (1,938)New financial assets, originated or purchased ...........................................(829) (606) (649) - (2,084)Derecognitions and maturities ....................................................................438 636 843 91 2,008 Write-offs ...................................................................................................120 117 976 - 1,213 Total loss allowance for loans to customers .........................................(2,282) (1,746) (5,323) (1) (9,352)Impairment loss allowance for loans to customers - IndividualsBalance at the beginning of the year ....................................................(559) (532) (1,381) (1) (2,473)Transfers of financial assetsTransfers to Stage 1 (12-month ECL) ...........................................(290) 205 85 - - Transfers to Stage 2 (lifetime ECL) ................................................26 (42) 16 - - Transfers to Stage 3 (credit impaired financial assets) ...................29 65 (94) - - Net remeasurement of loss allowance .................................................327 (152) (551) - (376)New financial assets, originated or purchased .....................................(173) (92) (136) - (401)Derecognitions and maturities ..............................................................77 30 289 - 396 Write-offs .............................................................................................18 108 234 - 360 Total loss allowance for loans to individuals ...................................(545) (410) (1,538) (1) (2,494)Impairment loss allowance for loans to customers - CorporatesBalance at the beginning of the year ....................................................(1,789) (1,559) (2,639) (91) (6,078)Transfers of financial assetsTransfers to Stage 1 (12-month ECL) ...........................................(376) 253 123 - - Transfers to Stage 2 (lifetime ECL) ................................................95 (126) 31 - - Transfers to Stage 3 (credit impaired financial assets) ...................61 73 (134) - - Net remeasurement of loss allowance .................................................465 (78) (1,949) - (1,562)New financial assets, originated or purchased .....................................(656) (514) (513) - (1,683)Derecognitions and maturities ..............................................................361 606 554 91 1,612 Write-offs .............................................................................................102 9 742 - 853 Total loss allowance for loans to corporates ...................................(1,737) (1,336) (3,785) - (6,858)Impairment loss allowance for loan commitments, guarantees and unused credit facilities Balance at the beginning of the year ..........................................................(236) (125) (2) - (363)TransfersTransfers to 12-month ECL .................................................................(78) 78 - - - Transfers to lifetime ECL .....................................................................10 (10) - - - Transfers to credit impaired .................................................................4 2 (6) - - Net remeasurement of loss allowance .......................................................94 (33) 6 - 67 New financial commitments originated .......................................................(279) (52) - - (331)Derecognitions and maturities ....................................................................86 28 2 - 116 Total loss allowance for loan commit., guarantees, unused facilities .......(399) (112) - - (511)
65
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk, continued
** During the year the loss allowance balance for stage 3 loans was raised by ISK 528 million due to unwinding of interest income.
* These amounts are a combination of all impairments, including an allowance for loan commitments and guarantees presented as a liability in these Condensed
Consolidated Financial Statements. Following a change in approach from 30.06.2024, the amounts represent the difference between the loss allowance at the
beginning of the year and at the reporting date, ignoring other intra-period changes. Comparative figures have been changed accordingly.
*** During the year an amount of ISK 910 million was written off but is still subject to enforcement activities subject to Icelandic law.
Impairment loss allowance for loans to customersStage 1 Stage 2 Stage 3 POCI Total Balance at the beginning of the year ..........................................................(2,334) (1,519) (2,932) (131) (6,916)Transfers of financial assets:Transfers to Stage 1 (12-month ECL) .................................................(573) 370 203 - - Transfers to Stage 2 (lifetime ECL) ......................................................155 (670) 515 - - Transfers to Stage 3 (credit impaired financial assets) .........................70 92 (162) - - Net remeasurement of loss allowance .......................................................802 (300) (2,059) 39 (1,518)New financial assets, originated or purchased ...........................................(923) (358) (471) - (1,752)Derecognitions and maturities ....................................................................426 234 230 - 890 Write-offs ...................................................................................................29 60 656 - 745 Total loss allowance for loans to customers .........................................(2,348) (2,091) (4,020) (92) (8,551)Impairment loss allowance for loans to customers - IndividualsBalance at the beginning of the year ....................................................(445) (287) (1,043) - (1,775)Transfers of financial assetsTransfers to Stage 1 (12-month ECL) ...........................................(201) 107 94 - - Transfers to Stage 2 (lifetime ECL) ................................................24 (45) 21 - - Transfers to Stage 3 (credit impaired financial assets) ...................22 46 (68) - - Net remeasurement of loss allowance .................................................138 (283) (594) (1) (740)New financial assets, originated or purchased .....................................(176) (155) (160) - (491)Derecognitions and maturities ..............................................................51 28 163 - 242 Write-offs .............................................................................................28 57 206 - 291 Total loss allowance for loans to individuals ...................................(559) (532) (1,381) (1) (2,473)
**** Loss allowance for all assets other than cash, bonds and loans to credit institutions.
2023Stage 1 Stage 2 Stage 3 POCI Total Impairment loss allowance *Balance at the beginning of the year ................................................................(2,685) (1,612) (2,937) (131) (7,365)Transfers of financial assets:Transfers to Stage 1 (12-month ECL) .......................................................(601) 398 203 - - Transfers to Stage 2 (lifetime ECL) ............................................................158 (673) 515 - - Transfers to Stage 3 (credit impaired financial assets) ...............................71 93 (164) - - Net remeasurement of loss allowance ** ..........................................................926 (330) (2,057) 39 (1,422)New financial assets, originated or purchased .................................................(1,033) (436) (471) - (1,940)Derecognitions and maturities ..........................................................................551 284 233 - 1,068 Write-offs *** ....................................................................................................29 60 656 - 745 Impairment loss allowance **** .....................................................................(2,584) (2,216) (4,022) (92) (8,914)Impairment loss allowances for assets only carrying 12-month ECL ................(3) - - - (3)Total impairment loss allowance ..................................................................(2,587) (2,216) (4,022) (92) (8,917)
66
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk, continued
Macroeconomic forecast
Sensitivity analysis
Regarding macroeconomic outlook, see Note 3, Significant accounting estimates and judgements. The Group calculates loss for three
different scenarios, optimistic, neutral and pessimistic and the loss allowance is the weighted average of the results. As a sensitivity
analysis, it can be noted that the loss allowance in stage 1 and 2 for each of these scenarios separately is ISK 1.8 billion, ISK 3.3 billion and
ISK 7.9 billion for the optimistic, base case and pessimistic scenarios, respectively (31.12.2023: ISK 1.5 billion, ISK 3.0 billion and ISK 8.8
billion, respectively).
Base case2025 2026 2027Unemployment rate ................................................................................................................................4.2% 4.2% 3.8%Housing prices, year-on-year change .....................................................................................................7.0% 5.7% 4.5%Private consumption, growth ..................................................................................................................2.2% 2.6% 2.7%GDP growth ............................................................................................................................................1.9% 2.4% 2.6%Key interest rate .....................................................................................................................................7.2% 5.9% 4.8%OptimisticPessimistic2025 2026 2027 2025 2026 2027Unemployment rate ......................................................................3.3% 3.2% 3.2% 5.4% 5.1% 4.5%Housing prices, year-on-year change ...........................................10.0% 8.7% 4.9% -2.5% 3.7% 5.7%Private consumption, growth .........................................................3.1% 2.7% 2.9% -0.6% 2.0% 3.6%GDP growth ..................................................................................2.5% 2.8% 3.0% 0.0% 2.0% 3.1%Key interest rate ...........................................................................6.8% 5.5% 4.4% 7.6% 6.3% 5.2%
Stage 1 Stage 2 Stage 3 POCI Total Impairment loss allowance for loans to customers - CorporatesBalance at the beginning of the year ....................................................(1,889) (1,232) (1,889) (131) (5,141)Transfers of financial assetsTransfers to Stage 1 (12-month ECL) ...........................................(372) 263 109 - - Transfers to Stage 2 (lifetime ECL) ................................................131 (625) 494 - - Transfers to Stage 3 (credit impaired financial assets) ...................48 46 (94) - - Net remeasurement of loss allowance .................................................664 (17) (1,465) 40 (778)New financial assets, originated or purchased .....................................(747) (203) (311) - (1,261)Derecognitions and maturities ..............................................................375 206 67 - 648 Write-offs .............................................................................................1 3 450 - 454 Total loss allowance for loans to corporates ...................................(1,789) (1,559) (2,639) (91) (6,078)Impairment loss allowance for loan commitments, guarantees and unused credit facilities Balance at the beginning of the year ..........................................................(351) (93) (5) - (449)TransfersTransfers to 12-month ECL .................................................................(28) 28 - - - Transfers to lifetime ECL .....................................................................3 (3) - - - Transfers to credit impaired .................................................................1 1 (2) - - Net remeasurement of loss allowance .......................................................124 (30) 2 - 96 New financial commitments originated .......................................................(110) (78) - - (188)Derecognitions and maturities ....................................................................125 50 3 - 178 Total loss allowance for loan commit., guarantees, unused facilities .............(236) (125) (2) - (363)
The calculation of expected credit losses under IFRS 9 uses forward-looking information in the form of scenarios where the development of
macro-economic variables is predicted. The expected credit loss is a probability-weighted average of the estimated forecasts over three
scenarios: base case 60%, pessimistic 30% and optimistic 10% (31.12.2023: base case 60%, pessimistic 30% and optimistic 10%). The
macroeconomic forecast and scenario probability weights is done by the Bank’s Chief Economist and approved by the Bank’s Executive
Risk Committee. The following table shows values used for IFRS 9 impairment calculations.
67
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
44. Credit risk, continued
Forbearance
Volcanic activity in the vicinity of Grindavík
The Group grants forbearance measures to facilities where the customer is facing temporary difficulties and needs measures which would
not generally be available to customers. These forbearance measures include refinancing and renegotiations of loan terms, including loan
extensions and adjustment of the payment schedule. After forbearance measures have been granted, the facility is classified as forborne
for a period of at least 24 months. The forborne classification is not removed until the customer has demonstrated repayment capacity.
As a result of this arrangement, the Bank’s exposure increasingly shifts to Þórkatla. Having stood at ISK 1.8 billion prior to the launch of the
repurchasing scheme, the Bank's residential mortgage exposure in the affected area has now been reduced to ISK 89 million, with a
commensurate increase in the exposure to Þórkatla (ISK 1.75 billion). Exposure to corporates is ISK 3.94 billion.
The Bank's valuation of residential mortgages in Grindavík is based on the assumption that borrowers will sell their properties to Þórkatla,
as has largely been the case. The assessment of recovery for loans secured by residential property in Grindavík is a scenario analysis
which considers the likelihood of further payout from the Natural Catastrophe Fund of Iceland due to past or future events and the likelihood
of sale or lease of properties in the future if Grindavík becomes habitable again. The analysis is based on input from geophysicists. The
result for 31.12.2024 is around 25% impairment and negative fair value change on the remaining residential mortgages and the Bank’s
exposure to Þórkatla, respectively (combined amount ISK 465 million). The impairment on the corporate portfolio is ISK 815 million.
At the end of February 2024, legislation was passed facilitating the purchase of residential properties from households forced to relocate
from Grindavík following volcanic events in the area. A large number of homeowners in Grindavík, including those who had been the Bank’s
borrowers, have taken the option to sell their properties to Fasteignafélagid Þórkatla, a property management company established on the
basis of the legislation (hereafter Þórkatla). The Bank's exposure to Þórkatla is predominantly in the form of senior debt that matches the
mortgage exposure - which is paid up as part of process, the Bank subsequently giving up any recourse to the original borrower. While the
government provides the majority of Þórkatla’s equity, its contribution is also in the form of senior debt, pari passu to the Bank's.
Stage 1Stage 2Stage 3TotalGross Gross Gross Grosscarrying Loss carrying Loss carrying Loss carrying LossaGross Gross Gross Loss2024amountlallowancecarrying allowancecarrying allowancecarrying allowanceIndividuals .............................................. 4,315 (13) 2,570 (26) 4,483 (465) 11,368 (504)Companies ............................................. 2,063 (10) 15,221 (403) 11,559 (2,239) 28,843 (2,652) Tourism ............................................... 826 (4) 12,494 (387) 1,255 (284) 14,575 (675) Other than tourism ............................... 1,237 (6) 2,727 (16) 10,304 (1,955) 14,268 (1,977)Total ......................................................6,378 (23) 17,791 (429) 16,042 (2,704) 40,211 (3,156)2023Individuals .............................................. 2,614 (17) 2,001 (39) 3,873 (467) 8,488 (523)Companies ............................................. 3,432 (21) 13,242 (415) 2,659 (519) 19,333 (955) Tourism ............................................... 2,049 (15) 8,980 (376) 1,358 (254) 12,387 (645) Other than tourism ............................... 1,383 (6) 4,262 (39) 1,301 (265) 6,946 (310)Total ......................................................6,046 (38) 15,243 (454) 6,532 (986) 27,821 (1,478)
68
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
45. Market risk
Interest rate risk
Interest rate risk
The Group's interest rate risk for foreign currencies is limited as foreign denominated assets predominantly have short fixing periods and
the Group generally applies fair value hedging for its foreign denominated fixed rate borrowings. For domestic rates, longer fixing periods
are more common.
The following table shows the Group's interest-bearing assets and liabilities by interest fixing periods. The figures for loans to customers
and borrowings are shown on a fair value basis, see Note 25, and are therefore different from the amounts shown in these Condensed
Consolidated Interim Financial Statements. Defaulted loans are presented at book value, which is based on the value of the underlying
collateral, and are therefore assumed to be independent of interest adjustment periods and placed in the 'Up to 3 months' category.
The interest rate fixing profile for non-indexed assets and liabilities is largely matched and the duration of fixing has generally shortened as
the bulk of fixed rate mortgages are being reset in 2024 to 2025 with the majority of customers refinancing to indexed loans as they offer
lower monthly payments. The fixing duration of indexed liabilities is however greater than that of indexed assets, as covered bonds are fixed
rate while indexed loans are predominantly floating rate.
Market risk allowance is set by the Board in the Bank's risk appetite and limit frameworks are in place for each trading desk. The Asset and
Liability Committee (ALCO) is responsible for managing the Bank's overall market risk. Risk Management is responsible for measuring and
monitoring market risk exposure, and reporting the exposure, usage and limit breaches.
Market risk is the current or prospective risk that changes in financial market prices and rates adversely affect the Group's earnings and
equity due to changes to the value and cash flows of its assets and liabilities.
Market risk arises from imbalances in the Group's balance sheet as well as in market making activities and position taking in bonds,
equities, currencies, derivatives and other commitments which are marked to market.
Interest rate risk arises from the possibility that changes in market rates adversely affect net interest income and fair value of interest-
bearing instruments on the Group's balance sheet. The Group's operations are subject to interest rate risk due to mismatches in the fixing
of interest rates between assets and liabilities, resulting in a repricing risk for the Group. The Group also faces interest basis risk between
interest-bearing assets and interest-bearing liabilities due to different types of floating-rate indices in different currencies.
The Group manages and limits market risk exposure in accordance with its risk appetite and strategic goals for net profit.
The Group tracks market risk closely and separates its exposures for the trading book and the banking book. Market risk in the trading book
arises from market making activities and non-strategic derivatives positions arising from the Group's operations of meeting customers'
investment and risk management needs. Market risk in the banking book arises from various mismatches in assets and liabilities in e.g.
currencies, maturities and interest rates. Market risk in the trading book and in the banking book is managed separately.
2024Up to 3 3-12 1-5 5-10 Over 10months months years years years TotalAssetsBalances with Central Bank ..........................................................124,094 - - - - 124,094 Loans to credit institutions ............................................................25,690 - - - - 25,690 Loans to customers ......................................................................867,139 148,051 194,711 2,521 9,801 1,222,223 Bonds and debt instruments .........................................................102,606 22,938 14,916 13,551 4,724 158,735 Bonds and debt instruments used for hedging ..............................- 1 1,014 979 670 2,664 Derivatives ...................................................................................105,825 77,146 181,495 - - 364,466 Assets ..........................................................................................1,225,354 248,136 392,136 17,051 15,195 1,897,872 LiabilitiesDue to credit institutions and Central Bank ...................................6,618 - - - - 6,618 Deposits .......................................................................................844,816 12,627 - - - 857,443 Derivatives ...................................................................................229,251 130,700 4,820 - - 364,771 Borrowings ...................................................................................27,898 76,473 279,837 32,282 12,709 429,199 Subordinated liabilities ..................................................................10,985 3,363 15,047 18,831 - 48,226 Liabilities .....................................................................................1,119,568 223,163 299,704 51,113 12,709 1,706,257 Net interest gap ..........................................................................105,786 24,973 92,432 (34,062) 2,486 191,615
69
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
45. Market risk, continued
The following table shows the sensitivity of the Group's net present value (NPV) of interest-bearing assets and liabilities, due to changes in
interest rates by currencies. The variation is calculated on the basis of simultaneous parallel shifts upwards or downwards of yield curves.
The choice of shifts is not an estimate of risk likelihood. Behavioral maturities are taken into account in the NPV calculations, including
prepayment likelihood and expected behavior of non-maturing deposits.
Sensitivity analysis of interest rate risk
2023Up to 3 3-12?1-5 5-10 Over 10months months years years years TotalAssetsBalances with Central Bank ..........................................................102,095 - - - - 102,095 Loans to credit institutions ............................................................28,835 - - - - 28,835 Loans to customers ......................................................................782,864 170,223 191,527 749 - 1,145,363 Bonds and debt instruments .........................................................79,710 46,599 14,657 9,150 7,081 157,197 Bonds and debt instruments used for hedging ..............................403 617 199 977 2,196 Derivatives ...................................................................................108,752 75,100 182,078 - - 365,930 Assets ..........................................................................................1,102,256 292,325 388,879 10,098 8,058 1,801,616 LiabilitiesDue to credit institutions and Central Bank ...................................2,771 - - - - 2,771 Deposits .......................................................................................785,509 7,201 - - - 792,710 Derivatives ...................................................................................221,119 134,951 8,389 - - 364,459 Borrowings ...................................................................................22,775 68,633 268,304 46,906 12,390 419,008 Subordinated liabilities ..................................................................- 7,005 34,149 - - 41,154 Liabilities .....................................................................................1,032,174 217,790 310,842 46,906 12,390 1,620,102 Net interest gap ..........................................................................70,082 74,535 78,037 (36,808) (4,332) 181,514
20242023NPV change in the banking book -100 bps +100 bps -100 bps +100 bpsISK, CPI index-linked ..........................................................................................................(1,724) 1,652 (1,855) 1,721 ISK, Non index-linked ..........................................................................................................(2,181) 2,146 (1,487) 1,462 Foreign currencies ..............................................................................................................(229) 197 (418) 416 NPV change in the trading bookISK, CPI index-linked ..........................................................................................................137 (125) 133 (122)ISK, Non index-linked ..........................................................................................................247 (234) 195 (185)Foreign currencies ..............................................................................................................(33) 33 (31) 31
70
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
45. Market risk, continued
Indexation risk
* Consolidated situation as per EU Regulation No 575/2013 (CRR)
A significant part of the Group's balance sheet is linked to the Icelandic Consumer Price Index (CPI). For index-linked instruments, principal
and interest payments are adjusted proportionally to the CPI. The Group is exposed to indexation risk as indexed assets exceed indexed
liabilities. Financial instruments held for liquidity or market making purposes are assumed to be on demand.
Book value and maturity profile of indexed assets and liabilities2024Up to 1 1 to 5 Over 5year years years TotalAssets, CPI index-linkedLoans to customers .............................................................................................................14,792 107,828 357,789 480,409 Financial instruments ..........................................................................................................6,702 7,304 10,564 24,570 Assets, CPI index-linked ...................................................................................................21,494 115,132 368,353 504,979 Liabilities, CPI index-linkedDeposits ..............................................................................................................................114,696 13,998 4,196 132,890 Borrowings ..........................................................................................................................35,207 76,004 42,447 153,658 Subordinated liabilities ........................................................................................................6,607 - 11,195 17,802 Other ...................................................................................................................................- - 1,122 1,122 Off-balance sheet position ..................................................................................................105 54 - 159 Liabilities, CPI index-linked ..............................................................................................156,615 90,056 58,960 305,631 Net on-balance sheet position .............................................................................................(135,016) 25,130 309,393 199,507 Net off-balance sheet position .............................................................................................(105) (54) - (159)CPI balance .......................................................................................................................(135,121) 25,076 309,393 199,348 CPI balance for prudential consolidation, excluding insurance operations * ...............(135,223) 17,772 298,830 181,378 2023Assets, CPI index-linkedLoans to customers .............................................................................................................11,667 81,695 282,842 376,204 Financial instruments ..........................................................................................................7,813 5,028 8,797 21,638 Assets, CPI index-linked ...................................................................................................19,480 86,723 291,639 397,842 Liabilities, CPI index-linkedDeposits ..............................................................................................................................111,523 16,253 3,939 131,715 Borrowings ..........................................................................................................................373 81,870 58,920 141,163 Subordinated liabilities ........................................................................................................- - 16,997 16,997 Other ...................................................................................................................................- - 1,028 1,028 Off-balance sheet position ..................................................................................................1,466 151 - 1,617 Liabilities, CPI indexed linked ..........................................................................................113,362 98,274 80,884 292,520 Net on-balance sheet position .............................................................................................(92,416) (11,400) 210,755 106,939 Net off-balance sheet position .............................................................................................(1,466) (151) - (1,617)CPI balance .......................................................................................................................(93,882) (11,551) 210,755 105,322 CPI balance for prudential consolidation, excluding insurance operations * ...............(95,084) (16,579) 201,957 90,296
71
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
45. Market risk, continued
Currency risk
Currency risk is the risk of loss due to adverse movements in foreign exchange rates. The Group is exposed to currency risk through a
currency mismatch between assets and liabilities. Net exposures per currency are monitored centrally in the Bank.
Breakdown of assets and liabilities by currency2024ISK EUR USD GBP DKK NOK Other TotalFinancial assetsCash and balances with CB ....................123,395 355 189 62 - 20 73 124,094 Loans to credit institutions ...................... 170 9,022 12,501 567 718 419 2,293 25,690 Loans to customers ................................ 1,011,398 130,718 57,871 1,569 25,031 1,993 1,478 1,230,058 Financial instruments ............................. 124,920 43,854 11,698 212 120 12,854 12,759 206,417 Other financial assets ............................. 6,470 318 1,671 4 1 11 1 8,476 Financial assets .................................... 1,266,353 184,267 83,930 2,414 25,870 15,297 16,604 1,594,735 Financial liabilitiesDue to credit inst. and Central Bank ....... 2,649 3,388 176 333 - - 72 6,618 Deposits ................................................. 763,140 35,697 47,448 5,218 3,383 1,282 1,275 857,443 Financial liabilities at fair value ............... 2,961 4,006 1,082 10 - 219 116 8,394 Other financial liabilities .......................... 6,760 812 1,865 219 468 148 359 10,631 Borrowings ............................................. 197,607 201,031 2,989 - - 18,547 13,004 433,178 Subordinated liabilities ............................ 20,957 735 20,004 - - - 2,842 44,538 Financial liabilities ............................... 994,074 245,669 73,564 5,780 3,851 20,196 17,668 1,360,802 Net on-balance sheet position ................ 272,279 (61,402) 10,366 (3,366) 22,019 (4,899) (1,064)Net off-balance sheet position ................ (40,216) 63,377 (9,923) 3,266 (22,090) 4,925 661 Net position * ........................................ 232,063 1,975 443 (100) (71) 26 (403)Non-financial assetsInvestment property ............................... 9,387 - - - - - - 9,387 Investments in associates ...................... 814 - - - - - - 814 Intangible assets .................................... 7,688 - - - - - - 7,688 Tax assets .............................................. 2 - - - - - - 2 Assets and disposal groupsheld for sale ........................................ 111 - - - - - - 111 Other non financial assets ...................... 5,004 294 100 105 1 27 - 5,530 Non-financial assets ............................. 23,006 294 100 105 1 27 - 23,532 Non-financial liabilities and equityTax liabilities ........................................... 11,060 - - - - - - 11,060 Other non-financial liabilities ................... 39,292 21 6 - - - - 39,319 Shareholders' equity ............................... 206,582 - - - - - - 206,582 Non-controlling interest ........................... 504 - - - - - - 504 Non-financial liabilities and equity ...... 257,438 21 6 - - - - 257,465 Management reportingof currency risk ** ..............................(2,369) 2,248 537 5 (70) 53 (403)
* The net position of the currency risk is presented in accordance with IFRS.
** Management monitors currency risk with more assets and liabilities underlying as it is considered to be a more accurate measurement of the Group's currency
exposure. The net position, as seen by the management, is the position used for managing the currency imbalance.
72
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
45. Market risk, continued
2023ISK EUR USD GBP DKK NOK Other TotalFinancial assetsCash and balances with CB ....................100,837 412 301 112 137 28 268 102,095 Loans to credit institutions ...................... 1,321 11,870 10,833 1,214 1,513 299 1,785 28,835 Loans to customers ................................ 961,822 105,897 52,705 1,150 28,602 1,327 1,286 1,152,789 Financial instruments ............................. 86,667 87,955 13,446 158 205 15,753 1,522 205,706 Other financial assets ............................. 5,107 264 6,808 - 5 4 - 12,188 Financial assets .................................... 1,155,754 206,398 84,093 2,634 30,462 17,411 4,861 1,501,613 Financial liabilitiesDue to credit inst. and Central Bank ....... 2,096 185 432 - - - 58 2,771 Deposits ................................................. 691,181 33,847 56,528 4,317 3,273 1,599 1,965 792,710 Financial liabilities at fair value ............... 1,573 9,156 739 - - 169 9 11,646 Other financial liabilities .......................... 6,156 1,426 2,024 250 538 138 258 10,790 Borrowings ............................................. 184,019 215,728 - - - 13,526 7,187 420,460 Subordinated liabilities ............................ 20,155 766 13,217 - - 4,096 3,045 41,279 Financial liabilities ............................... 905,180 261,108 72,940 4,567 3,811 19,528 12,522 1,279,656 Net on-balance sheet position ................ 250,574 (54,710) 11,153 (1,933) 26,651 (2,117) (7,661)Net off-balance sheet position ................ (32,394) 58,658 (11,253) 1,851 (26,069) 2,075 7,132 Net position * ........................................ 218,180 3,948 (100) (82) 582 (42) (529)Non-financial assetsInvestment property ............................... 9,493 - - - - - - 9,493 Investments in associates ...................... 789 - - - - - - 789 Intangible assets .................................... 8,051 - - - - - - 8,051 Tax assets .............................................. 39 - - - - - - 39 Assets and disposal groupsheld for sale ........................................ 62 - - - - - - 62 Other non financial assets ...................... 5,201 233 78 85 1 27 - 5,625 Non-financial assets ............................. 23,635 233 78 85 1 27 - 24,059 Non-financial liabilities and equityTax liabilities ........................................... 11,169 - - - - - - 11,169 Other non-financial liabilities ................... 35,493 48 2 - 1 - 2 35,546 Shareholders' equity ............................... 198,798 - - - - - - 198,798 Non-controlling interest ........................... 503 - - - - - - 503 Non-financial liabilities and equity ...... 245,963 48 2 - 1 - 2 246,016 Management reportingof currency risk ** .............................. (4,148) 4,133 (24) 3 582 (15) (531)
** The management monitors currency risk with more assets and liabilities underlying as it is considered to be a more accurate measurement of the Group's
currency exposure. The net position, as seen by the management, is the position used for managing the currency imbalance.
* The net position of the currency risk is presented in accordance with IFRS.
73
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
45. Market risk, continued
Sensitivity analysis for currency risk
Equity risk
Sensitivity analysis for equity risk
Derivatives
Derivatives are a part of the Group's customer product offering. The types of derivatives currently offered are forward contracts, swaps and
options. Eligible underlying market factors are interest rates, foreign exchange rates, equities and commodities. Exposure limits, hedging
requirements and collateral requirements are determined in accordance with the Group's risk appetite and monitored by Risk Management
on a daily basis. The Group also uses derivatives to hedge market risk on its balance sheet. Note 25 provides a breakdown of the Group's
derivative positions by type.
Equity risk is the risk that the fair value of equities decreases. For information on assets seized and held for sale and equity exposures, see
Notes 31 and 24 respectively.
The table below indicates the currencies to which the Group had significant exposure at the end of the period. The analysis calculates the
effect of a reasonably possible movement of the currency rate against the ISK, with all other variables held constant, on the Consolidated
Income Statement (due to the fair value of currency sensitive non-trading monetary assets and liabilities). A negative amount in the table
reflects a potential net reduction in the Consolidated Income Statement or equity, while a positive amount reflects a net potential increase.
An equivalent decrease in each of the below currencies against the ISK would have resulted in an equivalent but opposite impact (+10%
denotes a depreciation of the ISK).
The analysis below calculates the effect of a reasonable possible movement in equity prices that affect the Condensed Consolidated
Interim Financial Statements. A negative amount in the table reflects a potential net reduction in the Condensed Consolidated Income
Statement or equity, while a positive amount reflects a potential net increase. Investments in associates are excluded. The result of value-at-
risk calculations for the trading book are shown in the Group's Pillar 3 Risk Disclosures.
20242023Currency -10% +10% -10% +10%EUR ....................................................................................................................................(225) 225 (413) 413 USD ....................................................................................................................................(54) 54 2 (2)GBP ....................................................................................................................................(1) 1 (0) 0 DKK ....................................................................................................................................7 (7) (58) 58 NOK ....................................................................................................................................(5) 5 2 (2)Other ...................................................................................................................................40 (40) 53 (53)
20242023Equity -10% +10% -10% +10%Trading book - listed ...........................................................................................................(374) 374 (334) 334 Banking book - listed ...........................................................................................................(740) 740 (397) 397 Banking book - unlisted .......................................................................................................(286) 286 (526) 526
74
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
46. Liquidity and Funding risk
Maturity analysis of assets and liabilities
Liquidity risk is one of the Group's most significant risk factors and a great deal of emphasis is placed on managing it. The Asset and
Liability Committee (ALCO) is responsible for managing liquidity and funding risk within the risk appetite set by the Board of Directors. The
Bank's Treasury manages liquidity positions on a day-to-day basis. Risk Management measures, monitors and reports the Bank's liquidity
and funding risk on a daily basis.
A primary source of funding for the Group is deposits from individuals, businesses and financial undertakings. The Group's liquidity risk
stems from the fact that the maturity of loans exceeds the maturity of deposits, of which 68% is on-demand.
The Group's strategy in relation to liquidity risk is to actively manage its liquidity positions and risks to meet payment and settlement
obligations on a timely basis under both normal and stressed conditions. The Group seeks to maintain a stable funding profile which
supports its business strategy and liquidity profile, ensuring that the Group can withstand periods of market turbulence, without reliance on
volatile funding or external support.
Liquidity risk is the risk that the Group, though solvent, either does not have sufficient financial resources available to meet its liabilities
when they fall due, or can secure them only at excessive cost. Liquidity risk arises from the inability to manage unplanned decreases or
changes in funding sources.
Contractual cash flows differ in many ways from expected cash flows. The difference is most significant for deposits on the liability side and
bonds on the asset side. Deposits are always assumed to be withdrawn at the earliest possible date, despite the fact that a large part of the
deposit base is considered to be stable funding where behavioral maturity considerably exceeds contractual maturity. Furthermore,
although contractual cash flows are presented for bonds held by the Bank, a large portion of the bonds are a part of the Bank's liquidity
buffer and are considered to be highly liquid and can be sold or pledged to the Central Bank of Iceland and thus converted into cash at very
short notice.
Contractual cash flow of assets and liabilities2024 On Up to 3 3-12 1-5 Over 5 With no Bookdemand months months years years maturity Total valueFinancial assetsCash and balances with CB .................... 25,480 66,140 32,474 - - - 124,094 124,094 Loans to credit institutions ...................... 23,019 2,659 11 - - - 25,689 25,690 Loans to customers ................................ 4,751 179,293 196,603 528,859 1,365,661 - 2,275,167 1,230,058 Financial instruments ............................. 11,706 103,642 22,860 19,680 14,150 38,304 210,342 206,417 Derivatives - assets leg .............................- 33,378 10,632 46,199 - - 90,209 74,009 Derivatives - liabilities leg ..........................- (31,243) (9,205) (41,502) - - (81,950) (67,294)Other financial instruments ........................11,706 101,507 21,433 14,983 14,150 38,304 202,083 199,702 Other financial assets ............................. 548 4,840 1,013 2,075 - - 8,476 8,476 Financial assets .................................... 65,504 356,574 252,961 550,614 1,379,811 38,304 2,643,768 1,594,735 Financial liabilitiesDue to credit inst. and Central Bank ........4,117 2,504 - - - - 6,621 6,618 Deposits ................................................. 587,107 135,946 118,596 14,674 5,282 - 861,605 857,443 Financial liabilities at fair value ............... - 3,698 5,277 6,160 - - 15,135 8,394 Derivatives - assets leg .............................- (47,474) (21,313) (12,852) - - (81,639) (72,889)Derivatives - liabilities leg ..........................- 51,172 26,590 19,012 - - 96,774 81,283 Short pos. in bonds used for econ.hedging - - - - - - - - Other financial liabilities .......................... 99 9,339 292 901 - - 10,631 10,631 Borrowings ............................................. - 3,974 102,645 326,115 45,775 - 478,509 433,178 Subordinated liabilities ............................ - 1,630 4,788 9,377 45,352 - 61,147 44,538 Financial liabilities ............................... 591,323 157,091 231,598 357,227 96,409 - 1,433,648 1,360,802 Net position for assets and liab. .......... (525,819) 199,483 21,363 193,387 1,283,402 38,304 1,210,120 233,933 Off-balance sheet itemsFinancial guarantees .............................. - 1,921 8,221 3,847 7,815 - 21,804 21,804 Unused overdraft .................................... - 74,270 - - - - 74,270 74,270 Undrawn loan commitments ................... - 36,788 23,476 7,394 - - 67,658 67,658 Off-balance sheet items ....................... - 112,979 31,697 11,241 7,815 - 163,732 163,732 Net contractual cash flow .................... (525,819) 86,504 (10,334) 182,146 1,275,587 38,304 1,046,388 70,201
The maturity analysis is based on contractual cash flows. The amounts are not discounted and include future interest payments, but CPI-
linked amounts do not include accrued indexation due to future inflation. The total amount for each item is higher than the corresponding
amount on the Group's balance sheet, since the amounts on the balance sheet are either at amortized cost and do not contain future
interest payments, or at fair value where future cash flows have been discounted.
75
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
46. Liquidity and Funding risk, continued
Net Stable Funding Ratio
The Net Stable Funding Ratio (NSFR) measures the amount of available stable funding (ASF) with the Group against the required stable
funding (RSF) as per the definition of the Central Bank of Iceland rules No. 750/2021. In general, RSF is determined by applying different
weights to different asset classes depending on the level of liquidity. ASF however is calculated by applying weights to the Group's liabilities
depending on maturity and stickiness. The NSFR in total shall exceed 100%.
2023On Up to 3 3-12 1-5 Over 5 With no Bookdemand months months years years maturity Total valueFinancial assetsCash and balances with CB .................... 2,556 83,848 16,227 - - - 102,631 102,095 Loans to credit institutions ...................... 20,977 7,842 16 - - - 28,835 28,835 Loans to customers ................................ 6,942 161,250 155,075 531,276 1,385,530 - 2,240,073 1,152,789 Financial instruments ............................. 9,376 81,687 47,647 17,548 13,463 39,711 209,432 205,706 Derivatives - assets leg .............................- 42,180 33,090 31,428 - - 106,698 94,662 Derivatives - liabilities leg ..........................- (39,292) (32,374) (27,621) - - (99,287) (88,060)Other financial instruments ........................9,376 78,799 46,931 13,741 13,463 39,711 202,021 199,104 Other financial assets ............................. 519 9,229 774 1,666 - - 12,188 12,188 Financial assets .................................... 40,370 343,856 219,739 550,490 1,398,993 39,711 2,593,159 1,501,613 Financial liabilitiesDue to credit inst. and Central Bank ........1,640 1,162 - - - - 2,802 2,771 Deposits ................................................. 561,728 191,128 21,724 16,906 - - 791,486 792,710 Financial liabilities at fair value ............... - 3,791 5,726 16,209 - - 25,726 11,646 Derivatives - assets leg .............................- (30,271) (10,276) (4,118) - - (44,665) (39,726)Derivatives - liabilities leg ..........................- 34,001 16,002 20,327 - - 70,330 51,311 Short position in bonds used for hedging ..- 61 - - - - 61 61 Other financial liabilities .......................... 76 9,640 340 734 - - 10,790 10,790 Borrowings ............................................. - 1,191 92,107 304,564 63,417 - 461,279 420,460 Subordinated liabilities ............................ - 1,291 1,776 20,326 32,471 - 55,864 41,279 Financial liabilities ............................... 563,444 208,203 121,673 358,739 95,888 - 1,347,947 1,279,656 Net position for assets and liab. .......... (523,074) 135,653 98,066 191,751 1,303,105 39,711 1,245,212 221,957 Off-balance sheet itemsFinancial guarantees .............................. - 4,005 6,629 3,711 7,418 - 21,763 21,763 Unused overdraft .................................... - 61,951 - - - - 61,951 61,951 Undrawn loan commitments ................... - 44,220 15,009 9,354 605 - 69,188 69,188 Off-balance sheet items ....................... - 110,176 21,638 13,065 8,023 - 152,902 152,902 Net contractual cash flow .................... (523,074) 25,477 76,428 178,686 1,295,082 39,711 1,092,310 69,055
The NSFR calculations are based solely on figures for the parent company. The Bank's subsidiaries have negligible impact on the funding
ratio.
2024 2023Available stable funding ...........................................................................................................................................1,223,464 1,167,158 Required stable funding ............................................................................................................................................1,040,677 982,601 Net stable funding ratio ..........................................................................................................................................118% 119%
76
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
46. Liquidity and Funding risk, continued
Liquidity coverage ratio
*** LCR is defined as: LCR = Weighted liquid assets / (weighted cash outflows - weighted cash inflows) where weighted cash inflows are capped at 75% of
weighted cash outflows.
** Short-term deposits with other banks are defined as cash inflows in LCR calculations.
The Liquidity Coverage Ratio (LCR) is one of the standards introduced in the Basel III Accord. The LCR is the result of a stress test that is
designed to ensure that banks have the necessary assets on hand to withstand short-term liquidity disruptions. More precisely, LCR
represents the balance between highly liquid assets and the expected net cash outflow of the Group in the next 30 days under stressed
conditions.
* Level 1 assets include the Group's cash and balances with the Central Bank, domestic bonds eligible as collateral at the Central Bank and foreign government
bonds which receive 100% weight.
To qualify as highly liquid assets under the LCR rules, assets must be non-pledged, liquid and easily priced on the market, traded on an
active market and not issued by the Group or related entities.
The minimum requirement for the total LCR is 100%, while the requirement for the LCR in ISK is 50% and 80% in EUR. Following a rule
change that came into effect at the start of 2023, there is no minimum requirement for the aggregate position in all foreign currencies.
The following table shows the breakdown for the Group's LCR calculations.
Total all2024ISK EURcurrenciesLiquid assets level 1 * ...........................................................................................................................180,898 39,790 253,753 Liquid assets level 2 ..............................................................................................................................10,753 - 10,753 Liquid assets ........................................................................................................................................191,651 39,790 264,506 Deposits ................................................................................................................................................138,492 14,537 176,642 Borrowings ............................................................................................................................................7,919 - 8,079 Other cash outflows ..............................................................................................................................9,012 10,009 14,657 Cash outflows .......................................................................................................................................155,423 24,546 199,378 Short-term deposits with other banks ** ................................................................................................1 6,935 22,051 Other cash inflows .................................................................................................................................25,264 2,588 30,882 Cash inflows .........................................................................................................................................25,265 9,523 52,933 Liquidity coverage ratio (LCR) *** ......................................................................................................147% 265% 181%2023Liquid assets level 1 * ...........................................................................................................................124,792 83,916 243,122Liquid assets level 2 ..............................................................................................................................9,302 - 9,302 Liquid assets ........................................................................................................................................134,094 83,916 252,424 Deposits ................................................................................................................................................131,959 9,158 164,787Borrowings ............................................................................................................................................672 - 759Other cash outflows ..............................................................................................................................5,402 10,436 12,380Cash outflows .......................................................................................................................................138,033 19,594 177,926Short-term deposits with other banks ** ................................................................................................- 8,569 19,918Other cash inflows .................................................................................................................................23,118 888 26,412Cash inflows .........................................................................................................................................23,118 9,457 46,330 Liquidity coverage ratio (LCR) *** ......................................................................................................117% 828% 192%
77
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
46. Liquidity and Funding risk, continued
LCR deposit categorization
4,748
* Here term deposits refer to deposits with maturities greater than 30 days.
As per the LCR methodology, the Group's deposit base is split into different categories depending on customer type. A second
categorization is used where term deposits refer to deposits with residual maturity greater than 30 days. Deposits that can be withdrawn
within 30 days are marked stable if the customer has a business relationship with the Group and the amount is covered by the Deposit
Insurance Scheme. Other deposit funds are considered less stable. A weight is attributed to each category, representing the expected
outflow under stressed conditions, i.e. the level of stickiness.
The table below shows the breakdown of the Group's deposit base according to the LCR categorization, with the associated weighted
average of the stressed outflow weights.
LCR categorization - amounts and LCR outflow weightsDeposits maturing within 30 daysLess Weight Weight Term Total2024 stable % Stable % deposits* depositsIndividuals ....................................................................................121,798 11% 121,208 5% 178,686 421,692 Small and medium enterprises .....................................................114,856 12% 17,835 5% 28,483 161,174 Operational relationship ................................................................4,748 25% - - - Corporations .................................................................................98,482 41% 16,561 21% 30,430 145,473 Sovereigns, central banks and PSE ..............................................19,262 40% 14 20% 1,091 20,367 Pension funds ...............................................................................70,477 100% - - 17,915 88,392 Domestic financial entities ............................................................18,510 100% - - 2,380 20,890 Foreign financial entities ...............................................................1,325 100% - - - 1,325 Total .............................................................................................449,458 155,618 258,985 864,061 2023Individuals ....................................................................................107,999 10% 115,140 5% 146,109 369,248 Small and medium enterprises .....................................................106,030 10% 17,758 5% 19,827 143,615 Operational relationship ................................................................7,540 25% - 5% - 7,540 Corporations .................................................................................116,348 40% 15,759 20% 22,679 154,786 Sovereigns, central banks and PSE ..............................................27,678 40% 15 20% 753 28,446 Pension funds ...............................................................................47,390 100% - - 17,211 64,601 Domestic financial entities ............................................................20,521 100% - - 4,780 25,301 Foreign financial entities ...............................................................1,944 100% - - - 1,944 Total .............................................................................................435,450 148,672 211,359 795,481
Composition of liquid assetsThe following table shows the composition of the Group's liquidity buffer.ISK USD EUR Other Total2024Cash and balances with Central Bank .............................................................123,395 189 355 155 124,094 Short-term deposits with financial institutions ..................................................1 11,507 6,935 3,608 22,051 Domestic bonds eligible as collateral with Central Bank ..................................70,298 - - - 70,298 Foreign government bonds .............................................................................- 10,394 39,435 22,183 72,012 Liquidity reserve ............................................................................................193,694 22,090 46,725 25,946 288,455 2023Cash and balances with Central Bank .............................................................100,837 301 412 545 102,095 Short-term deposits with financial institutions ..................................................- 6,961 8,569 4,388 19,918 Domestic bonds eligible as collateral with Central Bank ..................................30,046 - - - 30,046 Foreign government bonds .............................................................................- 18,888 83,504 14,675 117,067 Liquidity reserve ............................................................................................130,883 26,150 92,485 19,608 269,126
78
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
47. Capital management
Capital adequacy
The Bank has opted to make use of the transitional arrangements for IFRS 9 and Covid-19 in its capital adequacy calculations and this is
reflected in the Group's capital ratios. The transitional arrangements increase the capital adequacy ratio by less than 0.1 percentage points.
The focus of capital management at the Group is to normalize the capital structure in the medium term and consequently maintain the
Group's capitalization comfortably above regulatory requirements, including the Pillar 2 and combined capital buffer requirements.
* On 31 December 2024, the deduction consists of a dividend payment of ISK 16bn to be paid in Q1 2025 as approved by the Board, representing 61% of 2024 net
earnings, and a ISK 3bn buyback program approved by the Board and the FSA. On 31 December 2023, the deduction consists of 50% of net earnings as per the
Bank's dividend policy.
The Group's capital ratios are calculated in accordance with the Icelandic Financial Undertakings Act No. 161/2002 with later changes,
through which CRD V / CRR II have been adopted. The Group applies the standardized approach to calculate capital requirements for
credit risk, including counterparty credit risk, credit valuation adjustment risk, market risk and operational risk.
2024 2023Own fundsTotal equity ................................................................................................................................................................207,086 199,301 Non-controlling interest not eligible for inclusion in CET1 capital ...............................................................................(504) (503)Common Equity Tier 1 capital before regulatory adjustments .............................................................................206,582 198,798 Intangible assets .......................................................................................................................................................(7,390) (7,211)Additional value adjustments .....................................................................................................................................(226) (227)Foreseeable dividend and buyback * .........................................................................................................................(19,000) (12,877)Adjustment under IFRS 9 transitional arrangements as amended .............................................................................427 952 Insufficient coverage for non-performing exposures ..................................................................................................(345) - Common Equity Tier 1 capital ................................................................................................................................180,048 179,435 Non-controlling interest eligible for inclusion in T1 capital ..........................................................................................112 117 Additional Tier 1 capital .............................................................................................................................................20,004 13,217 Tier 1 capital ............................................................................................................................................................200,164 192,769 Tier 2 instruments .....................................................................................................................................................24,534 28,062 Tier 2 instruments of financial sector entities (significant investments) ......................................................................(1,306) (1,247)Tier 2 capital ............................................................................................................................................................23,228 26,815 Total own funds .......................................................................................................................................................223,392 219,584 Risk-weighted exposure amount (REA) Credit risk, loans and off-balance sheet items ...........................................................................................................798,562 732,760 Credit risk, securities and other .................................................................................................................................59,113 52,032 Credit risk, derivatives and repos ..............................................................................................................................5,875 7,442 Market risk due to currency imbalance ......................................................................................................................2,947 4,751 Market risk due to trading book positions ..................................................................................................................12,846 11,066 Credit valuation adjustment .......................................................................................................................................2,257 3,680 Operational risk .........................................................................................................................................................106,011 98,740 Total risk-weighted exposure amount ....................................................................................................................987,611 910,471 Capital ratios CET1 ratio .................................................................................................................................................................18.2% 19.7% Tier 1 ratio .................................................................................................................................................................20.3% 21.2% Capital adequacy ratio ...............................................................................................................................................22.6% 24.1%
The Group's consolidated situation as stipulated in CRR is the Group's accounting consolidation excluding insurance subsidiaries, in
particular Vördur.
79
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
47. Capital management, continued
Leverage ratio
** The SREP result based on the Group's Financial Statement at 31 December 2023. The Pillar 2R requirement is 1.8% of risk-weighted exposure amount based
on the Group's prudential consolidation under CRR, which excludes Vördur.
* The Icelandic buffer value shown. In the combined buffer requirement, the effective countercyclical capital buffer is determined by calculating the weighted
average of the corresponding buffer levels of each country, the weights being the total risk-weighted exposures for credit risk against counterparties residing in
those countries. The systemic risk buffer only applies to domestic exposures and is calculated using the same weighting method.
The leverage ratio is seen as a complementary measure to the risk-based capital ratios. The ratio is calculated on the basis of the Group's
consolidated situation as per the CRR, which excludes the Group's insurance subsidiaries. The minimum leverage ratio requirement is 3%
as stated in the Icelandic Financial Undertakings Act No. 161/2002.
Capital requirement, % of REACET1 Tier 1 TotalPillar 1 capital requirement .....................................................................................................................4.5% 6.0% 8.0% Pillar 2R capital requirement ** ...............................................................................................................1.0% 1.4% 1.8% Combined buffer requirement * ..............................................................................................................9.8% 9.8% 9.8% Regulatory capital requirement ...........................................................................................................15.3% 17.2% 19.6% Available capital ....................................................................................................................................18.2% 20.3% 22.6%
The following table outlines the implementation of the capital buffer requirements in accordance with the Icelandic Financial Undertakings
Act No. 161/2002, as prescribed by the Financial Stability Committee (FSC) and approved by the FSA. The countercyclical capital buffer
was raised from 2.0% to 2.5% on 16 March 2024. In December 2024, the systemic risk buffer was lowered from 3% to 2% and the buffer for
systemically important institutions raised from 2% to 3%.
The Bank carries out an ongoing process, the Internal Capital Adequacy Assessment Process (ICAAP), with the aim to ensure that the
Group has in place sufficient risk management processes and systems to identify, manage and measure the Group's total risk exposure.
The ICAAP is aimed at identifying and measuring the Group's risk across all risk types and ensure that the Group has sufficient capital in
accordance with its risk profile. The FSA supervises the Group, receives the Group's internal estimation on the capital adequacy and sets
the Pillar 2R capital requirements for the Group as a whole following the Supervisory Review and Evaluation Process (SREP). The Group's
own funds exceed the FSA's SREP requirements.
The Pillar 1 and Pillar 2R capital requirements may comprise 56.25% CET1 capital, 18.75% AT1 capital and 25% Tier 2 capital.
2024 2023Capital buffer requirement, % of REACapital conservation buffer ........................................................................................................................................2.5% 2.5% Capital buffer for systematically important institutions ...............................................................................................3.0% 2.0% Systemic risk buffer * ................................................................................................................................................2.0% 3.0% Countercyclical capital buffer * ..................................................................................................................................2.5% 2.0% Combined capital buffer requirement ....................................................................................................................10.0% 9.5%
2024 2023Capital ratios of the parent companyCET1 ratio .................................................................................................................................................................18.5% 19.9% Tier 1 ratio .................................................................................................................................................................20.5% 21.4% Capital adequacy ratio ...............................................................................................................................................22.9% 24.3%
2024 2023On-balance sheet exposures .....................................................................................................................................1,562,622 1,477,968 Derivative exposures .................................................................................................................................................16,078 15,953 Repos ........................................................................................................................................................................10,358 10,326 Off-balance sheet exposures .....................................................................................................................................50,982 46,087 Total exposure .........................................................................................................................................................1,640,040 1,550,334 Tier 1 capital ............................................................................................................................................................200,164 192,769 Leverage ratio ...........................................................................................................................................................12.2% 12.4%
80
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
47. Capital management, continued
MREL
48. Operational risk
The Group uses the standardized approach for the calculation of capital requirements for operational risk.
Operational risk is the risk of direct or indirect loss, or damage to the Group's reputation resulting from inadequate or failed internal
processes or systems, from human error or external events.
Each business unit within the Group is responsible for managing their own operational risks. Risk management and Compliance support the
first line through monitoring, complementary expertise, and by challenging the adequacy and effectiveness of risk management practices.
The second line is responsible for developing and maintaining a framework for identifying, measuring, and reporting the Group's operational
risk.
The solvency capital requirement for the subsidiary Vördur is calculated in accordance with the Icelandic Insurance Companies Act.
The Group must fulfil a minimum requirement for own funds and eligible liabilities (MREL) in accordance with the Act on Resolution of Credit
Institutions and Investment Firms, no. 70/2020, as amended, which transposes BRRD I/II into Icelandic law. Own funds which are not used
to fulfil the combined buffer requirement can be used towards the MREL requirements. In October 2024, the Icelandic Resolution Authority
presented the Group with the MREL requirements based on year-end 2023 financials. The requirements are expressed as a fraction of total
REA, and as a fraction of the total exposure measure. Both ratios are shown in the table below. An MREL subordination requirement of
13.5% REA will apply to the Bank on 1 August 2026.
2024 2023Minimum requirement for own funds and eligible liabilitiesOwn funds .................................................................................................................................................................223,392 219,584 Eligible liabilities ........................................................................................................................................................130,048 124,955 Own funds and eligible liabilities ...........................................................................................................................353,440 344,539 Combined buffer requirement (CBR) .........................................................................................................................96,786 83,763 Own funds and eligible liabilities not used for CBR ..............................................................................................256,654 260,775 Risk-weighted exposure amount (REA) .....................................................................................................................987,611 910,471 Own funds and eligible liabilities not used for CBR (% REA) .....................................................................................26.0% 28.6% MREL requirement (% REA) ....................................................................................................................................19.6% 20.2% Total exposure measure (TEM) .................................................................................................................................1,640,040 1,550,334 Own funds and eligible liabilities (% TEM) .................................................................................................................21.6% 22.2% MREL requirement (% TEM) ....................................................................................................................................6.0% 6.0% Solvency II for insurance subsidiary VördurExcess of assets over liabilities in accordance with Solvency II .................................................................................14,468 10,232 Subordinated liabilities ...............................................................................................................................................1,323 1,263 Foreseeable dividends ..............................................................................................................................................- - Own funds ................................................................................................................................................................15,791 11,495 Solvency capital requirements (SCR) ........................................................................................................................9,347 8,294 SCR ratio ..................................................................................................................................................................168.9% 138.6%
81
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Notes to the Consolidated Financial Statements
49. Sustainability risk
Sustainable financing framework
Sustainability risk is a driver of other risk types, such as credit risk and market risk. It can materialize in the short term, the medium term
and the long term. The Bank assesses both inside-out risks (negative impact from the Bank’s operations on people and/or the environment)
and outside-in risks (negative materialization of ESG factors on the Bank through their counterparties or invested assets). The Bank‘s
Sustainability Committee is responsible for reviewing the Bank‘s performance in relation to its commitments and policies in relation to
environmental, social and governance (ESG) factors and aligning the Bank‘s strategy and risk appetite with them.
The Bank’s Sustainability Financing Framework was published in August 2024 and applies to the Bank’s financing, deposits and loans
which are classed as environmentally and/or socially sustainable. The new framework replaces the Bank’s Green Financing Framework
published in 2021 which has been integral to the Bank’s green lending programme and green bond issues. New features of the
Sustainability Financing Framework include social categories which define projects having a positive impact on society. Added importance
is also given to the circular economy, and the classification of green projects has also been refined. Under this framework the Bank can
issue Sustainable Financing Instruments including, but not limited to, covered bonds, bonds, loans, commercial paper, repurchase
agreements and deposits. The use of proceeds from these instruments is restricted to the financing of eligible assets as defined in the
Framework. Eligible assets are divided into several eligible categories with inclusion and exclusion criteria. The Framework details the
processes for identifying eligible assets, for reporting on the use of the framework and for external review. Before the introduction of the
Green Financing Framework the Bank had a framework for green deposits, but these frameworks have now been merged. The following
table excludes committed green exposures. Figures for year end 2023 are based on the Green Financing Framework while figures for year
end 2024 are based on the Sustainability Financing Framework.
2024 2023Sustainable Financing InstrumentsGreen deposits ..........................................................................................................................................................28,802 25,477 Green borrowings ......................................................................................................................................................60,518 98,801 Book value ...............................................................................................................................................................89,320 124,278 Identified eligible sustainable assets by categorySustainable marine value chains and marine ecosystem management .....................................................................19,075 25,493 Sustainable forestry and agriculture ..........................................................................................................................271 - Renewable energy .....................................................................................................................................................608 429 Clean transportation ..................................................................................................................................................7,545 6,317 Green buildings .........................................................................................................................................................92,689 67,484 Energy efficiency .......................................................................................................................................................17,309 16,644 Sustainable waste and wastewater management ......................................................................................................7,799 6,523 Green book value ....................................................................................................................................................145,296 122,890 Affordable housing ....................................................................................................................................................28,835 - Education ..................................................................................................................................................................2,374 - Healthcare .................................................................................................................................................................1,146 - Employment generation and alleviate unemployment ................................................................................................13,336 - Social book value ....................................................................................................................................................45,691 - Sustainable book value ...........................................................................................................................................190,987 122,890
82
Arion Bank Consolidated Financial Statements 2024
Material accounting policies
50. Going concern assumption
51. Principles underlying the consolidation
Subsidiaries
Business combinations
–
–
–
–
–
–
–
Non-controlling interests
–
–
For each business combination, the Group elects to measure any non-controlling interests in the acquiree either:
if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less
the recognized amount of any non-controlling interests in the acquiree; less
When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.
Non-controlling interests represent the portion of profit or loss and equity not owned, directly or indirectly, by the Group; such interests are
presented separately in the Income Statement and are included in equity in the Statement of Financial Position, separately from equity
attributable to owners of the Group.
at fair value; or
the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
The Group measures goodwill at the acquisition date as:
Notes to the Consolidated Financial Statements
the fair value of the consideration transferred; plus
power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
the ability to use its power over the investee to affect its returns.
Business combinations are accounted for using the acquisition method as at the acquisition date, i.e. when control is transferred to the
Group. The Group controls an investee if, and only if, the Group has:
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less
than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether
it has power over an investee, including (i) the contractual arrangement with the other vote holders of the investee, (ii) rights arising from
other contractual arrangements and (iii) the Group's voting rights and potential voting rights. The Group re-assesses whether or not it
controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.
exposure, or rights, to variable returns from its involvement with the investee; and
Transaction costs incurred are expensed and included in administration expense.
Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
The Group's management has made an assessment of the ability to continue as a going concern and is satisfied that the Group has the
resources to continue. In making this assessment, management has taken into consideration the risk exposures facing the Group, which
are further described in the Risk Management Disclosures. The Consolidated Financial Statements are prepared on a going concern basis.
The accounting policies adopted in the preparation of these Consolidated Financial Statements are consistent with those followed in the
preparation of the Annual Financial Statements for year ended 31 December 2023, except for when there have been made amendmends to
current IFRS valid from 1 January 2024, Icelandic Act on Financial Statements, Act on Financial Undertakings and rules on Accounting for
Credit Institutions. Amendments to standards effective from 1 January 2024 did not have a material impact on theses Consolidated
Financial Statements.
Subsidiaries are entities controlled by the Group. The Financial Statements of subsidiaries are included in the Consolidated Financial
Statements from the date that control commences until the date that control ceases. The Financial Statements of the subsidiaries are
prepared for the same reporting period as the parent entity, using consistent accounting policies.
at their proportionate share of the acquiree's identifiable net assets, which are generally at fair value.
83
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
51. Principles underlying the consolidation, continued
Loss of control
Transactions eliminated on consolidation
Funds management
52. Associates
Impairment on investments in associates
53. Foreign currency
Foreign currency transactions
After applying the equity method to account for investments in associates, the Group determines whether it is necessary to recognize any
impairment loss with respect to its investments in associates. The Group first determines whether there is any objective evidence that an
investment in an associate is impaired. If such evidence exists, the Group then tests the entire carrying amount of the investment for
impairment, by comparing its recoverable amount, which is the higher of value in use and fair value less costs to sell, with its carrying
amount. The recoverable amount of an investment in an associate is assessed for each associate, unless the associate does not generate
cash inflows from continuing use that are largely independent of those from other assets of the Group. The excess of the carrying amount
over the recoverable amount is recognized in the Income statement as an impairment loss. Impairment losses are subsequently reversed
through the Income Statement if the reasons for the impairment loss no longer apply.
Items included in the Consolidated Financial Statements of each of the Group's subsidiaries are measured using the functional currency of
the respective entity.
The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries.
The Group manages and administers assets held in unit trusts and investment vehicles on behalf of investors. The Financial Statements of
these entities are not included in these Consolidated Financial Statements except when the Group controls the entity.
Associates are those entities over which the Group has a significant influence, i.e. the power to participate in the financial and operating
policy decisions of the associates but not control or joint control over those policies. Significant influence generally exists when the Group
holds 20% or more of the voting power, including potential voting rights, unless it can be clearly demonstrated that this is not the case.
Investments in associates are initially recognized at cost. The carrying amount of investments in associates includes intangible assets and
accumulated impairment loss.
The Group's investments in its associate are accounted for using the equity method.
Upon loss of significant influence over the associate, the Group measures and recognizes any retained investment at its fair value. Any
difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and
proceeds from disposal is recognized in profit or loss.
The Financial Statements include the Group's share of the total recognized income and expenses of associates from the date that
significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its carrying
value of associate, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that
the Group has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports
profits, the Group resumes recognizing its share of those profits only after its share of the profits equals the share of losses not recognized.
On the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other
components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss.
When assessing whether to consolidate investment funds, the Group reviews all facts and circumstances to determine whether the Group,
as fund manager, is acting as agent or principal. The Group is deemed to be a principal, and hence controls and consolidates a fund, when
the Group acts as fund manager and cannot be removed without cause, has variable returns through significant holdings, and is able to
influence the returns of the funds by exercising its power. The Group is defined as agent in all instances.
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of
transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional
currency at the exchange rate at that date. All differences arising on settlement or translation of monetary items are taken to the Income
Statement. Non-monetary assets and liabilities denominated in foreign currencies are reported at historic cost.
Intragroup balances, income and expenses arising from intragroup transactions, are eliminated in preparing the Consolidated Financial
Statements. This also applies to subsidiaries classified as disposal groups held for sale.
84
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
54. Interest
–
–
–
55. Fee and commission
56. Net financial income
i)
ii)
iii)
57. Insurance service results
Insurance revenues recognized in the Income Statement are insurance premium and other income from insurance contracts earned during
the operating year.
fair value through profit and loss (FVTPL); and
Net financial income comprises Dividend income, Net gain on financial assets and liabilities at fair value and Net foreign exchange gain.
Insurance service expenses are claims incurred during the year and the increase or decrease due to claims from last year, acquisition cost
and other costs from activities, such as marketing costs, salary costs, office and administration costs.
Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the
measurement of the effective interest rate.
The calculation of the effective interest rate includes all transaction costs and fees and points paid or received that are an integral part of
the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial
asset or financial liability.
Interest income and expense are recognized in the Income Statement using the effective interest method. The effective interest rate is the
rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or,
where appropriate, a shorter period) to the carrying amount of the financial asset or liability. The effective interest rate is established on
initial recognition of the financial asset and financial liability and is not revised subsequently.
Dividend income is recognized when the right to receive dividend is established. Usually this is the ex-dividend date for equity securities.
The Group provides various services to its clients and earns income therefrom, such as income from Corporate Banking, Retail Banking,
Capital Markets, Corporate Finance, Asset Management and Private Banking. Fees earned from services that are provided over a certain
period of time are recognized as the services are provided, i.e. point in time. Fees earned from transaction type services are recognized
when the service has been completed, i.e. point in time. Fees that are performance linked are recognized when the performance criteria are
fulfilled, i.e. point in time.
fair value through other comprehensive income (FVOCI).
Interest income and expense presented in the Income Statement include Income and expenses of assets and liabilities carried at:
Net foreign exchange gain comprise all foreign exchange differences arising on the settlement of foreign currency monetary assets and
liabilities and on translating foreign currency monetary assets and liabilities at rates different from those at which they were translated on
initial recognition during the year or in previous Consolidated Financial Statements.
Net foreign exchange gain also include foreign exchange differences arising on translating non-monetary assets and liabilities which are
measured at fair value in foreign currencies and whose other gain and loss are also recognized in profit or loss.
Net gain on financial assets and liabilities at fair value comprises all realized and unrealized fair value changes, except for interest
(which is included in Interest income and Interest expense) and foreign exchange gain and losses (which are included in Net foreign
exchange gains as described below).
amortized cost;
85
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
58. Income tax expense
59. Financial assets and financial liabilities
Recognition and initial measurement
Derecognition
Debt instruments
–
–
–
–
–
–
–
A financial asset or financial liability is measured initially at fair value and for an item not at fair value through profit or loss, transaction cost
that are directly attributable to its acquisition or issue.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities and the realization of
foreign exchange gain or loss, for financial reporting purposes and the amounts used for taxation purposes.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting
date, and any adjustment to tax payable in respect of previous years. Taxable profit may differ from earnings before tax as reported in the
Income Statement as it may exclude income or expense that is deductible in other years and it excludes income or expense that are never
taxable or deductible.
Current and deferred tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit or loss.
it is held within a business model whose objective is to collect contractual cash flows; and
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable
that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reviewed at each reporting date
and reduced to the extent that it is no longer probable that the related tax benefit will be realized. Such deferred tax assets and liabilities are
not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in
transaction that affects neither the taxable profit nor the accounting profit. In addition, tax liabilities are not recognized if the temporary
difference arises from the initial recognition of goodwill.
Financial liabilities are derecognized when the obligation of the Group specified in the contract is discharged or cancelled or expires.
Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or when the Group has
transferred substantially all risks and rewards of ownership.
A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL:
Tax expense comprises current and deferred tax. Income tax for the year has been calculated and recognized in the Consolidated Financial
Statements.
A debt instrument is measured at amortized cost only if it meets both of the following conditions and is not designated as at FVTPL:
its contractual cash flows are solely payments of principal and interest on the principal amount outstanding (here after SPPI).
The Group initially recognizes financial assets and financial liabilities on the date that they are originated at the fair value of consideration
paid. Regular-way purchases and sales of financial assets are recognized on the trade date at which the Group commits to purchase or sell
assets. All other financial assets and liabilities are recognized on the trade date, which is the date that the Group becomes a party to the
contractual provision of the instrument.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to
taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities
and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates
enacted or substantively enacted at the reporting date.
it is held within a business model whose objective is to collect contractual cash flows and selling financial assets; and
fair value through profit and loss (FVTPL); or
fair value through other comprehensive income (FVOCI).
its contractual cash flows are SPPI.
Debt instruments, including loans and debt securities, are classified into one of the following measurement categories:
amortized cost;
All other debt instruments are carried at FVTPL.
86
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
59. Financial assets and financial liabilities, continued
Business model assessment
-
-
-
-
-
Cash flow characteristics assessment
Debt instruments measured at amortized cost
Debt instruments measured at FVOCI
whether the assets are held for trading purposes, i.e. assets that the Group acquires or incurs principally for the purpose of selling or
repurchasing in the near term, or holds as part of a portfolio that is manage together for short-term profit or position taking;
The contractual cash flow characteristics assessment involves assessing the contractual features of an instrument to determine if they give
rise to cash flows that are consistent with a basic lending arrangement. Contractual cash flows that are consistent with a basic lending
arrangement are considered SPPI.
the risks that affect the performance of assets held within a business model and how those risks are managed;
how the performance of assets in a portfolio is evaluated and reported to group heads and other key decision makers within the Group's
business lines;
Business model assessment involves determining whether financial assets are managed in order to generate cash flows from collection of
contractual cash flows, selling financial assets or both. The Group assesses the business model at a portfolio level reflective of how groups
of assets are managed together to achieve a particular business objective. For the assessment of business models the Group takes into
consideration the following factors:
how compensation is determined for the Group's business lines' management that oversee the assets; and
the frequency and volume of sales in prior periods and expectations about future sales activity.
Interest is defined as consideration for the time value of money, the banks funding costs, the credit risk associated with the principal amount
outstanding and other costs (e.g liquidity risk and administrative costs), as well as a profit margin. Indexation of loans to the Consumer
Price Index (CPI) are considered part of interest as CPI guarantees the time value of money of the original outstanding balance. Principal
may change over the life of the instruments due to repayments. Indexation on principal accumulates over time.
In performing this assessment, the Group takes into consideration contractual features that could change the amount or timing of
contractual cash flows, such that the cash flows are no longer consistent with a basic lending arrangement. If the Group identifies any
contractual features that could modify the cash flows of the instruments such that they are no longer consistent with a basic lending
arrangement, the related financial assets is classified at FVTPL.
Impairment on debt instruments measured at amortized cost is calculated using the expected credit loss (ECL) approach. Loans and debt
securities measured at amortized cost are presented net of allowance for credit losses in the Consolidated Statement of Financial Position.
Debt instrument are measured at FVOCI if they are held within a business model whose objective is to hold for collection of contractual
cash flows and/or selling financial assets, where the assets' cash flows represent payments that are solely payments of principal and
interest. Subsequent to initial recognition, unrealized gains and losses on debt instruments measured at FVOCI are recorded in Other
Comprehensive Income (OCI). At realization the accumulated profit or loss recognized in OCI in previous periods is recycled to the
Consolidated Income Statement. Foreign exchange gains and losses of the debt instrument are recognized in the Consolidated Income
Statement. Interest income are recognized in the Income Statement in accordance with effective interest rate method.
Debt instrument are measured at amortized cost if they are held within a business model whose objective is to hold for collection of
contractual cash flows where those cash flows represent solely payments of principal and interest. After initial measurement, debt
instruments in this category are carried at amortized cost using the effective interest rate method. The effective interest rate is the rate that
discounts contractual cash payments or receipt through the contractual lifetime of the financial asset to the gross carrying amount of a
financial asset. Amortized cost is calculated taking into account any discount or premium on acquisition, transaction cost and fees that are
an integral part of the effective interest rate. Amortization is included in interest income in the Consolidated Income Statement.
Impairment on debt instruments measured at FVOCI is calculated using the expected credit loss approach. The ECL on debt instruments
measured at FVOCI does not reduce the carrying amount of the asset in the Statement of Financial Position, which remains at its fair value.
Instead, an amount equal to the allowance that would arise if the assets were measured at amortized cost is recognized in OCI with a
corresponding charge to net impairment in the Consolidated Statement of Comprehensive Income. The accumulated allowance recognized
in OCI is recycled to the Consolidated Statement of Comprehensive Income upon derecognition of the debt instrument.
87
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
59. Financial assets and financial liabilities, continued
Debt instruments measured at FVTPL
Purchased loans
Equity instruments
Offsetting
Expected credit losses
Debt instrument are measured at FVTPL if they are held for short term gain, held as part of a portfolio managed on a fair value basis or the
cash flows do not represent payments that are solely payments of principal and interest. These instruments are measured at fair value in
the Consolidated Statement of Financial Position. Realized and unrealized gains and losses are recognized as part of Net financial income
in the Consolidated Income Statement.
Expected credit loss (ECL) is established for all financial assets, except for financial assets classified or designated as FVTPL and equity
instruments designated as FVOCI, which are not subject to impairment assessment. Assets subject to impairment assessment are primarily
debt instruments (including loans to customers) measured at amortized cost or FVOCI. ECL on financial assets is presented in Net
impairment. Other financial assets carried at amortized cost are presented net of ECL in the Group's Consolidated Statement of Financial
Position. Off-balance sheet items subject to impairment assessment include financial guarantees and undrawn loan commitments. ECL for
Off-balance sheet items is separately calculated and included in Other Liabilities.
Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains or losses arising from a
group of similar transactions such as in the Group's trading activity.
All purchased loans are initially measured at fair value on the date of acquisition. As a result no allowance for credit losses would be
recorded in the Consolidated Statement of Financial Positions on the date of acquisition. Purchased loans may fit into either of the two
categories: Performing loans or Purchased or Originated Credit Impaired (POCI) loans.
The Group can elect to classify non-trading equity instruments at FVOCI. This election will be used for certain equity instruments for
strategic or longer term investment purposes. The FVOCI election is made upon initial recognition, on an instrument-by-instrument basis
and once made is irrevocable. Gains and losses on these instruments including when derecognized/sold are recorded in OCI and are not
subsequently reclassified to the Consolidated Income Statement. Dividends received are recorded in Financial income in the Consolidated
Income Statement. Any transaction costs incurred upon purchase of the security are added to the cost basis of the security and are not
reclassified to the Consolidated Income Statement of the security.
For equity instruments measured at FVTPL, changes in fair value are recognized as part of Financial income in the Consolidated Income
Statement.
Purchased performing loans are reflected in Stage 1 and will follow the same accounting as other performing loans. They will be subject to a
12-month allowance for credit losses which is recorded as provision for credit losses in the Consolidated Income Statement. The fair value
adjustments set up for these loans on the date of acquisition is amortized into interest income over the life of these loans.
Financial assets and liabilities are set off and the net amount reported in the Statement of Financial Position when, and only when, the
Group has a legal right to offset the recognized amounts and intends either to settle on a net basis or to realize the asset and settle the
liability simultaneously.
Equity instruments are measured at FVTPL.
POCI loans do not have allowance at initial recognition but subsequently the allowance will reflect the changes in the lifetime expected
losses. At recognition the discount of each POCI loan is split up into two categories, impairment discount and interest discount or premium.
Interest is calculated with a credit adjusted effective interest rate and is posted to interest income. Periodically the Group recalculates the
carrying amount by computing the present value of estimated future cash flows at the financial instrument's original credit adjusted effective
interest rate, any changes in the expected cash flows since the date of acquisition are recorded as a charge/recovery in net impairment in
the Consolidated Income Statement at the end of all reporting periods subsequent to the date of acquisition.
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Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
59. Financial assets and financial liabilities, continued
Stage Criteria
Definition of default
–
–
Probability of default and credit risk rating
Lifetime expected credit loss is recorded. Effective interest rate
is calculated on the book value.
The ECL is an unbiased discounted probability-weighted estimate of the cash shortfalls expected to result from defaults occurring in the
next 12 months or, in cases where credit risk has significantly increased, in the expected lifetime of an exposure. For guarantees and loan
commitments, credit loss estimates consider the portion of the commitment that is expected to be paid out or expected to be drawn over the
relevant time period, contingent on significant financial difficulty.
the asset is more than 90 days past due, or
The ECL represents an unbiased estimate of expected credit losses on our financial assets as at the balance sheet date. Judgement is
required in making assumptions and estimations when calculating the ECL, including movements between the three stages and the
application of forward looking scenarios. The underlying assumptions and estimates may results in changes to the provisions from period to
period that significantly affect our results of operations.
The Group defines default in accordance with article 178 of EU Regulation No 575/2013 (CRR). The Group considers a financial asset to be
in default when:
For corporate counterparties, more than 90 days past due means that the counterparty has been past due on a material exposure each day
in the last 90 days. For individuals, more than 90 days past due means that the individual has been past due on a material exposure in the
same exposure portfolio each day in the last 90 days.
1
12 month expected credit loss is recorded. The expected credit
loss is computed using a probability of default occurring over the
next 12 months. For those instruments with a remaining maturity
of less than 12 months, a probability of default corresponding to
remaining term to maturity is used. The effective interest rate is
calculated on the gross carrying amount.
Assessment of expected credit loss, and effective interest
rates.
Increases or decreases in the required ECL attributable to purchases and new originations, derecognitions or maturities, and
remeasurements due to changes in loss expectations or state migrations are recorded in net impairment. Write-offs and recoveries of
amounts previously written off are recorded against ECL.
An asset does not return to non-defaulted status until after a probation period which is at least either three months if no forbearance
measures have been granted or one year if forbearance measures have been granted.
The Group allocates to each exposure a credit risk rating (e.g. A+, A, A-, BBB+, etc.) based on the calculated 12 month probability of
default ('the PD'). The PD is assessed through the Group's credit rating models or based on external ratings if available. The Group's credit
rating models are statistical models based on a variety of information that has been determined to be predictive of default. These include
demographic, behavioral, financial and economic data, coupled with qualitative expert judgement for large corporate exposures. Factors
vary depending on the nature of the exposure and the profile of the borrower. The PD estimates used for the purpose of calculating IFRS 9
impairments are point-in-time, i.e. dependent on the economic cycle. The Group's credit rating models are subject to annual performance
tests and are recalibrated on a regular basis if needed.
In assessing whether a borrower is unlikely to pay, the Group considers both qualitative and quantitative indicators, e.g. overdue status,
debt and equity ratios, market circumstances and other data developed internally or obtained from external sources.
Lifetime expected credit loss is recorded, based on the
probability of default over the remaining estimated life of the
financial instrument. Effective interest rate is calculated on the
gross carrying amount.
For corporate counterparties it is assumed that if one exposure is in default, all other exposures to that counterparty are also in default
(cross-default). For individuals however, the Group defines six different exposure portfolios and has different statistical credit risk models for
each of them - mortgages, consumer loans, auto loans, guarantees, loans to individuals for work purposes and other loans. Each exposure
portfolio is assessed separately, meaning that if an individual is in default on a loan belonging to one portfolio, their other exposures,
belonging to other portfolios, are not automatically assumed to be in default. However, defaults in other portfolios are also considered and
cross-default applies when they are significant.
3
Exposures in default / Credit impaired
2
the borrower is considered to be unlikely to pay.
Exposures not impaired and with no significant increase
in credit risk
Exposures not impaired with significant increase in
credit risk subsequent to origination.
The Group measures the ECL on each balance sheet date according to a three-stage expected credit loss impairment model:
89
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
59. Financial assets and financial liabilities, continued
Probability of default
In addition to calculating PD and allocating a credit risk rating to each exposure, the Group calculates the lifetime probability of default
(LPD), which is an assessment of the probability that a default event occurs over the lifetime of the exposure. The LPD incorporates
management's view of possible future macroeconomic developments and the likelihood of rating transitions over the lifetime of the
exposure. For the determination of LPD, the Bank calculates PD term structures – which effectively provides the probability of default for
any given time period, one for each rating grade, PD model and economic scenario. The annualized lifetime probability of default (ALPD) of
an exposure is the fixed 12 month PD (without transitions) that corresponds to the exposure's LPD. The credit risk rating that corresponds to
the ALPD is defined as the lifetime credit risk rating.
The assessed 12 months PDs are the basis for the determination of the term structure of PDs for exposures. The Group applies transition
models, developed on the basis of historical data, to predict the development of risk grades for periods that exceed one year. The Group
has separated transition behavior due to specific and general risk and applies its macro-economic forecasts to the latter. The analysis of
credit rating transitions due to general risk includes the identification and calibration of relationships between changes in default rates and
changes in key macro-economic factors. Unemployment rate is the predominant predictive variable. Among other indicators examined are
GDP growth, private consumption expenditure, inflation, development of housing prices and benchmark interest rates.
The Group uses external ratings for counterparties that receive such ratings from recognized rating agencies such as Moody's, Standard &
Poor's and Fitch. The Group's internal rating scale was originally calibrated to match historical default rates shown in publications of the
aforementioned rating agencies and using smoothing techniques. External ratings are primarily used to assess expected losses for
counterparties of marketable securities, money market and deposit accounts positions which fall under the Impairment requirements of
IFRS 9. The Group's ECL is broken down by investment grade and non-investment grade classes for such exposures, as per the definition
of the corresponding rating agency.
The Group's PDs and PD term structures are based on both quantitative and qualitative factors and in some cases external ratings are
used. PD's are re-assessed on a regular basis with different frequencies depending on the type of counterparty and/or exposure.
Each exposure is allocated a credit risk rating at initial recognition. The calculations are based on available information at the time of
origination. Exposures are continuously monitored and revaluated using the models described above and this may result in transitions
between risk ratings.
The Group's rating scale is shown below, including mapping of external ratings. The lower bounds are inclusive.RiskS&P /class Rating Lower PDUpper PDFitchMoody'sDescription0 AAA ............................................................................... 0.000% 0.006% AAA AaaInvestment Grade AA+ ............................................................................... 0.006% 0.018% AA+ Aa1 AA ................................................................................. 0.018% 0.029% AA Aa2AA- ................................................................................ 0.029% 0.045% AA- Aa3A+ .................................................................................. 0.045% 0.070% A+ A1A .................................................................................... 0.070% 0.110% A A2A- .................................................................................. 0.110% 0.170% A- A31 BBB+ ............................................................................. 0.170% 0.260% BBB+ Baa1Investment GradeBBB ............................................................................... 0.260% 0.410% BBB Baa2BBB- .............................................................................. 0.410% 0.640% BBB- Baa32 BB+ ............................................................................... 0.640% 0.990% BB+ Ba1Non-investment GradeBB ................................................................................. 0.990% 1.540% BB Ba2BB- ................................................................................ 1.540% 2.400% BB- Ba33 B+ .................................................................................. 2.400% 3.730% B+ B1Non-investment GradeB .................................................................................... 3.730% 5.800% B B2B- .................................................................................. 5.800% 9.010% B- B34 CCC+ ............................................................................ 9.010% 14.000%Non-investment CCC .............................................................................. 14.000% 31.000%GradeCCC- ............................................................................. 31.000% 99.990%5 DD ................................................................................. 99.99% 100.00% D CDefault / Impaired
90
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
59. Financial assets and financial liabilities, continued
Loss given default
Exposure at default
Significant increase in credit risk
–
–
–
–
–
The Group monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews to confirm that the
criteria is capable of identifying significant increases in credit risk before an exposure is in default and there is no unwarranted volatility in
loss allowance from transfers between 12-month ECL (stage 1) and lifetime ECL (stage 2).
The Group has six different exposure specific PD models for individuals: mortgages, consumer loans, auto loans, guarantees, loans to
individuals for work purposes and other loans. The Bank has a different model or rating logic for the following corporate portfolios – large
corporates, retail SMEs, holding companies, construction projects, financial institutions (external ratings), municipalities, state related
entities and cooperatives.
the exposure is on the Group's watch list.
The assessment of significant increase in credit risk requires significant judgment. In determining whether the risk of default for an exposure
has increased significantly since initial recognition, the Group considers relevant, reasonable and supportable information on an ongoing
basis. Assumptions are drawn based on the Group's historical experience and expert judgement including forward-looking expectations. If a
debt investment security has low credit risk and is considered investment grade at the reporting date, the Group determines that the credit
risk on the asset has not increased significantly since initial recognition.
the exposure's credit risk rating on reporting date is not in risk class 0 or 1 and has deteriorated by more than one risk rating compared
to the credit risk rating at origination;
the exposure's lifetime credit risk rating on reporting date is not in risk class 0 or 1 and has deteriorated by more than one risk grade
(two or more) compared to the lifetime credit risk rating at origination. As the Group does not have the benefit of hindsight, this
comparison is only used for exposures that originate on or after 1 January 2018;
Assumptions on key macro-economic indicators are on an ongoing basis estimated based on internal and external information available at
each time. The Group formulates a 'base case' view of the future direction of relevant economic variables as well as a representative range
of other possible forecast scenarios. The Group uses these forecasts to adjust its estimates of lifetime probability of default and other
factors that affect the lifetime expected credit loss.
the exposure has received forbearance measures in the past six months;
Each credit facility is assigned an LGD. The LGD is an assessment of loss conditional on a default occurrence. The Group splits LGD into
three components; the probability of cure, the expected recovery from liquidation of collateral, and the recovery rate for the unsecured part
of the exposure. The cure rate is modeled on the Group’s historical data of assets returning to performing status after being in default
without loss. The expected recovery is the outcome of the Group’s collateral allocation algorithm which takes into account the seniority of
debt and collateral type. Haircuts are applied to different types of collaterals based on expert judgment, supported by historical data, and
take into account costs and the time value of money. Different haircuts are applied for different macro-economic scenarios in the ECL
calculations. In some instances, assets are considered to be fully covered by collateral after haircut application and therefore carry no ECL.
The recovery rate for the unsecured part of the exposure is based on expert judgment, taking into account historical loss experience.
The cut-off period for cure is taken to be 18 months from default, which means that a return to non-default after that period is not considered
a cure. Furthermore, cure is defined on a portfolio level instead of on a loan level i.e. the same level as the PD models. In this version,
statistical cure rate models have been created for the largest portfolios – mortgages, consumer loans and large corporates and retail SMEs.
As the explanatory variables in the statistical cure rate models can be related to variables in PD models, this change prompts a
consideration of PD-cure correlation. The correlation effects are taken into account in the Bank’s ECL calculations. Furthermore, long-run
average cure rate models using macro-economic variables have been created. The models can be used to assess cure rate under different
economic conditions to be able to apply different cure rates for different economic scenarios given different economic conditions.
The EAD represents the expected exposure at the event of a default. For a given exposure, the Group derives the EAD from the contractual
amortization schedule and takes into account the likelihood of pre-payments, drawdowns, rollovers, extensions and use of unused
allowance in the period leading up to default. These behavioral estimates, which are based on historical observations and forward-looking
forecasts, apply differently to each type of exposure.
For a given exposure, the Group considers a significant increase in credit risk to have occurred if one of the following holds:
the number of days in arrears exceeds 30 days; or
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Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
59. Financial assets and financial liabilities, continued
Exposures in default
Expected credit loss measurement
–
–
–
Forward looking scenarios
Write-off of loans
The Group measures ECL considering the risk of default over the maximum contractual period (including any extension periods) over which
it is exposed to credit risk. The maximum contractual period extends to the date at which the Group has the right to require repayment of an
advance or terminate a loan commitment or guarantee. However, for overdrafts and credit card facilities that include both a loan and an
undrawn commitment component, the Group measures ECL over a period longer than the maximum contractual period if the Group’s
procedures for extensions do not limit the Group’s exposure to credit losses to the contractual period. These facilities do not have a fixed
term or repayment structure. The Group can cancel them with immediate effect but this contractual right is not enforced in the normal day-to-
day management, but only when the Group becomes aware of an increase in credit risk at the facility level. This longer period is estimated
taking into account the credit risk management actions that the Group expects to take and that serve to mitigate ECL. These include a
reduction in limits, cancellation of the facility and/or turning the outstanding balance into a loan with fixed repayment terms. The ECL
calculations involve discounting using the exposures' effective interest rates.
The amount of the loss impaired is the difference between the assets' gross carrying value and the present value of estimated future cash
flow. In some instances, the impairment of exposures is zero due to collateral coverage.
The ECL for an exposure is the weighted average of the expected credit loss for different macro-economic scenarios provided by the
Group's management. The Group currently considers three scenarios: 'base case', 'optimistic' and 'pessimistic' and assigns its best
estimate of the likelihood of occurrence to each one. The development of macro-economic variables and the corresponding weights are
based on expert judgement supported by historical data. The Group incorporates forward-looking macro-economic information into both its
assessment of whether the credit risk of an instrument has increased significantly since its initial recognition (via the lifetime credit risk
rating comparison) and its measurement of ECL as the PD term structures, LGD and EAD include macro-economic adjustments for each of
the scenarios.
Each component is derived from internally generated models, apart from external credit ratings. The models are developed with statistical
methods and/or expert judgement supported by historical data and adjusted for expected macro-economic effects.
The predominant macro-economic variable used across all portfolios is the unemployment rate in Iceland, as measured by the Directorate
of Labor. Among other variables considered are GDP growth, private consumption expenditure, inflation, development of housing prices
and benchmark interest rates. The average cure is also correlated with unemployment rate, depending on portfolio, and collateral haircuts
are adjusted for different scenarios. Exit and pre-payment rates, which affects EAD, are dependent on refinancing spreads and due to the
correlation between interest rates and unemployment rate they are adjusted for different scenarios.
Exposures in default at each reporting date, according to the Group’s definition, are considered to be credit impaired.
The expected credit loss (ECL) calculations are based on three main components:
probability of default (PD),
loss given default (LGD); and
Loans are written off, either partially or in full, when there is no realistic prospect of recovery i.e. the bankruptcy of the borrower or an
ineffective attachment or distraint. Collateralized loans are generally written of when the realization of collateral have been received. After
write-off, exposures continue to be subject to collection activities in accordance with Icelandic law.
exposure at default (EAD).
Impairment losses are recognized in net impairment, see note 44. Any decreases in impairment loss amounts are reversed through net
impairment.
92
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
59. Financial assets and financial liabilities, continued
60. Hedge accounting
61. Cash and cash equivalents
Cash and cash equivalents in the Statement of Cash Flows consist of cash, demand deposits with the Central Bank and demand deposits
with other credit institutions. Cash and cash equivalents comprise balances with less than three months' maturity from the date of
acquisition. Cash and cash equivalents are carried at amortized cost in the Statement of Financial position.
Other derivatives, not designated in a qualifying hedge relationship, are used to manage its exposure to foreign currency, interest rate,
equity market and credit risk. The financial instruments used include, but are not limited to, interest rate swaps, cross-currency swaps,
forward contracts, futures, options, credit swaps and equity swaps.
If a modification of terms results in derecognition of the original financial asset and recognition of the new financial asset, the new financial
asset will generally be recorded in Stage 1, unless it is determined to be credit-impaired at the time of renegotiation. For the purposes of
assessing for significant increase in credit risk, the date of initial recognition for the new financial asset is the date of modification.
The Group applies fair value hedge accounting with respect to designated hedging relationship of certain fixed-rate foreign currency
denominated notes issued by the Bank as the hedged items and certain foreign currency denominated interest rate swaps as the hedging
instruments. The Group recognizes the changes in fair value of the interest rate swaps together with changes in the fair value of bonds
attributable to interest rate risk immediately in profit or loss in the line item of Note 10, Net gain on fair value hedge of interest rate swap.
Calculated accrued interest on both swaps and bonds are included in the line item of Note 7, Interest expense.
If a modification of terms does not result in derecognition of the financial asset, the carrying amount of the financial asset is recalculated as
the present value of the renegotiated or modified contractual cash flows, discounted at the original effective interest rate and gain or loss is
recognized. The financial asset continues to be subject to the same assessments for significant increase in credit risk relative to initial
recognition and credit-impairment, as described above. A modified financial asset will migrate out of Stage 3 if the conditions that led to it
being identified as credit-impaired are no longer present and relate objectively to an event occurring after the original credit-impairment was
recognized. A modified financial asset will migrate out of Stage 2 when it no longer satisfies the relative thresholds set to identify significant
increase in credit risk, which are based on changes in its PD, lifetime PD, days past due and other qualitative considerations.
Modifications
The original terms of a financial asset may be renegotiated or otherwise modified, resulting in changes to the contractual terms of the
financial asset that affect the contractual cash flow. The treatment of such modifications is primarily based on the process undertaken to
execute the renegotiation and the nature and extent of changes made. Modifications which are performed for credit reasons, primarily
related to troubled debt restructurings, are generally treated as modifications of the original financial asset unless modifications are
significant. Significant modifications are generally considered to be an expiry of the original cash flows; accordingly, such renegotiations are
treated as a derecognition of the original financial asset and recognition of a new financial asset.
The Group has chosen to continue to apply the hedge accounting requirements of IAS 39 as an accounting policy choice as permitted
under IFRS 9. The Group has chosen to continue to apply the hedge accounting requirements of IAS 39 as an accounting policy choice as
permitted under IFRS 9.
On initial designation of the hedges, the Group formally documented the relationship between the hedging instruments and hedged items,
including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the
effectiveness of the hedging relationships. The Group makes an assessment, both at inception of the hedge relationships and on an
ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value of the
hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within the range of
80–125%.
If the hedging derivative expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for fair value hedge
accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. Any adjustments, up to the point of
discontinuation, to a hedged item for which the effective interest method is used, is amortized to profit or loss as part of the recalculated
effective interest rate of the item over its remaining life.
93
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
62. Loans
63. Derivatives
64. Intangible assets
Goodwill and infrastructure
Customer relationship and related agreements
Software
Amortization of intangible assets
65. Investment property
Subsequent expenditure on software is capitalized only when it increases the future economic benefits embodied in the specific asset to
which it relates. All other expenditure is expensed as incurred.
Derivatives are recognized at fair value. Fair value changes are recognized in the Income Statement. Changes in fair values of derivatives
are split into interest income, foreign exchange differences and net financial gain or loss. Interest income is recognized on an accrual basis.
Derivatives with positive fair values are recognized as Financial instruments and derivatives with negative fair values are recognized as
Financial liabilities at fair value.
Amortization of intangible assets is recognized in the Income Statement on a straight-line basis over the estimated useful life, from the date
that it is available for use. The estimated useful life of intangible assets for the current and comparative periods is three to ten years.
An investment property is a property which is held either to earn rental income or for capital appreciation or for both.
Investment property is initially measured at cost and subsequently at fair value. Gains or losses arising from changes in the fair values of
investment properties are included in the Income Statement.
Loans are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortized cost
using the effective interest method.
Loans are financial instruments with fixed or determinable payments that are not quoted in an active market and that the Group does not
intend to sell immediately or in the near term. Loans include loans provided by the Group to credit institutions and to its customers,
participation in loans from other lenders and purchased loans.
When the Group purchases an asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a
fixed price on a future date reverse repo or stock borrowing, the arrangement is accounted for as a loan, and the underlying asset is not
recognized in the Group's Consolidated Financial Statements.
Goodwill and infrastructure that arises on the acquisition of subsidiaries is presented with intangible assets. Subsequent to initial recognition
goodwill and infrastructure is measured at cost less accumulated impairment losses.
Customer relationship and related agreements are measured at cost less any accumulated impairment losses.
A derivative is a financial instrument or other contract, the value of which changes in response to a change in an underlying variable, such
as share, commodity or bond prices, an index value or an exchange or interest rate, which requires no initial net investment or initial net
investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes
in market factors and which is settled at a future date.
Software acquired by the Group is measured at cost less accumulated amortization and any accumulated impairment losses.
When the Group is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of the
asset to the lessee, the arrangement is classified as a capital lease and a receivable equal to the net investment in the lease is recognized
and presented within loans.
94
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
66. Impairment of non-financial assets
67. Deposits
68. Borrowings
69. Subordinated liabilities
70. Assets and disposal groups held for sale
Borrowings are measured at amortized cost with any difference between cost and redemption amount being recognized in the Income
Statement over the period of the borrowings on an effective interest basis. Accrued interest is included in the carrying amount of the
borrowings.
The carrying amounts of the Group's non-financial assets, other than assets held for sale, investment property and deferred tax assets, are
reviewed at each reporting date to determine, whether there is any indication of impairment. If any such indication exists then the asset's
recoverable amount is estimated. The recoverable amount of intangible assets is assessed annually.
An impairment loss is recognized if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized in
profit or loss.
The recoverable amount of an asset is the greater of its value in use and its fair value less cost to sell. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset.
The Group classifies a Asset or disposal group as held for sale if its carrying amount will be recovered principally through a sale transaction
rather than through continuing use. For this to be the case the asset or disposal group must be available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such asset or disposal group and the sale must be highly probable.
Immediately before classification as held for sale, the measurement of the qualifying assets and all assets and liabilities in a disposal group
is brought up-to-date in accordance with applicable IFRS. Then, on initial classification as held for sale, Assets and disposal groups are
recognized at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are
included in the Income Statement, even when there is a revaluation. The same applies to gains and losses on subsequent remeasurement.
Revaluation through the reversal of impairment in subsequent periods is limited so that the carrying amount of the held for sale, Assets or
disposal groups does not exceed the carrying amount that would have been determined had no impairment loss been recognized in prior
years.
An impairment loss in respect of other assets, where impairment losses have been recognized in prior periods, are assessed at each
reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss
had been recognized.
Deposits are initially measured at fair value plus transaction costs, and subsequently measured at their amortized cost using the effective
interest method.
Subordinated liabilities are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, subordinated
liabilities are stated at principal amount due plus accrued interest, which is recognized in the Income Statement based on the contractual
terms of the borrowing.
Subordinated liabilities are financial liabilities in the form of subordinated capital which, in case of the Group's voluntary or compulsory
winding-up, will not be repaid until after the claims of ordinary creditors have been met. In the calculation of the capital ratio, they are
included within both Tier 1 and Tier 2, based on terms of each instrument. The Group may only retire subordinated liabilities with the
permission of the FSA.
95
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
71. Other assets and other liabilities
Property and equipment
Right-of-use asset and lease liability
Other assets and other liabilities
Insurance contract liabilities
72. Equity
Share capital and share premium
Treasury shares
Dividends
Option reserve
Warrants reserve
Other assets and other liabilities are stated at cost less impairment.
Equipment .......................................................................................................................................................................
33 years
3-15 years
Subsequent expenditure is capitalized only when it is probable that the future economic benefits of the expenditure will flow to the Group.
Ongoing repairs and maintenance are expensed as incurred.
Dividends on shares are recognized in equity in the period in which they are approved by Arion Bank's shareholders.
The depreciation methods, useful lives and residual values are reassessed annually.
Items of property and equipment are measured at cost less accumulated depreciation and impairment losses. When parts of an item of
property and equipment have different useful lives, they are accounted for as separate items of property and equipment.
The consideration paid for the purchase of own shares is deducted from the shareholders equity as treasury shares. No gain or loss is
recognised in the Income Statement on purchase or sale of treasury stock.
The option reserve represents the cumulative charge to the Income Statement for options for employees of the Group to purchase shares in
Arion Bank. The stock option plan is set up in accordance with article 10 in the Icelandic Act on income tax No. 90/2003.
Par value of issued share capital is ISK 1 per share. The holders of ordinary shares are entitled to receive dividends as approved by the
AGM and are entitled to one vote per share at shareholders' meetings. Share capital has been fully paid.
The warrants reserve represents the consideration received for outstanding warrants.
The depreciable amount of property and equipment is determined after deducting its residual value. Depreciation is charged to the Income
Statement on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. The estimated useful
lives are as follows:
Insurance contract liabilities comprise liabilities for remaining coverage and liabilities from incurred claims. Liabilities for remaining coverage
is estimated using a simplified method which is based on paid premiums minus premiums from insurance services recognized as income. A
loss factor is added in the case of onerous contracts. Liabilities from incurred claims are estimated as the best estimate of discounted cash
flows plus a risk adjustment due to non-financial risk and other expected cost of claims. Liabilities for remaining coverage are estimated in
the same way as the best estimate for claims reserve pursuant to the Insurance Activities Act No. 100/2016. These calculation methods are
in accordance with the rules of IFRS 17 Insurance Contracts.
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a
corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases and leases of low
value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of
the lease. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted by using the Group's incremental borrowing rate. The right-of-use assets comprise the initial measurement of the corresponding
lease liability. They are subsequently measured at cost less accumulated depreciation.
Real estates .....................................................................................................................................................................
96
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
72. Equity, continued
Reserve for investments in subsidiaries and associates
Reserve for investments in securities
Reserve due to capitalized development cost
Financial assets at fair value through OCI
Statutory reserve
Foreign currency translation reserve
73. Earnings per share
74. Financial guarantees
75. Fiduciary activities
In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and acceptances.
Financial guarantees are initially recognized in the Consolidated Financial Statements at fair value, being the premium received.
Subsequent to initial recognition, the Group's liability under each guarantee is measured at the higher of the amount initially recognized
less, when appropriate, cumulative amortization recognized in the Income Statement, and the best estimate of expenditure required to settle
any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is recorded in the
Income Statement. The premium received is recognized in the Income Statement in Net fees and commission income on a straight line
basis over the life of the guarantee.
A reserve for unrealized fair value changes, net of tax, for assets held at fair value through other comprehensive income. The fair value
reserve is released in correlation with realization of gains or losses of financial assets at derecognition.
According to the Financial Statements Act No. 3/2006 the difference between share of profit of subsidiary or associate in excess of dividend
payment or dividend payment pending, shall be transferred to a restricted shareholding equity reserve, net of tax, which is not subject to
dividend payments. When shareholding in subsidiary or associate is sold or written off the shareholding equity reserve shall be released
and the amount transferred to retained earnings.
According to the Financial Statements Act No. 3/2006 fair value changes of financial assets from the initial reporting, shall be transferred
from retained earnings to a fair value equity reserve, net of tax. The fair value equity reserve is not subject to dividend payments. The fair
value equity reserve shall be released in accordance with fair value changes recognized when financial asset is sold or redeemed or the
assumptions for the fair value change is no longer in force.
According to the Financial Statements Act No. 3/2006 entities that capitalize development costs shall transfer a corresponding amount from
retained earnings to a separate reserve. The reserve is not subject to dividend payments. The reserve shall be eliminated in an amount
corresponding to the annual depreciation of the capitalized development cost. The reserve shall be released if the asset is sold or fully
depreciated.
The Group provides asset custody, asset management, investment management and advisory services to its clients. These services
require the Group to make decisions on the treatment, acquisition or disposal of financial instruments. Assets in the Group's custody are not
reported in its Statement of Financial Position.
According to the Icelandic Companies Act No. 2/1995 at least 10% of the profit of the Group which is not devoted to meeting losses from
previous years and is not contributed to other legal reserves must be contributed to the statutory reserve until it amounts to 10% of the
share capital. When that limit has been reached the contribution must be at least 5% of the profit until the statutory reserve amounts to 25%
of the share capital of the Bank.
The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the Consolidated
Financial Statements of foreign operations.
The Group presents basic and diluted earnings per share (EPS). Basic earnings per share is calculated by dividing the net earnings
attributable to the shareholders of Arion Bank hf. by the weighted average number of ordinary shares outstanding during the year. Diluted
earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding during the year to assume
conversion of all dilutive potential ordinary shares, which comprise share options granted to employees and issued warrants.
97
Arion Bank Consolidated Financial Statements 2024
Notes to the Consolidated Financial Statements
76. Employee benefits
Share-based payment expense
77. Standards issued but not yet effective
IFRS 18 Presentation and disclosures in financial statements
New standards, amendments to standards and interpretations have been issued but are not yet effective for the year ended 31 December
2024, and have not been applied in preparing these Consolidated Financial Statements. Relevant to the Group's reporting is IFRS 18
Presentation and disclosures in financial statements.
IFRS 18 Presentation and disclosures in financial statements replaces IAS 1, carrying forward many of the requirements in IAS 1
unchanged and complementing them with new requirements. IFRS 18 introduces new requirements, the main being (i) to present specified
categories and defined subtotals in the income statement, (ii) provide disclosures on management-defined performance measures in the
notes to the Financial Statements and (iii) to improve aggregation and disaggregation. IFRS 18 will come into effect for annual reporting
periods beginning on or after 1 January 2027, with comparative figures required. The Group is currently assessing the potential effect of the
standard on presentation of the information on operations and disclosures.
All entities with employees within the Group have defined contribution plans. The entities pay fixed contributions to publicly or privately
administered pension plans on a mandatory and contractual basis. The Group has no further payment obligations once these contributions
have been paid. The contributions are recognized as an expense in the Income Statement when they become due. The Group does not
operate any pension fund which confers pension rights.
Equity-settled share‐based payments to employees are measured at the fair value of the equity instruments at grant date. The grant date
fair value of equity-settled share‐based payments granted to employees is recognized as an salary expense, with a corresponding increase
in equity, over the contratual period. The amount recognized as an expense is adjusted to reflect the number of shares that are expected to
be exercised at the vesting date.
98
Arion Bank Consolidated Financial Statements 2024 Amounts are in ISK millions
Income Statement
2024 2023 2022* 2021 2020
46,302 44,685 40,201 32,063 31,158
15,360 16,389 16,449 14,673 11,642
2,166 152 615 3,442 3,071
2,845 1,366 (3,286) 6,220 2,745
(222) 1,589 1,314 1,827 2,148
66,451 64,181 55,293 58,225 50,764
(28,328) (25,701) (24,329) (25,875) (24,441)
(1,924) (1,796) (1,749) (1,516) (1,301)
(1,131) (1,348) 144 3,169 (5,044)
35,068 35,336 29,359 34,003 19,978
(8,919) (9,595) (9,944) (6,782) (3,231)
26,149 25,741 19,415 27,221 16,747
(37) (4) 6,543 1,394 (4,278)
26,112 25,737 25,958 28,615 12,469
Statement of Financial Position
Assets
124,094 102,095 114,118 69,057 42,136
25,690 28,835 45,501 30,272 28,235
1,230,058 1,152,789 1,084,757 936,237 822,941
206,417 205,706 193,329 225,657 227,251
9,387 9,493 7,862 6,560 6,132
814 789 787 668 891
7,688 8,051 8,783 9,463 9,689
2 39 135 2 2
111 62 61 16,047 16,811
14,006 17,813 10,276 19,901 18,618
1,618,267 1,525,672 1,465,609 1,313,864 1,172,706
Liabilities and Equity
6,618 2,771 11,697 5,000 13,031
857,443 792,710 755,361 655,476 568,424
8,394 11,646 20,997 5,877 5,240
11,060 11,169 10,303 7,102 4,262
- - 16,935 16,183
49,950 46,336 39,401 37,151 32,714
433,178 420,460 392,563 356,637 298,947
44,538 41,279 47,331 35,088 36,060
1,411,181 1,326,371 1,277,653 1,119,266 974,861
206,582 198,798 187,307 193,925 197,672
504 503 649 673 173
207,086 199,301 187,956 194,598 197,845
1,618,267 1,525,672 1,465,609 1,313,864 1,172,706
Total Liabilities and Equity .........................................................
Operating income ........................................................................
Earnings before income tax .......................................................
Net earnings from continuing operations ..................................
Net earnings ................................................................................
Cash and balances with Central Bank ...........................................
Loans to credit institutions ............................................................
Loans to customers ......................................................................
Intangible assets ...........................................................................
Tax assets ....................................................................................
Investment property ......................................................................
Total Assets ................................................................................
* Comparative figures have been restated in accordance with IFRS 17
Financial instruments ....................................................................
Tax liabilities .................................................................................
Total liabilities .............................................................................
Assets and disposal groups held for sale ......................................
Non-controlling interest .................................................................
Other liabilities ..............................................................................
Borrowings ....................................................................................
Subordinated liabilities ..................................................................
Shareholders' equity .....................................................................
Due to credit institutions and Central Bank ....................................
Deposits ........................................................................................
Financial liabilities at fair value ......................................................
Other assets .................................................................................
Total equity ..................................................................................
Liabilities associated with disposal groups held for sale ................
Net impairment .............................................................................
Net financial income ......................................................................
Investments in associates .............................................................
Income tax expense ......................................................................
Net interest income .......................................................................
Bank levy ......................................................................................
Other operating income .................................................................
Net fee and commission income ...................................................
Operating expenses ......................................................................
Insurance service results ..............................................................
5-year overview
Discontinued operations, net of tax ...............................................
99
Appendices
Unaudited
1
Corporate Governance Statement of
Arion Bank for 2024
2
Fundamentals to corporate governance at Arion Bank
are the Articles of Association which are approved by
shareholders, and policies and other documents adopted
by the Board of Directors. These include the Board’s Rules
of Procedure, and the Rules of Procedure of the Board’s
Sub-Committees, and policies regarding the Bank’s
operations and enterprise risk management architecture.
These policies are revised every year, and whenever
deemed necessary. Even more important is the Bank’s
corporate culture, strategy, and operational procedures.
Good corporate governance and corporate culture
help to foster open and honest relations between the
Board of Directors, shareholders, customers, and
other stakeholders, such as the Bank’s employees and
the public. Corporate governance also provides the
foundations for responsible management and decision-
making, with the objective of generating sustainable
long-term value creation. The Board of Directors places
great importance on good corporate governance and re-
evaluates its governance practices regularly on the basis
of recognized guidelines on corporate governance.
A central part of governance for financial institutions
involves managing risks which will invariably arise in
operations. Risk management is described in more detail
later in this statement, in the Bank’s Annual Report and in
the Bank’s Pillar 3 report. Establishing and maintaining
effective risk management and controls constitutes a key
challenge in the Bank’s activity and to the Bank’s overall
soundness.
This Corporate Governance Statement is based on the
legislation, regulations and recognized guidelines which
are in force at the time the Bank’s financial statement is
adopted by the Board of Directors.
Excellence in corporate governance
Arion Bank has been recognized as a company which has
achieved excellence in corporate governance, following a
formal assessment based on the Icelandic Guidelines on
Corporate Governance issued by the Icelandic Chamber
of Commerce, SA – Business Iceland and Nasdaq Iceland,
initially in December 2015, April 2019, August 2022,
August 2023 and again in August 2024. This recognition
was granted following an in-depth assessment by an
independent party of corporate governance at the Bank,
including governance by the Board of Directors, sub-
committees and management.
Compliance with guidelines on good
corporate governance
In respect to corporate governance arrangements, Arion
Bank applies the European Banking Authority (EBA)
Guidelines on Internal Governance (EBA/GL/2021/05), in
line with requirements found in Regulation (EU) 1093/2010
and Act 24/2017, on European Financial Supervision. The
Guidelines on Internal Governance are available on the
website of the Financial Supervisory Authority of the
Central Bank of Iceland.
Furthermore, according to the Financial Undertakings
Act No. 161/2002 Arion Bank is obliged to comply with
recognized guidelines on corporate governance. The Bank
complies with the sixth edition of the Icelandic Guidelines
on Corporate Governance issued by Iceland Chamber of
Commerce, SA – Business Iceland and Nasdaq Iceland,
published in February 2021 and in force as of 1 July 2021.
According to the guidelines a company shall state whether
it has deviated from the guidelines, if so, which parts and
also explain why it has done so.
The Bank complies with the guidelines with two variations:
Article 5.1.2. states that the rules of procedure of sub-
committees of the Board shall be posted on the Bank’s
website. The rules of the Board Credit Committee have
not been published on the Bank’s website with respect
to their nature.
The final sub-paragraph of article 5.4.5 states that the
role of a remuneration committee shall include taking
an independent stance on the effect of wages on the
Arion Bank (Arion Bank or the Bank) is an Icelandic public limited company whose
shares are listed on Nasdaq Iceland and Nasdaq Stockholm. Here the Board submits
its Corporate Governance Statement for 2024. Corporate governance is focused on
how responsibilities are allocated among the various bodies of the Bank and how
systems for decision making are constructed, in accordance with prevailing laws and
regulations. Arion Bank’s shareholders exercise governance principally by electing
the Board of Directors, which in turn appoint the CEO and monitor the Bank’s conduct
of business. The CEO is responsible for the day-to-day operations of the Bank and
represents the Bank in all matters concerning normal operations. The CEO must in this
respect comply with the relevant legislation, the Bank’s Articles of Association and
the policies and instructions laid down by the Board. The CEO is responsible for the
implementation of the Bank’s policies.
3
Company’s risk exposure and risk management, in
cooperation with the Company’s Audit Committee. In line
with, inter alia, the EBA Guidelines on Internal Governance
and article 78(3) of the Act on Financial Undertakings,
this role falls to the Board’s Remuneration Committee in
cooperation with the Board’s Risk Committee.
The role of the Nomination Committee at Arion Bank is
to promote good corporate governance and to facilitate
informed decision-making by shareholders when
selecting Board members to ensure that Board members
have wide and versatile qualifications and experience. The
Committee has an advisory role regarding the election
of Board members and makes a proposal on their
remuneration.
The Committee relies on the Bank’s Suitability Policy when
making nominations. At the Bank’s annual general meeting
on 15 March 2023, two members of the Nomination
Committee were appointed, Júlíus Thorfinnsson and
Audur Bjarnadóttir. According to the Rules of Procedure
for the Nomination Committee, the third member of the
Committee shall be the Chairman of the Board of Directors
or another Board Member appointed by the Board.
Legal framework for the Bank’s operation
Arion Bank is a financial institution which operates in
accordance with the Financial Undertakings Act No.
161/2002.
Acts of law which also apply to the Bank’s operations
include e.g., the Act on Markets for Financial Instruments
No. 115/2021, to Act on Undertakings for Collective
Investment in Transferable Securities (UCITS) No. 116/2021
and Act on Alternative Investment Fund Managers No.
45/2020, Act on Payment Services No. 114/2021, Act No.
5/2023 on Payment Accounts, Act on Measures Against
Money Laundering and Terrorist Financing No. 140/2018,
Act on Consumer Mortgages No. 118/2016, Consumer
Loans Act No. 33/2013, Competition Act No. 44/2005 and
Public Limited Companies Act No. 2/1995.
Arion Bank is a strongly capitalized bank whose goal is
to excel by helping those who want to achieve success
in Iceland and elsewhere in the Arctic through smart
and reliable financial solutions which enhance financial
health and create sustainable value as well as aiming to
be the best at meeting the needs of our target groups –
a leader which is a driver of success for our customers
and society as a whole. As noted, the Bank is listed on
Nasdaq Iceland and Nasdaq Stockholm. The Bank
has also issued financial instruments which have been
admitted for trading on regulated securities markets in
Iceland and Luxembourg. The Bank is, therefore, subject
to the disclosure requirements of issuers pursuant to the
Act on Markets for Financial Instruments and the rules of
the relevant stock exchanges.
The Financial Supervisory Authority of the Central Bank
of Iceland (FSA) supervises the operations of Arion Bank
in accordance with the provisions of Act No. 87/1998
on the Official Supervision of Financial Operations.
Further information on the FSA and an overview of the
legal and regulatory framework applicable to the Bank,
as well as FSA guidelines and guidelines issued by
European Financial Supervisory institutions, can be seen
on the FSA’s website, www.cb.is/financial-supervision/ .
Numerous other legislations apply to the operations of
financial undertakings.
Internal controls, auditing and accounting
Internal control
The Bank is committed to the highest standards of
corporate governance and regards internal control
as an integral part of its risk management system. An
effective internal control system is built to mitigate risk
to acceptable levels by facilitating enlightened decision-
making, thus supporting the Bank in achieving its
objectives and enabling the creation and preservation of
value.
The objective of the Bank’s system of internal controls
is to ensure:
◆
The Bank’s policies, objectives and business plans
are achieved within set risk appetite and threshold.
◆
The actions of the Board of Directors, management
and employees comply with the Bank’s policies,
standards, processes and all relevant laws and
regulations.
◆
The Bank’s assets and resources, including its people,
systems, and data are adequately protected.
◆
Data and information published either internally or
externally is accurate, reliable, and timely.
◆
The risks that are inherent in the Bank’s operations
are managed.
◆
Practical controls and processes have been
established that require and encourage the Board,
management, and employees to carry out their
duties and responsibilities in an efficient and
effective manner.
◆
The key components of the internal control
framework are Control Environment, Risk
Assessments, Control Activities, Information and
Communication, and Monitoring Activities. These
components are interrelated with all operations of
the Bank.
Control Environment includes the governance and
manage ment function of the Bank, as well as the attitude
4
of senior manage ment towards internal control and its
impor tance.
The key principles relating to control en vironment include:
◆
Integrity and ethical values.
◆
The attitude of senior management and tone from the top.
◆
Organizational structure.
◆
Assignment of authority and responsibility.
◆
Employee skills, human resources policy and its
implementation.
Risk Assessment is a process of identifying internal and
external factors that can affect the objectives of the Bank
and assess their impact and importance. It forms a basis
for determining how risk should be managed so that risk-
taking is in accordance with risk appetite.
Control Activities are the actions performed at all levels
within the Bank and are intended to mitigate risks to
acceptable levels while achieving objectives. Information
is necessary for the Bank to carry out its internal control
responsibilities. Communication occurs both internally
and externally and provides the Bank with relevant,
quality information needed to carry out day-to-day
controls. Monitoring Activities are the ongoing or separate
evaluations that are used to ascertain whether each of
the five components of internal controls is present and
functioning.
Arion Bank looks to the Three Lines Model for organizing
internal controls. All lines work together to contribute to
the creation and protection of value. Alignment of activities
is achieved through communication, cooperation, and
collaboration. This ensures the reliability, coherence,
and transparency of information needed for risk-based
decision making.
The first line is made up of employees who supervise
the operations and organization of the Bank on a day-
to-day basis. They are responsible for establishing and
maintaining effective internal controls and managing
risk in day-to-day operations. This involves identifying
and evaluating risk and putting in place appropriate
countermeasures to reduce risk. The first line is
responsible for supervising the implementation of
internal rules and processes in compliance with the law,
regulations and the Bank’s strategy and it must ensure that
all actions are in compliance with established procedures
and that corrective action is taken if any deficiencies are
detected.
The second line is set up to ensure that the first line has
established adequate internal controls which work as
intended. The second line supports the first line’s risk
Board of Directors
Accountability tostakeholders
for orginizational oversight
Internal audit
Independent assurace
Third line
Independent and objective assurace and
advice on all matters related to the
achievement of objectives
Second line
Expertise, support, monitoring and
challenge on risk-related matters
First line
Provision of products and
services, managing risk
Management
Actions to achive organizational objective
(including risk management)
KEY
Integrity, leadership
and transparency
Accountability,
reporting
Delegation, direction
resources, oversight
Alignment, communication,
coordination, collaboration
management with expert advice, monitoring and restraint
in decision-making. Risk Management and Compliance
are the main participants in the second line, although other
units may also be assigned specific monitoring roles.
The third line is Internal Audit, which provides independent
and objective assurance and advice on the adequacy and
effectiveness of governance, risk management and controls,
through systematic and disciplined processes, expertise
and insight. It reports its findings to management and the
Board of Directors to promote and facilitate continuous
improvement.
Internal audit is accountable to the Board of Directors, as
5
independence from management is critical to its objectivity,
authority, and credibility.
Compliance
Compliance is an independent control function which
reports directly to the CEO and works in accordance with a
special charter from the Board.
The main role of Compliance is to ensure that the Bank has
in place proactive measures to reduce the risk of rules being
breached in the course of its activities. Compliance is also
responsible for coordinating the Bank’s measures against
money laundering and terrorist financing to reduce the
risk of the Bank’s services being used for illegal purposes.
Furthermore, the Compliance Officer has the role of the
Bank’s Data Protection Officer. The Bank has adopted a
data protection statement which can be seen on the Bank’s
website.
The duties of Compliance are carried out under a risk-
based compliance plan approved by the Board of Directors,
including a monitoring and training schedule for employees
which addresses the laws and rules under which the Bank
operates. Compliance provides the Board of Directors with
a quarterly report on its activities.
Further information can be found on the Bank’s website.
Risk Management
A central feature of the activities of all financial institutions
is well informed risk-taking according to a predetermined
strategy. Arion Bank thus takes on risks compatible with
its defined risk appetite, which is regularly reviewed
and approved by the Board of Directors. The Bank’s risk
appetite is translated into exposure and risk limits which are
monitored by Risk Management. The Board is responsible
for Arion Bank’s internal capital adequacy assessment
process, the main objective of which is to ensure awareness
of the Bank’s risk profile and ensure that it has systems in
place to assess, quantify and monitor its total risk exposure.
As defined in the Bank’s enterprise risk policy, the Bank is
exposed to seven significant risk factors and has set up
risk policies for each one. These are credit risk, market risk,
liquidity risk, operational risk, conduct and compliance risk,
sustainability risk and business risk.
The Bank’s Risk Management division is headed by the
Chief Risk Officer. It is independent and centralized and
reports directly to the CEO and operates in accordance
with a special charter from the Board. Risk Management
comprises four departments whose role is to analyze,
monitor and regularly report to the management body and
Board of Directors on the risks faced by the Bank.
Further information on risk management is contained in the
Bank’s annual report and the Bank’s risk report.
Internal Audit
The Internal Auditor is appointed by the Board of Directors
and reports directly to the Board. The Board sets the
Internal Auditor a charter which sets out the responsibilities
associated with the position and the scope of the work. The
role of the Internal Auditor is to provide independent and
objective assurance and advice designed to add value and
improve the Bank’s operations. The scope of the audit is
the Bank, its subsidiaries and pension funds serviced by
Arion Bank.
The internal audit department will govern itself and, with
independent and disciplined methods, confirms the
adequacy and effectiveness of the first and the second line.
The internal audit department advises with independent and
objective assurance on the adequacy and effectiveness of
Corporate Governance, Risk management, and internal
controls. This is done with independent audits. The internal
audit department reports its findings to the management,
the Board Audit Committee, and the Board of Directors.
Accounting and auditing
The Bank’s Finance division is responsible for preparing
the accounts and this is done in accordance with the
International Financial Reporting Standards (IFRS) and
Icelandic laws. The Bank publishes its financial statement on
a quarterly basis and management statements are generally
submitted to the Board ten times a year. The Board Audit
Committee examines the annual financial statement and
interim financial statements, while the external auditors
review and audit the accounts twice a year. The Board Audit
Committee gives its opinion on the accounts to the Board of
Directors, which then approves and endorses the accounts.
Arion’s values and code of ethics
The Bank’s values are designed to provide guidance when
making decisions and in everything else employees say and
do. They refer to the Bank’s role, attitude, and conduct. Arion
Bank’s values are: Find solutions, work together, and say
what we mean.
The management and employees of Arion Bank are
conscious of the fact that the Bank’s activities affect
different stakeholders and society at large. The Bank’s
code of ethics is designed to serve as a key to responsible
decision-making at Arion Bank. The code of ethics is
approved by the Board of Directors.
Sustainability
Arion Bank has a sustainability committee and the
management of risk in connection with ESG factors has
been defined as part of the Bank’s risk management system.
The CEO is the chairman of the committee, whose role is to
monitor the Bank’s performance in connection with its policy
and commitment on sustainability and to ensure that ESG
factors are considered in decisions and plans made by the
Bank. The sustainable financing committee and the equality
committee are sub-committees of this committee.
The Bank has adopted a risk policy on sustainability
which is approved by the Board of Directors and reviewed
annually. This policy states that the Bank seeks to ensure
that its operations and services do not have a negative
impact on people or the environment. It also highlights
the critical importance of understanding the potential
6
impact of sustainability risks on the Bank’s operations and
overall performance. It furtherstates that the Bank supports
Iceland’s climate action plan whose goal is to meet the
obligations of the Paris Climate Agreement and to achieve
the ambitious goal of carbon neutrality in Iceland by 2040.
Key performance indicators relating to ESG issues are
part of monthly risk report to the Board and the Bank’s risk
appetite connected to these issues have been defined.
Further information on sustainability at Arion Bank can be
found in the Bank’s 2024 Annual and Sustainability Report
and Pillar 3 disclosures. Further information can be found
on the Bank’s website.
Board of Directors and Sub-committees
The main duty of the Board of Directors of Arion Bank is
to manage the Bank between shareholders’ meetings
according to applicable laws, regulations, and articles
of association. The Board tends to those operations of
the Bank which are not considered part of the day-to-
day business, i.e. it makes decisions on issues which are
unusual or of a significant nature. One of the Board’s main
duties is to supervise the Bank’s activities. The Board’s work,
duties and role are defined in detail in the rules of procedure
of the Board of Directors, which have been established on
the basis of the EBA Guidelines on Internal Governance,
Article 54 of the Financial Undertakings Act No. 161/2002,
Article 70 of the Public Limited Companies Act No. 2/1995,
FSA Guidelines No. 1/2010, and the articles of association of
the Bank. The rules of procedure of the Board of Directors
can be found on the Bank’s website.
The Board of Directors appoints a Chief Executive Officer
who is responsible for the day-to-day operations in
accordance with a strategy set out by the Board.
The Board of Directors and the Chief Executive Officer shall
carry out their duties with integrity and ensure that the Bank
is run in a sound and reasonable manner in the interests
of the customers, the community, the shareholders and
the Bank itself, cf. Article 1 (1) of the Financial Undertakings
Act. The Chief Executive Officer shall ensure that the Board
receives sufficient support to carry out its duties.
The Board of Directors is generally elected for a term of one
year at the Bank’s annual general meeting. At Arion Bank’s
annual general meeting on 13 March 2024, five Directors
and two Alternates were elected to the Board of Directors.
The elected Board Directors have diverse backgrounds
and extensive skills, experience, and expertise. When
electing the Board care is taken to ensure at least 40%
representation of each gender among directors and
alternates. Currently the Board consists of two men and
three women.
Information on the independence of Directors is published
on the Bank’s website before the annual general meeting
or a shareholders’ meeting where a Board member is to be
elected. The minutes of the annual general meeting and
shareholders’ meetings are also published on the Bank’s
website.
The Board of Directors meets at least ten times a year. In
2024 the Board met on thirteen occasions. The Chairman
of the Board is responsible for ensuring that the Board
performs its role in an efficient and organized manner. The
Chairman chairs Board meetings and ensures that there is
enough time allocated to the discussion of important issues
and that strategy issues are discussed thoroughly. The
Chairman is not permitted to undertake any other work for
the Bank unless part of the normal duties of the Chairman.
According to the Board’s Rules of Procedure the Board is
permitted to establish committees to discuss particular
areas of the Bank’s operations. No later than one month
following the annual general meeting the Board appoints
members to each of its sub-committees and assesses
whether it is necessary to appoint external members
to certain committees in order to bring in a greater level
of expertise. One of the committee members in the
Board Audit Committee, Heimir Thorsteinsson, is not a
Board member and is independent of the Bank and its
shareholders.
The Board sub-committees are as follows:
◆
Board Audit Committee (BAC): The BAC’s main role
is to contribute to the high-quality statutory auditing
of the Bank and monitor the effectiveness of the
Bank’s internal quality control, risk management
systems and internal audit function, with regard to
the Bank’s financial reporting. The Committee met
five times in 2024.
◆
Board Risk Committee (BRIC): The Committee’s
main role is, inter alia, to evaluate the Bank’s risk
policy and risk appetite, monitor all the Bank’s
defined risks and to have a thorough knowledge of
the risk assessments and methods used to manage
risk employed by the Bank. Committee members
should have the qualifications and experience
necessary to be able to discharge their duties
including forming the Bank’s risk policy and risk
appetite. The Committee met nine times in 2024.
◆
Board Credit Committee (BCC): Its main task is to
attend to credit issues which exceed the credit limits
of its sub-committees. The Committee met seven
times in 2024.
◆
Board Remuneration Committee (BRC): The
Committee’s main role is to prepare a remuneration
policy for the Bank on an annual basis. It also
advises the Board on remuneration to the CEO,
Managing Directors, the Compliance Officer and the
Chief Internal Auditor, and on the Bank’s incentive
scheme and other work-related payments. The
Bank’s remuneration policy shall be examined and
approved by a shareholders’ meeting annually. The
Committee met five times in 2024.
7
Period
Board
BCC
BRIC
BRC
BTC
Director
1. Jan. - 31. Dec.
1. Jan. - 31. Dec.
1. Jan. - 31. Dec.
1. Jan. - 31. Dec.
1. Jan. - 31. Dec.
1. Jan. - 31. Dec.
1. Jan. - 31. Dec.
1. Jan. - 31. Dec.
1. Jan. - 13. Mar
(13)
13
13
13
13
13
-
-
-
3
(5)
4
3
5
5
-
-
-
5
3
(8)
8
8
8
-
8
-
-
-
-
(7)
7
5
7
-
5
-
-
-
2
(5)
3
5
-
5
5
-
-
-
2
(5)
4
1
-
5
5
-
-
-
1
Paul Horner1
Kristín Pétursdóttir
Gunnar Sturluson
Liv Fiksdahl
Steinunn Kr.
Þórðardóttir
Sigurbjörg Á.
Jónsdóttir
Einar Hugi
Bjarnason2
Heimir
Þorsteinsson3
Brynjólfur
Bjarnason4
Below is an overview of the attendance of individual Directors and committee members.
◆
Board Tech Committee (BTC): The purpose of the
BTC is to assist the Board of Directors in fulfilling its
oversight responsibilities with respect to the role of
technology in executing the business strategy of the
Bank, including, but not limited to, major technology
investments, technology strategy, technological
operation efficiency and technology trends that
may affect the Bank. The BTC shall furthermore
have a surveillance role pertaining to the Bank’s
compliance with rules and regulation applicable to
Information Technology. The Committee met five
times in 2024.
Sub-committees regularly inform the Board of their
activities. Furthermore, the Board has access to all material
used by the sub-committees and their minutes.
 Paul Horner was elected as Chairman of the Board of Arion bank at the Annual General Meeting 13 March 2024.
 Einar Hugi Bjarnason was elected as an Alternate Director of the Board of Arion bank at the Annual General Meeting 13 March 2024.
 Heimir Thorsteinsson is certified public accountant and appointed as an external member of the BAC.
 Brynjólfur Bjarnason left the Board of Arion Bank at the Annual General Meeting 13 March 2024.
BAC
8
Annual General Meeting External Auditor
Internal AuditorBoard of DirectorsNomination Committee
Board Credit Committee Board Audit Committee
Board Tech Committee Board Risk Committee
Board Remuneration
Committee
Chief Executive Officer
Executive Management
Committee
Asset and Liability
Committee
Arion Credit Committee
Executive Risk Committee
Compliance
Elected by / Appointed by
Reports to / Informs
Risk Management
Operational Risk Committee
Sustainability Committee
Arion Composition and
Debt Cancellation Committee
The Board carries out an annual performance appraisal,
at which it assesses its work, the Board composition with
respect to experience and skills, working procedures and
methods, the performance of the CEO, their achievements,
and the work of the subcommittees with respect to the
aforementioned. This appraisal was last performed by the
Board during the period October to December 2024.
The Board of Directors of Arion Bank
◆
Paul Horner
◆
Gunnar Sturluson
◆
Kristín Pétursdóttir
◆
Liv Fiksdahl
◆
Steinunn Kristín Þórðardóttir
9
Paul graduated with M.A. Honours in music from the
University of Oxford in 1983 and is an associate of the
UK Chartered Institute of Bankers. Paul has extensive
experience of risk and general management in retail,
commercial, investment and private banking, gained
across various international markets. Paul held various
executive and risk management roles at Barclays PLC
between 1988 and 2003. In 2003 Paul joined The Royal
Bank of Scotland Group and served as an executive and
senior manager of Royal Bank of Scotland PLC and was
appointed to various senior risk and general management
roles until June 2019. In 2012 to 2017, Paul was the chief
risk officer of Coutts & Co Ltd. and CEO of Coutts & Co
Ltd., Zurich, in 2016-2017. In 2018 Paul was chief risk officer
of Ulster Bank DAC, Dublin, and a non-executive director
at Coutts & Co Ltd. in Zurich from 2018-2021.
Today Paul serves on the board of AIB (UK) P.L.C., chairs
its risk committee and is member of its committee. He
also serves on the Board of LHV (UK) Ltd. and chairs its
risk committee, as well as sitting as a member of its audit,
remuneration and nomination committees. Finally, he
serves on the Board of the UK subsidiary of The National
Bank of Kuwait, chairs its Risk Committee and serves on
its Audit Committee.
Paul was born in 1962. He was first elected as a
Director at a shareholders’ meeting on 8 August
2019, and is a non-executive director. He is not a
shareholder in Arion Bank and is an independent
candidate. Paul is Chairman of the Board and a
member of the Board Risk Committee, the Board
Audit Committee, the Board Credit Committee, the
Board Remuneration Committee and the Board
Tech Committee.
Paul Horner
Chairman
Kristín graduated as an economist from the University of
Iceland in 1991 and with an MBA from Handelshöyskole in
Norway in 1993.
Kristín was a co-founder of Audur Capital and served as
chief executive officer of the company from 2007 to 2013
and as Chairman of the Board of Directors from 2013 to
2017 (later Virðing hf.). Kristín was also a Chairman of the
Board of Directors at Kvika hf. from 2018 to 2020, CEO
at Mentor hf. from 2015 to 2017, Managing Director of
Treasury at Kaupthing Bank from 1997 to 2005, and Deputy
CEO at Singer & Friedlander from 2005-2007. Kristín has
also served as a board member at Ölgerdin, Tal, Yggdrasil,
Singer & Freidlander, Vidskiptarád, Eyrir Invest, Samtök
atvinnulífsins and Samtök fjármálafyrirtækja. Kristín has
also served as a member of investment committees of
Edda, Freyja, and Audur I initiative funds.
Today Kristín is a self-employed Leadership Consultant
and Coach and serves as a member of the Board of
Directors of Grid ehf. and Miðeind ehf.
Kristín was born in 1965. She was first elected as
a Director at Arion bank’s Annual General Meeting
on 15 March 2023, and is a non-executive director.
She is not a shareholder in Arion bank and is an
independent Director. Kristín is Vice Chairman of
the Board, Chairman of the Board Risk Committee
and a member of the Board Remuneration
Committee and the Board Audit Committee.
Kristín Pétursdóttir
Vice Chairman
10
Gunnar graduated as Cand. Jur from the University of
Iceland in 1992, gained an LL.M. degree in Law from the
University in Amsterdam in 1995 and received a license to
practice before the District Court in Iceland in 1993 and
before the Supreme Court in 1999.
Gunnar has practiced law at LOGOS legal services since
1992 and a became partner in 1995. He was the managing
partner of LOGOS from 2001-2013. Gunnar has been a
board member of the Performing of the Arts Center in
Iceland since 2021. Furthermore, Gunnar serves on the
Board of Harpan Conference Center.
Gunnar has previously held various directorships,
including the board of directors at Gamma hf. in 2017-
2019, chairman of the board of directors of the Icelandic
National Broadcasting Service (RÚV) 2016-2017, director
at the Nordic Arbitration Center, chairman of the board
of directors of the Icelandic Dance Company 2013-2016,
president of the International Federation of Icelandic
Horse Association 2014-2023 and was voted by ALTHINGI
the Icelandic parliament to serve on the National Electoral
Commission in 2013-2017. Gunnar also lectured in
competition law in 1995-2007 at the University of Iceland,
Faculty of Law.
Gunnar was born in 1967. He was first elected as
a Director at a shareholders’ meeting on 8 August
2019, and is a non- executive director. He is not a
shareholder of Arion Bank and is an independent
Director. Gunnar is the chairman of the Board Audit
Committee and is a member of the Board Risk
Committee and the Board Credit Committee.
Gunnar Sturluson
Liv holds a degree in finance and management from
Trondheim Business School (today NTNU) in 1986. In
2018, Liv completed programs at Stanford University in Big
Data, strategic decisions and analysis, and the Innovative
Technology Leader. She has also completed an advanced
management program for executives in management,
innovation and technology at Massachusetts Institute of
Technology.
Liv has held various senior roles at DNB and was part of
the executive management team for 10 years, and her
most recent role was as the Group EVP, CIO/COO, for IT &
Operations. Liv has a broad experience from DNB and has
held different positions across the value-chain within the
bank. Before DNB she had key account roles for corporate
clients within Danske Bank/Fokus Bank, and Svenska
Handelsbanken. Liv has served on numerous boards,
including Scandinavian Airlines SAS AB, Intrum AB, Posten
Norge, BankAxept, Sparebankforeningen, Doorstep,
Finans Norge and Trondheim Kommune Bystyret.
Today, Liv is a Vice President within Financial Services at
Capgemini Invent, Norway, and serves on the board of
Hexagon Purus ASA.
Liv was born in 1965. She was first elected as a
Director at Arion Bank’s Annual General Meeting
on 20 March 2019, and is a non-executive director.
She is not a shareholder in Arion Bank and is
an independent Director. Liv is chairman of the
Board Remuneration Committee and the Board
Tech Committee and member of the Board Audit
Committee.
Liv Fiksdahl
11
Steinunn holds a master’s degree international
management from Thunderbird, Arizona, and a BA in
international business and politics from University of
South Carolina. Steinunn has previously held several
directorships in Europe and was a board member at the
Icelandic State Financial Investment (ISFI).
Steinunn was previously a partner and CEO of Beringer
Finance Norway in 2015-2017 and interim CEO of Beringer
Finance in Iceland. She founded Acton Capital AS, a
management consulting and investment company in
Norway, where she works with investments and consulting.
Steinunn worked at Íslandsbanki (later Glitnir) as the
managing director and head of the bank’s UK operation
and prior to that she was an executive director heading the
international corporate credit and syndications.
Today Steinunn works actively with tech companies
in Norway and Iceland both as an investor and advisor
regarding strategy and management. She is also the
chairman of the board of Acton Capital AS, and the
chairman of the board for the Norwegian-Icelandic
Chamber of Commerce. Steinunn is a member of the
nomination committee of Síminn and serves as a board
member at YES-EU AS in Norway and Alda Solutions
ehf in Iceland. Finally, she is a mentor to young talented
women and founded Women Empower Women and is the
chairman of a charitable organization in Norway.
Steinunn was born in 1972. She was first elected
as a Director at a shareholders’ meeting on
30th November 2017, and is a non-executive
Director. She is a shareholder in Arion Bank
(her shareholding is 12000 shares) and is an
independent Director. Steinunn is the chairman of
the Board Credit Committee and is a member of
the Board Remuneration Committee, the Board
Risk Committee and the Board Tech Committee.
Steinunn is a member of the Board of Vörður.
Steinunn Kristín Thórdardóttir
Benedikt joined FBA (later Íslandsbanki) in 1998, held a
variety of managerial positions at Straumur-Burdarás, was
managing director of capital markets at FL Group and was
managing director of the investment banking division of
MP Bank. Benedikt worked as a senior advisor for Iceland’s
Ministry of Finance and Economic Affairs and was vice-
chairman of a government task force on the liberalization
of the capital controls between 2013 and 2016. He served
on the board of directors of Kaupthing from 2016 to 2018
and was an advisor to Kaupthing on matters relating to
Arion Bank. Benedikt was elected to the Board of Directors
of Arion Bank in September 2018 and served on the Board
until his appointment as CEO.
Benedikt gained a C.Sc. in mechanical and industrial
engineering from the University of Iceland in 1998.
Benedikt was born in 1974. Benedikt was
appointed CEO on 1 July 2019.
Benedikt Gíslason
Chief Executive Officer
12
Alternate directors:
Sigurbjörg Ásta Jónsdóttir, lawyer, and Einar Hugi
Bjarnason, Supreme Court Attorney.
More information on the Board of Directors can be found
on the Bank’s website.
Communication between the shareholders
and the Board of Directors
The main venue at which the Board and the Bank report
information to the shareholders and propose decisions
to be made is at legally convened shareholders’
meetings. The Bank provides an effective and accessible
arrangement for communications between shareholders
and the Board of Directors between those meetings.
Any information sensitive to the market will be released
through a MAR press release. As part of the investor
relations program, Arion Bank has also arranged quarterly
meetings where the CEO, CFO, Chief Economist and
Investor Relations present the interim financial results.
Executive Committee
The Bank’s Executive Committee consists of the following
people and the CEO:
◆
Ida Brá Benediktsdóttir, Deputy CEO and
Managing Director of Retail Banking
◆
Birna Hlín Káradóttir, COO
◆
Hákon Hrafn Gröndal, Managing Director of
Corporate and Investment Banking
◆
Jóhann Möller, Managing Director of Markets
◆
Ólafur Hrafn Höskuldsson, Chief Financial Officer
◆
Björn Björnsson, Managing Director of Information
Technology & CTO
◆
Úlfar Freyr Stefánsson, Chief Risk Officer
More information on the Executive Committee can be
found on the Bank’s website.
Information on violations of laws and
regulations and legal cases
Arion Bank has not been denied registration, authorization,
membership or permission to conduct certain business,
activity or operations. The Bank has not been subject
to withdrawal, revocation or dismissal of registration,
authorization, membership or permission. Information on
the main legal cases relating to Arion Bank can be found
in the notes to the annual financial statement.
The Board of Directors annually reviews and approves
the Corporate Governance Statement. This Corporate
Governance Statement was examined and approved at
a meeting of the Board of Directors on 12 February 2025.
EU Taxonomy
Eligible and environmentally sustainable
activities
An activity is considered to be eligible if it is defined in
delegated EU regulations, established in the basis of the
Taxonomy Regulation, on the technical screening criteria
which the activity needs to fulfil in order to be considered
environmentally sustainable according to the taxo nomy.
If the taxo nomy applies to the activity, it is considered
eligible. Eligibility does not, however, determine whether
a particular activity is sustainable, but just states that
there are technical screening criteria for the activity which
enable it to be ana lyzed in accordance with the taxo nomy.
The Taxonomy Regulation covers six environmental objectives:
◆
Climate change mitigation
◆
Climate change adaptation
◆
The sustainable use and protection of water and
marine resources
◆
The transition to a circular economy
◆
Pollution prevention and control
◆
Protection and restoration of biodiversity and
ecosystems
In order for an economic activity to be considered en-
viron mentally sustainable it must be aligned with one of
the six environmental objectives of the regulation but
at the same time must do no significant harm to other
objectives. This is to prevent an eco nomic activity from
being considered environ mentally sustain able if it then
does such harm to the environ ment that it outweighs the
activity’s contribution to the environ mental objective. The
activity also needed to be carried out in accord ance with
minimum safe guards which, among other things, address
human rights, meet the DNSH criteria (do no significant
harm) and to meet technical screening criteria.
Assets under the scope of KPIs
The Green Asset Ratio (GAR) is a key performance indicator
for credit institutions. The indicator shows the ratio of a
financial institution’s assets which finance an economic
activity aligned to the taxonomy. i.e. assets considered
environmentally sustainable, as a ratio of total covered
assets under Delegated Regulation (EU) 2021/2178.
Financial institutions need data from their counterparties
in order to publish their own key performance indicators
on both eligible and environmentally sustainable activities.
Icelandic companies published information in accordance
with the taxonomy for the first time in 2024 (for the financial
year 2023), unlike other companies in the EU which have
been doing it in their annual financial statements since
the 2021 financial year. Arion’s calculation for 2024 is
therefore based on counterparty data for 2023.
In the Taxonomy Regulation loans to households are
divided into loans with a mortgage in residential housing,
loans to renovate housing and car loans. These loan
categories cover approximately 45% of the total covered
assets as defined in the regulation. Loans to households
therefore represent the majority of assets considered
eligible under the Taxonomy Regulation today. Loans
need to meet stringent technical screening criteria to
be considered environmentally sustainable. In order to
assess whether the criteria have been met, certain data
is required, i.e. information on the energy efficiency of
housing and the external rolling noise and the rolling
resistance coefficient of tires, but in reality the lack of data,
prevents this from being possible in Iceland. It is therefore
not possible to determine whether loans to households
are considered environmentally sustainable.
Non-financial corporations subject to NFRD dis closure
obligations are required to implement the EU taxo nomy
and disclose infor mation with respect to the taxo nomy in
their annual state ments. Loans to such corpo rations are
eligible if they finance acti vities which are de fined by the
taxo nomy but are considered environ mentally sustainable
if they finance activities which are aligned with the taxo -
nomy. About 300 companies in Iceland fall within the
scope, and in for mation about their eligible and environ -
Arion Bank publishes information for the second time regarding the EU Taxonomy
in an annex to the 2024 Consolidated Financial Statement. The Bank’s counterparties
disclosed infor mation according to the taxo nomy for the first time in 2024, en abling
the Bank to assess assets as environ mentally sustainable for the first time, and there-
fore the Bank’s KPI is 0,0003% based on turnover. However, the Bank still challenged
with lack of data to be able to meet the stringent technical screening criteria required
for loans to households to be considered environmentally sustainable, and therefore it
is clear that the GAR will remain low if such data continues to be inaccessible.
1 Often referred to as NFRD companies, i.e.
major companies, parent companies of
major groups and public-interest entities.
mentally sustain able activities was collected. Only a small
portion of these companies, which have identified eligible
or environ mentally sustainable activities, have taken loans
with the Bank, and thus the cor responding KPIs cover
only a limited portion of the over all amount lent to NFRD
companies. This loan category there fore only accounts for
about 1,8% of the total coverage of eligible assets (Based
on turn over). An ana lysis indicated that the infor mation
dis closed by these companies is still in the develop ment
stages, and that they en counter similar data challenges as
the Bank in accessing the necessary infor mation to fulfill
the technical screening criteria required by the Taxonomy.
While the GAR has its merits it falls short in giving insights
into the state of sustainable financial services in Iceland.
The indicator is mostly affected by the distribution of the
loan portfolio, with loans to household as the largest group
of assets included in the denominator.
Since it was not possible to consider environ mentally
sustainable activities in the last financial state ment due
to lack of data, it is not feasible to disclose the status of
green assets in flow since this is the first time the Bank
discloses the templates, as last year a compressed
version was published. Therefore, the templates have
not been filled out for the reference date 31.12.2023 and
templates relating to the flow are kept empty. The bank
will disclose on green assets in flow for the 2025 financial
statement.
Off-balance sheet exposures
Concerning financial guarantees the same methodology
shall be used for loans and advances to corporates, i.e.
information shall be based on counterparty disclosures.
Similarly, as for loans to corporates, disclosure was lacking
and therefore only a small proportion of companies had
assessed environmentally sustainable activities.
Icelandic companies which come under the scope
of the Taxonomy Regulation, regarding assets under
management, published for the first time figures on
the proportion of environmentally sustainable turnover
and capital expenditure in 2024 in the annual financial
statement for 2023. The number of domestic companies
that have dis closed figures on eligible or environmentally
sustainable turnover and capital expenditure is still
very low. Since the implementation of the Taxonomy
Regulation commenced earlier for companies in the EU,
more foreign companies have reported their mitigation
and adaptation to climate change. Therefore, there was a
higher proportion of foreign assets for which eligibility and
environmental sustainability could be assessed based on
turnover and capital expenditure. Only a few equity funds,
or alternative investments funds in Arion Banks’s client
portfolios or Stefnir’s funds have disclosed the eligibility
or ratio of environmentally sustainable assets.
Just over half of the group’s assets under management
fall under the regulation. However, many companies do
not disclose how their revenues or capital expenditure, fall
under the regulation, i.e. whether they fall under climate
change adaptation or mitigation. Data on eligible and
environmentally sustainable assets was obtained from
Bloomberg. Government bonds are not covered by the
regulation so there is no disclosure requirement for them.
Annex VI - Template for the KPIs of credit institutions
Template number Name
0 Summary of KPIs
1 Assets for the calculation of GAR
2 GAR sector information
3 GAR KPI stock
4 GAR KPI flow
5 KPI off-balance sheet exposures
0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation
Note:
* % of assets covered by the KPI over banks' total assets.
Ratio of green assets in flow are not disclosed this year due to the templates being
disclosed for the first time and therefore the disclosure reference date for the
previous year is not available. Green assets in flow will be disclosed in 2026.
KPIs for Fees and commissions and Trading book apply start 2026.
Total environ-
mentally sus-
tainable assets,
based on the
turnover KPI
Total environ-
mentally sus-
tainable assets,
based on the
capex KPI
KPI based on
turnover %
KPI based on
capex %
% coverage
(over total
assets)*
% of assets exclud-
ed from the nu-
merator of the GAR
(Article 8(2) and (3)
and Section 1.1.2 of
Annex V)
% of assets
excluded from the
denominator of the
GAR (Article 7(1)
and Section 1.2.4 of
Annex V)
Main KPI Green asset ratio (GAR)
stock
4 652 0,0003 0,0005 82 ,1 28,5 17,9
Total environmen-
tally sustainable
assets, based on
the turnover KPI
Total environmen-
tally sustainable
assets, based on
the capex KPI
KPI based on turn-
over %
KPI based on
capex %
% coverage (over
total assets)
% of assets exclud-
ed from the nu-
merator of the GAR
(Article 8(2) and (3)
and Section 1.1.2 of
Annex V)
% of assets ex-
cluded from the
denominator of the
GAR (Article 7(1)
and Section 1.2.4 of
Annex V)
Additional KPIs GAR (flow)
Trading book*
Financial guarantees
0 0 0 0
Assets under manage-
ment
19.512 16.419 1,4 1,2
Fees and commissions
income**
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z AA AB AC AD AE AF
Million ISK
Disclosure reference date 31.12.2024 Disclosure reference date T-1
Total gross
carrying
amount
Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA)
Total gross
carrying
amount
Mótvægi við loftslagsbreytingar (CCM) Aðlögun að loftslagsbreytingum (CCA) ALLS (CCM + CCA)
Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned)
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
1
GAR - Covered assets in both numerator and denominator
2
Loans and advances, debt securities and equity instruments not HfT
eligible for GAR calculation
855.023
610.232 4 0 0 0 0 0 0 0 0 610.232 4 0 0 0
3
Financial corporations
72.250
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
4
Credit institutions
977
0
0 0
0 0
0
0 0
0 0
0
0 0
0
0
5
Loans and advances
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
6
Debt securities, including UoP
975
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
7
Equity instruments
1
0 0 0 0 0 0 0 0 0 0 0 0
8
Other financial corporations
7 1.274
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
9
of which investment firms
66
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
10
Loans and advances
66
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
11
Debt securities, including UoP
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12
Equity instruments
0
0 0 0 0 0 0 0 0 0 0 0 0
13
of which management companies
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
14
Loans and advances
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
15
Debt securities, including UoP
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
16
Equity instruments
0
0 0 0 0 0 0 0 0 0 0 0 0
17
of which insurance undertakings
16.666
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
18
Loans and advances
12
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
19
Debt securities, including UoP
1.306
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
20
Equity instruments
15.348
0 0 0 0 0 0 0 0 0 0 0 0
21
Non-financial corporations
137.592
23.407 4 0 0 0 0 0 0 0 0 23.407 4 0 0 0
22
NFCs subject to NFRD disclosure obligations
137.592
23.407 4 0 0 0 0 0 0 0 0 23.407 4 0 0 0
23
Loans and advances
137.072
23.407 4 0 0 0 0 0 0 0 0 23.407 4 0 0 0
24
Debt securities, including UoP
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
25
Equity instruments
520
0 0 0 0 0 0 0 0 0 0 0 0
26
Households
639.404
586.825 0 0 0 0 0 0 0 0 0 586.825 0 0 0 0
27
of which loans collateralised by residential immovable property
578.567
578.567 0 0 0 0 0 0 0 0 0 578.567 0 0 0 0
28
of which building renovation loans
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0
29
of which motor vehicle loans
8.257
8.257 0 0 0 0 0 0 0 0 0 8.257 0 0 0 0
30
Local governments financing
5.776
0 0 0 0 0 0 0 0 0 0 0 0 0 0
31
Collateral obtained by taking possession: residential and commercial
immovable properties
79
79 0 0 0 0 0 0 0 0 0 79 0 0 0 0
32
Other local government financing
5.776
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
33
Other assets excluded from the numerator for GAR calculation
(covered in the denominator)
455.162
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
34
Non-financial corporations
396.059
35
SMEs and NFCs (other than SMEs) not subject to NFRD disclosure
obligations
370.099
36
Loans and advances
369.159
37
of which loans collateralised by commercial immovable property
134.573
38
of which building renovation loans
0
39
Debt securities
0
40
Equity instruments
940
41
Non-EU country counterparties not subject to NFRD disclosure
obligations
25.960
42
Loans and advances
25.904
43
Debt securities
0
44
Equity instruments
56
45
Derivatives
3.030
46
On demand interbank loans
25.689
47
Cash and cash-related assets
2.481
48
Other assets (e.g. Goodwill, commodities etc.)
27.824
49
Total GAR assets
1.310.185
610.311 4 0 0 0 0 0 0 0 0 610.232 4 0 0 0
50
Other assets not covered for GAR calculation
286.539
51
Sovereigns
125.949
52
Central banks exposure
121.613
53
Trading book
38.976
54
Total assets
1.596.723
610.311 4 0 0 0 0 0 0 0 0 610.232 4 0 0 0
Off-balance sheet exposures - Corporates subject to NFRD disclosure obligations
55
Financial guarantees
7.881
146 0 0 0 0 0 0 0 0 0 146 0 0 0 0
56
Assets under management
1.366.980
196.813 19.512 0 0 0 13.028 0 0 0 0 209.841 19.512 0 0 0
57
Of which debt securities
758.962
134.322 17.085 0 0 0 12.433 0 0 0 0 146.754 17.085 0 0 0
58
Of which equity instruments
608.018
62.491 2.427 0 0 0 595 0 0 0 0 63.086 2.427 0 0 0
Note:
Iceland Revenue and Customs granted a limited exemption for the disclosue of the templates for the fiscal
year 2023, and therefore information was not disclosed in the templates for the reference date 31.12.2023,
and for this reason, green assets in flow cannot be disclosed at this time.
1. Assets for the calculation of GAR based on turnover
1. Assets for the calculation of GAR based on capex
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z AA AB AC AD AE AF
Million ISK
Disclosure reference date 31.12.2024 Disclosure reference date T-1
Total gross
carrying
amount
Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA)
Total gross
carrying
amount
Mótvægi við loftslagsbreytingar (CCM) Aðlögun að loftslagsbreytingum (CCA) ALLS (CCM + CCA)
Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned)
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
1
GAR - Covered assets in both numerator and denominator
2
Loans and advances, debt securities and equity instruments not HfT
eligible for GAR calculation
855.023
628.064 652 0 0 0 0 0 0 0 0 628.064 652 0 0 0
3
Financial corporations
72.250
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
4
Credit institutions
977
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0
5
Loans and advances
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
6
Debt securities, including UoP
975
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
7
Equity instruments
1
0 0 0 0 0 0 0 0 0 0 0 0
8
Other financial corporations
7 1.274
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
9
of which investment firms
66
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
10
Loans and advances
66
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
11
Debt securities, including UoP
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12
Equity instruments
0
0 0 0 0 0 0 0 0 0 0 0 0
13
of which management companies
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
14
Loans and advances
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
15
Debt securities, including UoP
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
16
Equity instruments
0
0 0 0 0 0 0 0 0 0 0 0 0
17
of which insurance undertakings
16.666
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
18
Loans and advances
12
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
19
Debt securities, including UoP
1.306
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
20
Equity instruments
15.348
0 0 0 0 0 0 0 0 0 0 0 0
21
Non-financial corporations
137.592
41.239 652 0 0 0 0 0 0 0 0 41.239 652 0 0 0
22
NFCs subject to NFRD disclosure obligations
137.592
41.239 652 0 0 0 0 0 0 0 0 41.239 652 0 0 0
23
Loans and advances
137.072
41.239 652 0 0 0 0 0 0 0 0 41.239 652 0 0 0
24
Debt securities, including UoP
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
25
Equity instruments
520
0 0 0 0 0 0 0 0 0 0 0 0
26
Households
639.404
586.825 0 0 0 0 0 0 0 0 0 586.825 0 0 0 0
27
of which loans collateralised by residential immovable property
578.567
578.567 0 0 0 0 0 0 0 0 0 578.567 0 0 0 0
28
of which building renovation loans
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0
29
of which motor vehicle loans
8.257
8.257 0 0 0 0 0 0 0 0 0 8.257 0 0 0 0
30
Local governments financing
5.776
0 0 0 0 0 0 0 0 0 0 0 0 0 0
31
Collateral obtained by taking possession: residential and commercial
immovable properties
79
79 0 0 0 0 0 0 0 0 0 79 0 0 0 0
32
Other local government financing
5.776
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
33
Other assets excluded from the numerator for GAR calculation
(covered in the denominator)
455.162
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
34
Non-financial corporations
396.059
35
SMEs and NFCs (other than SMEs) not subject to NFRD disclosure
obligations
370.099
36
Loans and advances
369.159
37
of which loans collateralised by commercial immovable property
134.573
38
of which building renovation loans
0
39
Debt securities
0
40
Equity instruments
940
41
Non-EU country counterparties not subject to NFRD disclosure
obligations
25.960
42
Loans and advances
25.904
43
Debt securities
0
44
Equity instruments
56
45
Derivatives
3.030
46
On demand interbank loans
25.689
47
Cash and cash-related assets
2.481
48
Other assets (e.g. Goodwill, commodities etc.)
27.824
49
Total GAR assets
1.310.185
628.143 652 0 0 0 0 0 0 0 0 628.143 652 0 0 0
50
Other assets not covered for GAR calculation
286.539
51
Sovereigns
125.949
52
Central banks exposure
121.613
53
Trading book
38.976
54
Total assets
1.596.723
628.143 652 0 0 0 0 0 0 0 0 628.143 652 0 0 0
Off-balance sheet exposures - Corporates subject to NFRD disclosure obligations
55
Financial guarantees
7.881
1.000 0 0 0 0 0 0 0 0 0 1.000 0 0 0 0
56
Assets under management
1.366.980
152.973 16.419 0 0 0 633 0 0 0 0 153.606 16.419 0 0 0
57
Of which debt securities
758.962
106.821 13.445 0 0 0 0 0 0 0 0 106.821 13.445 0 0 0
58
Of which equity instruments
608.018
46.152 2.974 0 0 0 633 0 0 0 0 46.785 2 .974 0 0 0
Note:
Iceland Revenue and Customs granted a limited exemption for the disclosue of the templates for the fiscal
year 2023, and therefore information was not disclosed in the templates for the reference date 31.12.2023,
and for this reason, green assets in flow cannot be disclosed at this time.
A B C E F H I K L N O Q R
Breakdown by sector
- NACE 4 digits level
(code and label)
Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA)
Non-Financial corporates
(Subject to NFRD)
SMEs and other NFC
not subject to NFRD
Non-Financial corporates
(Subject to NFRD)
SMEs and other NFC
not subject to NFRD
Non-Financial corporates
(Subject to NFRD)
SMEs and other NFC
not subject to NFRD
Gross carrying amount Gross carrying amount Gross carrying amount Gross carrying amount Gross carrying amount Gross carrying amount
Mn ISK
Of which
environmentally
sustainable
(CCM)
Mn ISK
Of which
environmentally
sustainable
(CCM)
Mn ISK
Of which
environmentally
sustainable
(CCA)
Mn ISK
Of which
environmentally
sustainable
(CCA)
Mn ISK
Of which
environmentally
sustainable
(CCM + CCA)
Mn ISK
Of which
environmentally
sustainable
(CCM + CCA)
1
2
3
4
…
Note:
Since only a small proportion of companies have disclosed information on environmentally sustainable activites
and a small proportion of them have taken loans with the Bank, it is not considered adviseable to disclose a
breadkdown by sector at the NACE 4 digits level classification. It is the Bank’s view that such a breakdown is
inappropriate as such disclosure could indicate the total credit exposure to individual entities. The Bank will review
this disclosure if the number of entities that have disclosed their environmentally sustainable activities increases.
2. GAR sector information
3. GAR KPI stock based on turnover
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z AA AB AC AD AE AF
% (compared to total covered
assets in the denominator)
Disclosure reference date 31.12.2024 Disclosure reference date T-1
Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion
of total
assets
covered
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion
of total
assets
covered
Proportion of total covered assets funding taxon-
omy relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding taxono-
my relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding taxono-
my relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which
use of
pro-
ceeds
Of which
transitional
Of which
en-
abling
Of which
use of
proceeds
Of which
transitional
Of which
en-
abling
Of which
use of
proceeds
Of which
transitional
Of which
en-
abling
Of which
use of
proceeds
Of which
transitional
Of which
en-
abling
Of which
use of
proceeds
Of which
transitional
Of which
en-
abling
Of which
use of
proceeds
Of which
transitional
Of which
en-
abling
1 GAR - Covered assets in both numerator and denominator
2 Loans and advances, debt securities and equity instruments not HfT
eligible for GAR calculation
71,4 0,0004 0 0 0 0 0 0 0 0 71,4 0,0004 0 0 0 53,5
3 Financial corporations
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4,5
4 Credit institutions
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,06
5 Loans and advances
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
6 Debt securities, including UoP
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,06
7 Equity instruments
0 0 0 0 0 0 0 0 0 0 0 0 0,000
8 Other financial corporations
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4,5
9 of which investment firms
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,004
10 Loans and advances
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,004
11 Debt securities, including UoP
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12 Equity instruments
0 0 0 0 0 0 0 0 0 0 0 0 0
13 of which management companies
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
14 Loans and advances
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
15 Debt securities, including UoP
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
16 Equity instruments
0 0 0 0 0 0 0 0 0 0 0 0 0
17 of which insurance undertakings
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,04
18 Loans and advances
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,001
19 Debt securities, including UoP
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,08
20 Equity instruments
0 0 0 0 0 0 0 0 0 0 0 0 1,0
21 Non-financial corporations
17,0 0,003 0 0 0 0 0 0 0 0 17,0 0,003 0 0 0 8,6
22 NFCs subject to NFRD disclosure obligations
17,0 0,003 0 0 0 0 0 0 0 0 17,0 0,003 0 0 0 8,6
23 Loans and advances
17,1 0,003 0 0 0 0 0 0 0 0 17,1 0,003 0 0 0 8,6
24 Debt securities, including UoP
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
25 Equity instruments
0 0 0 0 0 0 0 0 0 0 0 0 0,03
26 Households
91,8 0 0 0 0 0 0 0 0 0 91,8 0 0 0 0 40,0
27 of which loans collateralised by residential immovable property
100,0 0 0 0 0 0 0 0 0 0 100,0 0 0 0 0 36,2
28 of which building renovation loans
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
29 of which motor vehicle loans
100,0 0 0 0 0 0 0 0 0 0 100,0 0 0 0 0 0,5
30 Local governments financing
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,4
31 Collateral obtained by taking possession: residential and commercial
immovable properties
100,0 0 0 0 0 0 0 0 0 0 100,0 0 0 0 0 0,005
32 Other local government financing
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,4
49 Total GAR assets
46,6 0,0003 0 0 0 0 0 0 0 0 46,6 0,0003 0 0 0 82 ,1
Note:
Iceland Revenue and Customs granted a limited exemption for the disclosue of the templates for
the fiscal year 2023, and therefore information was not disclosed in the templates for the reference
date 31.12.2023, and for this reason, green assets in flow cannot be disclosed at this time.
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z AA AB AC AD AE AF
% (compared to total covered
assets in the denominator)
Disclosure reference date 31.12.2024 Disclosure reference date T-1
Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA) Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion
of total
assets
covered
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-eligible)
Proportion
of total
assets
covered
Proportion of total covered assets funding taxon-
omy relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding taxono-
my relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding taxono-
my relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding taxonomy
relevant sectors (Taxonomy-aligned)
Of which
use of
pro-
ceeds
Of which
transitional
Of which
en-
abling
Of which
use of
proceeds
Of which
transitional
Of which
en-
abling
Of which
use of
proceeds
Of which
transitional
Of which
en-
abling
Of which
use of
proceeds
Of which
transitional
Of which
en-
abling
Of which
use of
proceeds
Of which
transitional
Of which
en-
abling
Of which
use of
proceeds
Of which
transitional
Of which
en-
abling
1 GAR - Covered assets in both numerator and denominator
2 Loans and advances, debt securities and equity instruments not HfT
eligible for GAR calculation
73,5 0,1 0 0 0 0 0 0 0 0 73,5 0,1 0 0 0 53,5
3 Financial corporations 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4,5
4 Credit institutions 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,1
5 Loans and advances 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
6 Debt securities, including UoP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,1
7 Equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0,0001
8 Other financial corporations 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4,5
9 of which investment firms 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,004
10 Loans and advances 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,004
11 Debt securities, including UoP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12 Equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0
13 of which management companies 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
14 Loans and advances 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
15 Debt securities, including UoP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
16 Equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0
17 of which insurance undertakings 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,0
18 Loans and advances 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,001
19 Debt securities, including UoP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,1
20 Equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 1,0
21 Non-financial corporations 30,0 0,5 0 0 0 0 0 0 0 0 30,0 0,5 0 0 0 8,6
22 NFCs subject to NFRD disclosure obligations 30,0 0,5 0 0 0 0 0 0 0 0 30,0 0,5 0 0 0 8,6
23 Loans and advances 30,1 0,5 0 0 0 0 0 0 0 0 30,1 0,5 0 0 0 8,6
24 Debt securities, including UoP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
25 Equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0,03
26 Households 91,8 0 0 0 0 0 0 0 0 0 91,8 0 0 0 0 40,0
27 of which loans collateralised by residential immovable property 100,0 0 0 0 0 0 0 0 0 0 100,0 0 0 0 0 36,2
28 of which building renovation loans 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
29 of which motor vehicle loans 100,0 0 0 0 0 0 0 0 0 0 100,0 0 0 0 0 0,5
30 Local governments financing 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,4
31 Collateral obtained by taking possession: residential and commercial
immovable properties
100,0 0 0 0 0 0 0 0 0 0 100,0 0 0 0 0 0,005
32 Other local government financing 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0,4
49 Total GAR assets 47,9 0,05 0 0 0 0 0 0 0 0 47,9 0,05 0 0 0 82 ,1
Note:
Iceland Revenue and Customs granted a limited exemption for the disclosue of the templates for
the fiscal year 2023, and therefore information was not disclosed in the templates for the reference
date 31.12.2023, and for this reason, green assets in flow cannot be disclosed at this time.
3. GAR KPI stock based on capex
A B C D E F G H I J K L M N O P
% (compared to flow of
total eligible assets)
Disclosure reference date T
Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion
of total
new assets
covered
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-aligned)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-aligned)
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
Of which use
of proceeds
Of which
transitional
Of which
enabling
1 GAR - Covered assets in both numerator and denominator
2 Loans and advances, debt securities and equity instruments not HfT
eligible for GAR calculation
3 Financial corporations
4 Credit institutions
5 Loans and advances
6 Debt securities, including UoP
7 Equity instruments
8 Other financial corporations
9 of which investment firms
10 Loans and advances
11 Debt securities, including UoP
12 Equity instruments
13 of which management companies
14 Loans and advances
15 Debt securities, including UoP
16 Equity instruments
17 of which insurance undertakings
18 Loans and advances
19 Debt securities, including UoP
20 Equity instruments
21 Non-financial corporations
22 NFCs subject to NFRD disclosure obligations
23 Loans and advances
24 Debt securities, including UoP
25 Equity instruments
26 Households
27 of which loans collateralised by residential immovable property
28 of which building renovation loans
29 of which motor vehicle loans
30 Local governments financing
31 Collateral obtained by taking possession: residential and commercial
immovable properties
32 Other local government financing
49 Total GAR assets
Note:
Iceland Revenue and Customs granted a limited exemption for the disclosue of the templates for
the fiscal year 2023, and therefore information was not disclosed in the templates for the reference
date 31.12.2023, and for this reason, green assets in flow cannot be disclosed at this time.
4. GAR KPI flow
A B C D E F G H I J K L M N O
% (compared to total eligible
off-balance sheet assets)
Disclosure reference date 31.12.2024
Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets
funding taxonomy relevant sectors
(Taxonomy-aligned)
Proportion of total covered assets
funding taxonomy relevant sectors
(Taxonomy-aligned)
Proportion of total covered assets
funding taxonomy relevant sectors
(Taxonomy-aligned)
Of which
use of
proceeds
Of which
transi-
tional
Of which
enabling
Of which
use of
proceeds
Of which
transi-
tional
Of which
enabling
Of which
use of
proceeds
Of which
transi-
tional
Of which
enabling
1 Financial guarantees (FinGuar KPI)
1,8 0 0 0 0 0 0 0 0 0 1,8 0 0 0 0
2 Assets under management (AuM KPI)
14,4 1,4 0 0 0 1,0 0 0 0 0 15,4 1,4 0 0 0
5. KPI off-balance sheet exposures based on turnover
5. KPI off-balance sheet exposures based on capex
A B C D E F G H I J K L M N O
% (compared to total eligible
off-balance sheet assets)
Disclosure reference date 31.12.2024
Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets funding
taxonomy relevant sectors (Taxonomy-eligible)
Proportion of total covered assets
funding taxonomy relevant sectors
(Taxonomy-aligned)
Proportion of total covered assets
funding taxonomy relevant sectors
(Taxonomy-aligned)
Proportion of total covered assets
funding taxonomy relevant sectors
(Taxonomy-aligned)
Of which
use of
proceeds
Of which
transi-
tional
Of which
enabling
Of which
use of
proceeds
Of which
transi-
tional
Of which
enabling
Of which
use of
proceeds
Of which
transi-
tional
Of which
enabling
1 Financial guarantees (FinGuar KPI)
12,7 0 0 0 0 0 0 0 0 0 12,7 0 0 0 0
2 Assets under management (AuM KPI)
11,2 1,2 0 0 0 0 0 0 0 0 11,2 1,2 0 0 0
Row Nuclear energy related activities
1. The undertaking carries out, funds or has exposures to research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from
nuclear processes with minimal waste from the fuel cycle.
NO
2. The undertaking carries out, funds or has exposures to construction and safe operation of new nuclear installations to produce electricity or process heat, including for the purposes of
district heating or industrial processes such as hydrogen production, as well as their safety upgrades, using best available technologies.
NO
3. The undertaking carries out, funds or has exposures to safe operation of existing nuclear installations that produce electricity or process heat, including for the purposes of district
heating or industrial processes such as hydrogen production from nuclear energy, as well as their safety upgrades.
NO
Fossil gas related activities
4. The undertaking carries out, funds or has exposures to construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels. NO
4. The undertaking carries out, funds or has exposures to construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels. NO
6. The undertaking carries out, funds or has exposures to construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels. NO
Template 1 Nuclear and fossil gas related activities
Row Economic activities Million ISK
Amount and proportion (the information is to be presented in
monetary amounts and as percentages)
CCM + CCA Climate change
mitigation (CCM)
Climate change
adoption (CCA)
Amount % Amount % Amount %
1. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.26
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
2. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.27
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
3. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.28
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
4. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.29
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
5. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.30
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
6. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.31
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
7. Amount and proportion of other taxonomy-aligned economic activities not referred to in rows
1 to 6 above in the denominator of the applicable KPI
4 0,0003
4 0,0003
8. Total applicable KPI 4 0,0003
4 0,0003
Template 2 Taxonomy-aligned economic activities (denominator) - based on turnover
Template 2 Taxonomy-aligned economic activities (denominator) - based on capex
Row Economic activities Million ISK
Amount and proportion (the information is to be presented in
monetary amounts and as percentages)
CCM + CCA Climate change
mitigation (CCM)
Climate change
adoption (CCA)
Amount % Amount % Amount %
1. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.26
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
2. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.27
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
3. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.28
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
4. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.29
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
5. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.30
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
6. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.31
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
7. Amount and proportion of other taxonomy-aligned economic activities not referred to in rows
1 to 6 above in the denominator of the applicable KPI
652 0,0005 652 0,0005
8. Total applicable KPI 652 0,0005 652 0,0005
Template 3 Taxonomy-aligned economic activities (numerator) - based on turnover
Row Economic activities Million ISK
Amount and proportion (the information is to be presented in
monetary amounts and as percentages)
CCM + CCA Climate change
mitigation (CCM)
Climate change
adoption (CCA)
Amount % Amount % Amount %
1. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.26
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
2. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.27
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
3. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.28
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
4. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.29
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
5. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.30
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
6. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.31
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
7. Amount and proportion of other taxonomy-aligned economic activities not referred to in rows
1 to 6 above in the numerator of the applicable KPI
4 100 4 100
8. Total amount and proportion of taxonomy-aligned economic activities in the numerator of the applicable KPI 4 100 4 100
Template 3 Taxonomy-aligned economic activities (numerator) - based on capex
Row Economic activities Million ISK
Amount and proportion (the information is to be presented in
monetary amounts and as percentages)
CCM + CCA Climate change
mitigation (CCM)
Climate change
adoption (CCA)
Amount % Amount % Amount %
1. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.26
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
2. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.27
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
3. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.28
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
4. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.29
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
5. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.30
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
6. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.31
of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI
7. Amount and proportion of other taxonomy-aligned economic activities not referred to in rows
1 to 6 above in the numerator of the applicable KPI
652 100 652 100
8. Total amount and proportion of taxonomy-aligned economic activities in the numerator of the applicable KPI 652 100 652 100
Template 4 Taxonomy-eligible but not taxonomy-aligned economic activities - based on turnover
Row Economic activities Million ISK
Proportion (the information is to be presented in monetary
amounts and as percentages)
CCM + CCA Climate change
mitigation (CCM)
Climate change
adoption (CCA)
Amount % Amount % Amount %
1. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.26
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
2. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.27
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
3. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.28
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
4. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.29
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
5. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.30
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
6. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.31
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
7. Amount and proportion of other taxonomy-eligible but not taxonomy-aligned economic activities
not referred to in rows 1 to 6 above in the denominator of the applicable KPI
610.308 100 610.308 100
8. Total amount and proportion of taxonomy eligible but not taxonomy-aligned economic activities in the denominator of the applicable KPI 610.308 100 610.308 100
Template 4 Taxonomy-eligible but not taxonomy-aligned economic activities - based on capex
Row Economic activities Million ISK
Proportion (the information is to be presented in monetary
amounts and as percentages)
CCM + CCA Climate change
mitigation (CCM)
Climate change
adoption (CCA)
Amount % Amount % Amount %
1. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.26
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
2. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.27
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
3. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.28
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
4. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.29
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
5. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.30
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
6. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.31
of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
7. Amount and proportion of other taxonomy-eligible but not taxonomy-aligned economic activities
not referred to in rows 1 to 6 above in the denominator of the applicable KPI
627.491 100 627.491 100
8. Total amount and proportion of taxonomy eligible but not taxonomy-aligned economic activities in the denominator of the applicable KPI 627.491 100 627.491 100
Template 5 Taxonomy non-eligible economic activities - based on turnover
Row Economic activities Million ISK Amount %
1. Amount and proportion of economic activity referred to in row 1 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
2. Amount and proportion of economic activity referred to in row 2 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
3. Amount and proportion of economic activity referred to in row 3 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
4. Amount and proportion of economic activity referred to in row 4 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
5. Amount and proportion of economic activity referred to in row 5 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
6. Amount and proportion of economic activity referred to in row 6 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
7. Amount and proportion of other taxonomy-non-eligible economic activities not referred to in rows 1 to 6 above in the denominator of the applicable KPI 699874 53,42
8. Total amount and proportion of taxonomy eligible but not taxonomy-aligned economic activities in the denominator of the applicable KPI 699874 53,42
Template 5 Taxonomy non-eligible economic activities - based on capex
Row Economic activities Million ISK Amount %
1. Amount and proportion of economic activity referred to in row 1 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
2. Amount and proportion of economic activity referred to in row 2 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
3. Amount and proportion of economic activity referred to in row 3 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
4. Amount and proportion of economic activity referred to in row 4 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
5. Amount and proportion of economic activity referred to in row 5 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
6. Amount and proportion of economic activity referred to in row 6 of Template 1 that is taxonomy-non-eligible in accordance
with Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI
7. Amount and proportion of other taxonomy-non-eligible economic activities not referred to in rows 1 to 6 above in the denominator of the applicable KPI 682.042 52,06
8. Total amount and proportion of taxonomy eligible but not taxonomy-aligned economic activities in the denominator of the applicable KPI 682042 52,06
Arion Bank
Borgartun 19
105 Reykjavik
Iceland
Id.: 581008-0150
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