Best bank: Arion Bank
Things could not have gone much worse in 2023 for Islandsbanki, the bank that won this award in the past two years. A long-awaited regulatory report into the sale of part of the government’s holding in 2022 found that Islandsbanki itself had committed various violations during the process. Islandsbanki was fined Isk1.2 billion ($8.6 million), a record for Iceland.
The affair was particularly sad for Islandsbanki chief executive Birna Einarsdóttir, who eventually bowed to political pressure to assume ultimate responsibility for the scandal and resigned after some 30 years at the bank. She has been replaced by chief financial officer Jón Guðni Ómarsson.
For Arion Bank, the winner of this year’s award for Iceland’s best bank, the period was a rather happier one. The bank, which is the third biggest in Iceland by assets, posted earnings in 2023 that chief executive Benedikt Gíslason said were in line with all the bank’s targets. Return on equity of 13.6% exceeded the bank’s 13% objective – and comfortably beat domestic peers.
Outgoing chairman Brynjólfur Bjarnason, retiring from the role after five years and 10 years as a director, reflected at the end of 2023 on how Arion had long been a force for digital banking in Iceland. And 2023 was a good example of that: the bank brought real-time data to customers wishing to trade equities online, as well as other enhancements such as virtual cards.
Private clients that are also owners of businesses – as is frequently the case in Iceland – can also now switch between their personal and business accounts seamlessly in the bank’s online platform.
The bank scored a notable success in the international bond markets by securing a first rating from Moody’s for its euro covered bonds. At the time the Aa2 rating was three notches higher than Iceland itself.
One cautionary note is around Arion’s non-performing loans, which rose by 56% year on year. Its NPL ratio rose from 1.15% to 1.69% and has risen further to 1.86% in the first quarter of 2024.
But Arion was starting from a better place than its peers and its NPL ratio is still only bettered by state-owned Landsbankinn. Iceland’s small economy is never far from difficulty and high inflation has been a struggle. So have rising interest rates, and Arion Bank was flexible through 2023 with adjustments to how mortgage borrowers are able to pay back loans as they emerge from much lower fixed rate periods.
It is just one way in which Arion has been focusing on tailoring its services to its clients’ needs, an objective that has helped to underpin the bank’s transformation in recent years into an efficient and diversified institution.
Best digital bank: Arion Bank
Arion Bank expanded its digital services for businesses last year and established innovative partnerships in the home rental market and in car sales financing.
The bank also introduced real-time market data for equities trading, along with limit orders and various pension-related functions. Additionally, a new interface for payment cards was launched, enabling a range of actions for both debit and credit cards.
Arion Bank has joined strategic partnerships to open new distribution channels. One of these partnerships is with Leiguskjól, which enables renters to rent homes without a deposit. Most Icelandic rental agreements are facilitated by Arion, which offers lessors insurance and rental guarantees.
Another collaboration is with Frágangur, where Arion provides financing and insurance to prospective car buyers through a fully digital platform for managing car sales.
The bank’s proportion of active digital customers reached 80% in 2023, with 74% of core product sales made online.
