Arion banki : Bank Investor Presentation May 2023

Investor Presentation

May 2023

Arion Bank at a glance

Diversified financial institution in Iceland with strong market position

Retail Banking

(including insurance)

• Comprehensive financial services to individuals
• Around one-third market share in Iceland
• Large provider of residential mortgages in Iceland
• Domestic digital leader in retail banking with focus on customer experience
• • First to introduce fully digitalized credit assessment for mortgages, car loans in 5 minutes, awarded for the best banking app in Iceland for the last 6 years and offers premium services for affluent clients
  • 71% of core products sold digitally in 2022
• Insurance service to retail customers

Operating income 2022 (ISKbn)

Net interest income

Slowing rate sensitivity

ISK 25.5bn	ISK 26.5bn

Corporate & Investment Banking

(including insurance)

• Corporate banking, advisory and insurance service to corporate customers
• Partner to large corporates and SMEs in Iceland and internationally
  in the Arctic region
• • Arctic loan book has more than doubled in the last two years
• Leader in credit origination, using own balance sheet, private and capital markets, for clients. Significant growth in managed products
• Advised and managed 75% of public equity offerings in 2022 and preferred advisor in private transactions

Markets and

• Arion Bank the largest asset manager in the Icelandic market with EUR 8.8bn in assets under management - estimated around 40% of estimated domestic GDP 2022
• Emphasis on institutional investors and high net worth clients
• Capital Markets had the highest market share in the domestic market, both in equities and bonds
• Stefnir Funds is among largest fund management companies in Iceland with a variety of domestic and international assets under management

ISK 8.8bn

Strategic focus

• Increase market share in target client segments
• Enhance business we do with our clients by cross-selling products and services from the group and partners
• Enhance overall customer journey through:
• • Efficient and targeted customer acquisition
  • Increased customer engagement
  • Optimized monetization
  • Loyalty

Insurance

Insurance premium 2022: ISK 15.6bn

• Fastest growing insurance company in Iceland - around 18.2% market share
• Around 65,000 customers
• Full range of insurance products and services
• Continued focus on a fully integrated bancassurance model with the Bank
• • Bancassurance ratio at YE 2022: Individuals 33.7%
    Corporates 22.9%

2

Strong GDP growth amid global turbulence

GDP increased by 6.4% in 2022, a result that was in line with Arion Bank's expectations. Growth was driven by exports, namely increased growth in tourism, and record-breaking private consumption. With tourism regaining its former strength, the current account finished the year smaller than expected, despite robust economic activity as reflected in a significant trade deficit.

					GDP growth in 2022										Tourist arrivals via Keflavík International Airport				Current account balance
							- YoY %-change									300.000															- bn. ISK at constant exchange rate,
Portugal																															150
Iceland																			250.000
Greece
Spain																															100
Slovenia
Austria																			200.000
Poland
Hungary																															50
Netherlands																			150.000
UK
Italy
Denmark																															-
Euro Area																			100.000
Canada
Norway																															-50
Belgium																			50.000
Sweden
France
Czech Republic
US																			0												-100
Switzerland																															2020	2021	2022
Finland
Latvia																																	Balance on goods		Balance on services
Lithuania
Germany																																	Balance on primary income		Secondary income, net
0%	1%	2%	3%	4%	5%	6%	7%	8%
		2019		2020		2021		2022		2023			Current account balance

	Employment and GDP	Payment card turnover
	- YoY growth, growth contributions of underlying
	- YoY growth
	components
15%
	30%

The ISK against major trade currencies

170

160

10%

20%

150

5%

10%

140

0%

0%

130

-10%

-5%

120

-20%

-10%

110

-30%

Mar-20

Mar-21

Mar-22

Mar-23

mar.20

maí.20

júl.20

sep.20

nóv.20

jan.21 mar.21

maí.21

júl.21 sep.21

nóv.21

jan.22 mar.22

maí.22

júl.22

sep.22

nóv.22

jan.23

mar.23

Jan-20

May-20

Jul-20

Sep-20

Nov-20

Jan-21

May-21Jul-21

Sep-21

Nov-21

Jan-22

May-22

Jul-22

Sep-22

Nov-22

Jan-23

2018

2019

2020

2021

2022

2023

jan.20

-15%

Total hours worked

GDP

Domestic

Abroad

Total

USD

EUR

3 Sources: Eurostat, Statistics Iceland, Central Bank of Iceland, Icelandic Tourist Board, Arion Research

Outpacing our main trading partners

• The Icelandic economy is set for strong growth in 2023, despite the rocky global recovery.
• The IMF expects Iceland to have one of the highest GDP growth rates in advanced Europe in 2023. Domestic analysts are even more optimistic, with the consensus at 3.3% GDP growth in 2023.
• Growth will be driven by exports, mainly tourism, and household consumption, which started the year strongly.
• The payment card turnover of Icelandic consumers increased by 8% between years in Q1, adjusted for inflation and exchange rate fluctuations, partly due to substantial wage increases in the private market and significant household savings.
• Tourism is well on its way to reaching previous heights, with tourist arrivals in Q1 reaching 91% of Q1 2019. Around 2.2 million tourists are expected to visit the country in 2023, a 30% increase YoY.

4 Sources: IMF, Central Bank of Iceland, Statistics Iceland, Icelandic Tourist Board, ISAVIA, Arion Research

							GDP growth								Tourist departures via Keflavik International Airport
							- IMF's forecast											- millions annually
8														3,5
6														3
4														2,5
2														2
0														1,5
-2
-4														1
-6														0,5
-8														0
													2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
2018	2019	2020	2021	2022E	2023E	2024E	2025E
			Iceland		Other Nordics		Euro area	Consensus forecasts*				Actuals		Arion		CBI		Icelandic Tourist Board		Isavia

	Payment card turnover and private consumption			Household savings
- quarterly data, YoY-% growth, constant prices/exchange			- % of disposable income
				rate					25%
20%								160
15%								140	20%
10%								120
5%								100	15%
								80
0%								60	10%
-5%								40
-10%									5%
							20
-15%								0	0%
2015	2016	2017	2018	2019	2020	2021	2022	2023
2018	2019	2020	2021	2022
Payment card turnover	Private consumption	Consumer confidence (r.axis)		Saving ratio	Average saving ratio 2015-2019

Facing a familiar foe

• Inflation has proven to be much more persistent than expected and price increases are now widespread.
• Although the contribution of housing prices is still substantial, domestic goods and services have taken over as the main driving force behind inflation.
• Even though inflation is expected to subside in the coming months, inflationary pressures are still pronounced, particularly due to the new private sector wage agreements, which have been used as benchmarks for other agreements.
• Long-terminflation expectations are still rising on some measures and are well above the Central Bank's 2.5% inflation target.
• High inflation, fear over de-anchoring of inflation expectations, robust domestic demand and inflationary wage agreements compelled the Central Bank to raise rates by 150 bps in Q1. Further rate hikes are expected.

	CPI by expenditure groups		Nominal wage index
12%					- YoY %-change
					16%
10%					14%
8%					12%
					10%
6%
					8%
4%					6%
2%					4%
					2%
0%					0%
2020	2021		2022	2023
	1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Housing	Imported goods	Other	Inflation	Inflation target

			Long-term inflation expectations							Key interest rates
7%											8%
6%											7%
5%											6%
4%											5%
3%											4%
2%											3%
1%											2%
0%											1%
2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
	Market agents - 5 years ahead	Market agents - 10 years ahead	0%
	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
	Households - 5 years ahead	Businesses - 5 years ahead
	CBI's inflation target											US	Euro Area	UK	Iceland

5 Sources: Statistics Iceland, Central Bank of Iceland, BoE, ECB, Federal Reserve, Arion Research