First, it is wholly publicly owned. Second, it has a highly successful asset management arm — easily the largest in the country — with assets under management of ISK1.3tr ($9.36bn), which is similar to the bank’s own balance sheet. A third feature that sets the firm apart is its own universal insurance company — Vördur. This combination of unrivalled breadth and a state-of-the-art digital platform has created an offering for clients that is second to none.
“We have been spearheading digital development in Iceland for several years,” says Theódór Friðbertsson, head of investor relations at Arion, noting that online platforms are now the firm’s key distribution channels.
The benefits in terms of productivity and efficiency across Arion’s operations have been impressive. Around 75% of the bank’s core products are sold digitally, which has allowed it to reduce its physical footprint by around 45% since 2018. Integrating Vördur’s operations with those of the bank has helped support growth in insurance across retail and corporate clients. In 2023, Arion more than doubled insurance sales through the banking teams and saw a steady rise in bancassurance premiums.
“We’ve been very successful at utilising the strength of the bank’s various divisions and our digital expertise in order to scale the businesses,” says Friðbertsson.
The centrepiece of Arion Bank’s digital service is its world class app — voted the best banking app in Iceland for eight consecutive years. The many features available to customers include starting and managing pensions, opening banking accounts, making real time payments, arranging overdrafts, investing in stocks and funds and managing insurance needs — all in a single application. Speed and simplicity are touchstones across the firm’s operations. Processes that can be onerous for customers at other lenders — credit assessments for mortgage applications for instance — take only minutes at Arion. This all has supported the lowering of the bank’s cost-to-core income by almost 20% in the last five years.
A growth market
Identifying and meeting customer needs is a strategic priority for the bank. “Last year we took a deep dive to identify the main pain points for our clients,” Friðbertsson says. “We are always asking ourselves what are their key requirements and how we can improve our ability to meet those requirements.” The digital roadmap guiding Arion’s investment in technology will continue to centre on the priorities of customers and clients.
The fact that Arion’s client base continues to grow is due not only to the breadth and quality of the bank’s service — Iceland’s population is also growing. In addition to being one of the most educated, innovative and developed countries in the world, with the highest gender equality ranking, it is also one of Europe’s fastest growing. A prospering economy is attracting global talent and creating substantial growth opportunities for the bank.
Iceland has made a name for itself in tourism, sustainable energy and fisheries, but new export sectors are thriving. The country boasts world-class pharmaceutical and biopharmaceutical firms producing biosimilars for the global market, with Alvotech being the largest. Since being listed on Nasdaq Iceland in 2022, Alvotech has become the largest company on the Icelandic stock exchange. This milestone underscores its significant impact on the Icelandic economy.
The ICT [information and communication technology] sector is booming and the biotechnology sector is also flourishing, with Kerecis, a company that develops, manufactures, and markets regenerative graft from Omega-3-rich fish skin, becoming Iceland’s first unicorn in 2023. Fish farming plays a significant role in export growth, now accounting for 2.5% of total exports. Several major investment projects related to land-based fish farming have also become crucial to business investment growth in the coming years.
“The knowledge sector base has been growing steadily and that’s incredibly important for us,” says Friðbertsson, noting that Arion’s exceptional corporate advisory business has been involved in a large majority of Iceland’s listings over the last decade.
Arctic opportunities
Arion’s ambitions extend to the wider Arctic region. Replete with sustainable fisheries, transportation, rare earth metals, sustainable energy resources and tourism potential, the region holds huge promise.
“We have strong and longstanding relationships with other countries in the Arctic region across different sectors from fisheries to energy,” Friðbertsson says, noting that developing the region will require a bank with the requisite relationships and expertise — but also one dedicated to sustainability.
Morningstar Sustainalytics ranks Arion in the top 4% of banks globally, and the top 2% among 550 regional banks. A member of the net-zero banking alliance and a signatory of the Business Ambition for 1.5°C campaign, the firm’s ESG credentials are world class. For three years in a row, rating agency Reitun has assigned the bank an “outstanding” ESG rating. Within the next two years, Arion plans to have the Science Based Targets initiative (SBTi) validate its targets on financed emissions.
“Looking to the future, we have the expertise, the infrastructure and the connection to the investor community,” says Friðbertsson. “Arion is uniquely placed in a dynamic and fast growing economy and with potential to support future development in the Arctic region.”