The 2018 Annual General Meeting of Arion Bank was held today, Thursday 15 March, at the Bank's headquarters in Borgartún, Reykjavík. The agenda of the meeting contained standard AGM business and the Bank's annual financial statements were approved. Changes to the Board’s salaries were approved. The salaries were increased by 6.8%, which is the same as the increase in the salary index. The Bank’s remuneration policy was approved unchanged from last year. It was decided that Deloitte ehf. would continue to serve as the Bank’s auditors in accordance with a resolution passed at the Annual General Meeting on 19 March 2015. The Board was granted the temporary authorization to decide on the issuance of Additional Tier 1 notes.
The Board's proposal, not to pay a dividend, was approved, but the Board of Directors has the broad authority to propose that the Bank pay dividends or other disbursement of equity and may convene a special shareholders' meeting before the next AGM to propose a payment. It was noted that the Board of Directors has thoroughly examined the feasibility of dividend in kind, i.e. of share capital in Valitor Holding, but that the Board is of the opinion that this requires further evaluation.
The following people were re-elected on to the Board of Directors at the meeting: Brynjólfur Bjarnason, Eva Cederbalk, Jakob Már Ásmundsson, John P. Madden, Måns Höglund and Steinunn Kristín Þórðardóttir. Herdís Dröfn Fjeldsted was also elected on to the Board of Directors. She is a new board member. Kirstín Th. Flygenring and Thóra Hallgrímsdóttir are standing down from the Board of Directors. Steinunn is nominated by Attestor Capital, others were nominated by Kaupskil.
The Alternates were also re-elected at the AGM and they are: Ólafur Örn Svansson, Sigurbjörg Ásta Jónsdóttir and Þórarinn Þorgeirsson.
Eva Cederbalk, Chairman of the Board of Directors of Arion Bank, presented the report of the Board of Directors. Eva discussed the changes in the ownership of Arion Bank that took place in 2017 and the beginning of 2018. Eva noted that further changes in the Bank’s ownership could take place this year if Kaupthing continues to reduce its shareholding. The flotation of Arion Bank on stock markets at home and abroad is one of the options on the table. She mentioned that although Arion Bank is the only major bank in Iceland today which is not government owned, it is primarily the Icelandic state which will benefit from Kaupthing's sale of its shares in Arion Bank, as the vast majority of the proceeds will go to the government. She said that the Board of Directors and shareholders of Arion Bank are well aware that great attention will be given to Arion Bank’s experience, with the privatization of other financial institutions in mind, and stated that all involved are keen to ensure that the best job possible will be done.
Eva said that despite the marked economic improvement in Iceland, the government has continued to impose uniquely Icelandic taxes which were introduced at the height of Iceland’s financial difficulties. In her mind these taxes are highly oppressive and undermine the competitiveness of banks and hit their customers the hardest. The bank levy, a 0.376% tax on the Bank’s funding, which to a large extant is based on deposits, makes it more difficult for banks to compete on a level playing field with international banks, who offer Iceland’s major companies funding in foreign currencies, and with pension funds on the domestic mortgage market. It is vital, in Eva’s opinion, that the Icelandic government considers reviewing this taxation which ultimately affects the terms that banks such as Arion Bank can offer their customers.
Eva also talked about changes within the financial services sector across the world. She stressed that each bank needs to decide itself how it intends to deal with competition from new sources. She stated that Arion Bank wanted to be the market leader in Iceland in terms of innovation and digital solutions, to make life easier for the Bank’s customers. In 2017 Arion Bank introduced 10 new digital solutions, more than any other Icelandic bank. In her opinion Arion Bank is a clear leader in this field and the results are clear for all to see in enhanced customer satisfaction, increasing demand for our services and greater efficiency within the Bank.
Eva mentioned that in 2017 Arion Bank became a signatory to the United Nations Principles on Responsible Investment (UN PRI). By doing so the Bank has pledged to place a strong emphasis on environmental and social issues and good corporate governance when it is evaluating potential investments and making investment decisions.
Eva thanked the management and the Bank’s employees for their outstanding contribution to Arion Bank’s development and success.
Höskuldur H. Ólafsson, CEO of Arion Bank, discussed the annual financial statements for 2017. Höskuldur said the financial results for 2017 were satisfactory although one-off events did have an effect on the overall picture. He said that the Bank’s core revenues continued to grow, the revenue base was strong and that the Bank is financially robust. Net earnings amounted to ISK 14.4 billion and return on equity was 6.6%. The most significant one-off event during the year were the operational difficulties and eventual bankruptcy of the United Silicon plant at Helguvík. Impairments on loans and investments in the company amounted to ISK 4 billion after tax. The capital ratio at year-end was 24%, compared with 26.7% at the end of 2016. Höskuldur said that the reduction in the capital ratio was primarily due to the ISK 25 billion dividend and share buyback. Nevertheless, Höskuldur said, the Bank maintains a strong capital position which far exceeds the regulatory minimum. The change is in line with the Bank’s objective to optimize its capital ratio so that it is more similar to the ratios of international banks and other Icelandic banks.
Höskuldur discussed the current good performance of the economy and that the Bank is reaping the benefits, as are the Bank’s customers. Höskuldur stated that the Bank’s target for loan growth was to outpace economic growth, and the Bank achieved this objective in 2017 when loans to customers grew by more than 7% during the year. Loans to corporates grew by approximately 7% while loans to individuals were up more than 8%. Höskuldur said there was a healthy balance between retail and corporate loans in the Bank's loan book. He said that the quality of the loan book is steadily improving and at the end of 2017 the ratio of problem loans was only 1.0%.
Höskuldur discussed Arion Bank’s new digital solutions and in his opinion the Bank has taken a decisive lead in offering innovative products in the retail banking market. A recent survey confirms this, revealing that 36% of respondents consider Arion Bank to be the leading bank in Iceland in terms of digital solutions. The second placed bank only scored 25%. Höskuldur added that the most popular new product among customers has been the digital credit assessment and mortgage application process. This has made the whole process far quicker and more user friendly than before. The Bank’s market share in new mortgages increased substantially in the face of fierce competition and this is primarily down to the popularity of the new digital products, in his opinion. With mortgages representing more than 40% of the Bank's loan portfolio, Höskuldur said the mortgage market was of the utmost importance to Arion Bank.
Höskuldur also discussed the changes taking place among the Bank’s shareholders. He welcomes the fact that the shareholder base of Arion Bank is evolving and becoming broader and that Icelandic investors are coming on board. The investment in the Bank underlines in his opinion the confidence in the work and progress that has taken place at the Bank.
Höskuldur stated that the outlook is promising, both for the Bank and the Icelandic economy. He thanked the Bank’s customers for their business and extended his gratitude to Arion Bank’s employees for their contribution to the Bank’s success this year.
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