Arion Banki SDB (ARION) Q1 2025 earnings summary

Executive summary

• Return on equity reached 12.8% for Q1 2025, close to the medium-term target, supported by strong core earnings, fee generation, and insurance income.

• Net profit attributable to shareholders was ISK 6.4bn (EUR 6.4bn), up from ISK 4.4bn year-over-year, driven by higher net interest, fee, and insurance income, and valuation uplifts from land development projects.

• Dividend of ISK 16bn paid and ISK 3bn buyback completed, with a new ISK 3bn buyback program launched in Q2.

• Key milestones in development assets, including Arnarland, contributed to a net P/L effect and fair value gain.

• Expressed merger interest with Íslandsbanki, but discussions did not proceed.

Financial highlights

• Core income (net interest, fee, and insurance revenues) rose 15.4% year-over-year to ISK 19.0bn (EUR 17.7bn).

• Net interest income increased 8.2% year-over-year to ISK 12.2bn (EUR 12.2bn), with a net interest margin of 3.1%.

• Fee income grew 35% year-over-year, reaching ISK 4.5bn, with strong performance across all business lines.

• Insurance income had one of its best first quarters, with a combined ratio of 99.7%, though investment losses led to a net negative result.

• Operating expenses were ISK 6.6bn (EUR 7.5bn), up 1.5% year-over-year, with improved cost-to-core income ratio.

Outlook and guidance

• Management anticipates a complicated external environment but expects to capitalize on profitable growth opportunities and reach capital optimization targets.

• Guidance for net interest margin remains near 3%, with fluctuations tied to policy rates and CPI-linked lending.

• The CRR3 implementation in Q2 is expected to reduce REA by ISK 40bn and increase surplus capital by EUR 7–8bn.

• The business model and balance sheet are considered robust, with light near-term funding needs.

• Anticipates further monetary easing and lower inflation, supporting positive consumption growth.