Arion Banki SDB (ARION) Q2 2025 earnings summary

Executive summary

• Return on equity reached 19.7% for Q2 and 16.1% for H1 2025, both exceeding medium-term targets.

• Core earnings momentum was robust, driven by higher net interest income, record fee and commission income, and diversified business lines.

• Merger discussions with Kvika aim to create a leading Icelandic financial institution, targeting synergies and enhanced capital strength.

• Key milestones in development assets and successful funding activities contributed to valuation uplift and liquidity.

• Insurance business Vördur delivered a combined ratio of 79.4% in Q2 and 89.4% for H1, well below the 95% target.

Financial highlights

• Net profit for Q2 2025 was ISK 9.8bn, up 77% year-over-year; H1 2025 net earnings were ISK 16.2bn, up 63%.

• Core income rose 19.8% year-over-year in Q2 and 17.8% in H1; net interest income for H1 2025 was ISK 26.4bn, up from ISK 23.2bn.

• Cost-to-core income ratio improved to 36.6% in Q2 and 39.4% in H1; cost-to-income ratio was 31.4% in Q2 2025.

• Net interest margin was 3.5% in Q2 2025, up from 3.2% a year earlier.

• Combined ratio in insurance operations was 79.4% in Q2 and 89.4% for H1.

Outlook and guidance

• Net interest margin guidance remains around 3%, with fluctuations expected due to real interest rate evolution.

• The external environment remains challenging due to inflation, high interest rates, and geopolitical uncertainty.

• Merger with Kvika expected to be accretive within a year post-completion, pending regulatory approval.

• CRR3 implementation and merger anticipated to further strengthen capital position.

• No significant monetary policy easing is expected before 2026 due to persistent inflation and robust wage growth.