Arion Banki SDB (ARION) Q4 2024 earnings summary

Executive summary

• Net profit for 2024 reached ISK 26.1 billion, with ROE at 13.2% for the year and 16.3% in Q4, marking the fourth consecutive year above 13%.

• Core income increased by 4.6% year-over-year, driven by insurance service results and net interest income up 3.6%.

• Vördur Insurance delivered record results, with net profit of ISK 3.7 billion and ROE above 30%, and strong growth in market share.

• Digital transformation advanced, with 71% of core products sold digitally and the Arion app recognized as Iceland's best banking app for the 8th year.

• Proposed ISK 16 billion dividend and ongoing share buyback, totaling ISK 19 billion in capital distributions.

Financial highlights

• Net interest margin stable at 3.1% for the year and 2.9% in Q4; net interest income ISK 46.3 billion, up 3.6% year-over-year.

• Cost-to-core income ratio increased to 47.2% for 2024, up from 44.7% in 2023, due to higher incentive costs and a regulatory fine.

• Loans to customers totaled ISK 1,230 billion at year-end, up 0.8% in Q4, with a balanced portfolio and low problem loan ratio of 1.3% for mortgages.

• Deposits from customers reached ISK 857 billion, with a loans-to-deposits ratio of 143.5% and strong liquidity coverage ratio of 181%.

• Insurance revenue grew 12.9% year-over-year, with Vördur's combined ratio improving to 88.9%.

Outlook and guidance

• Management expects continued positive operational momentum in 2025, supported by a strong balance sheet and capital optimization.

• Near-term guidance for net interest margin remains around 3%, with medium-term ROE target above 13%.

• Cautious optimism for loan growth, especially on the corporate side, as interest rates decline.

• Maintaining conservative provisioning until clearer economic signals emerge.

• Dividend payout ratio target remains at 50% of net earnings, with flexibility for additional buybacks if capital exceeds requirements.