Corporate Banking

Sector specialization

One of Corporate Banking’s key strengths is its ability to provide tailored financial services and to get to know the needs and expectations of our clients. Our team’s expertise of the financial markets and experience of the business sector are integral to the advice and services we offer our customers. The division is divided into three specialist sector teams: trade and services, seafood, and real estate and energy. Corporate Banking collaborates closely with other divisions of the Bank to identify and respond to varying needs and wishes of clients.

Sustainability

Arion Bank set out a clear policy on sustainability in 2016. The policy is entitled Together we make good things happen which is epitomized by our commitment to working responsibly and in harmony with society and the environment. Our employees are guided by this policy in their work, and informed discussion and responsible decision-making is integral to what we do.

During the year Corporate Banking has actively participated in conferences on the seafood industry, tourism, real estate and lean management. Arion Bank was one of the main sponsors of the seafood conference held at Harpa Concert Hall during the year and furthermore organized an international seafood conference in partnership with Intrafish.

Arion Bank has been a keen supporter of innovation in Iceland for many years and has shown its commitment in numerous ways. The Bank is a sponsor of the geothermal cluster Iceland Geothermal which focuses on the utilization of geothermal energy.

Serving our major corporate clients

Corporate Banking serves many of Iceland’s largest companies. The seafood team provides services to Iceland's largest seafood companies, whose activities include fishing, processing and sales of marine products. The team is also responsible for implementing the Bank’s strategy of funding international seafood companies, both in connection with investments by Icelandic companies and direct investments in international companies, with the aim of diversifying the client base in the seafood industry and thereby spreading the risk in the Bank’s loan portfolio. In 2018 Arion Bank participated in an international syndicated loan with several other financial institutions to provide funding for one of the world's largest aquaculture companies.

The seafood team provides services to Iceland's largest seafood companies, whose activities include fishing, processing and sales of marine products.

Projects in the real estate sector were prominent just as in the previous year. These tasks included the construction of large apartment complexes, the expansion of clients’ property portfolios and future engagements linked to the building of hotels in the Reykjavík area. The real estate and energy team continued to work on several long-term projects during the year, including infrastructure development in various areas, energy-intense industry and energy production. The team has collaborated closely with Investment Banking on delivering customized solutions in extensive engagements for the Bank’s clients.

The trade and services team provides services to major clients in a variety of sectors, including manufacturing and industry, tourism, imports, retail, IT, investments and insurance. During the year the team took on a wide range of engagements designed to support clients' growth, and it also welcomed new clients on board. We continued our focus on services, other than loans, and this was reflected by the growth in commission in the division and the Bank as a whole.

Activities during the year

Interest-bearing assets amounted to ISK 288 billion at the end of 2018, of which loans to customers amounted to ISK 279 billion, or 33.5% of total loans to customers and 65% of corporate loans. Corporate Banking participated in a wide range of projects with our clients and developed new business relationships. Approximately 7% of loans were made to new clients of the Bank in 2018.

 

The division’s loan portfolio broadly spans the Icelandic business sector and this is in line with the division’s strategy. The largest sectors in Corporate Banking’s loan portfolio are real estate and related business (32.3%), seafood (20.9%), and trade and services (16.3%). In recent years the tourist industry has grown massively in Iceland, and has become one of the mainstays of the Icelandic economy, both in terms of a percentage of GDP and as a contributor to economic growth.

A total of 7.8% of Corporate Banking’s interest-bearing assets are directly linked to companies in the tourism sector.

The year ahead

After performing strongly for many years, there are signs that the wheels of the economy are beginning to slow down. Economic growth has largely been driven by the booming tourism industry, the effect of which has passed on to other sectors, strengthened the Icelandic króna, led to overheating on the labour market, higher disposable income and a population increase. Despite the boom in tourism, there are few signs of any growing imbalance in the economy.

The economic upswing in recent years materialized in the financial markets in the form of lower domestic short-term and long-term interest rates, lower inflation premium, an upgraded sovereign credit rating and better funding terms for Icelandic financial institutions. Arion Bank's customers have benefited from these developments which have also encouraged innovation and business investment. A turning point was reached in the second half of the year and now there is a risk that interest rate and inflation developments may result in the economy slowing down. Favourable conditions on the capital markets go hand in hand with economic stability. The foundations of the economy are stronger now than they have been for some time, a fact underlined by the international investment position and the financial position of households, companies and the public sector. Opportunities for creative business have seldom been greater or more diverse than at the present.

The foundations of the economy are stronger now than they have been for some time, a fact underlined by the international investment position and the financial position of households, companies and the public sector.

In 2019 we will also continue to develop and support the Bank’s strategy on responsible investments and lending. Arion Bank has funded numerous projects in recent years and stepped forward in times of discontent and low optimism. Such circumstances call for considered decision-taking and a prudent selection of projects for the benefit of all society. It is vital that we take the long-term view and assess the impact of these projects on the economy and the business sector.