Arion banki hf. (ARION) Earnings Call Transcript & Summary

Good morning, and a very warm welcome to Arion Capital Markets Day. Our third event since we were listed on the stock exchange in 2018, where we provide insight into our markets and business units, reflect on our strategic priorities, and you get the opportunity to meet management and ask us questions. For practical purposes, I want to mention that for those of you who are following the event online, please feel free to enter your questions on the portal during the event as we will end with a Q&A session, as you see in the schedule for the day. So we have an exciting schedule ahead of us. And you will hear more about our strategic priorities. And our business operations, business units and the operating environment. And I'll begin. My name is Benedikt Gislason, I'm the CEO of Arion. I'll begin by covering sort of the key components to our business. And let me start by saying that the global financial crisis marked a turning point for the banking industry. Banks were faced with a significant drop in profitability and more than 15 years later, many banks still do not earn their respective cost of equity. The situation has, however, varied strongly across markets and business models. Banks that have performed better and are earning more than their cost of equity on a sustainable basis, either operate in a more favorable environment and/or have better business models. When it comes to the business environment, there are 2 overarching themes that usually explain why banks perform better. Banks that operate in a higher economic growth environment and/or are located in a relatively smaller markets that are often more consolidated and partly sheltered by their own currencies. Variations in performance and valuation of banks within the same market have also been substantial due to the different business models. Better performance has then been explained by factors like banks making productivity leaps by digital first delivery and reducing the cost of complexity in their operations, banks that have been focusing on loan portfolio optimization, reduction of capital, exposure to low return asset classes and the emphasis on capital velocity. And finally, business models that are anchored in primary customer relationships with integrated business models, including, for example, full control of product factories in asset management and insurance. What I'm going to share with you and my colleagues here in the management team is that Arion actually ticks all of these boxes as we will explain in more detail today. And my presentation is structured around these 2 factors, the business environment and the business model and a third section, which is our track record of delivery. And let's start by reviewing the attractive markets that we operate in. We say here that there are opportunities for growth in a dynamic business climate. And on the left-hand side of this slide, we summarize some of the dynamic business climate that summarizes Iceland. There is high kind of level of innovation and economic engagement, as I will explain later on. We are an advanced economy when it comes to adaptation of technology. And this is kind of a wealthy nation as well measured by GDP per capita. But there is also growth in here, as I will explain in the following slides. So for example, last year, the population growth was one of the highest that we've seen, 3.1%. And if we look at our neighboring countries, the Arctic region, which is now a strategic priority for our bank, represents a significant long-term opportunities as I will explain in more detail later in the presentation. And we also see the opportunity within certain target client segments, for further growth, based on our broad services and business model. This will all be explained in more detail in the presentations here today. Now what is interesting is that if you look 10 years back, the Iceland actually demonstrates the third highest population growth within Europe. And we say here that this is contributing to a robust and consistent economic growth. And on the right-hand side, there is a good comparison with our Nordic friends, Nordic neighbors, where you can see that island is outperforming other Nordic economies. But what is particularly pleasing to see as well is this -- that this situation is set to continue. As the largest generation aged between 25 and 35, the demographics are deemed to be favorable for the foreseeable future. So we will continue to see from demographic underlying factors, this trend continuing. What is also quite pleasing to see given that we are a young nation is that balance sheets of households, corporates and the central government are actually in very good order, both from an historical context and also in an international comparison. What is also quite interesting when you look at kind of the balance sheets, assets and liabilities of households is that, the net financial assets have been growing quite rapidly in the past 10 years. And this summarizes the underlying factor or an underlying force in our economy that savings rates after the global financial crisis increased dramatically. And that households are taking a much more prudent approach to the finances. And this savings rate is actually enabled by the fact that our balance of payments for Iceland has been positive for the past 10 years, except for the COVID years, which allows for this high savings rate within our economy. And that is anchored around not only the sort of our old export industries, the energy-intensive industries and the marine products, but also growth within agriculture and tourism, which became an industry effectively 10 years ago or 11 years ago for Iceland, where we are now back above pre-COVID levels in terms of tourist arrivals. But also, the fourth component, which our Chief Economist has labeled as the fourth pillar to our export revenues, which is here categorized as other export revenues, but is mostly accurate around the knowledge-based industries. And this component of our export revenues now contribute to a meaningful proportion of our export revenues and is actually demonstrating the fastest growth. And coming to our position in this attractive operating environment. Arion is uniquely positioned with a very broad service offering, integrated model with diverse key products that are in-house, as I mentioned earlier, and offering strong opportunities for synergies. This is one of the reasons why we decided 2 years ago to go for the full bank assurance approach with our subsidiary, Vördur. We are known for innovation. We're digital at the core, and have a customer-first focus. And I want to state here that our digital leadership extends to all categories of our product offering maybe except for CIB, and you will hear from our Managing Director of CIB, how we actually are going to invest and are investing to get us on par with our competitors and then take a leadership in digital services. And then the insurance business where we see great opportunity for adaptation of digital services, especially when it comes sales where our sales are actually less, only around 7% through digital channels as opposed to 70% for typical banking services. And through this broad service offering that unique broad service offering that the Arion Group has, we have an interesting position. We have a touch point with half of Iceland's population, and we have a touch point with over half of Icelandic corporations. And when you look at these numbers here, it's quite interesting that with a ratio of one active company per 6 others, Iceland exemplifies a culture of innovation and economic engagement. And Arion plays an important role in this active business landscape, tailoring solutions for diverse needs towards clients with higher share of wallet. And I'll go a little bit more into detail how our strategy is anchored around that. Now this broad service offering has then contributed to a fairly broad or diversified income mix. This is the overall income of different business units. And if you do a deep dive and look into the fee and commission income line, we are recording higher fee and commission income in our business than our peers operating in Iceland. And this is also a factor of our kind of diversified loan book approach where effectively around half of our loan portfolio is towards individuals and half towards corporates. And we have put a special emphasis on diversifying our corporate book further, reducing single line exposure. And thereby reducing cost of risk in our portfolio. And on the right-hand side, you can see that not only do we have a strong income profile but also a financial profile with a very healthy leverage ratio and strong capitalization and a pretty good liquidity position. And now to my third section of my presentation, which is the track record of delivering. So since our Capital Markets Day in -- our first Capital Markets Day in 2019, when we were operating at a level way below our cost of equity, we set in place a few strategic initiatives, which I'll go into in the next slide. And introduced more ambitious financial targets that originally was set when we IPO-ed the bank in 2018. And as you can see on this slide, we have been consistently delivering on our financial targets since. Now going to the Capital Markets Day, our first one in 2019, where we presented updated strategic priorities, which involved increasing operational efficiency through key cost initiatives, but also this focus, keeping in mind that more than half of the capital being utilized within our corporate banking at way below our cost of equity returns, we wanted to adopt a business model that is known in markets where capital requirements are high, especially in the U.S. with the focus on revenues on top of risk-weighted assets, and focusing on capital velocity and putting special focus on investments into our capital-light revenue growth. And it was very much around the capital optimization as well as we were grossly overcapitalized at that point in time. And we had a number of assets on balance sheet that were underperforming and we wanted to divest. And since then, I think it's fair to say that we've demonstrated strong delivery on these initiatives. For example, coming to the capital optimization, we have distributed through dividends and buybacks, ISK 96.2 billion, which is more than 70% of the market cap of Arion up on the IPO or 14% on average for the years from 2019 to 2023. We made some important milestones in simplifying the balance sheet. We divested our payments business, Valitor. And we divested other assets and are working on a few that I'll go in more detail later on. And then, as I said earlier, we saw the opportunity for a full bancassurance approach with Vördur. And in our presentation today, you will hear more about that journey and we will introduce some new financial targets that will probably guide investors to the opportunity that lies there. What are then the next steps? What are we going to discuss here today? This is reflecting a little bit on the past. There are strategic refinements. We're not altering or changing our strategy dramatically. They still remain the guiding light with continued emphasis on operational efficiency, capital velocity and capital optimization. But we've identified 3 main focus areas going forward. It's a target client segment. It's financial health, which you will hear more about in today's presentations and incorporate things like financial literacy, fraud prevention, empowering women in investments and so forth, personalized recommendation for our clients through data and AI utilization. And then the Arctic, which I'll go into more detail later on. The customer-centric focus has been here all the time since Arion was reestablished back in 2008. But I'm happy to tell you that for the first time since Arion was reestablished as a local banking operation, we came in second in the customer satisfaction survey, which was published in January. And our target is to get up to the first place and stay there. And why is this important? It's important because you don't build relationships and expand business relationship unless our services are deemed and seen as top class. So we want to be a leader in identifying and meeting customer needs. And we also want to kind of acknowledge the fact that customer needs are different. There are different client groups within our customer base, and they offer a different share of wallet. And by doing this and focusing on these different client groups, we are designing our services and products towards the client groups that have the broadest and the most demanding needs and then developing the services towards that client group for the benefit of all of our customers. And I'll give you now 3 examples of initiatives that we've taken and are working on, and starting with retail bank and insurance, where we will, in the coming weeks, be launching a new rewards program, which ties together the various benefits associated with being a customer of the Arion Group, initially focusing on the insurance business, but then we will broaden this to all our product offering. On the corporate and investment banking side, we are -- we've been extensively working on optimizing products and services now. And we've done that on the back of service-related customer journey mapping, extensive dialogue with our clients, listening to them and our pain points. And you will hear today more about the journey that lies ahead. And I think this is actually quite important. As I said earlier, on average, 1 in 6 -- 1 out of 6 clients -- our top clients of Arion has corporate needs on average. And then on the market side, we've been focused on developing premium and wealth management services. And are effectively launching a kind of an enhanced version of those services this year to cater to the growing client segment. You saw the development of the net financial assets of Icelanders and we think, given the demographics that this will only continue. Now coming to the Arctic, which we say offers significant potential in the long term. When I'm asked about the Arctic and the opportunities there, I usually start by saying our 2 closest neighboring countries, Greenland and Faroe Islands offer sort of different opportunities to Arion. I would categorize Faroe Islands as effectively adding the fifth region to Iceland. We have North, South, West and East, and then Faroe Islands with GDP per capita at a higher level than Denmark at the moment, is effectively the fifth region that we service. And there we have already made good progress and decent market share in the corporate space. When it comes to Greenland, I think Greenland could probably be categorized or described best by saying that Greenland is factory like Iceland was 40 to 50 years ago. The opportunities are immense. We don't really know how it's going to develop, but we know it's going to grow. And the Arctic region actually extends further than that. It's an interesting fact that the U.S. state of Maine has developed an economic policy around the Arctic. They label it the Eastern Gateway to the Arctic. They have invested heavily into their harbor, made connectivity with the railway system in the U.S. And when new shipping routes firmly open up, the Northwest passage, they will be pretty well positioned to service the ships sailing through that route. It's also interesting from a geopolitical standpoint that -- it was announced late 2022 that the U.S. Air Force is going to invest close to $4 billion in the Thule military base in Greenland. It's rumored that they're also looking at setting up a naval base in Greenland. And in Iceland, we know that there is a military spending both from U.S. military and NATO in the tune of $200 million happening in the coming years. So this area is clearly an increased focus. And we all remember when Trump said he wanted to buy Greenland. And I think that's for a reason. The U.S. has already seen the strategic importance of this area. Many of the countries that are located in the Arctic lacked the infrastructure that Iceland has built up. They don't have a stock exchange. They don't have direct access to international capital markets. And they have a underdeveloped banking system as well. So we say here that Iceland is a uniquely positioned to become the financial hub of the area. And Arion has deliberately targeted to be in a leading role there. Currently it doesn't have a significant impact on our business near term, but it's going to provide long-term upside potential. And we're still sort of mapping this opportunity out visiting these places on a regular basis, knowing the -- or getting to know the business community in its place -- its location and mapping out the opportunities. Currently, and you will see sort of how our loan portfolio has, for example, developed in the past few years in the Arctic area, but the sectors that we've been focusing on is fishing. That was the first sector that we really explored in the Arctic. Tourism, where ecotourism is really trending. And shipping, shipping and transportation, I would say, and then financial services. Now, we're still in the kind of track record of delivering chapter of my presentation. And we have a few assets that are noninterest-bearing, have been on our ballast for a few years, troubled assets that the bank took control of and have an important social contribution as residential housing is in shortage in Iceland, and there is real need based on the population growth and the immigration into Iceland to develop new housing units in the capital area. And we currently own 2 key strategic development areas in the capital area, one of them being Blikastaðir where we have taken sort of a leadership in the local planning process of this in cooperation with the municipality most expired, where our role has been to effectively focus on coordinating and ensuring that leading standards are applied throughout the process with a mix of local and international renowned design teams, the municipality of Mosfellsbær is promoting the importance of nature and health -- or healthy lifestyle in the community and the design there accommodates their requirements. And ensures that those values are applied throughout the nature-based design approach. What are then the next steps for this asset? Well, the local plan for the first part of the land is expected to finalize and be approved in the second half of 2025. And on the back of that, we are now exploring opportunities, multiple options regarding the future ownership of that land. It's clear that we will not -- we are not experts in construction and we will not be developing it any further than when it comes to the local plan. And one of the things that we wanted to present here today as an idea, and I'm sure that many of the operators that tick some of these boxes will be in contact following this presentation, is that we think there is an opportunity for a new residential real estate company in the market. I think the issue that many of the construction and development companies are having is that the future visibility of their operations is limited. There is -- the planning process is complicated. There are -- it's difficult to plan 5 to 10 years ahead. And in the case of kind of owning a land portfolio, it can be challenging to have that on a leverage basis in the -- within a construction company as seen from the 2 assets that we hold. So what would our contribution to this potential real estate company be? We will be contributing the land portfolio on a non-leveraged basis, receiving shares in an entity that we would see as a listed company, enabling us then to distribute this holding directly to our shareholders. Thereby we would facilitate a creation of a residential real estate company listed on the stock exchange with a fortress balance sheet, lowly leveraged a large loan portfolio that would have the capability to deliver hundreds of units each year and providing for the kind of a base production of housing units into the Iceland market consistently throughout the next few decades. So with this idea, we expect contractors, real estate developers, suppliers and even those who have rental units to be in contact with us, and we will explore this opportunity in the coming months. And hopefully, this will result in information or creation of a residential real estate company listed on Nasdaq Stock Exchange in Iceland. Now coming to our continued focus on sustainability. Our goal is not only to create shareholder value, but also to meet our obligations to drive economic growth and finance the climate transition, which will create new business opportunities for financial institutions in the coming years and decades. And all of the things that we've been doing on this front have been to prepare us for that. For example, calculating the carbon emission from our loan portfolio, understanding where we can help our clients and sort of reducing their emission. We've set out sustainability policies for many of the industries that we operate in and actually have set out a specific policy for the Arctic region where we intend to apply all of the sustainability kind of policies and measures that Iceland has done in the past few decades. And I think the story there is quite strong when it comes to sustainable fisheries, which we've had for decades now when it comes to renewable energy using hydro and geothermal. And there we intend to take our knowledge and bring it forward to the Arctic region. Now on continued operational efficiency, where we've seen an improvement in the cost to core income ratio throughout the years, and it's gone down by some 17 percentage points in the past 5 years. We've also seen the core income per FTE moving up by 50% or 62% -- sorry, I didn't see the number. There is continued focus, and that's why here today, we are introducing new financial targets, [ upping ] 2 of them. One, including the cost to core income, medium target, where we're moving it down to 45%. We're also very much focused on operations and we introduced a new Chief Operating Officer role within our organization late last year, which will foster cross-unit collaboration and enhance operational efficiency further. You will hear from our Chief Information Officer, who is next up, Björn Björnsson, our focus on further future proving, our digital platform, and our high focus and emphasis on automation, data and AI. And to conclude my presentation, I go back to the 3 pillars. The operating environment where we are operating in, and I would say, an extremely attractive market where the robustness of the Iceland economy has been demonstrated throughout the years. The demographics are favorable. The population growth is there. And our fourth pillar, the knowledge-based industries are -- continue to contribute to the growth of our export revenues. And that is what creates welfare in an economy. On top of that, there is the strong long-term potential with the Arctic position, as I've elaborated a little bit on. And it's really, really good position to have the broad product offering in this exciting operating environment with touch points with half of the population and more than half of the corporates and the ability and potential to expand and broaden the business relationship based on the touch points. And also with a strong market in the most attractive customer segments, the entrepreneurs of Iceland where we want to further expand and grow the share of wallet in those target segments, continue our digital leadership and invest further. You will hear more about our investment plans compared to other states. And I hope that I've convinced you that our ability to deliver as demonstrated and we've had a return on equity above our local competitors for the past 4 years and intend to continue on that journey. And finally, on the medium-term targets, you will see -- those of you who know them by heart, you can see that we have raised the core income over REA up to 7.2% and 6.7%. We're reducing the cost to core income ratio from 48% down to 45%. And finally, and most importantly maybe, we're introducing a new financial target for our insurance business of 95% combined ratio, which summarizes our goal of continuing to deliver above-market growth with sort of sustainable profitability. And you will hear from all other, our CFO later on about how this particular financial target translates into the bottom line of Vördur in 5 years' time. This concludes my part of the presentation, and I now welcome our Chief Information Officer, Björn Björnsson.

Thank you, Benedikt, and good morning, everyone. My name is Björn Björnsson, I'm the Chief Information Officer here at Arion, since almost 12 months now. And what I want to discuss with you today is our plan and ongoing efforts to maintain digital leadership in the delivery of outstanding financial services in Iceland. It's hard to contest that over the last decade, Arion has truly spearheaded the delivery of digitized financial services. This is evident here in Iceland where Arion has been the first to market with most solutions in this regard, but even more importantly, by the higher adoption rates by our customers. And Arion standing in this respect is also noteworthy from a global perspective. And when I joined, as I said, less than 12 months ago, I asked myself the question, how can this be? How can a small North Atlantic Financial Services Group stack up against large international players with far deeper investment pockets and access to greater development capacity. And what I found is that there are in particular 3 elements that contribute here. One, is Arion's history of an ongoing commitment on differentiation based on the delivery of customer-centric digital solutions. And secondly, it's the foresight to invest behind that commitment and execute with rigor. And thirdly, it's Arion's ability to harness the benefits of being subscale and bring forward more agility in its operations and stronger across functional collaboration. But we will not rest on our laurels. We will continue these efforts and move forward. We intend to maintain our leadership in the delivery of digitized financial services and invest behind them with titling to the group strategy. In doing so, there are, of course, challenges that we are addressing in our current efforts and will continue in our medium-term plans. I will call this here briefly, and then I will bring more context on the following pages. One topic of challenge is that our service offering is broad. This is certainly true in Iceland where we have the broadest service offering, but it's also fairly large in a global context. We address this with a pragmatic ongoing infrastructure modernization at stable now investment levels. With the focus is a move to cloud-native technology, opening up opportunities for more Software-as-a-Service partnerships, which typically require much less effort to maintain. We also, of course, see emerging competition targeting parts of our services portfolio. Here, we often see smaller players that are digitally native, having a much smaller scope of service offering, which enables them to move faster. We will address this with increasing the productivity of our development organization and invest even more heavily behind customer-focused initiatives. Amongst these, as Benedikt just covered, and we will hear more of from my colleagues later today, our initiatives that are targeted at supporting our customers in realizing the full value of the breadth of our service offering. And lastly, in terms of challenges with the emergence of generative AI, there is a notable uptick in cybercrime. The Icelandic language, unfortunately, is no longer a barrier of entry for international cybercrime groups. Here, we remain as before, committed to fighting this development under the strategic pillar of financial health with increased security levels and fraud prevention tools. Well, let's now look a little bit deeper into each of these challenges and how we plan to address them. Arion has already undergone the most significant pieces of its technical infrastructure modernization. We, of course, at all times, strategically allocate investment to our technology stack. And for the next 3 years, we are targeting especially 6 of our tax domains. For lending, we will continue to modernize our collateral management and continue as well in front-to-back digitization of our lending processes. We're currently looking at our payment space with the aim to simplify our tech and also improve user experience. We are investigating options to modernize our pension liability infrastructure and are already underway with an implementation of a new modern wealth management system for our investment operations, which will create significant efficiencies and also new business opportunities. With cyber, we are making upgrades to our security and fraud prevention layers, and we plan to invest even more towards data and AI over the next 3 years. To address emerging competition, as I mentioned, our focus is on increased development productivity. In the second half of last year, we underwent an agile at scale transformation, and we have already now in 6 months, seen a significant productivity improvement. A strong start towards our target of doubling development productivity in 2026 compared to 2022. In fact, this is a prime example of Arion's ability to harness the benefits of being subscale. In my previous career, I have been exposed and been involved with this type of work for foreign banks. And typically, what you like to see is this type of transformation stabilizing in around 18 months and reaping benefits in the period of 18 to 36 months. And as you can see, we are already seeing these benefits in 6. Between 2019 and 2021, we saw a heavy investment in core system modernization. We will continue to invest here but at moderate and stable levels. Our commitment to invest the IT will largely go to, as I mentioned before, increasing the productivity of our development capabilities and capacities and increasing the work that's related to customer-focused initiatives and front-to-back digitization, and we will do this with a capacity mix of internal and external resources. And lastly, earlier this year, we reorganized the IT department most notably to centralized Arion's data development capabilities in one unit, now reporting to a new role of the Chief Data and Analytics Officer, and we are already seeing benefits here in terms of accelerating our data and AI ambitions. At Arion, we take combating cybercrime very seriously and despite our defenses being robust, the nature and intensity of cyber is changing. This is why we will continue to invest in stronger security levels, both hardware and software, we focus on improved resilience and the elimination of potential vulnerabilities. One thing to highlight is that we have entered into a partnership with Defend Iceland, a new platform, applying a national approach to cybersecurity resilience. And we, of course, encourage other Icelandic companies to do the same. We also see elevated and more elaborate fraud activity, which is why we're adding an AI-driven fraud prevention layer to our current infrastructure. So in summary, 5 things I would like you to take away. Our IT modernization is well progressed. It will continue, and we will invest, but at stable and moderate levels. We have started to step change deliveries from our development organization with focus on customer experience and front-to-back digitalization. We're accelerating our data and AI ambitions under a new organizational entity reported to the Chief Data and Analytics Officer. Our dedication to combat cybercrime continues. And lastly, we are firmly committed to maintaining digital leadership. We will continue to invest behind that commitment. Thank you for the audience. I would now like to introduce Ida Benediktsdottir, Deputy CEO and Managing Director of Retail Banking.

So good morning, everyone. It's a pleasure to be with you here today, and it's very nice to see how many of you are here in the auditorium with us today. But today, I would like to provide an update on the retail banking business, our strategic themes for the next couple of years and how we have fared since our last Capital Markets Day in 2021. I have been in the bank for almost 20 years. And for the past 7 years, I have been leading the Retail Bank. And it's fair to say that the environment for retail banking, both in Iceland and internationally has changed drastically during that period. As our CIO mentioned earlier, Arion has been at the forefront of digitizing the Icelandic financial sector. But we have also been, during that period, significantly restructuring and also modernizing our branch network. And now we are seeing strong momentum in our bancassurance journey. Our strategy is clear: customer focus, digital leadership and successful bancassurance journey and, therefore, supporting the growth and the financial results of the group. So Arion Bank has and it's predecessor has always been first movers. We were the first to offer index-linked, the non-index-linked loans. We were the first to offer digital credit assessment. We were also the first one to offer digital mortgage application. We were the first bank in Iceland to offer covered bond to especially finance mortgages, and also the first bank in Iceland to offer covered bond in euros. So Retail Bank represents around half of the bank's loan portfolio, around 53%. And if you look at the deposit base, our deposit base from individuals is 46% of the bank's deposit base. We say that we have a strong foundation with diversified income streams with mature, robust and flexible products and Retail Bank has delivered strong returns year after year. Our net interest income represents 76% of our revenues and has proven to be very stable despite the fluctuation in the rating -- yes, rate hikes over the past years. Our net earnings have increased by 33% since our last Capital Markets Day. And our fee and commission income has increased by 12%. So while in terms of loan products, our mortgages is maybe, of course, the largest category and is the core of the retail banking business, representing around 90% of our loan book. A significant proportion of our mortgage portfolio will undergo a interest rate reset in the next couple of years. So borrowers will be moving from relatively low fixed interest rates to a higher index- and non-index loans than non-index loans. And that should, of course, increase their loan repayment -- but at the same time, this will have a positive impact for the bank -- on the NIM -- for the NIM of the bank that, Olafur, our CFO will explain in more detail later in his presentation. But we have been reaching out to those customers in advance and discussing available options for them during the situations for them and their families. And we have developed the product for those ones to stay in non-index loans with lower payment temporarily. And this product has been very well received among our customers. So Grindavik our credit exposure to the volcanic activity and the synergy of Grindavik is minimal or around ISK 2 billion to individuals. The government will offer to buy all those residential properties and put that -- put them in a state-owned company, and that company will be financed by the lending mortgage lenders and also from equity from the treasury itself. So we focus now more on the deposit base. We have been focusing on our target client segment. And our strategy is to offer high interest and competitive rates for stable and term deposits. And we are focusing on our core customers. It has proven to be successful, and we have seen our deposit base being sticky. We will not follow newcomers for unstable deposits. We have enjoyed strong growth in our deposits. As you can see over here, a growth of 20% over the past 2 years. And then more importantly, term deposits, they have been growing from our retail banking deposit base from 30% to 40% during that period. So as my colleagues have mentioned, we are in a unique position offering a full range of financial products. As you can see here from this, I think there is some kind of a donut chart -- that, yes, we are offering our retail customers with convenient, high-quality and diverse financial services. And like Benedikt mentioned before, there is no bank in Iceland that is offering such a holistic product offering as we do. So I would say that Arion is a truly integrated bank. We have around -- we have a diverse relationship with around half of the Icelandic population. And that fact alone provides a unique opportunity for cross sales and outstanding service levels in the financial market in Iceland. And we also see further opportunities to extend our services further and increase cross sales, a share of wallet with our existing client base. So now we are going to our distribution channels, starts with the digital bond. Our app activity is extremely high and the feedback from our customers has been excellent over the past years. We are very proud to tell you that the Arion app has been voted the past financial app for 7 years in a row now. Arion is the leader in digital services in Iceland. And as I mentioned earlier, it's fair to say that we have been in the forefront of digitizing the financial sector in Iceland for the past decade. And according to global benchmarking, our sales and activity in the app is among the best in the world. But we have not stopped. We have plans to place and to build further on our platforms to emphasis on insights and digital advice builds on the group data. And as mentioned by my colleague, [Benedikt ] before, we are strengthening our data teams to be more streamlined going into the future. We will be harnessing the data for the benefit of our customers. We want to give them the right information at the right time. We want to provide tutorials when needed. And we also would like to offer them the right product at the right time. This should grow our share of wallet for our selected target groups. And this year, we are going to continue to strengthen our user experience across all our platforms, both digital branches and also the call sector. And we see that there is a different kind of demand for delivery of our service, depending on, for example, demography and life events. A proactive and adaptable engagement model joined with personalized offering using data. Customer insight and solution-oriented ways of working gives us the tools to guide us on our way forward to improve our customer experience. As Benedikt mentioned, we have started building a new segmentation models from -- for individuals with the aim to tie these segments with our rewards and loyalty program, which will reward customers for doing business with the whole group. And we really hope that they see how convenient it is to have all the financial services in one place, but more about that later. Here, you can see some of the products that we are offering in the Retail Bank. Most of our products are available already in the app. And in the app you can do all the day-to-day banking activities, and -- but you can also do some more complicated things as applying for mortgages, pension, applying for pension plans, trading securities that I know that Johann will tell you more about later. But to the other distribution channel, the branch network. Numbers and interviews with customers indicate that they want to visit branches, even though there has been a huge increase in the digital take-up of our digital platforms. Since 2021, Arion has migrated 11,000 customers from using the call center to digital-only behavior. And we believe that we have balanced the digital and the branch mix effectively and are now ready to capitalize on that infrastructure. So the branch strategy has revolved of increasing efficiency by reducing FTEs, reducing number of branches and also square meters. And as you can see here, 7 years ago, we had 24 branches around the country. And now we have 12 branches that are much simpler than before. And also, you can see the reduction in the number of FTEs on this slide. So the capital -- the premises in the capital area, they are 5 and they offer -- capital area and all the rural communities, they are 5 and they offer full range of financial services. But then country side, we offer -- we also have branches -- but then there, we offer a limited range of service. We have shorter opening hours and our branches operate as a part of our call system when the doors are not open for customers. This has proved to be a very useful strategy and has boosted the efficiency of smaller branches with low footfall. The bank will continue its way towards cashless branches, and we foresee further cooperation in the Icelandic banking sector with respect to ATMs to increase efficiency. So based on our experience and with our current cost structure, further closures of branches are likely to have negative impact on our P&L. So it's more logical to see towards focus increasing revenues through cross sales and improved service. Therefore, we have been focusing on efficiency in the remaining branches, further cost optimization in the Retail Bank will be achieved by digitizing end-to-end processes going forward. As a part of our transition, we have recently made some changes of the bank organizational chart, where our strategic efforts will be consolidated to create more momentum towards our ambitions. So the SME part of the portfolio has now been moved to CIB, so we can focus more on journeys towards corporates. And I know that Hakon, MD of CIB will go through that in more detail later on. But in the retail banking, we have streamlined and flattened our organizational chart dramatically, I would say, to ensure the same service level around our network and also to increase efficiency. So at the Retail Bank, we can now focus all our time and attention to individuals. I think this is going to make better for both corporate and individual customers and will also be good end results for the bank. So we have been using a lending algorithm for many years now for unsecured loans, cards and car loans with great success. And our algorithm takes around 70% of all our credit decisions for these type of loans. And since we have been doing this for a long time, we have some experience how this algorithm is doing. And these loans have proved to be of very good quality. Regarding sustainability, of course, we are committed on that journey and through our current product offerings, such as green car loans, mortgages and green deposit accounts. and we seek further opportunities, of course, to expand that sustainable product range. A revised sustainable framework is in the process with the aim to flag social dimensions, and also to increase the scope of environmental criteria. Women Invest, that I will tell you more about later, is also a project concerning social dimension. So over to the bancassurance. Strong momentum in our bancassurance journey with huge potential still not be realized. One of the main reasons for integrating Vordur into Arion Bank was to use -- make use of the Arion distributional channels and other infrastructure to increase sales and improve services. The strategy has been successful and made an excellent headway despite our digital solution not being fully utilized yet. The next step in our journey is a loyalty program with the aim to increase the bancassurance ratio and to enhance the value of being customer of Arion Group, both from the insurance perspective and also the banking perspective. Our Arion sales team has been growing by a couple of people and new insurance offices in Arion Bank branches are yielding promising results. As you can see here from the slide that last year alone, the sales of Arion sales team increased by 136%. And we are planning to extend this model throughout the country, thereby increasing further visibilities in the communities. So by increasing knowledge of banking frontline employees of insurance products, we will improve the effectiveness through brand sales and advisory with less cost per se. Our bancassurance ratio has gone from 32.6% to 34.7% in the last 1.5 years for individuals. And you can see here on the slide that we are doing much better in our core target segments. As you look at Premia, we have 40% bancassurance ratio there. I would also like to point out the picture here in the middle, which explain how Arion and Vordur service sector is. So I'm very excited to tell you or introduce to our key initiatives that we will be rolling out this year. We want Arion Group customers to feel that they matter. They are rewarded for the business that they do with the bank and feel the real value of having all -- Arion Group meet all their financial needs. We are, therefore, currently creating a reward system for the group's customer, the special focus on families and Premia, our high net worth individual services, which my colleague, Johann, MD of Markets, will go through in more detail later. These target groups, they have the most complicated and extensive financial needs. And by servicing them well, we raised the bar for all our customers. We envision the new loyalty program to increase satisfaction, engagement and cross-selling within the group. At the same time, we foresee this program to reduce churn, increase the income and share of wallet for the target client segment. And also, as a bank, we will be more efficient in providing discount and benefits. Arion Loyalty consists of 2 initiatives: first, it is Arion Rewards and then it is Arion Family along with Premia. We have an old-fashion reward system that we are in the process of renovating. In Arion Rewards, we are changing the dynamics of rewards through the group product range. And with this act, we believe that we will create more value for the right target segment and utilize our digital platform in our advantage. This program should be easy to understand and valued by our customers, but most importantly, the similar cost to the bank -- for the bank. The first step in Arion Rewards is to ensure -- it's related to insurance with the aim to increase sales and the solution is going to be introduced to the market in the coming days or week. The aim is to change the Icelandic insurance landscape. With Arion Family, we are, first and foremost, providing outstanding services to families and giving a comprehensive overview of family finances. The project aims to facilitate financial management for the whole family, such as spouses, children, elderly people and others. We will simplify the life of parents when it comes to applying products for the children, enable also parents to actively manage the day-to-day activity for the children. We expect this to attract new customers to Arion Bank, parents and others. And of course, this will attract future customers that are now children. So we want to improve our customer experience by creating this financial overview for the family, increasing financial education and thereby increasing financial health. We have already launched some of the family initiatives in our app. So as Benedikt mentioned in the beginning, we are determined having highest customer satisfaction score in medium term. And with our focus on customer experience, loyalty and award-winning app, I am confident that we will manage to do so. So now this is the project that I'm very proud of. I'm not going to go through this. This is a very depressing figures here. So -- but in the beginning of the year, we -- the bank launched a long-term initiative called Women Invest, which is designed to empower women when it comes to investment, savings and how to start the business. As you all know, that are here today, capital drives the economy and thus guide decision-making. By investing, women can contribute to a more balanced and equal society and increase their financial health. But in addition, we also see, of course, business opportunities in this for the bank as the market will expand with more people participating. Similar projects have been promoted in the other Nordic countries with good results. And the goal of this project, as mentioned, is to educate and activate women regarding investment and savings for their own benefit and also for the broader benefit of the society. We are seeing very favorable signs already. As of today, more than 1,000 women have attended 13 seminars and the feedback has been highly positive. And as I mentioned in the beginning, I've been here for a long time, I don't remember we have received such a positive feedback of anything that we have done before. So the numbers are also helping us. We are seeing a number of custodial accounts increasing and more importantly, our NPS is rising. I want to show you an ad that we have been running in the TV to promote that project. [Presentation]

So to conclude my presentation, the Retail Bank has a strong foundation with diversified income stream, mature, robust and flexible products, and we have delivered strong results year after year. We are in a unique position for cross-selling with relationship with more than half of the Icelandic population. Significant momentum in customer satisfaction, and we are determined to have the highest satisfaction score among the 3 big banks, medium term. Customer-centric focus by improving end-to-end customer journeys should lead to increased satisfaction. We will continue our momentum in the bancassurance journey by consolidating Arion and Vordur into our branches and increased combined sales and service efforts. Bancassurance will be pivotal, and the first part of our new Arion Loyalty Program, along with Rewards and Family will provide a new value proposition in the Icelandic financial market. And we want to remain our market leading up to support Arion loyalty going forward and give the customer insights and digital advice based on the group's data. Thank you. So now we are going to have a 15-minute break. I encourage you to go here, to have some coffee, stretch out and have some refreshment. We see you back in 15 minutes. Thank you. [Break]

So welcome back. For those of you who may not be familiar with me, I would like to take this opportunity to introduce myself and provide an overview of my tenure at Arion. I have been part of the group for the last 24 years, dedicating 20 of those years to asset management. Majority of my experience was in the management of a domestic equity fund at Stefnir management company, where I also served as CEO from 2019 to 2021. Behind the Markets team lies a blend of seasoned professionals and dynamic new talents who have collectively contributed to a long-standing presence in the industry. It is a privilege to highlight the formidable position we have achieved over the past 3 decades in the asset management and securities progress. Allow me to provide an overview of the significant milestones that underscores market robust standing. I will not enumerate every detail, but wish to underline key achievements. As of the last fiscal year and our asset under management approached ISK 1,400 billion, establishing us as a premier asset management firm in Iceland. This achievement underscores our leadership position within the Icelandic asset management sector. In the equity and bond markets, capital markets has consistently been one of the leaders for the decade, characterized by superior flow and placing power. Remarkably, for 8 consecutive years, we have secured the largest share in the equity markets. Our role as a selling agent accounts for 67% of all of the public equity offering over the past 30 years. Additionally, we concluded the previous year as the second largest in bond market share, following our #1 position in 2022. We have been at the forefront of developing a private pension savings scheme, commanding a 36% market share in supplementary private pension. These highlights not only reflects our strategic insight and operational excellence, but also our commitment to maintaining leading ads in the finance -- in the Iceland's financial markets. Arion has significantly prospered from the visionary strategy implemented by our predecessors to establish a strong asset management platform for institutional investors. Looking back over the past 3 decades, it is noteworthy that the asset under management have grown from ISK 3 billion in 1993, to an impressive ISK 1,400 billion today. And the asset distribution is notably well balanced, with institutional asset management constituting 58% of the asset under management, Stefnir making 18%, 13% in third-party funds and the private banking accounting for the remaining 11%. Moreover, in the context of substantial growth, our revenue expansion has been consistently solid. In such a dynamic environment, with our client base expanding, there is always a pressure to manage fees competitively. As highlighted earlier, our institutional asset management service has emerged as a cornerstone of our offerings, distinguished as a pre-permanent institutional asset manager in Iceland, demonstrating robust growth in achieving a notable 14% compounded annual growth rate from 2002 to 2023, surpassing growth rate of the Icelandic pension system which registered at 12% at the same time. This segment has experienced a remarkable doubling in size over the last 7 years, maintaining consistent growth through both favorable and challenging market conditions. Now looking forward, we are poised for continued robust expansion, particularly through our pension product and the strategic Vordur mandate. These initiatives, a project that has significantly increased our asset under management aiming to surpass ISK 1,000 billion by the year of 2026. Last year, we unified Arion's most significant and valuable individual clients within Markets by integrating Premia, our tailored banking service to our high-value market segment into our offerings. This initiative was designed to streamline banking service toward private banking while bringing the securities funds and pension service closer to the Retail Bank most engaged clients. The aim of these changes was to elevate service levels and cross-selling opportunities. The bancassurance ratio at Premia reflects our evaluation that our most esteemed and active plans, are very open to receive a comprehensive 360 service and assessment of their financial health. We anticipate substantial growth opportunities in the high net worth individual segment over the next few years with potential for increased cross-selling and thereby expanding our share of wallet. Capital Markets has consistently been one of the leaders in the equity and bond markets for over a decade, with unrivaled deal flow and placing power. For 8 consecutive years, we have maintained the largest market share in the equity markets, an achievement that's only matched by [indiscernible]. Our focus is on delivering a top-notch service to investors and fostering a long-standing relationship with the largest participants in the market. Additionally, we have been proactive in attracting servicing foreign investors, resulting in the largest share of foreign inflows around the FTSE Emerging Markets inclusion even last year. We offer our investors comprehensive product offering at the capital markets and our desk analyst provide coverage of the local market. Holding a leading role in the market, we also recognize the importance of expanding access to the securities market for the retail investors through our Arion app, which enables them to trade Icelandic equities and Stefnir funds after convenience, anytime, anywhere. Stefnir, our fund management company offers a diverse range of funds catering to both retail and institutional investors. Product development and sustainability is a core competence of Stefnir and supports markets in its value proposal. Stefnir has proven for the past 15 years that it is highly capable and through innovation efforts, has raised more than ISK 130 billion towards alternative investments in several asset classes. Private equity funds, SIA I to IV have raised close to ISK 30 billion in private equity and the same amount in co-investments leading to 4 IPOs, which have strengthened the Icelandic public market substantially. Real estate funding and private credit have been a core competence of Stefnir for close to 2 decades with raised funds of more than ISK 17 billion. And the pipe is strong. Stefnir is currently working towards closing a fund, which will be the largest residential real estate fund in Iceland. We envision a significant need for investment in specific sectors in the Arctic region in the coming decades. We plan to further analyze these opportunities and leverage the experience that Stefnir and Arion have in private equity and private debt. Additionally, we intend to capitalize one of the strong business relationship Hakon and the CIB team -- CIB division have established around the loan portfolio in the Arctic region. As can be gathered from this overview, Arion truly stands as a powerhouse in serving dynamic and valuable clients. We at Markets are in a unique position to offer and cross-sell services to clients across all divisions of the group. In addition to this, Arion clients benefit from a comprehensive overview of the financial health through the Arion app, which I dare to say, is among the most comprehensive financial app in Europe for pension matters, securities and fund transactions. [Presentation]

As can be seen and to summarize this, we are leading in capital markets and the asset management with a diversified revenue stream. Arion's ecosystem is a powerhouse for product offerings. We are digital frontrunners and that enables scalable business. As Benedikt pointed out earlier today with a favorable external economic conditions and robust pension system for a young nation that continues to grow rapidly, we anticipate asset under management to exceed ISK 2,000 billion over the next 5 years. Now I want to introduce Mr. Hakon Hrafn Grondal, MD of Corporate and Investment Banking. Thank you.

Thank you, Johann, and good morning, everyone. It's a pleasure being with you here today. My name is Hakon Hrafn Grondal. I am the Managing Director for Corporate and Investment Banking. Today, I will give you a deeper insight into our corporate and investment banking business and how we have progressed since the last CMD and how we intend to move forward. If we begin with a quick recap. In 2019, we set out to change our corporate business and introduced several initiatives such as the repricing of the loan book, disciplined allocation of capital and a clear corporate strategy. And at the CMD in 2021, we illustrated how the updated strategy yielded stronger and more profitable business. in April, when I took over as Managing Director, I was lucky enough to have been a part of the team that worked on CIB's transformation. We have made solid operational progress, and the groundwork for continued momentum was laid. When Benedikt asked me to take over CIB, he basically said that I had one simple job, and that was to keep momentum. Now let's see -- I'm going to take you through how that is going. Now our CIB business has been strong and market-leading since 2021. We have delivered strong returns with ISK 19 billion in EBIT in 2023 compared with ISK 16 billion in '21. Our corporate client base has grown and is counting roughly 29,000 customers today, which represents roughly 59% corporate reach to active companies in Iceland. We are proud to have received our highest customer satisfaction score in 5 years, and we continue to support capital markets, having led 80% of stock exchange listings since the last CMD. Now if we look at CIB's structure, we have made 3 changes to further support our strategy. Firstly, related to large corporates and leveraged finance, where we have a dedicated team working on end-to-end financial solutions for clients. Working on a larger part of the capital structure, and we have strengthened our alternative lending and syndication desk. Secondly, we have merged all SMEs and corporate insurance under the same management to support the focus on SMEs and bancassurance. Our experience has been that in the near term, the opportunities lie within the SME sector when it comes to increasing our bancassurance ratio. So this is a logical step to support further growth. Thirdly, we have materially increased focus on operations and development. And now we have a dedicated team driving our corporate digital strategy and operational efficiency, which I will go through in more detail later in the presentation. Now looking at how we have progressed when it comes to profitability. In short, pricing and risk reward has become a part of our DNA. And we are focused on delivering strong returns and improved profitability, which, first and foremost, is driven by a clear pricing strategy and understanding customer needs. As we went through in the 2021 CMD, 80% of our largest customers were delivering below 10% ROE in 2019. This has turned in 2021, where 80% were delivering above 10%. Since then, we have increased the ROE target to 13%. And now 80% of our total exposures are delivering above the ROE target. Our fee and commission income has been strong. We closed 2023 with ISK 5.6 billion and a solid NIM of 4.5%. Now another key focus for CIB is capital velocity, which was introduced in 2019 as a new approach towards the use of allocated equity. In short, this approach is one of the key aspects of effective use of equity and supports increased profitability. And to illustrate the strength of capital velocity, I would like to draw your attention to the loan book growth between '21 and '22, which amounted to ISK 85 billion, and the growth between '22 and '23, which amounted to what was materially less or ISK 28 billion. What is interesting to share is that during the same period, our lending-related commission income amounted to ISK 3 billion each year. This means that commission income measured against on balanced growth is nearly tripling between '22 and '23. Now if we look at the on-balance lending growth since 2019, the loan book is up 52%, while gross lending or the activity in the loan book is up 300%. Now this means that for each year since 2021, we are maintaining or increasing the activity in the loan book, during which time, we are not necessarily taking on exposure on-balance which, in turn, increases capital velocity. This allows for controlled growth on-balance, increased balance sheet management and supports activity within the loan book. To further support our capital velocity strategy, we have evolved our credit syndication approach. Since 2021, we have sharpened our syndication focus and roughly doubled syndication with 30% annual growth. This has been managed without elevated risk profile in our loan book. And if we look at the opportunities for growth, we believe that the Icelandic corporate syndication market is underdeveloped. And for comparison, we can see that within the Icelandic market, only 20% of lenders are nonbank lenders opposed to above 50% in Europe and other developed economies. And for context, this translates into roughly ISK 480 billion in corporate credit that could be serviced by nonbanks, which is roughly the same amount as CIB's on-balance credit loan book. And today, 20% of our loan book is marketable and could be used for syndication. So what have we been doing to position ourselves? We have been determined on building a platform for corporate credit and syndication based on the strong infrastructure we have within the bank. This has been developed to support the corporate credit market and offer pension funds, credit funds and other buyers of credit to rely on our platform and infrastructure to source and vet corporate credit. When working with CIB's syndication desk, we are providing a proven lending process, active monitoring with access to deal flow, relationship management, strong legal framework, risk mitigation and a proven infrastructure. We are in a position to further develop this segment with our partners, of which many are here today. Moving to our Corporate Finance business. Since 2021, our Corporate Finance division has been dedicated in supporting the listed stock market and M&A activity. Our listings ratio has been 80% since 2021, and it's roughly 67% in the last 10 years. We are focused on supporting client ambitions and continue to be a leading adviser in large transactions, listings and originations. We tend to only discuss publicly about stock exchange listings. But as you can see on the right-hand side, our largest business segment is M&A, followed by listings and capital raises. The environment for corporate finance is favorable, and we expect deal activity to be strong as we continue to see opportunities both in the listed and unlisted market, and we are determined to maintain our leading position with our seasoned and experienced team. So as Benedikt mentioned earlier, we have ambitions in the Arctic region. And I'm happy to share that CIB has been leading the Arctic focus with increased lending activity and relationship building. The Arctic loan book has increased from 5.5% in 2020 to 9.3% in 2023. And during which period, we have been focused on increased diversification in the loan book. And as we can see in 2020, 98% of our exposures was towards the fishing industry. Now the fishing industry represents roughly 61% of the loan book and other sectors are primarily infrastructure related. We are focused on further opportunities in the region, primarily through increased lending as we believe the region is underbanked and underserved. Furthermore, there is a space for Arion to become the Arctic house bank and establish us as the investment bank for infrastructure projects. On a group level, as Johann discussed, we intend to utilize CIB's strong relationships to introduce other divisions, such as markets as there are opportunities in private banking and pension-related products. Moving to our bancassurance strategy. It is safe to say that we have come a long way since the strategy was introduced in 2019. We began with an estimated 18% bancassurance ratio, which has grown to 25.7%, and we are proud to share that we have increased new sales towards corporates by 32% year-on-year. Bancassurance continues to be a focus for us, and there are opportunities working both with the insurance client pool and the bank's client pool. As mentioned earlier, a part of our ambition for further growth was to merge our corporate insurance team under same management as SMEs. And we believe that this will support further growth and unlock value -- more value long term. Guðbjörg Heiða, Vördur CEO, will go into further detail regarding the group's bancassurance journey in her presentation. So we recently introduced structural changes, which entailed merging all corporates under CIB. This decision was based on the fact that over the last few years, we have been focused on strengthening the CIB business with primary emphasis on large corporates and investment banking. With the successful transformation of our corporate business, we felt that CIB was ready to extend its focus and apply the successful transformation towards all corporates. We decided to initiate a deep-dive discussion platform with customers and introduced a systematic approach to collect feedback data to understand what was going well and what needed attention to increase customer satisfaction. The analysis of customer feedback indicated considerable opportunities within the SME segment. We believe that if we're going to introduce a comprehensive SME approach, it's best implemented through one channel within CIB. We use the feedback to create a blueprint digital road map to answer customer needs for digital self-service and are actively prioritizing the most impactful digital projects. There is clear demand for increased initiative and proactive communication, and we have started several initiative streams to meet that demand, which has yielded a stronger satisfaction score with our clients. Our target is to enhance our product portfolio aligned to customer needs through digital, which, in turn, focuses on increased ancillary revenues. Ancillary revenues are scalable nonequity banking products, which pose a huge upside potential. And our strong -- our structure, as introduced earlier, is designed to maintain strong position in large corporates and investment banking, while seeking out opportunities within the SME segment from a place of strength under CIB. Our main objective with merging all corporates under CIB is to expand the successful steps taking in CIB to increase operational excellence, increase product offering and synchronize our corporate strategy and all sharing between divisions. I mentioned operational efficiency throughout the presentation for a reason. This is a priority for CIB and Arion, and we are committed to continue increasing efficiency, both digitally and nondigitally. For example, since we launched our digital road map, our focus is apparent as we have 15 projects committed to be completed this year versus 3 in 2022 and 5 in 2023. These projects are primarily customer facing and based on direct customer feedback and analysis of the most impactful projects which are prioritized accordingly. Another example is automotive extensions, which have increased to 77% from 18%. This project alone has probably saved hundreds, if not thousands of hours for our employees. Now even though digital is exciting and the opportunities seem endless, we are also committed on nondigital projects that can boost efficiency. This has been apparent in efficient decision-making through clear direction for employees, increased mandate and shorter response time, which in turn increased -- has increased employee and customer satisfaction. These projects are only an example of improved and implemented initiatives and cements our commitment towards automation, self-service and operational efficiency. Our ambition is to create more time that we can spend talking with clients by automating and eliminating non-value-adding tasks being performed by our employees. As a result, we can better understand and serve client needs, which in turn has and will continue to support our operational ambitions. So to summarize, we have cemented a solid operational foundation, focused on profitability and will maintain momentum as discussed almost 2 years ago. Based on that solid foundation, we are prepared to build further with continued focus on large corporates and investment banking, while integrating the SME business and deliver on our digital road map. This will be delivered on the back of our success-based and solution-driven culture as we are ready to seek out further opportunities to work closer, smarter and better with our customers to support their envisions. Thank you for listening. Now I'd like to Guðbjörg Heiða, Vördur CEO, to the stage.

Good morning, everybody. I'm very pleased to be here with you today. Maybe just switch on to the next slide. Sharing with you the story line of the insurance part of Arion Group. We have very ambitious goals. We aim to achieve superior customer services and constantly mature the company, so we're able to deliver attractive returns. We want to be dedicated to generate lasting value to all stakeholders. Being here, for the first time, I also want to share with you my name is Guðbjörg, I'm the CEO of Vördur since April last year, almost 1 cycle now around the calendar. Previously -- or my education is mechanical engineering, master degree actually in mathematics. First year, I spent in private equity, and then I was there the last 13 years in Marel. I was the location manager for Marel in the headquarters. I was the Executive Vice President for the P&L fish globally for the last 4 years before joining Arion Group. Very pleased to be here and very interesting to learn completely new dynamics and end markets. But going into insurance, insurance is the much needed protection we all need, individuals and corporations. It's the transfer of risk that we don't want to carry. Coming back to what Benedikt started this morning with the attractive market, it's a very attractive market and a nice -- an interesting market to be in. Arna is a member of one of the over 50,000 families we insure. She is now quite tiny, but we -- when we watch her grow up, we will -- most likely, she will have a university degree, she will buy an apartment, have a baby and get married without wanting to assume too much about how her family will develop. But we want to be there for her at every stage in her life because life is what happens when you make plans. We also know that Arna will bump her car more than once, twice or even 3x. We know she will have some incidents in her property. And also, if she gets passed later on, she will start to rank up expensive bills. So this is not accounting for the big if's in life, the major health issues into this or even fires. So we are there for our customers, and we aim to be so. And coming to Arion from this morning, also very interesting to be in a financial group like this with the product offering that we have. We will also be able to provide Arna constantly and her family with the opted services of mortgage, savings, investments and be there for her -- in her financial needs. But where are you coming from with Vördur in this journey we are in? Vördur, as we know, it was launched in 2007, then with a 6% market share. We ended the year '23 with 17.8% market share. So we've been growing quite aggressively on the market since 2007. What we have been doing? How did we grow like this? We started with most commoditized, most price-sensitive, least sticky car insurance. This is where we started to gain our revenues, started to get customer base, started to grow. And it's not the easiest thing to grow in an insurance company. You need to build trust, you need to have financial stability. Our customers need to know that they can trust you, you will be there for them if you have incidents. So it's been quite a very interesting story, growing into now all main insurance segments. In 2017, life partners added to the portfolio, strengthening Vördur a lot. Life insurance is a quite interesting insurance to have in your portfolio. We've been in a stable ownership of Arion since 2016. And in '21, we moved into headquarters, and that was a great step. We said let's move in, take this bancassurance journey full speed ahead and really capture the synergies that we can achieve in the group. And a lot of things have happened since then. I mean, Vördur is a company of 100 people. It comes into a corporation of 800, so we can almost scale overnight. We could take processes and systems and use them. So it has been really a very interesting time for the last 2.5 years, and we still see quite a big potential. Here, coming back to our outgrowing in the market. Impressive numbers. How or why -- what has made this happen? Definitely, first point is that is our targeted pricing strategy. If you're going to be on the market in a very price-sensitive area, you have to know exactly how you're going to price your customer segments and what is the risk that you're taking. This has been a DNA of Vördur and what has been done successfully now year after year. What we have also done successfully is a front building. We started out as a maybe not very recognized front. And now we are a trusted partner with over 67,000 customers. We have been 6 years in a row with the second place in the customer satisfaction score. Of course, we aim to be the #1, but already in the second place for 6 years in a row. So we're quite proud of growing the company, getting to be trusted partner and also having a very good satisfaction among our customers. Also, part of our DNA, and even more so now is our ambitious sales efforts. It's not what people usually do, wake up and buy insurance. So it's a little bit of a silent business as well, and we have had very ambitious sales channels. And now stepping into the bancassurance journey of [indiscernible] opens up like quite a big potential. It's very interesting. Some might ask then, okay, are you going to maintain profitability with your ambitious growth targets? Yes, we're going to stick to our DNA of calculated risk pricing and segmentations. This will stay with us now as we enter the bancassurance journey, we'll start to add more products and customers into the base. We -- our operational cost is within a very acceptable levels. And this is coming also from our past, not always easy to stay profitable when you're a small insurance company. So we have always had quite a good handle on our operational cost. And we believe now being part of Arion Group that this will stay with us and, for sure, even more scalability options. So our target of combined ratio of less than 95% shows that we will remain profitable, but still have even still some room. So we're quite comfortable with our growth targets. Our investment portfolio, it's one of the first times that we show this one. It's ISK 30 billion. It's quite well balanced. It reflects our risk appetite and obligations. 74% is allocated to bonds and 73% of that is CPI linked to protect us against inflation and to ensure stability. The remaining 26% are in stocks and 95% of that is in listed securities. So this split is mirroring our commitment to maintaining a liquid and quite risk-averse investment approach. We have been taking a good look on the strategy of the company after entering headquarters and starting a little bit of a new chapter. What we did also was to align our organizational just towards the Arion Group, strengthening the leadership team, we set out strategic pillars, and then we have our priority projects within those pillars. Of course, we mentioned first society in insurance. It's our key role and responsibility to care for society to make sure we are there, always trying to prevent damage. And if it happens, we are there with our customers. We will increase our emphasis on life and health. It's 14% of our sales now. We see lots of opportunities looking into the Arion Group potential with financial health. Also with -- in relation to sales channels and sales processes. Already last year, we saw a turnaround in new sales in our Life business, and we see lots of opportunities here to continue with that part. Profit insurance, Hákon was mentioning that. Very impressive, it's like a dream come true. You enter a group and you have a cluster of customers and ambitious team start to sell for you. It's really great. What we do now is to make sure that our processes are able to service all the new corporate customers that we are absolutely sure they have the right protection that they need that we are able to help them with prevention measures and also if it comes to incidents, we have a very good claim handling system for them. Also outstanding services. This is our license to operate. We are not in this business without having outstanding services. So this remains our key pillar and what we live and breath into the bancassurance. This is our unique competitive advantage on the market to be in this house and to be able to operate with group as Arion. We're very proud of this. This helps us to accelerate growth and utilize the channels of the group. It's very simple. We have 17.8% market share out there. And here, it's 35%. So you can really see already in 2 years how much you can gain with coming together and showing the customers that it's a benefit to be part of this group. Also in the synergies, when we talk about synergies, as I said before, a company of 100 people coming into and cooperation of 800 people, you scale yourself overnight if you do it correctly. It's really nice when it comes to compliance, IT systems, processes, internal auditing, all kinds of things like this. We can just up and use. We don't have to test or try or learn we can use it already. What we will do, we will focus on insurance. We will stay absolutely focused on insurance making sure we do that business well and outsource and use Arion Group as much as possible with everything else. Also, is already, of course, mentioned our loyalty and reward program. You see a lot of potential there for us together and aim to support this journey every single day. Finally, I want to mention the importance of how it's good to be part of a strong big team. It's way more easier to trust and retain top talent. You can just feel that. You can really get the best people in the door and start working together. And this is what a big group like Arion does for us, and that's -- it's a quite important thing. So key takeaways from me now. Strong momentum with sustainable revenue growth. We aim to stay on this track as we have done for the last years. We have very clear strategic priorities, and we aim to utilize our unique position in the bancassurance journey as fast as we can. Then -- these were my final words and Ólafur, are you ready? Ólafur Hrafn Höskuldsson, next on the stage, our CFO. Thank you.

So thank you very much, Guðbjörg. And thank you all for attending today. I get the honor of concluding today's presentation. And the aim of my discussion is effectively twofolds. Firstly, I want to provide insight into our key drivers that we see impacting our financial performance in the near term. And secondly, I want to also frame some of the initiatives -- strategic initiatives outlined by my colleagues earlier. And now all of these play an important role in our financial performance over the medium term. So Benedikt mentioned at the start of the presentation, our track record of delivery. And I think before we continue, I think it's worthwhile reflecting again on this before we continue. As Benedikt mentioned, in 2019, we presented a plan to enhance the return on equity of this group through 4 key broad focus areas: cost efficiency; enhanced utilization of capital and funding; simplification of our business through sale of noncore assets; and capital optimization. And it is fair to say that the operational performance in the past 2 years has delivered on these targets. Return on equity has exceeded 13% for the past 3 years. Significant reduction in cost to core income to below 45%. Significant increase in core income of risk exposure amount to over 7%. We have sold noncore assets and significantly simplified and streamlined our business. And finally, while we still hold significant surplus capital in the business, we have demonstrated commitment to returning surplus capital to shareholders and paid over 35% of current market cap through buyback and dividends over the past few years -- or since 2021. So before taking a closer look at the outlook of individual income statement items, I want to again take a quick look on the key strategic initiatives mentioned by my colleagues earlier. My point on this page is that when we prioritize these projects, there is a clear view after their role and their impact on financial performance of the group. All these key projects that we have prioritized have -- contribute in a combination of 3 key areas to our financial performance, namely resilience, efficiency and growth. And as I go through the outlook of the key operational drivers on the following pages, I will outline in more detail where and how these initiatives play their part. I think it's worthwhile before I continue to quickly review the general outlook of the economy. Benedikt talked about the robustness of the Iceland economy in his presentation. But it's fair to say that growth on the domestic economy and the global economy is in general moving to a new economic cycle. Following the short interest rate increases in response to elevated inflation globally, we are starting to see size of Central Bank actions having an effect. Therefore, when we go through the presentation on our operational drivers, these are based on management and our Chief Economist's outlook. Firstly, in phase starting to receipt. Secondly, the policy rates during the medium-term outlook will start to subside, hopefully, this year. Thirdly, that economic growth will slow this year before rising again in 2025. And lastly that this backdrop will increase unemployment rates temporarily over the next couple of years. So starting to go through the key operational income statement items. And obviously, starting with our key driver of our business, which is the net interest income and the margin between our lending and funding rates. If we start on the chart on the left-hand side of this page, the first point I want to make is to that during the significant volatility in policy rates over the past 10 years, our net interest margin has been relatively stable. As policy rates have been reduced from around 6% down to below 1% and then above 9%, again, our margin has been running at a relatively narrow band of between 2.7% and 3.2%. Before I look at how we see the outlook of the net margin going forward, I think it is also important to note that running a resilient banking operation is mainly a factor of 2 points. Firstly, having a balance sheet that allows for significant shifts in the environment. And secondly, having a management team that manages the balance sheet dynamically in terms of pricing, product mix, funding strategy as the external environment shift. It is always the case that we face certain tailwinds and headwinds in this operation. And the long-term success is a factor of maintaining optionality and resilience. The relative stability in the margin over the past 10 years is a positive signal of the resilience of this group. So now looking more closely at some of the key drivers that we see impacting the margin near term. First, we, of course, have highlighted this in our earnings call recently, and Ida mentioned this as well. We have a clear near-term tailwind as we see the resets on most of the fixed rate mortgage portfolio over the coming couple of years and especially into the second half of this year. This is around ISK 150 billion in mortgages that were left out at fixed rates of around 4% to 5% level, funded roughly 1/3 with covered bonds at fixed rates and the remainder with deposits. Clearly, the elevated cost of deposits means that these loans are currently underwater. And as they will restack, this would be a clear tailwind to our net interest margin and net interest income going forward in the near term. Secondly, as mentioned earlier, we do anticipate that policy rates having reached terminal rates and that the operational environment will shift from reduced inflation and in term rate environment. The historical perspective for banks is, of course, that this sort of an environment is a headwind for banks as assets reprice down and deposits are low and stable through the cycle. From this perspective, I think it is interesting to highlight that the change in deposit pricing landscape in Iceland and also more globally, where deposit betas have been higher than in the previous cycles. This has been a headwind for a NIM in the past couple of years, but the counter impact of this, of course, is that contrary to historical perspective, deposit rates in Iceland are elevated and thus have scope to come down when policy rates come down over the next few years. And I think it is clear that this provides a buffer to our margin of the Icelandic banks compared to some of the peers in other countries with lower deposit margins -- deposit betas. And finally, another supportive factor of the margin is the fact that we run this bank from an ROE perspective and not in terms of growth. While we anticipate that lending growth will broadly follow normal GDP growth through the cycle, we have demonstrated that we are dynamic in this regard and will protect shareholder value over growth. So now looking at the far right of this page. I have highlighted some of the key initiatives that my colleagues had discussed earlier, which all support resilience, efficiency and growth of the net interest income. First, our key strategic focus relates to us creating a holistic long-term relationship with our clients that can provide stronger service than our competitors through broader integrated offering. All of this aims to cement our client relationship and grow in client segments that reduce margin volatility and price elasticity through the cycle. Secondly, our capital velocity strategy that Hákon talked about aims to run an origination part of the business more efficiently through the cycle as they originate both through our balance sheet and those of investors. This reduces volatility in the origination effort and allows them bank to manage more dynamically with exposure to retain through the cycle and support the margin. And finally, of course, the Arctic positioning gives a long-term opportunity to better utilize our FX funding for a higher NIM rates going forward. Longer term, it also provides new avenues of potential FX funding for the group. So the summary of this is that we are confident in the resilience of this business that will support the margin over the medium term in the around 3% area range. We also see tailwinds from the reset of the fixed rate mortgages, supporting an outlook in the upper end of this range in the near term over the next couple of years. It should, of course, however, be noted that this is an outlook through the cycle. And between quarters, we will see more fluctuations, especially with higher CPI-linked lending. So over to commission income. Over the past few years, we have, of course, seen a significant increase in fees and commission income. Fees in 2023 were ISK 16.4 billion compared to under ISK 10 billion in 2019. This has been supported by diversity in our fee generating businesses and a clear and focused strategy, which has been a guideline since 2019, as Benedikt talked about. As with the net interest margin, there are both tailwinds and headwinds in terms of our fee generating business. In general, of course, a slowdown in the economy should, in general, mean that this is a headwind for fee generation. However, countering this, of course, is that we do see reduced inflation and policy rates, providing a catalyst for fee-generating areas such as capital markets, asset management, refinancing fees and M&A. So while -- and then on the far right, we also expect key strategic initiatives to strengthen the outlook around resilience and growth in terms of fee generation. This includes, of course, as Hákon talked about, the ongoing momentum around capital velocity and syndication strategy in CIB. The loyalty in bancassurance projects that can support client retention and opportunity to grow in high-value client segments going forward. And finally, of course, the Arctic project increases the size of our cake in terms of fee generation and allows for longer-term high growth potential. So in summary, we conservatively anticipate that near-term slowdown in the economy means that we are unlikely to see growth trajectory as we have seen over the past few years in the fee income. But we are, however, confident that we have reached a new plateau with this business in terms of fee generation and that key strategic initiatives can support continued growth over the medium term. So moving on to insurance. We had a very good summary from our CEO of Vördur earlier, of course, on the bancassurance journey. And from my perspective, I am very happy and we are very happy with the development in this area, while unfortunately, the headline financials over the past couple of years perhaps have not demonstrated this well enough. Therefore, I wanted to provide some more granularity around to our financial outlook with this business. Firstly, I want to highlight that this business has a relatively low ISK 7 billion capital requirement currently in our group level. And the near-term growth of insurance within the group will also continue to have relatively favorable capital charge as equity at Vördur is risk weighted at 250% at group level. So -- and secondly, in line with Vördur's business plan, we anticipate that the insurance business will deliver up to ISK 5 billion in pretax profit over the next 5-year period. The return on capital potential of this business, therefore, is significant. Looking at the chart on the left-hand side, we show a simplified path of how we see this materializing. Firstly, we continue to target growth of this business in excess of the market growth. And combined with the new combined ratio target on the profitability of the insurance business, this should provide additional -- this should provide enhanced contribution from the net insurance service line to the group income statement. Secondly, of course, profitability on the investment side of the portfolio has been below our expectations -- normalized expectations over the past year. And assuming this to normalize with the market trajectory as it is, along with growth in the investment portfolio, of course, during this period, it is expected that this business will deliver around -- up to ISK 3 billion -- over ISK 3 billion in annual financial income in the 5-year period. So I won't spend long discussing the key bancassurance project that my colleagues have outlined earlier. But it is clear that the size and scale and synergies provided by the bancassurance platform are key for this to materialize. So over the medium term, we anticipate that the insurance business will be a strong contributor to the group's income and combined with a favorable capital treatment will be a high-return business for this group going forward. And finally, with regards to insurance, of course, I think it's worth noting that insurance is, in many ways, as you all know, somewhat countercyclical business, which gains from a lower activity in the economic activity and lower interest rates, which provides a certain balancing to the group's financial profile. So now moving on to operating expenses. Of course, over the past years, we have been operating in a high inflationary environment, which has been a challenge in managing expenses. It is therefore strong to see costs in the period increased well below inflation and, of course, well below the growth in income during the same period, which is demonstrated by a strong trajectory in our key KPI, the cost-to-core income ratio. It is, therefore, of course positive to see signs of inflation subsiding globally and in Iceland specifically. Apart from inflation, we heard, of course, our Chief Information Officer, and the broader management team indicate that we are, of course, committed to invest and retain and strengthen our competitive position going forward. This includes a commitment to invest alongside our income growth in IT and digital development as well as retaining and attracting the best-in-class employees for this business. The outlook around cost therefore is follows a similar trend that we've seen in recent years. We are committed to continue to invest in our business and maintain leadership in key business areas and digital services. At the same time, we are continuing to realize synergies within the group. Our target therefore continues to be focused on managing the cost-to-core income ratio around the current level of 45%. So now looking at the outlook for cost of risk. Clearly, the higher rates have put a pression on borrowers, and we have responded with an enhanced provisioning through our IFRS 9 model assumptions over the past year. Currently, however, while we do see some level of increased nonperforming loans, there are -- these are still benign in terms of historical perspective. And now, of course, we are starting to see positive signs of both inflation and policy-rate started to subside, which will obviously support this position. The volcanic activity in the Reykjavik Peninsula is, of course, now an added consideration. The key impact there, which is related to the town of course, of Grindavik, which you all know, it has been evacuated. This is, of course, on an evolving situation, and we -- but we do anticipate that there will be some potential impact in the cost of risk near term. Our exposure, however, is relatively limited and the amount in questions are therefore likely to be small. Based on the current outlook, we therefore expect credit loss in the near term to be around 30 basis points. While through the cycle, given the current local composition, we continue to guide to a cost of risk of 20 to 25 basis point area. Again, key initiatives outlined by my colleagues earlier aim to support the resilience of risk management in this business. Clearly, the long-term and broad customer relationship focus is facilitating a strong dialogue with our clients, where product development specific advice become more effective as it ports the resilience of our business going forward. Also, the [ CREDF ] Syndication and capital velocity strategy has a clear risk mitigation component as well as in those cases, we are effectively adding another party to the credit decision process. And of course, our IT investment commitment includes a strong component of risk assessment, including data initiatives, cybersecurity projects and credit decision engine development. So moving on to funding. Clearly, the key driver of growth of this business continues to be around stable deposits. Post-COVID, we saw growth in deposits going from around an average of 6% to over 12%. We do anticipate that with slower economic growth outlook and higher rates, growth in the near term is likely to trend to a range closer to the pre-COVID levels. In terms of wholesale funding, we continue to aim to broaden our strength and resilience of the funding options and our profile. Covered bonds continue to be the core -- funding vehicle and the Moody's Aa2 rating that we received recently, of course, shows the strength of this product. We continue to see opportunities over the longer-term horizon to utilize the strong demand for this product in the euro market to support increased diversification of funding of mortgages in Iceland. As I outlined in the Capital Markets Day in 2021, however, this requires a more stable FX swap market that we currently have in the country. We continue to see the obvious counterparty for market being the iconic pension funds with their increasing FX investment requirements against an ISK pension commitment. This continues to be a longer-term evolving long-term strategic project. In terms of senior preferred market, this is, of course, is a key component of the MREL requirements, and thus will continue to be an important avenue of funding for the bank. We have strong assets both to smaller-sized candy market and the benchmark Euromarket, and it has, of course, been very pleasing to see pricing in those markets improved dramatically over the past few months. The domestic market for this product is, however, also very important and especially so following the MREL implementation recently. It was also, therefore, very good to see close to ISK 10 billion in appetite for ISK senior issue at the end of last year. And finally, senior nonpreferred and subordinated issues will again be considered, when we start optimizing the capital position, hopefully, in near term. So now moving on to capital and ratings considerations. Starting with capital. We continue to consider a medium-term target of 150 to 250 basis points management buffer above regulatory requirements being appropriate for this business. While rating agencies thresholds have impacted our near-term capital position, we continue expect convergence of capital benchmark over the near term, including the 0.5% increase in countercyclical buffer, the current common equity requirement of the group is 15.3%. And assuming an optimized [ AT1 ] and Tier 2 position, this means that our medium-term common equity target is in the range of 17% to 18%. This means that at the end of the year 2023, are 19.7% position, including the provision for current dividend payment implies a surplus capitalization of around ISK 20 billion. And now looking at our credit rating position where we are in a very healthy position. Starting with S&P, the which recently confirmed the BBB bank rating and upgraded our outlook to stable. It was very positive to see the agencies increasingly constructive view of the Icelandic economy. That means that the temporary capital constraint of the business could result in the near term, which would convert the capital thresholds of the business in the medium-term target. Within the medium term target. With regards to Moody's, we are also seeing positive momentum as evidenced by the back level rating upgrade to A3 in September and which is also on a stable outlook. It was also very positive to receive the strong AA2 rating on the cover bond program recently. Our position with regards to Moody's rating is robust, and we have comfortable headroom at current rating levels across key metrics such as asset quality and capital. It is also good to see the agencies constructive view on the Icelandic sovereign, which is an indirect support to our rating from Moody's. And finally, with regards to our rating profile. One of our ongoing strategic considerations is to determine the optimal credit rating coverage for the group going forward. And this includes a review of the appropriate number of credit rating agencies going forward. This is a comprehensive analysis that is ongoing, and we'll consider, among other things, the size and business model of our group. We expect it's issuance need and the quality of market access. And then, of course, importantly, that's our decide to ensure that Arion's investors continue to have access to quality and independent credit assessment from highly creditable global credit -- rating agency. We will communicate the outcome of this review in the near term and any potential impact that this might have on future capital flexibility and targets also remains under review. We are, of course, as always, committed to maintaining the required capital levels of the current rating and regulatory thresholds. So I conclude the same page that Benedikt finalize his presentation on, which highlight the key drivers of Arion BankI's investment case. First, we operate in an attractive market in Iceland and are positioning ourselves for a role in the emerging growth of the neighboring Arctic region. Second, we offer a unique position with diverse seasoned and integrated businesses, digital leadership and positioning within the most attractive customer groups. And finally, and of course, very importantly, we have a strong results-driven culture and a track record of delivering on our strategy and financial targets. These drivers support the positive near-term and near- and medium-term outlook for the financial performance, and we have, therefore, reaffirmed the 3-year medium-term targets for the business. We confirm a 13% ROE target. We lowered the cost-to-core income ratio from 48% to 45%. We're increasing our target around risk income of risk exposure amount to 7.2%. We had, of course, a profitability focus into our insurance growth target, with a combined ratio target of below 95%, while retaining the growth target of growing in excess of 3 percentage points above the market. And we, of course, confirm the capital optimization commitment of the group and retained the 150 to 250 basis point management profit target above regulatory requirements. So thank you and for taking the time to be with us here today. I hope today's presentation has given you all a good insight into our operational environment and our ability to deliver on our strategic ambitions going forward. And now I'd like to hand over to Theodor Fridbertsson and my colleagues to come up here to move over to Q&A.

Thank you. Now moving on to the second part, the Q&A. We'll have a lively session. [Operator Instructions].

Very comprehensive set of presentation, fantastic show today [indiscernible]. I just wanted to come back to the [indiscernible]. I guess you see European facts really moved their targets from that fully grow at 10%, up to sort of 12%, 13%, and even more. I just wondered whether -- I just wonder whether you're get any consideration as a team to think, you have a more ambitious target far away?

We were expecting this one. Yes. So Pete Mason's question was on the ROE targets, why aren't we amending or raising those in line with other targets that clearly indicate that kind of the profitability could be enhanced going forward. I think this is something that we discussed quite thoroughly and I think one of the reasons why we wanted to be slightly conservative on this is the economic cycle that we are probably going through, which is going to be a cycle of slower growth and higher unemployment. But at the same time, hopefully, lower policy rates. And I think only went through it quite well, in this presentation, the tail and headwinds that could entail. So we want to sort of a little bit to see and how that plays out. And Ole, if you want to.

Yes. Maybe just to add. I think it's an important point that we, of course, increased our ROE target a couple of years ago from 10% to 13%. And I think it's also important that we are currently -- we have the highest target of the Icelandic banks in terms of return on equity. So I think it is -- we are sort of the market leader in that regard. We are increasing the sub categories. And if you -- and we are, of course, not limiting ourself to 13%. But I think this is a prudent and a market-leading ambitious goal currently.

Any other questions? Well, I guess we'll move on to -- yes, there's another one there.

Thank you for the presentations this morning. Quite interesting. I saw that one of the strategies you are building on is the investment in the Arctic, which is quite old I might say, since this part of the year is quite expensive. And -- but we see a lot of opportunities there. How can Arion Banki become one of the players in that market? And what are your core competencies towards investments in the Arctic?

Excellent question. Thanks for bringing this up as I think we outlined in today's session. This is very much a long-term project and the expertise that are required to be successful in servicing this large area will have to be built up over a long course or long period. However, I think some of the elements that, where Iceland is being built up over the past 40, 50 years, and this is an interesting fact that I've raised in a few presentations really. It's only 50 years, since Iceland received its last financial aid. Since then, we've really progressed as an economy and even having gone through really tough time during the global financial crisis. We were able to rebuild our economy quite quickly. We have a relatively developed infrastructure, including a robust stock exchange with inclusion to global equity indices. We have access to international capital markets. We have developed into a very advanced economy, small but advanced -- and that discussed also the sustainability journey that island has been on for decades, which started and started off because it was a good business -- we need or required business. We were overfishing our stock and depleting them. And I think with those components, we have the ability to offer our knowledge and export it to our neighboring countries. And I think it's -- also worth mentioning that, obviously, many of our companies have been expanding and operating in the area. You see the transportation companies, Eimskip has a PanArctic shipping route already in place, including the Portland Harbor in May. And Iceland there provides best connectivity to Greenland and is now flying regularly to Faroe Islands. We also see our international power company looking to do new projects in Canada. And we've seen some activity in Alaska as well, maybe predominantly on the seafood side. But I think tourism will be a component there. So in a sense, we were also just following our clients and then our client needs, and we will be learning through their activities as well. We were privileged in our Arion Staff day to listen to a presentation of President [indiscernible], who has been the champion of the Arctic region for 10 years probably. Chairman of the Arctic Circle Assembly. And I think he summarized the opportunity quite well. This is too kind of bespoke or far away for the global banks to pay the attention at least for now to the area. It's like going into the wilderness in Africa. I think he described it for those banks. But at the same time, it sort of -- it offers an immense opportunity for the local players, who know the area, have the understanding of the rural communities and the business environment, and that's what we plan to capitalize on. I don't know, if you -- my colleagues want to add something to this, maybe, Hakon you can elaborate a little bit on [ CAP ]?

Yes. I think as I mentioned in my presentation, if we look at sort of how we have approached the area, I think what's closest to us is obviously the ferries and Greenland. And a part of what we see with increased diversification in the loan book is that we start off within industries that are close to heart of the fishing industry, then as we gain confidence. We move into other sectors. And as relationships grow, I think that's at least how we have approached the ferries and I think it's -- there will be different strategies when it comes to the Artic. We have some who are closer to us in time and then you have sort of the 50,000 feet won, but when it takes -- when it comes to taking on risk, I mean we are doing that incrementally and safely.

Do you want to maybe elaborate on the retail banking opportunities in the Arctic?

Well, I think the opportunities are more now within the asset management and the corporate banking. But of course, it is under-banked. And I also think that we share the same culture as well. And we have been very welcomed, when we have visited both Greenland and the Faroe Islands. But of course, we could look into starting deposits or pension savings there. That is something we would like to look into in the medium term.

I think it's also worth mentioning that the capital -- I mean, we complain about the capital treatment of Icelandic banks, but in Faroe Islands, the capital treatment is even high or sort of more strengthened or higher, which makes the local banks there having difficulties in servicing the -- especially the corporate space and the Faroe's banks are under FSA supervision of the Danish authorities. And -- so there is a regulatory arbitrate in a sense. We thought we wouldn't see that, but there is a regulatory arbitrage between Iceland and Faroe Islands at the moment, when it comes to capital treatment. We were talking about it the other way, where we're looking at the other Nordic countries enjoying a lower capital with team than is in Iceland.

Any other questions?

Thank you for that presentation. I just wanted to hear a little bit more about this women invest initiative. I think it's fantastic to hear, and I think it's a great differentiator for you. Maybe specifically hearing a little bit more about the female founders that you're working with or potential will be working with? And if there's any specific sectors you're seeing that there's interest in? I'd love to hear more about that.

Yes. So actually, we started to look at this, I would say, about a year ago, when we noticed that women were not participating as much as man in investments, and we started to take into numbers and what was not that -- we didn't see good results. So it is -- if you look at the stock exchange, women hold around 35% while man holds around 65%. Also, when you look at the pension fund season, it is similar there, and it will take a whole generation for women to get at the same place as man. So we were also thinking, of course, as all research show that women will gain more wealth in the future, but they also need or bought a different approach to how to invest and how to engage with, for example, our private bankers -- so what we are starting now, this is a long-term initiative. So we started just by showing those numbers about the equality. And then we have the seminars where we are just teaching women for how to invest, what is the stock, what is a bond. Then we will -- we are helping them ensure them how to start the business. And then we will gradually move forward to tax report advice and then we will move forward to go to more like complicated things. So it is to educate them and also just that they have someone to talk about it. So we are also hoping that there will be like a club of women that start to share ideas. Yes. And what I find important is that Iceland has been the best in the world in equality for the past 14 years, but as we look at the numbers regarding investment, we are exactly the same other countries around us. So this is something that we would like to change. And for the bank itself, we are also seeing just a business case in this with more people participating in the market. So we are starting like this, and it has been a tremendous -- received a tremendous attention, and we are having groups of women here every day. We are filling this auditorium almost every day. So yes, this is what we felt that we actually needed to do.

Jump in with another question. And it's on the bancassurance model, if I can, because I guess we've all observed European banks have sort of flip-flop on the bancassurance model over the last few decades. There's areas where it works, areas where it doesn't work. What do you think is specific about the Icelandic financial services system here? Is it digital penetration? Is it your brand? I'd love to get some thoughts on how you're making it work here in Iceland?

Well, I think figures show that the bancassurance approach is now much more successful internationally than in previous decades. And I think the insurance businesses that are tied with banks or other financial institutions, are demonstrating better performance, a better growth in the past 10 years than insurance companies that are not within that kind of association. That was -- when we did the deep dive before we made this decision. It was a comforting thing to see. I think one of the explaining factors at least in the little -- that we went through was that there are new tech channels, new distribution channels, the digital channels. And obviously, we do a [ NAFTA ] benchmarking survey every year on our banking services from a digital standpoint. And we were surprised to see -- or pleased to see how well we positioned, when it comes to banking services, but we're way behind, when it comes to the digital intelligence on the insurer side. And the -- our [ potential ] is still somewhere between 30% and 40% of sales going through digital channels for the -- for those who achieved the greater success, but it's still much higher than the 7% that I mentioned, and [ Guðbjörg ] mentioned in her presentation, very arguing -- so I think that's one thing. And then I think another thing is sort of with these channels, there's the ability to not only offer the services in a more convenient manner, but also demonstrate the value, the rewards of having new services in a single place, the financial benefit of it. And that's another component to why we think the bancassurance approach is prudent. And the only way to go forward actually for us, owning an insurance business, we would -- we would have been underutilizing and not using the opportunity that we had owning this business. [ Guðbjörg ], if you want to maybe?

Great question. And I agree with your answer, of course, [ Benny ]. Maybe adding to it. It's -- it's a different market. So sometimes we have share market needs and sometimes we have differences. So it's important that often when you are combining companies, you have to understand the differences in the market and how you use the sales channels correctly, knowing the appetite of your customers. So we've also been respectfully approaching the market and thinking how do we make sure we understand the needs of our customers. also coming maybe to mention a little bit cost, when you talk about the model, it's a great model, and it will work, but we need to have a very good focus on the execution. And that's what has been happening here.

Does that conclude the questions from the auditorium? Or any final questions. All right. We have a few questions from the online participants, starting with the digital initiatives maybe towards Hakon and [ Bjorn ]. You mentioned increased investments in digital initiatives for the corporate division. Can you give any more color on what that involves or type of type of initiatives. And what is changing in the near term, and this is a fairly large investment when it comes to the corporate side.

So maybe I'll just kick off and then I'll hand over to Hakon. So I guess, that there is large changes, Hakon illustrated in his presentation is that we are building guardrails around some of our strategic priorities in terms of how we allocate capacity from our development organization. And the 15 projects now on the agenda for this year is a great step-up from last year and the years before. And the great work done by Hakon's teams in terms of identifying the customer needs and clearly laying them out with digital road map. It also creates continuity in the way that we develop, and we'll also accelerate way that we approach those initiatives. But in terms of specificities, I'll probably hand over to Hakon.

Thank you. Yes. So I think just to build on what [indiscernible] mentioned, obviously, this is I will say, a new focus for corporates, but it was apparent that we needed to make some change as to how we approach sort of the digital products. Going into specifics, I mean, we during these interviews, there were clear opportunities, when it comes to products like management of credit cards, the application process, automatic lending, we have claims. So we're seeing both clients having to do a lot of sort of manual discussions with the bank. And within the bank, we were doing way too much manual work, which is taking the time away from discussions with customers. So -- these have been heavily prioritized and we are active in changing those as well. If we see new opportunities come up in discussions. So we are focused on I would say, so our primary products when it comes to ancillary revenues. Does that answer the question?

In terms of the investments, this is maybe not a majority of kind of the investment plans for this year that constitute a decent portion of it. But as you saw in this presentation, there are multiple initiatives on the investment side that I think sort of covers other aspects of our business. And I would want to mention another one, and maybe hand over to [ Bjorn ], which is the asset management system investment, which -- where we've been using the same system with some debate is not effectively an asset management tool or a system for decades now. We are quite excited to have you have a global asset management system because we have been running the operation almost since '93 when we were like ISK 3 billion. On a system that we have to build most of our system in-house and in a spreadsheets and also that this is -- this will open up the we can explore the opportunities in the Arctic area. So yes, I'm quite excited. I mean this will also open up some new products in terms of fund management, wealth management and the private equity and private banking sector.

Then we have a question on the loan growth, Olafur obviously mentioned the overall loan growth during his presentation, but this question is more about the loan growth for the corporate and markets. What sectors should we expect to grow? Are there any some sectors that you expect to decrease in your loan portfolio? And then secondly, maybe what about competition from the pension funds both on mortgages and lending to corporates?

Yes. So we are expecting a moderate growth, rather slow growth with respect to the mortgage portfolio. Just due to the high interest rate environment and also due to the macro potential measures that Central Bank did put on like 2 years ago. Regarding the pension funds. I'm not so sure if I should go into that and share my opinion on that. But yes, we are it's my belief that they will not be as visual in the market going forward.

Yes. As I covered in the presentation, I think, when looking at growth, I mean it's twofold. You could look at on balanced growth, which obviously ties up quite a bit of capital. I think our key focus is on activity. So if we are successful in churning the equity and increasing the activity in the loan book, that is a key focus rather than on balance sheet growth. And I think, I mean, as Benedikt also mentioned, I mean, we are working on our own balance sheet and balance sheet of others. And that comes into the pension system as well. I mean we have agreements with most of the pension funds to operate both in single exposures and for the syndication of credit. So I think, I mean, the opportunity is definitely there to take a larger step into cooperation with the pension bunch rather than a direct competition. I think the second question was about sectors. We have a clear credit strategy, which we review annually. And I mean, as you can see, just in the economics, I mean tourism is definitely there. We still have comfort in real estate, especially retail or residential real estate and then obviously, the fishing industry. So these are maybe sort of the key factors for us. And also just looking at, again, syndication has primarily been through real estate-backed lending. But hopefully, we'll see some development there once we see the market mature.

Yes. Thanks for that. Then moving on to a question regarding deposits. The development of the deposits in the Icelandic market has been quite interesting over the last few years. With interest rates expected to be lower going forward, do you expect the deposit base in the system to decrease and customers transferring their savings to other investment opportunities. And how would the banking system Iceland respond, if that would be the case?

I think I probably covered some of this on the page in our funding strategy. Of course, our funding is always going to be a factor primarily of the growth of the stable deposit base of the bank, both on the rating agencies and regulatory point of view, we always need to cover a significant portion of growth through the stable deposits. I think our overall view is that growth will slow from what has been a very fast growth in deposits over the past few years driven by the COVID measures and such. And -- but in general, we still believe that there will be growth over the coming years, but more close to a sort of average growth before COVID, which was around 5% to 6% area.

And the last question, at least for now, on the -- from the online participants, where do you see the limit regarding digital services versus personal in the retail space, probably directed to data. Do you see a further decrease in the branch network? And related to this, how is the synergy between the banking and the insurance services working? And where do you see the biggest improvement there?

Okay. So there is multiple questions.

Yes, a couple of questions. Yes.

So we are seeing 99% of all our touch point with customers are through digital channels. As I mentioned in my presentation, we have a very effective branch network like in some of our smaller branches, we have like 2 FTEs. So I think we have reached now the efficient mix, at least for the time being. I'm not saying what will be in 5 years. But for now, I think this is the efficient mix. People do most of their transactions and all the daily banking activities also applying for mortgages and et cetera, through the digital services. However, depending on live events, people, for example, when you are going to apply for a mortgage, you want to talk to someone. So we would like to move from more like transactional -- in the branches, we would like to remove cash from as many branches as we could. We actually have cash or [ tellers ] in one of our branches in the Reykjavik area now. So it will be more like on service, on holistic overview. So it will be beneficial both for our clients and also for the bank -- Rich. So the next question was regarding border. So now what we are doing is that people that are working in the front line of are further that are not based within our network. We have 1 or 2 of them in its brands. And when you are coming to visit, I get a service for -- for the banking service, we try to link it to the insurance. But in the way going forward, we would like to see it more in our digital journeys. For example, when you're applying for mortgages or applying for car loans that the digital, you will be offered a digital insurance as well. So -- but I think we have done a lot with reducing square meters FTEs and branches as you could see on my slide earlier. So for now, we have an efficient branch network. And by reducing more and we have done some calculations on this, and of course, we monitor this very closely. The branch network is not that expensive. So by reducing or reducing the number of branches right now, I believe it would affect the P&L negatively.

Thank you. So mindful of time as well. I guess this wraps up our Q&A. And we would like to thank you very much for attending and wish you a pleasant day. Thank you so much.