Arion banki hf. – Valuation as of 1 Jan 2025

Key assumptions

• Net interest margin is 2.9% in 2025, then decreases to 2.8% in 2026 and remains at that level for the remainder of the forecast period.
• Net fee and commission income grows by an average of 5.6% per year over the forecast period.
• The combined ratio in insurance operations amounts to 94% per year during the forecast period.
• The average return on bonds is 8% per year in 2025–2026, and then 6.5% for the remainder of the forecast period. Of this, 1–2% is recognized as a fair value change in net financial income in 2025–2026, and thereafter 0.5% per year for the remainder of the period. The interest component of the bonds is recognized under net interest income.
• The average return on shares amounts to 12% per year over the forecast period.
• The cost ratio, i.e. operating expenses relative to core income, averages 47% per year during the forecast period.
• Loan impairment charges amount to 0.4% of loans per year during the forecast period.
• A special tax on financial institutions is paid, amounting to 0.145% of total liabilities at year-end in excess of ISK 50 billion, less the tax liability.
• Income tax is 20% per year during the forecast period and is calculated on profit after excluding the share of profit from associates and equities. In addition, a special financial activity tax of 6.0% is levied on the bank’s taxable profit exceeding ISK 1 billion.
• Loans to customers grow by an average of 5.6% per year during the forecast period.
• Dividend payments amount to 60% of total comprehensive income for the previous year in 2025 and 65% thereafter over the forecast period, in line with the bank’s dividend and capital ratio targets.
• The terminal growth rate at the end of the forecast period is 4.0%, corresponding to a 1.0% real growth rate.
• See other general assumptions under “Valuation.”
• Minority interests are disregarded in the calculations as they are immaterial.

Results

• Based on the above assumptions, the estimated share value is ISK 216.7 as of 1 January 2025.