Arion Bank hf. - Company Announcement

International ratings agency Standard and Poor’s (S&P) assigns Arion Bank BB+ ratings; outlook stable

The ratings assigned by S&P reflect Arion Bank's sound position on the
Icelandic market. The Bank has increased its market share in the household
segment in recent years and its operations are now divided equally between
corporate and retail business. However, the Bank is small in international
comparison. 

S&P considers the Bank's revenue base to be diverse, with 60% coming from net
interest income and 25% from fee income. 

S&P's ratings are also based on the Bank's strong capital and earnings. The
Bank's capital is expected to improve even further as the Bank divests more
legacy equity exposures that it took over as a part of debt restructurings. 

The Bank's risk position is adequate. The restructuring of the loan book has
largely been completed and S&P believes that further impairments will most
likely be limited. 

The Bank's funding is also average, balancing the Bank's stable long-term
funding compared with other banks and the risk of possible deposit outflows.
There are few significant redemptions of long-term funding until 2020, which is
a sign of strength. 

The Bank's liquidity position is strong according to S&P, with high coverage of
maturing debt. In addition, liquid securities and cash fully cover all
potential outflows of foreign deposits. 

S&P considers Arion Bank to be of high importance for financial stability in
Iceland. Nevertheless S&P believes it is uncertain that support would be
provided by the government in the future in the event of financial instability. 

Höskuldur H. Ólafsson, CEO of Arion Bank:

“Ratings of BB+ with a stable outlook are good ratings from S&P, considering
the credit rating of the Icelandic government. Being rated by an international
ratings agency will improve our access to international capital markets, which
is vital for us. Hopefully it will enable us to offer those clients who need it
foreign funding at more competitive rates. Furthermore, better access to
international credit markets for Arion Bank and other Icelandic financial
institutions is one of the prerequisites for lifting the capital controls, and
it is also with this in mind that we see this as a positive step. 



For further information please contact Haraldur Gudni Eidsson, Arion Bank's
Corporate Communications division, haraldur.eidsson@arionbanki.is, tel. +354
856 7108.

Attachments:

Press Release 10012014.pdf

SP Rating Arion Bank January 2014.pdf