Arion Bank

Very strong capital levels and high leverage ratios, despite capital-optimization plans. Stable franchise equally split between retail and corporates. Uncertainty related to eventual sale and change of ownership. Domestic economy limits opportunities to diversify risk. S&P Global Ratings' stable outlook on Iceland-based Arion Bank reflects our view that the bank's improved capital generation and progress in reducing its equity position has prepared it well for a potential near-term sale. We believe that the bank will materially reduce capital over the next three to four years as it recalibrates its capital base, but that it is unlikely to reduce its risk-adjusted capital (RAC) ratio below 15%. We could lower the rating if we saw signs of material deterioration of asset quality

...Domestic economy limits opportunities to diversify risk. Outlook: Stable S&P Global Ratings' stable outlook on Iceland-based Arion Bank reflects our view that the bank's improved capital generation and progress in reducing its equity position has prepared it well for a potential near-term sale. We believe that the bank will materially reduce capital over the next three to four years as it recalibrates its capital base, but that it is unlikely to reduce its risk-adjusted capital (RAC) ratio below 15%. We could lower the rating if we saw signs of material deterioration of asset quality for Arion Bank or the market as a whole, especially in combination with our projections of reduced equity capital. Such a development could result in us revising downward our assessment of the bank's anchor or no longer viewing its combined capital and risk as positive for the rating. We could also lower the rating if the pending sale results in unforeseen weakening of the bank's risk profile. We currently...

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