Summary: Arion Bank

Strong capital, with high leverage ratios. Ample liquidity buffers and a stable deposit funding base. Stable franchise, equally split between retail and corporates. Uncertainty associated with capital controls in Iceland. Domestic economy offers few diversification opportunities. Still sizable nonrecurring items boosting profitability. The positive outlook on Icelandic commercial bank Arion Bank reflects Standard&Poor's Ratings Services' view that the bank's stand-alone credit profile (SACP) is likely to develop alongside improvements in the Icelandic economy. We see a positive trend for economic risk in Iceland's banking sector, and would expect to lift the ratings on Arion Bank if we improved our view on the sector. We anticipate that the bank's risk-adjusted capital (RAC) ratio would move toward 11%-12% if it

...Outlook: Positive The positive outlook on Icelandic commercial bank Arion Bank reflects Standard & Poor's Ratings Services' view that the bank's stand-alone credit profile (SACP) is likely to develop alongside improvements in the Icelandic economy. We see a positive trend for economic risk in Iceland's banking sector, and would expect to lift the ratings on Arion Bank if we improved our view on the sector. We anticipate that the bank's risk-adjusted capital (RAC) ratio would move toward 11%-12% if it reduced risk-weighted assets while earnings generation remained sound. We expect the restructuring of the loan portfolio to be close to an end, and further impairments to be limited. Additionally, we expect the funding and liquidity profile to remain broadly in place. We see that the bank is gradually increasing its wholesale issuance, mainly using a mix of senior unsecured and long-term covered bonds. We could raise our ratings on Arion Bank if our assessment of risks for the Icelandic sovereign...

Summary