Summary: Arion Bank

Strong capital with high leverage ratios. Stable franchise equally split between retail and corporates. Ample liquidity buffers apt to meet expected deposit outflows. Uncertainty associated with capital controls in Iceland. Domestic economy that offers few diversification opportunities. Still sizable nonrecurring items leading to volatile profitability. The stable outlook on Iceland-based Arion Bank reflects Standard&Poor's Ratings Services' view that Arion's stand-alone credit profile (SACP) is likely to remain intact through Iceland's partial liberalization of capital controls, expected in the near term. We anticipate deposit outflows of approximately Icelandic krona (ISK) 100 billion (€700 million at ISK142 to €1), that would be partially covered by bond issues. As a result, we expect our funding and liquidity metrics for Arion to

...Outlook: Stable The stable outlook on Iceland-based Arion Bank reflects Standard & Poor's Ratings Services' view that Arion's stand-alone credit profile (SACP) is likely to remain intact through Iceland's partial liberalization of capital controls, expected in the near term. We anticipate deposit outflows of approximately Icelandic krona (ISK) 100 billion (700 million at ISK142 to 1), that would be partially covered by bond issues. As a result, we expect our funding and liquidity metrics for Arion to deteriorate, albeit remaining at the current assessment. In the longer term, we expect the bank will increase its activity in the bond market, potentially heightening the pressure on liquidity from more sizable funding maturities. In addition, we expect strengthening in the bank's capital position, with Standard & Poor's risk-adjusted capital (RAC) ratio increasing to 13%-14% within the next 18-24 months, from 11.5% on June 30, 2015 (pro forma; including the lower risk weights for Icelandic...

Summary