Arion Bank

The stable outlook balances our expectation that the economic risks facing Iceland's banks are receding with our view of risks to Arion restoring the RAC ratio sustainably above our 15% threshold for the very strong capital and earnings assessment over the next two years. In our base-case scenario, we anticipate the bank's profitability will remain strong, supporting its capacity to build up capital organically. This reflects our projection that Arion will maintain strong revenue, sufficiently offsetting upward pressure on operating expense, including cost or risk. We could revise the outlook to negative if economic risk indicators in Iceland weaken or the bank is less likely to restore the RAC ratio to 15% or higher. That could materialize if Arion's asset

...Our ratings on Arion Bank balance the bank's established franchise, high capitalization, and robust profitability against its concentration in Iceland's small economy. Alongside the two other domestic systemically important banks (D-SIBs), Arion holds a strong market position in Iceland, with a market share in customer loans of 29%. The bank's presence across several business lines, including insurance and asset management, makes its earnings profile somewhat more diversified than that of domestic peers. With 95% of loans in the domestic market, S&P Global Ratings considers Arion's prominent market position, strong profitability, and robust capital a necessary offset to the bank's inherent concentration risks....

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