Årsredovisning 2025

Arion Bank Consolidated Financial Statements 2025
Amounts are in ISK millions
Notes to the Consolidated Financial Statements
46.
Liquidity and Funding risk, continued
Composition of liquid assets
31.12.2025
ISK
USD
EUR
Other
Total
149,766 
56 
167 
122 
150,111 
- 
9,271 
4,874 
3,944 
18,089 
69,404 
- 
- 
- 
69,404 
- 
3,762 
47,669 
33,811 
85,242 
219,170 
13,089 
52,710 
37,877 
322,846 
31.12.2024
 
 
 
 
 
123,395 
189 
355 
155 
124,094 
1 
11,507 
6,935 
3,608 
22,051 
70,298 
- 
- 
- 
70,298 
- 
10,394 
39,435 
22,183 
72,012 
193,694 
22,090 
46,725 
25,946 
288,455 
LCR deposit categorization
LCR categorization - amounts and LCR outflow weights
Less 
Weight
Weight
Term
Total
31.12.2025
stable
%
Stable
%
deposits*
deposits
142,436 
12%
136,146 
5%
200,648 
479,230 
119,944 
12%
19,563 
5%
30,998 
170,505 
4,950 
25%
- 
-
             
 
- 
4,950 
102,655 
41%
17,125 
20%
28,642 
148,422 
16,229 
40%
15 
20%
1,051 
17,295 
62,075 
100%
- 
- 
18,442 
80,517 
23,521 
100%
- 
- 
1,069 
24,590 
7,676 
100%
- 
- 
- 
7,676 
479,486 
172,849 
280,850 
933,185 
31.12.2024
121,798 
11%
121,208 
5%
178,686 
421,692 
114,856 
12%
17,835 
5%
28,483 
161,174 
4,748 
25%
- 
- 
- 
4,748 
98,482 
41%
16,561 
21%
30,430 
145,473 
19,262 
40%
14 
20%
1,091 
20,367 
70,477 
100%
- 
- 
17,915 
88,392 
18,510 
100%
- 
- 
2,380 
20,890 
1,325 
100%
- 
- 
- 
1,325 
449,458 
155,618 
258,985 
864,061 
Liquidity reserve ...........................................................................................
* Here term deposits refer to deposits with maturities greater than 30 days.
Deposits maturing within 30 days
Foreign financial entities ..............................................................
Individuals ...................................................................................
Corporations ................................................................................
Sovereigns, central banks and PSE .............................................
Liquidity reserve ...........................................................................................
Domestic financial entities ...........................................................
Foreign government bonds  ............................................................................
Domestic bonds eligible as collateral with Central Bank  ................................
Short-term deposits with financial institutions  ................................................
Foreign government bonds  ............................................................................
Operational relationship ...............................................................
Total ............................................................................................
Pension funds ..............................................................................
Small and medium enterprises ....................................................
Foreign financial entities ..............................................................
Domestic financial entities ...........................................................
As
per
the
LCR
methodology,
the
Group's
deposit
base
is
split
into
different
categories
depending
on
customer
type.
A
second
categorization
is
used
where
term
deposits
refer
to
deposits
with
residual
maturity
greater
than
30
days.
Deposits
that
can
be
withdrawn
within
30
days
are
marked
stable
if
the
customer
has
a
business
relationship
with
the
Group
and
the
amount
is
covered
by
the
Deposit
Insurance
Scheme.
Other
deposit
funds
are
considered
less
stable.
A
weight
is
attributed
to
each
category,
representing
the
expected
outflow under stressed conditions, i.e. the level of stickiness.
Corporations ................................................................................
Sovereigns, central banks and PSE .............................................
Pension funds ..............................................................................
The
table
below
shows
the
breakdown
of
the
Group's
deposit
base
according
to
the
LCR
categorization,
with
the
associated
weighted
average of the stressed outflow weights. 
Total ............................................................................................
Operational relationship ...............................................................
Individuals ...................................................................................
Small and medium enterprises ....................................................
Cash and balances with Central Bank  ...........................................................
Cash and balances with Central Bank  ...........................................................
Domestic bonds eligible as collateral with Central Bank  ................................
Short-term deposits with financial institutions  ................................................
The following table shows the composition of the Group's liquidity buffer.
78

===== SIDA 79 =====

Arion Bank Consolidated Financial Statements 2025
Amounts are in ISK millions
Notes to the Consolidated Financial Statements
47.
Capital management
 
 
Capital adequacy
31.12.2025
31.12.2024
Own funds
217,391 
207,086 
(64)
(504)
217,327 
206,582 
(7,273)
(7,390)
(228)
(226)
(20,313)
(19,000)
- 
427 
(314)
(345)
189,199 
180,048 
- 
112 
15,635 
20,004 
204,834 
200,164 
27,883 
24,534 
(1,355)
(1,306)
26,528 
23,228 
231,362 
223,392 
Risk-weighted exposure amount (REA)
 
 
862,862 
798,562 
59,140 
59,113 
4,222 
5,875 
2,309 
2,947 
13,516 
12,846 
2,501 
2,257 
84,635 
106,011 
1,029,185 
987,611 
Capital ratios
 
 
18.4% 
18.2% 
19.9% 
20.3% 
22.5% 
22.6% 
Total risk-weighted exposure amount .................................................................................................................
CET1 ratio ..............................................................................................................................................................
Capital adequacy ratio ............................................................................................................................................
Market risk due to trading book positions ................................................................................................................
Credit risk, loans and off-balance sheet items ........................................................................................................
Additional value adjustments ..................................................................................................................................
Foreseeable dividend and buyback * ......................................................................................................................
Tier 1 capital .........................................................................................................................................................
Operational risk ......................................................................................................................................................
Intangible assets ....................................................................................................................................................
Tier 2 capital .........................................................................................................................................................
Adjustment under IFRS 9 transitional arrangements as amended ..........................................................................
Common Equity Tier 1 capital ..............................................................................................................................
Tier 2 instruments ...................................................................................................................................................
Tier 2 instruments of financial sector entities (significant investments) ...................................................................
Non-controlling interest eligible for inclusion in T1 capital .......................................................................................
Market risk due to currency imbalance ...................................................................................................................
Credit valuation adjustment ....................................................................................................................................
Credit risk, derivatives and repos ...........................................................................................................................
Tier 1 ratio ..............................................................................................................................................................
Non-controlling interest not eligible for inclusion in CET1 capital ............................................................................
The
focus
of
capital
management
at
the
Group
is
to
normalize
the
capital
structure
in
the
medium
term
and
consequently
maintain
the
Group's capitalization comfortably above regulatory requirements, including the Pillar 2 and combined capital buffer requirements.
Common Equity Tier 1 capital before regulatory adjustments ..........................................................................
Credit risk, securities and other ..............................................................................................................................
Insufficient coverage for non-performing exposures ...............................................................................................
*
On
31
December
2025,
the
deduction
consists
of
50%
of
audited
profits
as
per
the
Bank's
dividend
policy
and
a
ISK
5
billion
buyback
program
approved
by
the
Board
(in
December
2025)
and
the
FSA
(in
January
2026,
after
the
accounting
period
end).
On
31
December
2024,
the
deduction
consists
of
a
dividend
payment
of
ISK
16
billion
to
be
paid
in
Q1
2025
as
approved
by
the
Board,
representing
61%
of
2024
net
earnings,
and
a
ISK
3
billion
buyback
program
approved
by
the
Board and the FSA. 
Total own funds ....................................................................................................................................................
Additional Tier 1 capital ..........................................................................................................................................
Total equity .............................................................................................................................................................
The
Group's
consolidated
situation
as
stipulated
in
CRR
is
the
Group's
accounting
consolidation
excluding
insurance
subsidiaries,
in
particular Vördur.
The
Group's
capital
ratios
are
calculated
in
accordance
with
the
Icelandic
Financial
Undertakings
Act
No.
161/2002
with
later
changes,
through
which
CRD
V
and
CRR
III
have
been
adopted.
The
Group
applies
the
standardized
approach
to
calculate
capital
requirements
for
credit risk, including counterparty credit risk, and market risk and the basic approach for credit valuation adjustment risk. 
79

===== SIDA 80 =====

Arion Bank Consolidated Financial Statements 2025
Amounts are in ISK millions
Notes to the Consolidated Financial Statements
47.
Capital management, continued
31.12.2025
31.12.2024
Capital ratios of the parent company
18.3% 
18.5% 
19.8% 
20.5% 
22.4% 
22.9% 
31.12.2025
31.12.2024
Capital buffer requirement, % of REA
2.5% 
2.5% 
3.0% 
3.0% 
2.0% 
2.0% 
2.5% 
2.5% 
10.0% 
10.0% 
Capital requirement, % of REA
CET1
Tier 1
Total
4.5% 
6.0% 
8.0% 
1.1% 
1.4% 
1.9% 
9.7% 
9.7% 
9.7% 
15.3% 
17.1% 
19.6% 
18.4% 
19.9% 
22.5% 
Leverage ratio
31.12.2025
31.12.2024
1,696,618 
1,562,622 
12,582 
16,078 
11,181 
10,358 
71,258 
50,982 
1,791,639 
1,640,040 
204,834 
200,164 
11.4% 
12.2% 
Total exposure ......................................................................................................................................................
Pillar 2R capital requirement ** ............................................................................................................
Available capital  ..................................................................................................................................
Pillar 1 capital requirement ..................................................................................................................
Combined capital buffer requirement ..................................................................................................................
**
The
SREP
result
based
on
the
Group's
Financial
Statement
at
31
December
2024.
The
Pillar
2R
requirement
is
1.9%
of
risk-weighted
exposure
amount
based
on the Group's prudential consolidation under CRR, which excludes Vördur.
Countercyclical capital buffer * ...............................................................................................................................
Capital conservation buffer .....................................................................................................................................
Combined buffer requirement * ............................................................................................................
*
The
Icelandic
buffer
value
shown.
In
the
combined
buffer
requirement,
the
effective
countercyclical
capital
buffer
is
determined
by
calculating
the
weighted
average
of
the
corresponding
buffer
levels
of
each
country,
the
weights
being
the
total
risk-weighted
exposures
for
credit
risk
against
counterparties
residing
in
those countries. The systemic risk buffer only applies to domestic exposures and is calculated using the same weighting method.
The
leverage
ratio
is
seen
as
a
complementary
measure
to
the
risk-based
capital
ratios.
The
ratio
is
calculated
on
the
basis
of
the
Group's
consolidated
situation
as
per
the
CRR,
which
excludes
the
Group's
insurance
subsidiaries.
The
minimum
leverage
ratio
requirement
is
3%
as stated in the Icelandic Financial Undertakings Act No. 161/2002.
Repos .....................................................................................................................................................................
Systemic risk buffer * ..............................................................................................................................................
Derivative exposures ..............................................................................................................................................
On-balance sheet exposures ..................................................................................................................................
Regulatory capital requirement .........................................................................................................
Tier 1 ratio ..............................................................................................................................................................
The
following
table
outlines
the
implementation
of
the
capital
buffer
requirements
in
accordance
with
the
Icelandic
Financial
Undertakings
Act No. 161/2002, as prescribed by the Financial Stability Committee and approved by the FSA.
The
Bank
carries
out
an
ongoing
process,
the
Internal
Capital
Adequacy
Assessment
Process
(ICAAP),
with
the
aim
to
ensure
that
the
Group
has
in
place
sufficient
risk
management
processes
and
systems
to
identify,
manage
and
measure
the
Group's
total
risk
exposure.
The
ICAAP
is
aimed
at
identifying
and
measuring
the
Group's
risk
across
all
risk
types
and
ensure
that
the
Group
has
sufficient
capital
in
accordance
with
its
risk
profile.
The
FSA
supervises
the
Group,
receives
the
Group's
internal
estimation
on
the
capital
adequacy
and
sets
the
Pillar
2R
capital
requirements
for
the
Group
as
a
whole
following
the
Supervisory
Review
and
Evaluation
Process
(SREP).
The
Group's own funds exceed the FSA's SREP requirements.
Capital buffer for systematically important institutions .............................................................................................
CET1 ratio ..............................................................................................................................................................
Capital adequacy ratio ............................................................................................................................................
The Pillar 1 and Pillar 2R capital requirements may comprise 56.25% CET1 capital, 18.75% AT1 capital and 25% Tier 2 capital.
Off-balance sheet exposures ..................................................................................................................................
Tier 1 capital .........................................................................................................................................................
Leverage ratio ........................................................................................................................................................
80

===== SIDA 81 =====

Arion Bank Consolidated Financial Statements 2025
Amounts are in ISK millions
Notes to the Consolidated Financial Statements
47.
Capital management, continued
MREL
31.12.2025
31.12.2024
Minimum requirement for own funds and eligible liabilities
231,362 
223,392 
201,513 
130,048 
432,875 
353,440 
99,831 
96,786 
333,044 
256,654 
1,029,185 
987,611 
32.4% 
26.0% 
19.8% 
19.6% 
1,791,639 
1,640,040 
24.2% 
21.6% 
6.0% 
6.0% 
Solvency II for insurance subsidiary Vördur
14,228 
14,468 
1,372 
1,323 
- 
- 
15,600 
15,791 
10,049 
9,347 
155.2% 
168.9% 
48.
Operational risk
The
solvency
capital
requirement
for
the
subsidiary
Vördur
is
calculated
in
accordance
with
the
Icelandic
Insurance
Companies
Act
No
100/2016.
Total exposure measure (TEM) ..............................................................................................................................
Eligible liabilities .....................................................................................................................................................
Combined buffer requirement (CBR) ......................................................................................................................
Own funds and eligible liabilities not used for CBR ...........................................................................................
Own funds ..............................................................................................................................................................
Solvency capital requirements (SCR) .....................................................................................................................
MREL requirement (% TEM) .................................................................................................................................
Own funds .............................................................................................................................................................
Foreseeable dividends ...........................................................................................................................................
SCR ratio ................................................................................................................................................................
The
Group
must
fulfil
a
minimum
requirement
for
own
funds
and
eligible
liabilities
(MREL)
in
accordance
with
the
Act
on
Resolution
of
Credit
Institutions
and
Investment
Firms,
no.
70/2020,
as
amended,
which
transposes
BRRD
I/II
into
Icelandic
law.
Own
funds
which
are
not
used
to
fulfil
the
combined
buffer
requirement
can
be
used
towards
the
MREL
requirements.
In
October
2025,
the
Icelandic
Resolution
Authority
presented
the
Group
with
the
MREL
requirements
based
on
year-end
2024
financials.
The
requirements
are
expressed
as
a
fraction
of
total
REA,
and
as
a
fraction
of
the
total
exposure
measure.
Both
ratios
are
shown
in
the
table
below.
An
MREL
subordination
requirement of 13.5% REA will apply to the Bank from Q3 2027.
Risk-weighted exposure amount (REA) ..................................................................................................................
Own funds and eligible liabilities not used for CBR (% REA) ...................................................................................
MREL requirement (% REA) .................................................................................................................................
Subordinated liabilities ............................................................................................................................................
Excess of assets over liabilities in accordance with Solvency II ..............................................................................
Own funds and eligible liabilities (% TEM) ..............................................................................................................
Own funds and eligible liabilities ........................................................................................................................
The Group uses the standardized approach for the calculation of capital requirements for operational risk.
Operational
risk
is
the
risk
of
direct
or
indirect
loss,
or
damage
to
the
Group's
reputation
resulting
from
inadequate
or
failed
internal
processes or systems, from human error or external events.
Each
business
unit
within
the
Group
is
responsible
for
managing
their
own
operational
risks.
Risk
management
and
Compliance
support
the
first
line
through
monitoring,
complementary
expertise,
and
by
challenging
the
adequacy
and
effectiveness
of
risk
management
practices.
The
second
line
is
responsible
for
developing
and
maintaining
a
framework
for
identifying,
measuring,
and
reporting
the
Group's
operational risk.
81

===== SIDA 82 =====

Arion Bank Consolidated Financial Statements 2025
Amounts are in ISK millions
Notes to the Consolidated Financial Statements
49.
Sustainability risk
Sustainable financing framework
31.12.2025
31.12.2024
Sustainable Financing Instruments
24,755 
28,802 
38,272 
60,518 
63,027 
89,320 
Identified eligible sustainable assets by category
18,000 
19,075 
534 
271 
545 
608 
8,875 
7,545 
97,512 
92,689 
- 
17,309 
7,914 
7,799 
133,380 
145,296 
20,958 
28,835 
1,637 
2,374 
424 
1,146 
14,447 
13,336 
37,465 
45,691 
170,845 
190,987 
Sustainability
risk
is
a
driver
of
other
risk
types,
such
as
credit
risk
and
market
risk.
It
can
materialize
in
the
short
term,
the
medium
term
and
the
long
term.
The
Bank
assesses
both
inside-out
risks
(negative
impact
from
the
Bank’s
operations
on
people
and/or
the
environment)
and
outside-in
risks
(negative
materialization
of
ESG
factors
on
the
Bank
through
their
counterparties
or
invested
assets).
The
Bank’s
Sustainability
Committee
is
responsible
for
reviewing
the
Bank’s
performance
with
respect
to
its
commitments
and
policies
in
relation to environmental, social and governance (ESG) factors and aligning the Bank’s strategy and risk appetite with them.
Education ...............................................................................................................................................................
Healthcare ..............................................................................................................................................................
Sustainable waste and wastewater management ....................................................................................................
Book value ............................................................................................................................................................
Affordable housing ..................................................................................................................................................
The
Bank’s
Sustainability
Financing
Framework
applies
to
the
Bank’s
financing,
deposits
and
loans
which
are
classed
as
environmentally
and/or
socially
sustainable.
The
Sustainability
Financing
Framework
includes
social
categories
which
define
projects
having
a
positive
impact
on
society.
Special
importance
is
also
given
to
the
circular
economy,
and
the
classification
of
green
projects
has
also
been
refined.
Under
this
framework
the
Bank
can
issue
Sustainable
Financing
Instruments
including,
but
not
limited
to,
covered
bonds,
bonds,
loans,
commercial
paper,
repurchase
agreements
and
deposits.
The
use
of
proceeds
from
these
instruments
is
restricted
to
the
financing
of
eligible
assets
as
defined
in
the
Framework.
Eligible
assets
are
divided
into
several
eligible
categories
with
inclusion
and
exclusion
criteria.
The
Framework
details
the
processes
for
identifying
eligible
assets,
for
reporting
on
the
use
of
the
framework
and
for
external
review.
The
following table excludes committed green exposures.
Sustainable book value ........................................................................................................................................
Energy efficiency ....................................................................................................................................................
Green buildings ......................................................................................................................................................
Sustainable marine value chains and marine ecosystem management ..................................................................
Renewable energy ..................................................................................................................................................
Sustainable forestry and agriculture ........................................................................................................................
Green book value .................................................................................................................................................
Green deposits .......................................................................................................................................................
Employment generation and alleviate unemployment .............................................................................................
Social book value .................................................................................................................................................
Green borrowings ...................................................................................................................................................
Clean transportation ...............................................................................................................................................
82

===== SIDA 83 =====

Arion Bank Consolidated Financial Statements 2025
Material accounting policies
50.
Going concern assumption
51.
Principles underlying the consolidation
Subsidiaries
Business combinations
–
–
–
–
–
–
–
Non-controlling interests
–
–
The
Group's
management
has
made
an
assessment
of
the
ability
to
continue
as
a
going
concern
and
is
satisfied
that
the
Group
has
the
resources
to
continue.
In
making
this
assessment,
management
has
taken
into
consideration
the
risk
exposures
facing
the
Group,
which
are further described in the Risk Management Disclosures. The Consolidated Financial Statements are prepared on a going concern basis. 
The
accounting
policies
adopted
in
the
preparation
of
these
Consolidated
Financial
Statements
are
consistent
with
those
followed
in
the
preparation
of
the
Annual
Financial
Statements
for
year
ended
31
December
2024,
except
for
when
there
have
been
made
amendmends
to
current
IFRS
valid
from
1
January
2025,
Icelandic
Act
on
Financial
Statements,
Act
on
Financial
Undertakings
and
rules
on
Accounting
for
Credit
Institutions.
Amendments
to
standards
effective
from
1
January
2025
did
not
have
a
material
impact
on
theses
Consolidated
Financial Statements.
Subsidiaries
are
entities
controlled
by
the
Group.
The
Financial
Statements
of
subsidiaries
are
included
in
the
Consolidated
Financial
Statements
from
the
date
that
control
commences
until
the
date
that
control
ceases.
The
Financial
Statements
of
the
subsidiaries
are
prepared for the same reporting period as the parent entity, using consistent accounting policies.
at their proportionate share of the acquiree's identifiable net assets, which are generally at fair value.
Notes to the Consolidated Financial Statements
the fair value of the consideration transferred; plus
power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
the ability to use its power over the investee to affect its returns.
Business
combinations
are
accounted
for
using
the
acquisition
method
as
at
the
acquisition
date,
i.e.
when
control
is
transferred
to
the
Group. The Group controls an investee if, and only if, the Group has:
Generally,
there
is
a
presumption
that
a
majority
of
voting
rights
result
in
control.
To
support
this
presumption
and
when
the
Group
has
less
than
a
majority
of
the
voting
or
similar
rights
of
an
investee,
the
Group
considers
all
relevant
facts
and
circumstances
in
assessing
whether
it
has
power
over
an
investee,
including
(i)
the
contractual
arrangement
with
the
other
vote
holders
of
the
investee,
(ii)
rights
arising
from
other
contractual
arrangements
and
(iii)
the
Group's
voting
rights
and
potential
voting
rights.
The
Group
re-assesses
whether
or
not
it
controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.
exposure, or rights, to variable returns from its involvement with the investee; and
Transaction costs incurred are expensed and included in administration expense. 
Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
For each business combination, the Group elects to measure any non-controlling interests in the acquiree either:
if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less
the recognized amount of any non-controlling interests in the acquiree; less
When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.
Non-controlling
interests
represent
the
portion
of
profit
or
loss
and
equity
not
owned,
directly
or
indirectly,
by
the
Group;
such
interests
are
presented
separately
in
the
Income
Statement
and
are
included
in
equity
in
the
Statement
of
Financial
Position,
separately
from
equity
attributable to owners of the Group. 
at fair value; or
the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
The Group measures goodwill at the acquisition date as:
83

===== SIDA 84 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
51.
Principles underlying the consolidation, continued
Loss of control
Transactions eliminated on consolidation
Funds management
 
52.
Associates
 
Impairment on investments in associates 
53.
Foreign currency
Foreign currency transactions
Intragroup
balances,
income
and
expenses
arising
from
intragroup
transactions,
are
eliminated
in
preparing
the
Consolidated
Financial
Statements. This also applies to subsidiaries classified as disposal groups held for sale.
Upon
loss
of
significant
influence
over
the
associate,
the
Group
measures
and
recognizes
any
retained
investment
at
its
fair
value.
Any
difference
between
the
carrying
amount
of
the
associate
upon
loss
of
significant
influence
and
the
fair
value
of
the
retained
investment
and
proceeds from disposal is recognized in profit or loss.
The
Financial
Statements
include
the
Group's
share
of
the
total
recognized
income
and
expenses
of
associates
from
the
date
that
significant
influence
commences
until
the
date
that
significant
influence
ceases.
When
the
Group's
share
of
losses
exceeds
its
carrying
value
of
associate,
the
Group's
carrying
amount
is
reduced
to
nil
and
recognition
of
further
losses
is
discontinued
except
to
the
extent
that
the
Group
has
incurred
legal
or
constructive
obligations
or
made
payments
on
behalf
of
the
associate.
If
the
associate
subsequently
reports
profits, the Group resumes recognizing its share of those profits only after its share of the profits equals the share of losses not recognized. 
On
the
loss
of
control,
the
Group
derecognizes
the
assets
and
liabilities
of
the
subsidiary,
any
non-controlling
interests
and
the
other
components of equity related to the subsidiary.  Any surplus or deficit arising on the loss of control is recognized in profit or loss. 
When
assessing
whether
to
consolidate
investment
funds,
the
Group
reviews
all
facts
and
circumstances
to
determine
whether
the
Group,
as
fund
manager,
is
acting
as
agent
or
principal.
The
Group
is
deemed
to
be
a
principal,
and
hence
controls
and
consolidates
a
fund,
when
the
Group
acts
as
fund
manager
and
cannot
be
removed
without
cause,
has
variable
returns
through
significant
holdings,
and
is
able
to
influence the returns of the funds by exercising its power. The Group is defined as agent in all instances.
Transactions
in
foreign
currencies
are
translated
to
the
respective
functional
currencies
of
Group
entities
at
exchange
rates
at
the
dates
of
transactions.
Monetary
assets
and
liabilities
denominated
in
foreign
currencies
at
the
reporting
date
are
retranslated
to
the
functional
currency
at
the
exchange
rate
at
that
date.
All
differences
arising
on
settlement
or
translation
of
monetary
items
are
taken
to
the
Income
Statement. Non-monetary assets and liabilities denominated in foreign currencies are reported at historic cost. 
After
applying
the
equity
method
to
account
for
investments
in
associates,
the
Group
determines
whether
it
is
necessary
to
recognize
any
impairment
loss
with
respect
to
its
investments
in
associates.
The
Group
first
determines
whether
there
is
any
objective
evidence
that
an
investment
in
an
associate
is
impaired.
If
such
evidence
exists,
the
Group
then
tests
the
entire
carrying
amount
of
the
investment
for
impairment,
by
comparing
its
recoverable
amount,
which
is
the
higher
of
value
in
use
and
fair
value
less
costs
to
sell,
with
its
carrying
amount.
The
recoverable
amount
of
an
investment
in
an
associate
is
assessed
for
each
associate,
unless
the
associate
does
not
generate
cash
inflows
from
continuing
use
that
are
largely
independent
of
those
from
other
assets
of
the
Group.
The
excess
of
the
carrying
amount
over
the
recoverable
amount
is
recognized
in
the
Income
statement
as
an
impairment
loss.
Impairment
losses
are
subsequently
reversed
through the Income Statement if the reasons for the impairment loss no longer apply.
Items
included
in
the
Consolidated
Financial
Statements
of
each
of
the
Group's
subsidiaries
are
measured
using
the
functional
currency
of
the respective entity.
The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries.
The
Group
manages
and
administers
assets
held
in
unit
trusts
and
investment
vehicles
on
behalf
of
investors.
The
Financial
Statements
of
these entities are not included in these Consolidated Financial Statements except when the Group controls the entity.
Associates
are
those
entities
over
which
the
Group
has
a
significant
influence,
i.e.
the
power
to
participate
in
the
financial
and
operating
policy
decisions
of
the
associates
but
not
control
or
joint
control
over
those
policies.
Significant
influence
generally
exists
when
the
Group
holds
20%
or
more
of
the
voting
power,
including
potential
voting
rights,
unless
it
can
be
clearly
demonstrated
that
this
is
not
the
case.
Investments
in
associates
are
initially
recognized
at
cost.
The
carrying
amount
of
investments
in
associates
includes
intangible
assets
and
accumulated impairment loss.
The Group's investments in its associate are accounted for using the equity method.
84

===== SIDA 85 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
54.
Interest
–
–
–
55.
Fee and commission
56.
Net financial income
i)
ii)
iii)
57.
Insurance service results
amortized cost;
Net
gain
on
financial
assets
and
liabilities
at
fair
value
comprises
all
realized
and
unrealized
fair
value
changes,
except
for
interest
(which
is
included
in
Interest
income
and
Interest
expense)
and
foreign
exchange
gain
and
losses
(which
are
included
in
Net
foreign
exchange gains as described below).
Dividend income is recognized when the right to receive dividend is established. Usually this is the ex-dividend date for equity securities. 
The
Group
provides
various
services
to
its
clients
and
earns
income
therefrom,
such
as
income
from
Corporate
Banking,
Retail
Banking,
Capital
Markets,
Corporate
Finance,
Asset
Management
and
Private
Banking.
Fees
earned
from
services
that
are
provided
over
a
certain
period
of
time
are
recognized
as
the
services
are
provided,
i.e.
point
in
time.
Fees
earned
from
transaction
type
services
are
recognized
when
the
service
has
been
completed,
i.e.
point
in
time.
Fees
that
are
performance
linked
are
recognized
when
the
performance
criteria
are
fulfilled, i.e. point in time.
fair value through other comprehensive income (FVOCI).
Interest income and expense presented in the Income Statement include Income and expenses of assets and liabilities carried at:
Net
foreign
exchange
gain
comprise
all
foreign
exchange
differences
arising
on
the
settlement
of
foreign
currency
monetary
assets
and
liabilities
and
on
translating
foreign
currency
monetary
assets
and
liabilities
at
rates
different
from
those
at
which
they
were
translated
on
initial recognition during the year or in previous Consolidated Financial Statements.
Net
foreign
exchange
gain
also
include
foreign
exchange
differences
arising
on
translating
non-monetary
assets
and
liabilities
which
are
measured at fair value in foreign currencies and whose other gain and loss are also recognized in profit or loss.
The
calculation
of
the
effective
interest
rate
includes
all
transaction
costs
and
fees
and
points
paid
or
received
that
are
an
integral
part
of
the
effective
interest
rate.
Transaction
costs
include
incremental
costs
that
are
directly
attributable
to
the
acquisition
or
issue
of
a
financial
asset or financial liability.
Interest
income
and
expense
are
recognized
in
the
Income
Statement
using
the
effective
interest
method.
The
effective
interest
rate
is
the
rate
that
exactly
discounts
the
estimated
future
cash
payments
and
receipts
through
the
expected
life
of
the
financial
asset
or
liability
(or,
where
appropriate,
a
shorter
period)
to
the
carrying
amount
of
the
financial
asset
or
liability.
The
effective
interest
rate
is
established
on
initial recognition of the financial asset and financial liability and is not revised subsequently.
fair value through profit and loss (FVTPL); and
Net financial income comprises Dividend income, Net gain on financial assets and liabilities at fair value and Net foreign exchange gain.
Insurance
service
expenses
are
claims
incurred
during
the
year
and
the
increase
or
decrease
due
to
claims
from
last
year,
acquisition
cost
and other costs from activities, such as marketing costs, salary costs, office and administration costs.
Fees
and
commission
income
and
expenses
that
are
integral
to
the
effective
interest
rate
on
a
financial
asset
or
liability
are
included
in
the
measurement of the effective interest rate.
Insurance
revenues
recognized
in
the
Income
Statement
are
insurance
premium
and
other
income
from
insurance
contracts
earned
during
the operating year.
85

===== SIDA 86 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
58.
Income tax expense
59.
Financial assets and financial liabilities
Recognition and initial measurement
Derecognition 
Debt instruments
–
–
–
–
–
–
–
 
 
Debt instruments, including loans and debt securities, are classified into one of the following measurement categories:
amortized cost;
All other debt instruments are carried at FVTPL. 
it is held within a business model whose objective is to collect contractual cash flows and selling financial assets; and
fair value through profit and loss (FVTPL); or
fair value through other comprehensive income (FVOCI).
its contractual cash flows are SPPI.
The
Group
initially
recognizes
financial
assets
and
financial
liabilities
on
the
date
that
they
are
originated
at
the
fair
value
of
consideration
paid.
Regular-way
purchases
and
sales
of
financial
assets
are
recognized
on
the
trade
date
at
which
the
Group
commits
to
purchase
or
sell
assets.
All
other
financial
assets
and
liabilities
are
recognized
on
the
trade
date,
which
is
the
date
that
the
Group
becomes
a
party
to
the
contractual provision of the instrument.
Deferred
tax
assets
and
liabilities
are
offset
if
there
is
a
legally
enforceable
right
to
offset
current
tax
liabilities
and
assets,
and
they
relate
to
taxes
levied
by
the
same
tax
authority
on
the
same
taxable
entity,
or
on
different
tax
entities,
but
they
intend
to
settle
current
tax
liabilities
and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
Deferred
tax
is
measured
at
the
tax
rates
that
are
expected
to
be
applied
to
temporary
differences
when
they
reverse,
using
tax
rates
enacted or substantively enacted at the reporting date.
A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL: 
Tax
expense
comprises
current
and
deferred
tax.
Income
tax
for
the
year
has
been
calculated
and
recognized
in
the
Consolidated
Financial
Statements.
A debt instrument is measured at amortized cost only if it meets both of the following conditions and is not designated as at FVTPL:
its contractual cash flows are solely payments of principal and interest on the principal amount outstanding (here after SPPI).
A
financial
asset
or
financial
liability
is
measured
initially
at
fair
value
and
for
an
item
not
at
fair
value
through
profit
or
loss,
transaction
cost
that are directly attributable to its acquisition or issue.
Deferred
tax
is
recognized
in
respect
of
temporary
differences
between
the
carrying
amounts
of
assets
and
liabilities
and
the
realization
of
foreign exchange gain or loss, for financial reporting purposes and the amounts used for taxation purposes.
Current
tax
is
the
expected
tax
payable
on
the
taxable
income
for
the
year,
using
tax
rates
enacted
or
substantially
enacted
at
the
reporting
date,
and
any
adjustment
to
tax
payable
in
respect
of
previous
years.
Taxable
profit
may
differ
from
earnings
before
tax
as
reported
in
the
Income
Statement
as
it
may
exclude
income
or
expense
that
is
deductible
in
other
years
and
it
excludes
income
or
expense
that
are
never
taxable or deductible.
Current and deferred tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit or loss.
it is held within a business model whose objective is to collect contractual cash flows; and
A
deferred
tax
asset
is
recognized
for
unused
tax
losses,
tax
credits
and
deductible
temporary
differences
to
the
extent
that
it
is
probable
that
future
taxable
profits
will
be
available
against
which
the
asset
can
be
utilized.
Deferred
tax
assets
are
reviewed
at
each
reporting
date
and
reduced
to
the
extent
that
it
is
no
longer
probable
that
the
related
tax
benefit
will
be
realized.
Such
deferred
tax
assets
and
liabilities
are
not
recognized
if
the
temporary
difference
arises
from
the
initial
recognition
(other
than
in
a
business
combination)
of
assets
and
liabilities
in
transaction
that
affects
neither
the
taxable
profit
nor
the
accounting
profit.
In
addition,
tax
liabilities
are
not
recognized
if
the
temporary
difference arises from the initial recognition of goodwill.
Financial liabilities are derecognized when the obligation of the Group specified in the contract is discharged or cancelled or expires.
Financial
assets
are
derecognized
when
the
rights
to
receive
cash
flows
from
the
financial
assets
have
expired
or
when
the
Group
has
transferred substantially all risks and rewards of ownership.
86

===== SIDA 87 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
59.
Financial assets and financial liabilities, continued
Business model assessment
-
-
-
-
-
 
Cash flow characteristics assessment
Debt instruments measured at amortized cost
Debt instruments measured at FVOCI
Debt instrument are measured at FVOCI if they are held within a business model whose objective is to hold for collection of contractual cash 
flows
and/or
selling
financial
assets,
where
the
assets'
cash
flows
represent
payments
that
are
solely
payments
of
principal
and
interest.
Subsequent
to
initial
recognition,
unrealized
gains
and
losses
on
debt
instruments
measured
at
FVOCI
are
recorded
in
Other
Comprehensive
Income
(OCI).
At
realization
the
accumulated
profit
or
loss
recognized
in
OCI
in
previous
periods
is
recycled
to
the
Consolidated
Income
Statement.
Foreign
exchange
gains
and
losses
of
the
debt
instrument
are
recognized
in
the
Consolidated
Income
Statement. Interest income are recognized in the Income Statement in accordance with effective interest rate method.
Debt
instrument
are
measured
at
amortized
cost
if
they
are
held
within
a
business
model
whose
objective
is
to
hold
for
collection
of
contractual
cash
flows
where
those
cash
flows
represent
solely
payments
of
principal
and
interest.
After
initial
measurement,
debt
instruments
in
this
category
are
carried
at
amortized
cost
using
the
effective
interest
rate
method.
The
effective
interest
rate
is
the
rate
that
discounts
contractual
cash
payments
or
receipt
through
the
contractual
lifetime
of
the
financial
asset
to
the
gross
carrying
amount
of
a
financial
asset.
Amortized
cost
is
calculated
taking
into
account
any
discount
or
premium
on
acquisition,
transaction
cost
and
fees
that
are
an integral part of the effective interest rate. Amortization is included in interest income in the Consolidated Income Statement.
Impairment
on
debt
instruments
measured
at
FVOCI
is
calculated
using
the
expected
credit
loss
approach.
The
ECL
on
debt
instruments
measured
at
FVOCI
does
not
reduce
the
carrying
amount
of
the
asset
in
the
Statement
of
Financial
Position,
which
remains
at
its
fair
value.
Instead,
an
amount
equal
to
the
allowance
that
would
arise
if
the
assets
were
measured
at
amortized
cost
is
recognized
in
OCI
with
a
corresponding
charge
to
net
impairment
in
the
Consolidated
Statement
of
Comprehensive
Income.
The
accumulated
allowance
recognized
in OCI is recycled to the Consolidated Statement of Comprehensive Income upon derecognition of the debt instrument.
In
performing
this
assessment,
the
Group
takes
into
consideration
contractual
features
that
could
change
the
amount
or
timing
of
contractual
cash
flows,
such
that
the
cash
flows
are
no
longer
consistent
with
a
basic
lending
arrangement.
If
the
Group
identifies
any
contractual
features
that
could
modify
the
cash
flows
of
the
instruments
such
that
they
are
no
longer
consistent
with
a
basic
lending
arrangement, the related financial assets is classified at FVTPL.
Impairment
on
debt
instruments
measured
at
amortized
cost
is
calculated
using
the
expected
credit
loss
(ECL)
approach.
Loans
and
debt
securities measured at amortized cost are presented net of allowance for credit losses in the Consolidated Statement of Financial Position.
Interest
is
defined
as
consideration
for
the
time
value
of
money,
the
banks
funding
costs,
the
credit
risk
associated
with
the
principal
amount
outstanding and other costs (e.g liquidity risk and administrative costs), as well as a profit margin. Indexation of loans to the Consumer Price 
Index
(CPI)
are
considered
part
of
interest
as
CPI
guarantees
the
time
value
of
money
of
the
original
outstanding
balance.
Principal
may
change over the life of the instruments due to repayments. Indexation on principal accumulates over time.
whether
the
assets
are
held
for
trading
purposes,
i.e.
assets
that
the
Group
acquires
or
incurs
principally
for
the
purpose
of
selling
or
repurchasing in the near term, or holds as part of a portfolio that is manage together for short-term profit or position taking;
The
contractual
cash
flow
characteristics
assessment
involves
assessing
the
contractual
features
of
an
instrument
to
determine
if
they
give
rise
to
cash
flows
that
are
consistent
with
a
basic
lending
arrangement.
Contractual
cash
flows
that
are
consistent
with
a
basic
lending
arrangement are considered SPPI.
the risks that affect the performance of assets held within a business model and how those risks are managed;
how
the
performance
of
assets
in
a
portfolio
is
evaluated
and
reported
to
group
heads
and
other
key
decision
makers
within
the
Group's
business lines;
Business
model
assessment
involves
determining
whether
financial
assets
are
managed
in
order
to
generate
cash
flows
from
collection
of
contractual
cash
flows,
selling
financial
assets
or
both.
The
Group
assesses
the
business
model
at
a
portfolio
level
reflective
of
how
groups
of
assets
are
managed
together
to
achieve
a
particular
business
objective.
For
the
assessment
of
business
models
the
Group
takes
into
consideration the following factors: 
how compensation is determined for the Group's business lines' management that oversee the assets; and
the frequency and volume of sales in prior periods and expectations about future sales activity.
 
87

===== SIDA 88 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
59.
Financial assets and financial liabilities, continued
Debt instruments measured at FVTPL
Purchased loans
Equity instruments
Offsetting
Expected credit losses
Equity instruments are measured at FVTPL.
POCI
loans
do
not
have
allowance
at
initial
recognition
but
subsequently
the
allowance
will
reflect
the
changes
in
the
lifetime
expected
losses.
At
recognition
the
discount
of
each
POCI
loan
is
split
up
into
two
categories,
impairment
discount
and
interest
discount
or
premium.
Interest
is
calculated
with
a
credit
adjusted
effective
interest
rate
and
is
posted
to
interest
income.
Periodically
the
Group
recalculates
the
carrying
amount
by
computing
the
present
value
of
estimated
future
cash
flows
at
the
financial
instrument's
original
credit
adjusted
effective
interest
rate,
any
changes
in
the
expected
cash
flows
since
the
date
of
acquisition
are
recorded
as
a
charge/recovery
in
net
impairment
in
the Consolidated Income Statement at the end of all reporting periods subsequent to the date of acquisition. 
Financial
assets
and
liabilities
are
set
off
and
the
net
amount
reported
in
the
Statement
of
Financial
Position
when,
and
only
when,
the
Group
has
a
legal
right
to
offset
the
recognized
amounts
and
intends
either
to
settle
on
a
net
basis
or
to
realize
the
asset
and
settle
the
liability simultaneously.
All
purchased
loans
are
initially
measured
at
fair
value
on
the
date
of
acquisition.
As
a
result
no
allowance
for
credit
losses
would
be
recorded
in
the
Consolidated
Statement
of
Financial
Positions
on
the
date
of
acquisition.
Purchased
loans
may
fit
into
either
of
the
two
categories: Performing loans or Purchased or Originated Credit Impaired (POCI) loans.
The
Group
can
elect
to
classify
non-trading
equity
instruments
at
FVOCI.
This
election
will
be
used
for
certain
equity
instruments
for
strategic
or
longer
term
investment
purposes.
The
FVOCI
election
is
made
upon
initial
recognition,
on
an
instrument-by-instrument
basis
and
once
made
is
irrevocable.
Gains
and
losses
on
these
instruments
including
when
derecognized/sold
are
recorded
in
OCI
and
are
not
subsequently
reclassified
to
the
Consolidated
Income
Statement.
Dividends
received
are
recorded
in
Financial
income
in
the
Consolidated
Income
Statement.
Any
transaction
costs
incurred
upon
purchase
of
the
security
are
added
to
the
cost
basis
of
the
security
and
are
not
reclassified to the Consolidated Income Statement of the security.
For
equity
instruments
measured
at
FVTPL,
changes
in
fair
value
are
recognized
as
part
of
Financial
income
in
the
Consolidated
Income
Statement.
Purchased
performing
loans
are
reflected
in
Stage
1
and
will
follow
the
same
accounting
as
other
performing
loans.
They
will
be
subject
to
a
12-month
allowance
for
credit
losses
which
is
recorded
as
provision
for
credit
losses
in
the
Consolidated
Income
Statement.
The
fair
value
adjustments set up for these loans on the date of acquisition is amortized into interest income over the life of these loans.
Debt
instrument
are
measured
at
FVTPL
if
they
are
held
for
short
term
gain,
held
as
part
of
a
portfolio
managed
on
a
fair
value
basis
or
the
cash
flows
do
not
represent
payments
that
are
solely
payments
of
principal
and
interest.
These
instruments
are
measured
at
fair
value
in
the
Consolidated
Statement
of
Financial
Position.
Realized
and
unrealized
gains
and
losses
are
recognized
as
part
of
Net
financial
income
in the Consolidated Income Statement.
Expected
credit
loss
(ECL)
is
established
for
all
financial
assets,
except
for
financial
assets
classified
or
designated
as
FVTPL
and
equity
instruments
designated
as
FVOCI,
which
are
not
subject
to
impairment
assessment.
Assets
subject
to
impairment
assessment
are
primarily
debt
instruments
(including
loans
to
customers)
measured
at
amortized
cost
or
FVOCI.
ECL
on
financial
assets
is
presented
in
Net
impairment.
Other
financial
assets
carried
at
amortized
cost
are
presented
net
of
ECL
in
the
Group's
Consolidated
Statement
of
Financial
Position.
Off-balance
sheet
items
subject
to
impairment
assessment
include
financial
guarantees
and
undrawn
loan
commitments.
ECL
for
Off-balance sheet items is separately calculated and included in Other Liabilities.
Income
and
expenses
are
presented
on
a
net
basis
only
when
permitted
by
the
accounting
standards,
or
for
gains
or
losses
arising
from
a
group of similar transactions such as in the Group's trading activity.
88

===== SIDA 89 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
59.
Financial assets and financial liabilities, continued
Stage
Criteria
 
Definition of default 
–
–
Probability of default and credit risk rating
Exposures
not
impaired
with
significant
increase
in
credit risk subsequent to origination.
The Group measures the ECL on each balance sheet date according to a three-stage expected credit loss impairment model:
For
corporate
counterparties
it
is
assumed
that
if
one
exposure
is
in
default,
all
other
exposures
to
that
counterparty
are
also
in
default
(cross-default).
For
individuals
however,
the
Group
defines
six
different
exposure
portfolios
and
has
different
statistical
credit
risk
models
for
each
of
them
-
mortgages,
consumer
loans,
auto
loans,
guarantees,
loans
to
individuals
for
work
purposes
and
other
loans.
Each
exposure
portfolio
is
assessed
separately,
meaning
that
if
an
individual
is
in
default
on
a
loan
belonging
to
one
portfolio,
their
other
exposures,
belonging
to
other
portfolios,
are
not
automatically
assumed
to
be
in
default.
However,
defaults
in
other
portfolios
are
also
considered
and
cross-default applies when they are significant.
3
Exposures in default / Credit impaired 
2
the borrower is considered to be unlikely to pay.
Exposures
not
impaired
and
with
no
significant
increase
in credit risk
1
Assessment of expected credit loss, and effective interest
rates.
Increases
or
decreases
in
the
required
ECL
attributable
to
purchases
and
new
originations,
derecognitions
or
maturities,
and
remeasurements
due
to
changes
in
loss
expectations
or
state
migrations
are
recorded
in
net
impairment.
Write-offs
and
recoveries
of
amounts previously written off are recorded against ECL.
An
asset
does
not
return
to
non-defaulted
status
until
after
a
probation
period
which
is
at
least
either
three
months
if
no
forbearance
measures have been granted or one year if forbearance measures have been granted.
The Group allocates to each exposure a credit risk rating (e.g. A+, A, A-, BBB+, etc.) based on the calculated 12 month probability of default 
('the
PD').
The
PD
is
assessed
through
the
Group's
credit
rating
models
or
based
on
external
ratings
if
available.
The
Group's
credit
rating
models
are
statistical
models
based
on
a
variety
of
information
that
has
been
determined
to
be
predictive
of
default.
These
include
demographic,
behavioral,
financial
and
economic
data,
coupled
with
qualitative
expert
judgement
for
large
corporate
exposures.
Factors
vary
depending
on
the
nature
of
the
exposure
and
the
profile
of
the
borrower.
The
PD
estimates
used
for
the
purpose
of
calculating
IFRS
9
impairments
are
point-in-time,
i.e.
dependent
on
the
economic
cycle.
The
Group's
credit
rating
models
are
subject
to
annual
performance
tests and are recalibrated on a regular basis if needed. 
In
assessing
whether
a
borrower
is
unlikely
to
pay,
the
Group
considers
both
qualitative
and
quantitative
indicators,
e.g.
overdue
status,
debt and equity ratios, market circumstances and other data developed internally or obtained from external sources.  
Lifetime
expected
credit
loss
is
recorded,
based
on
the
probability
of
default
over
the
remaining
estimated
life
of
the
financial
instrument.
Effective
interest
rate
is
calculated
on
the
gross carrying amount.
Lifetime
expected
credit
loss
is
recorded.
Effective
interest
rate
is calculated on the book value. 
The
ECL
is
an
unbiased
discounted
probability-weighted
estimate
of
the
cash
shortfalls
expected
to
result
from
defaults
occurring
in
the
next
12
months
or,
in
cases
where
credit
risk
has
significantly
increased,
in
the
expected
lifetime
of
an
exposure.
For
guarantees
and
loan
commitments,
credit
loss
estimates
consider
the
portion
of
the
commitment
that
is
expected
to
be
paid
out
or
expected
to
be
drawn
over
the
relevant time period, contingent on significant financial difficulty.
the asset is more than 90 days past due, or
The
ECL
represents
an
unbiased
estimate
of
expected
credit
losses
on
our
financial
assets
as
at
the
balance
sheet
date.
Judgement
is
required
in
making
assumptions
and
estimations
when
calculating
the
ECL,
including
movements
between
the
three
stages
and
the
application
of
forward
looking
scenarios.
The
underlying
assumptions
and
estimates
may
results
in
changes
to
the
provisions
from
period
to
period that significantly affect our results of operations.
The
Group
defines
default
in
accordance
with
article
178
of
EU
Regulation
No
575/2013
(CRR).
The
Group
considers
a
financial
asset
to
be
in default when:
For
corporate
counterparties,
more
than
90
days
past
due
means
that
the
counterparty
has
been
past
due
on
a
material
exposure
each
day
in
the
last
90
days.
For
individuals,
more
than
90
days
past
due
means
that
the
individual
has
been
past
due
on
a
material
exposure
in
the
same exposure portfolio each day in the last 90 days.
12
month
expected
credit
loss
is
recorded.
The
expected
credit
loss
is
computed
using
a
probability
of
default
occurring
over
the
next
12
months.
For
those
instruments
with
a
remaining
maturity
of
less
than
12
months,
a
probability
of
default
corresponding
to
remaining
term
to
maturity
is
used.
The
effective
interest
rate
is
calculated on the gross carrying amount.
89

===== SIDA 90 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
59.
Financial assets and financial liabilities, continued
Risk
S&P /
class
Rating
Lower PD
 
Upper PD
Fitch
Moody's
0
AAA ...............................................................................
0.000%
0.006%
AAA
Aaa
 
AA+ ...............................................................................
0.006%
0.018%
AA+
Aa1
 
AA .................................................................................
0.018%
0.029%
AA
Aa2
AA- ................................................................................
0.029%
0.045%
AA-
Aa3
A+ ..................................................................................
0.045%
0.070%
A+
A1
A ....................................................................................
0.070%
0.110%
A
A2
A- ...................................................................................
0.110%
0.170%
A-
A3
1
BBB+ .............................................................................
0.170%
0.260%
BBB+
Baa1
BBB ...............................................................................
0.260%
0.410%
BBB
Baa2
BBB- ..............................................................................
0.410%
0.640%
BBB-
Baa3
 
 
2
BB+ ...............................................................................
0.640%
0.990%
BB+
Ba1
BB .................................................................................
0.990%
1.540%
BB
Ba2
BB- ................................................................................
1.540%
2.400%
BB-
Ba3
 
 
3
B+ ..................................................................................
2.400%
3.730%
B+
B1
B ....................................................................................
3.730%
5.800%
B
B2
B- ...................................................................................
5.800%
9.010%
B-
B3
 
 
 
4
CCC+ ............................................................................
9.010%
14.000%
CCC ...............................................................................
14.000%
31.000%
CCC- .............................................................................
31.000%
99.990%
 
 
5
DD .................................................................................
99.99%
100.00%
D
C
Probability of default
Each
exposure
is
allocated
a
credit
risk
rating
at
initial
recognition.
The
calculations
are
based
on
available
information
at
the
time
of
origination.
Exposures
are
continuously
monitored
and
revaluated
using
the
models
described
above
and
this
may
result
in
transitions
between risk ratings.
The Group's rating scale is shown below, including mapping of external ratings. The lower bounds are inclusive.
The
Group
uses
external
ratings
for
counterparties
that
receive
such
ratings
from
recognized
rating
agencies
such
as
Moody's,
Standard
&
Poor's
and
Fitch.
The
Group's
internal
rating
scale
was
originally
calibrated
to
match
historical
default
rates
shown
in
publications
of
the
aforementioned
rating
agencies
and
using
smoothing
techniques.
External
ratings
are
primarily
used
to
assess
expected
losses
for
counterparties
of
marketable
securities,
money
market
and
deposit
accounts
positions
which
fall
under
the
Impairment
requirements
of
IFRS
9.
The
Group's
ECL
is
broken
down
by
investment
grade
and
non-investment
grade
classes
for
such
exposures,
as
per
the
definition
of the corresponding rating agency.
Description
The
Group's
PDs
and
PD
term
structures
are
based
on
both
quantitative
and
qualitative
factors
and
in
some
cases
external
ratings
are
used. PD's are re-assessed on a regular basis with different frequencies depending on the type of counterparty and/or exposure.
Non-investment 
Grade
Non-investment 
Grade
In
addition
to
calculating
PD
and
allocating
a
credit
risk
rating
to
each
exposure,
the
Group
calculates
the
lifetime
probability
of
default
(LPD),
which
is
an
assessment
of
the
probability
that
a
default
event
occurs
over
the
lifetime
of
the
exposure.
The
LPD
incorporates
management's
view
of
possible
future
macroeconomic
developments
and
the
likelihood
of
rating
transitions
over
the
lifetime
of
the
exposure.
For
the
determination
of
LPD,
the
Bank
calculates
PD
term
structures
–
which
effectively
provides
the
probability
of
default
for
any
given
time
period,
one
for
each
rating
grade,
PD
model
and
economic
scenario.
The
annualized
lifetime
probability
of
default
(ALPD)
of
an
exposure
is
the
fixed
12
month
PD
(without
transitions)
that
corresponds
to
the
exposure's
LPD.
The
credit
risk
rating
that
corresponds
to
the ALPD is defined as the lifetime credit risk rating.
The
assessed
12
months
PDs
are
the
basis
for
the
determination
of
the
term
structure
of
PDs
for
exposures.
The
Group
applies
transition
models,
developed
on
the
basis
of
historical
data,
to
predict
the
development
of
risk
grades
for
periods
that
exceed
one
year.
The
Group
has
separated
transition
behavior
due
to
specific
and
general
risk
and
applies
its
macro-economic
forecasts
to
the
latter.
The
analysis
of
credit
rating
transitions
due
to
general
risk
includes
the
identification
and
calibration
of
relationships
between
changes
in
default
rates
and
changes
in
key
macro-economic
factors.
Unemployment
rate
is
the
predominant
predictive
variable.
Among
other
indicators
examined
are
GDP growth, private consumption expenditure, inflation, development of housing prices and benchmark interest rates.
Investment Grade
Default / Impaired
Non-investment 
Grade
Investment Grade
90

===== SIDA 91 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
59.
Financial assets and financial liabilities, continued
Loss given default
Exposure at default
Significant increase in credit risk 
–
–
–
–
–
the exposure has received forbearance measures in the past six months;
Each
credit
facility
is
assigned
an
LGD.
The
LGD
is
an
assessment
of
loss
conditional
on
a
default
occurrence.
The
Group
splits
LGD
into
three
components;
the
probability
of
cure,
the
expected
recovery
from
liquidation
of
collateral,
and
the
recovery
rate
for
the
unsecured
part
of
the
exposure.
The
cure
rate
is
modeled
on
the
Group’s
historical
data
of
assets
returning
to
performing
status
after
being
in
default
without
loss.
The
expected
recovery
is
the
outcome
of
the
Group’s
collateral
allocation
algorithm
which
takes
into
account
the
seniority
of
debt
and
collateral
type.
Haircuts
are
applied
to
different
types
of
collaterals
based
on
expert
judgment,
supported
by
historical
data,
and
take
into
account
costs
and
the
time
value
of
money.
Different
haircuts
are
applied
for
different
macro-economic
scenarios
in
the
ECL
calculations.
In
some
instances,
assets
are
considered
to
be
fully
covered
by
collateral
after
haircut
application
and
therefore
carry
no
ECL.
The recovery rate for the unsecured part of the exposure is based on expert judgment, taking into account historical loss experience.
The
cut-off
period
for
cure
is
taken
to
be
18
months
from
default,
which
means
that
a
return
to
non-default
after
that
period
is
not
considered
a
cure.
Furthermore,
cure
is
defined
on
a
portfolio
level
instead
of
on
a
loan
level
i.e.
the
same
level
as
the
PD
models.
In
this
version,
statistical
cure
rate
models
have
been
created
for
the
largest
portfolios
–
mortgages,
consumer
loans
and
large
corporates
and
retail
SMEs.
As
the
explanatory
variables
in
the
statistical
cure
rate
models
can
be
related
to
variables
in
PD
models,
this
change
prompts
a
consideration
of
PD-cure
correlation.
The
correlation
effects
are
taken
into
account
in
the
Bank’s
ECL
calculations.
Furthermore,
long-run
average
cure
rate
models
using
macro-economic
variables
have
been
created.
The
models
can
be
used
to
assess
cure
rate
under
different
economic conditions to be able to apply different cure rates for different economic scenarios given different economic conditions.
The
EAD
represents
the
expected
exposure
at
the
event
of
a
default.
For
a
given
exposure,
the
Group
derives
the
EAD
from
the
contractual
amortization
schedule
and
takes
into
account
the
likelihood
of
pre-payments,
drawdowns,
rollovers,
extensions
and
use
of
unused
allowance
in
the
period
leading
up
to
default.
These
behavioral
estimates,
which
are
based
on
historical
observations
and
forward-looking
forecasts, apply differently to each type of exposure.
the number of days in arrears exceeds 30 days; or
Apart
from
the
low
credit
risk
exemption,
the
Group
considers
a
significant
increase
in
credit
risk
to
have
occurred
for
a
given
exposure
if
one of the following holds:
The
Group
monitors
the
effectiveness
of
the
criteria
used
to
identify
significant
increases
in
credit
risk
by
regular
reviews
to
confirm
that
the
criteria
is
capable
of
identifying
significant
increases
in
credit
risk
before
an
exposure
is
in
default
and
there
is
no
unwarranted
volatility
in
loss allowance from transfers between 12-month ECL (stage 1) and lifetime ECL (stage 2).
The
Group
has
six
different
exposure
specific
PD
models
for
individuals:
mortgages,
consumer
loans,
auto
loans,
guarantees,
loans
to
individuals
for
work
purposes
and
other
loans.
The
Bank
has
a
different
model
or
rating
logic
for
the
following
corporate
portfolios
–
large
corporates,
retail
SMEs,
holding
companies,
construction
projects,
financial
institutions
(external
ratings),
municipalities,
state
related
entities and cooperatives.
the exposure is on the Group's list for exposures to watch due to significant increase in credit risk.
The
assessment
of
significant
increase
in
credit
risk
requires
significant
judgment.
In
determining
whether
the
risk
of
default
for
an
exposure
has
increased
significantly
since
initial
recognition,
the
Group
considers
relevant,
reasonable
and
supportable
information
on
an
ongoing
basis.
Assumptions
are
drawn
based
on
the
Group's
historical
experience
and
expert
judgement
including
forward-looking
expectations.
If
an
exposure
has
low
credit
risk
at
the
reporting
date,
the
Group
determines
that
the
credit
risk
on
the
exposure
has
not
increased
significantly since initial recognition. Low credit risk means that both the 12-month and annualized lifetime probabilities of default are low.
the exposure's 12-month probability of default has increased significantly from the 12-month probability of default at origination; 
the
exposure's
annualized
lifetime
probability
of
default
has
increased
significantly
from
the
annualized
lifetime
probability
of
default
at
origination.
As
the
Group
does
not
have
the
benefit
of
hindsight,
this
comparison
is
only
used
for
exposures
that
originate
on
or
after
1
January 2018;
 
Assumptions
on
key
macro-economic
indicators
are
on
an
ongoing
basis
estimated
based
on
internal
and
external
information
available
at
each
time.
The
Group
formulates
a
'base
case'
view
of
the
future
direction
of
relevant
economic
variables
as
well
as
a
representative
range
of
other
possible
forecast
scenarios.
The
Group
uses
these
forecasts
to
adjust
its
estimates
of
lifetime
probability
of
default
and
other
factors that affect the lifetime expected credit loss. 
91

===== SIDA 92 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
59.
Financial assets and financial liabilities, continued
Exposures in default
Expected credit loss measurement
–
–
–
Forward looking scenarios 
Write-off of loans
probability of default (PD),
loss given default (LGD); and
Loans
are
written
off,
either
partially
or
in
full,
when
there
is
no
realistic
prospect
of
recovery
i.e.
the
bankruptcy
of
the
borrower
or
an
ineffective
attachment
or
distraint.
Collateralized
loans
are
generally
written
of
when
the
realization
of
collateral
have
been
received.
After
write-off, exposures continue to be subject to collection activities in accordance with Icelandic law.
exposure at default (EAD).
Impairment
losses
are
recognized
in
net
impairment,
see
note
44.
Any
decreases
in
impairment
loss
amounts
are
reversed
through
net
impairment.
The
predominant
macro-economic
variable
used
across
all
portfolios
is
the
unemployment
rate
in
Iceland,
as
measured
by
the
Directorate
of
Labor.
Among
other
variables
considered
are
GDP
growth,
private
consumption
expenditure,
inflation,
development
of
housing
prices
and
benchmark
interest
rates.
The
average
cure
is
also
correlated
with
unemployment
rate,
depending
on
portfolio,
and
collateral
haircuts
are
adjusted
for
different
scenarios.
Exit
and
pre-payment
rates,
which
affects
EAD,
are
dependent
on
refinancing
spreads
and
due
to
the
correlation between interest rates and unemployment rate they are adjusted for different scenarios.
Exposures in default at each reporting date, according to the Group’s definition, are considered to be credit impaired.
The expected credit loss (ECL) calculations are based on three main components:
The
ECL
for
an
exposure
is
the
weighted
average
of
the
expected
credit
loss
for
different
macro-economic
scenarios
provided
by
the
Group's
management.
The
Group
currently
considers
three
scenarios:
'base
case',
'optimistic'
and
'pessimistic'
and
assigns
its
best
estimate
of
the
likelihood
of
occurrence
to
each
one.
The
development
of
macro-economic
variables
and
the
corresponding
weights
are
based
on
expert
judgement
supported
by
historical
data.
The
Group
incorporates
forward-looking
macro-economic
information
into
both
its
assessment
of
whether
the
credit
risk
of
an
instrument
has
increased
significantly
since
its
initial
recognition
(via
the
lifetime
credit
risk
rating
comparison)
and
its
measurement
of
ECL
as
the
PD
term
structures,
LGD
and
EAD
include
macro-economic
adjustments
for
each
of
the scenarios.
Each
component
is
derived
from
internally
generated
models,
apart
from
external
credit
ratings.
The
models
are
developed
with
statistical
methods and/or expert judgement supported by historical data and adjusted for expected macro-economic effects. 
The
Group
measures
ECL
considering
the
risk
of
default
over
the
maximum
contractual
period
(including
any
extension
periods)
over
which
it
is
exposed
to
credit
risk.
The
maximum
contractual
period
extends
to
the
date
at
which
the
Group
has
the
right
to
require
repayment
of
an
advance
or
terminate
a
loan
commitment
or
guarantee.
However,
for
overdrafts
and
credit
card
facilities
that
include
both
a
loan
and
an
undrawn
commitment
component,
the
Group
measures
ECL
over
a
period
longer
than
the
maximum
contractual
period
if
the
Group’s
procedures
for
extensions
do
not
limit
the
Group’s
exposure
to
credit
losses
to
the
contractual
period.
These
facilities
do
not
have
a
fixed
term
or
repayment
structure.
The
Group
can
cancel
them
with
immediate
effect
but
this
contractual
right
is
not
enforced
in
the
normal
day-to-
day
management,
but
only
when
the
Group
becomes
aware
of
an
increase
in
credit
risk
at
the
facility
level.
This
longer
period
is
estimated
taking
into
account
the
credit
risk
management
actions
that
the
Group
expects
to
take
and
that
serve
to
mitigate
ECL.
These
include
a
reduction
in
limits,
cancellation
of
the
facility
and/or
turning
the
outstanding
balance
into
a
loan
with
fixed
repayment
terms.
The
ECL
calculations involve discounting using the exposures' effective interest rates.
The
amount
of
the
loss
impaired
is
the
difference
between
the
assets'
gross
carrying
value
and
the
present
value
of
estimated
future
cash
flow. In some instances, the impairment of exposures is zero due to collateral coverage. 
92

===== SIDA 93 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
59.
Financial assets and financial liabilities, continued
60.
Hedge accounting
61.
Cash and cash equivalents
Modifications
The
original
terms
of
a
financial
asset
may
be
renegotiated
or
otherwise
modified,
resulting
in
changes
to
the
contractual
terms
of
the
financial
asset
that
affect
the
contractual
cash
flow.
The
treatment
of
such
modifications
is
primarily
based
on
the
process
undertaken
to
execute
the
renegotiation
and
the
nature
and
extent
of
changes
made.
Modifications
which
are
performed
for
credit
reasons,
primarily
related
to
troubled
debt
restructurings,
are
generally
treated
as
modifications
of
the
original
financial
asset
unless
modifications
are
significant.
Significant
modifications
are
generally
considered
to
be
an
expiry
of
the
original
cash
flows;
accordingly,
such
renegotiations
are
treated as a derecognition of the original financial asset and recognition of a new financial asset.
The Group has chosen to continue to apply the hedge accounting requirements of IAS 39 as an accounting policy choice as permitted under 
IFRS
9.
The
Group
has
chosen
to
continue
to
apply
the
hedge
accounting
requirements
of
IAS
39
as
an
accounting
policy
choice
as
permitted under IFRS 9. 
On
initial
designation
of
the
hedges,
the
Group
formally
documented
the
relationship
between
the
hedging
instruments
and
hedged
items,
including
the
risk
management
objective
and
strategy
in
undertaking
the
hedge,
together
with
the
method
that
will
be
used
to
assess
the
effectiveness
of
the
hedging
relationships.
The
Group
makes
an
assessment,
both
at
inception
of
the
hedge
relationships
and
on
an
ongoing
basis,
of
whether
the
hedging
instruments
are
expected
to
be
highly
effective
in
offsetting
the
changes
in
the
fair
value
of
the
hedged
items
during
the
period
for
which
the
hedge
is
designated,
and
whether
the
actual
results
of
each
hedge
are
within
the
range
of
80–125%.
If
the
hedging
derivative
expires
or
is
sold,
terminated
or
exercised,
or
the
hedge
no
longer
meets
the
criteria
for
fair
value
hedge
accounting,
or
the
hedge
designation
is
revoked,
then
hedge
accounting
is
discontinued
prospectively.
Any
adjustments,
up
to
the
point
of
discontinuation,
to
a
hedged
item
for
which
the
effective
interest
method
is
used,
is
amortized
to
profit
or
loss
as
part
of
the
recalculated
effective interest rate of the item over its remaining life.
If
a
modification
of
terms
does
not
result
in
derecognition
of
the
financial
asset,
the
carrying
amount
of
the
financial
asset
is
recalculated
as
the
present
value
of
the
renegotiated
or
modified
contractual
cash
flows,
discounted
at
the
original
effective
interest
rate
and
gain
or
loss
is
recognized.
The
financial
asset
continues
to
be
subject
to
the
same
assessments
for
significant
increase
in
credit
risk
relative
to
initial
recognition
and
credit-impairment,
as
described
above.
A
modified
financial
asset
will
migrate
out
of
Stage
3
if
the
conditions
that
led
to
it
being
identified
as
credit-impaired
are
no
longer
present
and
relate
objectively
to
an
event
occurring
after
the
original
credit-impairment
was
recognized.
A
modified
financial
asset
will
migrate
out
of
Stage
2
when
it
no
longer
satisfies
the
relative
thresholds
set
to
identify
significant
increase in credit risk, which are based on changes in its PD, lifetime PD, days past due and other qualitative considerations.
If
a
modification
of
terms
results
in
derecognition
of
the
original
financial
asset
and
recognition
of
the
new
financial
asset,
the
new
financial
asset
will
generally
be
recorded
in
Stage
1,
unless
it
is
determined
to
be
credit-impaired
at
the
time
of
renegotiation.
For
the
purposes
of
assessing for significant increase in credit risk, the date of initial recognition for the new financial asset is the date of modification.
The
Group
applies
fair
value
hedge
accounting
with
respect
to
designated
hedging
relationship
of
certain
fixed-rate
foreign
currency
denominated
notes
issued
by
the
Bank
as
the
hedged
items
and
certain
foreign
currency
denominated
interest
rate
swaps
as
the
hedging
instruments.
The
Group
recognizes
the
changes
in
fair
value
of
the
interest
rate
swaps
together
with
changes
in
the
fair
value
of
bonds
attributable
to
interest
rate
risk
immediately
in
profit
or
loss
in
the
line
item
of
Note
10,
Net
gain
on
fair
value
hedge
of
interest
rate
swap.
Calculated accrued interest on both swaps and bonds are included in the line item of Note 7, Interest expense.
Other
derivatives,
not
designated
in
a
qualifying
hedge
relationship,
are
used
to
manage
its
exposure
to
foreign
currency,
interest
rate,
equity
market
and
credit
risk.
The
financial
instruments
used
include,
but
are
not
limited
to,
interest
rate
swaps,
cross-currency
swaps,
forward contracts, futures, options, credit swaps and equity swaps.
Cash
and
cash
equivalents
in
the
Statement
of
Cash
Flows
consist
of
cash,
demand
deposits
with
the
Central
Bank
and
demand
deposits
with
other
credit
institutions.
Cash
and
cash
equivalents
comprise
balances
with
less
than
three
months'
maturity
from
the
date
of
acquisition. Cash and cash equivalents are carried at amortized cost in the Statement of Financial position.
93

===== SIDA 94 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
62.
Loans
63.
Derivatives
64.
Intangible assets
Goodwill and infrastructure
Customer relationship and related agreements
Software
Amortization of intangible assets
65.
Investment property
When
the
Group
is
the
lessor
in
a
lease
agreement
that
transfers
substantially
all
of
the
risks
and
rewards
incidental
to
ownership
of
the
asset
to
the
lessee,
the
arrangement
is
classified
as
a
capital
lease
and
a
receivable
equal
to
the
net
investment
in
the
lease
is
recognized
and presented within loans.
When
the
Group
purchases
an
asset
and
simultaneously
enters
into
an
agreement
to
resell
the
asset
(or
a
substantially
similar
asset)
at
a
fixed
price
on
a
future
date
reverse
repo
or
stock
borrowing,
the
arrangement
is
accounted
for
as
a
loan,
and
the
underlying
asset
is
not
recognized in the Group's Consolidated Financial Statements.
Goodwill
and
infrastructure
that
arises
on
the
acquisition
of
subsidiaries
is
presented
with
intangible
assets.
Subsequent
to
initial
recognition
goodwill and infrastructure is measured at cost less accumulated impairment losses.
Customer relationship and related agreements are measured at cost less any accumulated impairment losses.
A
derivative
is
a
financial
instrument
or
other
contract,
the
value
of
which
changes
in
response
to
a
change
in
an
underlying
variable,
such
as
share,
commodity
or
bond
prices,
an
index
value
or
an
exchange
or
interest
rate,
which
requires
no
initial
net
investment
or
initial
net
investment
that
is
smaller
than
would
be
required
for
other
types
of
contracts
that
would
be
expected
to
have
a
similar
response
to
changes
in market factors and which is settled at a future date.
Software acquired by the Group is measured at cost less accumulated amortization and any accumulated impairment losses.
Subsequent
expenditure
on
software
is
capitalized
only
when
it
increases
the
future
economic
benefits
embodied
in
the
specific
asset
to
which it relates. All other expenditure is expensed as incurred.
Derivatives
are
recognized
at
fair
value.
Fair
value
changes
are
recognized
in
the
Income
Statement.
Changes
in
fair
values
of
derivatives
are
split
into
interest
income,
foreign
exchange
differences
and
net
financial
gain
or
loss.
Interest
income
is
recognized
on
an
accrual
basis.
Derivatives
with
positive
fair
values
are
recognized
as
Financial
instruments
and
derivatives
with
negative
fair
values
are
recognized
as
Financial liabilities at fair value.
Amortization
of
intangible
assets
is
recognized
in
the
Income
Statement
on
a
straight-line
basis
over
the
estimated
useful
life,
from
the
date
that it is available for use. The estimated useful life of intangible assets for the current and comparative periods is three to ten years.
An investment property is a property which is held either to earn rental income or for capital appreciation or for both.
Investment
property
is
initially
measured
at
cost
and
subsequently
at
fair
value.
Gains
or
losses
arising
from
changes
in
the
fair
values
of
investment properties are included in the Income Statement.
Loans
are
initially
measured
at
fair
value
plus
incremental
direct
transaction
costs,
and
subsequently
measured
at
their
amortized
cost
using
the effective interest method. 
Loans
are
financial
instruments
with
fixed
or
determinable
payments
that
are
not
quoted
in
an
active
market
and
that
the
Group
does
not
intend
to
sell
immediately
or
in
the
near
term.
Loans
include
loans
provided
by
the
Group
to
credit
institutions
and
to
its
customers,
participation in loans from other lenders and purchased loans.
94

===== SIDA 95 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
66.
Impairment of non-financial assets
67.
Deposits
68.
Borrowings
69.
Subordinated liabilities
70.
Assets and disposal groups held for sale
Subordinated
liabilities
are
financial
liabilities
in
the
form
of
subordinated
capital
which,
in
case
of
the
Group's
voluntary
or
compulsory
winding-up,
will
not
be
repaid
until
after
the
claims
of
ordinary
creditors
have
been
met.
In
the
calculation
of
the
capital
ratio,
they
are
included
within
both
Tier
1
and
Tier
2,
based
on
terms
of
each
instrument
.
The
Group
may
only
retire
subordinated
liabilities
with
the
permission of the FSA. 
The
Group
classifies
a
Asset
or
disposal
group
as
held
for
sale
if
its
carrying
amount
will
be
recovered
principally
through
a
sale
transaction
rather
than
through
continuing
use.
For
this
to
be
the
case
the
asset
or
disposal
group
must
be
available
for
immediate
sale
in
its
present
condition subject only to terms that are usual and customary for sales of such asset or disposal group and the sale must be highly probable.
Immediately
before
classification
as
held
for
sale,
the
measurement
of
the
qualifying
assets
and
all
assets
and
liabilities
in
a
disposal
group
is
brought
up-to-date
in
accordance
with
applicable
IFRS.
Then,
on
initial
classification
as
held
for
sale,
Assets
and
disposal
groups
are
recognized
at
the
lower
of
carrying
amount
and
fair
value
less
costs
to
sell.
Impairment
losses
on
initial
classification
as
held
for
sale
are
included
in
the
Income
Statement,
even
when
there
is
a
revaluation.
The
same
applies
to
gains
and
losses
on
subsequent
remeasurement.
Revaluation
through
the
reversal
of
impairment
in
subsequent
periods
is
limited
so
that
the
carrying
amount
of
the
held
for
sale,
Assets
or
disposal
groups
does
not
exceed
the
carrying
amount
that
would
have
been
determined
had
no
impairment
loss
been
recognized
in
prior
years. 
An
impairment
loss
in
respect
of
other
assets,
where
impairment
losses
have
been
recognized
in
prior
periods,
are
assessed
at
each
reporting
date
for
any
indications
that
the
loss
has
decreased
or
no
longer
exists.
An
impairment
loss
is
reversed
if
there
has
been
a
change
in
the
estimates
used
to
determine
the
recoverable
amount.
An
impairment
loss
is
reversed
only
to
the
extent
that
the
asset's
carrying
amount
does
not
exceed
the
carrying
amount
that
would
have
been
determined,
net
of
depreciation
or
amortization,
if
no
impairment
loss
had been recognized.
Deposits
are
initially
measured
at
fair
value
plus
transaction
costs,
and
subsequently
measured
at
their
amortized
cost
using
the
effective
interest method.
Subordinated
liabilities
are
recognized
initially
at
fair
value
less
attributable
transaction
costs.
Subsequent
to
initial
recognition,
subordinated
liabilities
are
stated
at
principal
amount
due
plus
accrued
interest,
which
is
recognized
in
the
Income
Statement
based
on
the
contractual
terms of the borrowing.
Borrowings
are
measured
at
amortized
cost
with
any
difference
between
cost
and
redemption
amount
being
recognized
in
the
Income
Statement
over
the
period
of
the
borrowings
on
an
effective
interest
basis.
Accrued
interest
is
included
in
the
carrying
amount
of
the
borrowings.
The
carrying
amounts
of
the
Group's
non-financial
assets,
other
than
assets
held
for
sale,
investment
property
and
deferred
tax
assets,
are
reviewed
at
each
reporting
date
to
determine,
whether
there
is
any
indication
of
impairment.
If
any
such
indication
exists
then
the
asset's
recoverable amount is estimated. The recoverable amount of intangible assets is assessed annually.
An
impairment
loss
is
recognized
if
the
carrying
amount
of
an
asset
exceeds
its
recoverable
amount.
Impairment
losses
are
recognized
in
profit or loss.
The
recoverable
amount
of
an
asset
is
the
greater
of
its
value
in
use
and
its
fair
value
less
cost
to
sell.
In
assessing
value
in
use,
the
estimated
future
cash
flows
are
discounted
to
their
present
value
using
a
pre-tax
discount
rate
that
reflects
current
market
assessments
of
the time value of money and the risks specific to the asset.
95

===== SIDA 96 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
71.
Other assets and other liabilities
Property and equipment
Right-of-use asset and lease liability
Other assets and other liabilities
Insurance contract liabilities
72.
Equity
Share capital and share premium
Treasury shares
Dividends
Option reserve
Warrants reserve
The
depreciable
amount
of
property
and
equipment
is
determined
after
deducting
its
residual
value.
Depreciation
is
charged
to
the
Income
Statement
on
a
straight-line
basis
over
the
estimated
useful
lives
of
each
part
of
an
item
of
property
and
equipment.
The
estimated
useful
lives are as follows:
Insurance
contract
liabilities
comprise
liabilities
for
remaining
coverage
and
liabilities
from
incurred
claims.
Liabilities
for
remaining
coverage
is
estimated
using
a
simplified
method
which
is
based
on
paid
premiums
minus
premiums
from
insurance
services
recognized
as
income.
A
loss
factor
is
added
in
the
case
of
onerous
contracts.
Liabilities
from
incurred
claims
are
estimated
as
the
best
estimate
of
discounted
cash
flows
plus
a
risk
adjustment
due
to
non-financial
risk
and
other
expected
cost
of
claims.
Liabilities
for
remaining
coverage
are
estimated
in
the
same
way
as
the
best
estimate
for
claims
reserve
pursuant
to
the
Insurance
Activities
Act
No.
100/2016.
These
calculation
methods
are
in accordance with the rules of IFRS 17 Insurance Contracts.
The
Group
assesses
whether
a
contract
is
or
contains
a
lease,
at
inception
of
the
contract.
The
Group
recognises
a
right-of-use
asset
and
a
corresponding
lease
liability
with
respect
to
all
lease
arrangements
in
which
it
is
the
lessee,
except
for
short-term
leases
and
leases
of
low
value
assets.
For
these
leases,
the
Group
recognises
the
lease
payments
as
an
operating
expense
on
a
straight-line
basis
over
the
term
of
the
lease.
The
lease
liability
is
initially
measured
at
the
present
value
of
the
lease
payments
that
are
not
paid
at
the
commencement
date,
discounted
by
using
the
Group's
incremental
borrowing
rate.
The
right-of-use
assets
comprise
the
initial
measurement
of
the
corresponding
lease liability. They are subsequently measured at cost less accumulated depreciation.
Real estates .....................................................................................................................................................................
The
consideration
paid
for
the
purchase
of
own
shares
is
deducted
from
the
shareholders
equity
as
treasury
shares.
No
gain
or
loss
is
recognised in the Income Statement on purchase or sale of treasury stock.
The
option
reserve
represents
the
cumulative
charge
to
the
Income
Statement
for
options
for
employees
of
the
Group
to
purchase
shares
in
Arion
Bank.
Employee
stock
options
are
two-fold.
On
the
one
hand,
there
is
a
stock
option
plan
based
on
article
10
in
the
Icelandic
Act
on
income tax No. 90/2003, and on the other hand, there are stock options linked to the employee incentive scheme.
Par
value
of
issued
share
capital
is
ISK
1
per
share.
The
holders
of
ordinary
shares
are
entitled
to
receive
dividends
as
approved
by
the
AGM and are entitled to one vote per share at shareholders' meetings. Share capital has been fully paid.
The warrants reserve represents the consideration received for outstanding warrants.
The depreciation methods, useful lives and residual values are reassessed annually.
Items
of
property
and
equipment
are
measured
at
cost
less
accumulated
depreciation
and
impairment
losses.
When
parts
of
an
item
of
property and equipment have different useful lives, they are accounted for as separate items of property and equipment.
Other assets and other liabilities are stated at cost less impairment. 
Equipment  .......................................................................................................................................................................
33 years
3-15 years
Subsequent
expenditure
is
capitalized
only
when
it
is
probable
that
the
future
economic
benefits
of
the
expenditure
will
flow
to
the
Group.
Ongoing repairs and maintenance are expensed as incurred.
Dividends on shares are recognized in equity in the period in which they are approved by Arion Bank's shareholders.
96

===== SIDA 97 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
72.
Equity, continued
Reserve for investments in subsidiaries and associates
Reserve for investments in securities
Financial assets at fair value through OCI
Statutory reserve
Foreign currency translation reserve
73.
Earnings per share
74.
Financial guarantees
75.
Fiduciary activities
The
Group
provides
asset
custody,
asset
management,
investment
management
and
advisory
services
to
its
clients.
These
services
require
the
Group
to
make
decisions
on
the
treatment,
acquisition
or
disposal
of
financial
instruments.
Assets
in
the
Group's
custody
are
not
reported in its Statement of Financial Position. 
According
to
the
Icelandic
Companies
Act
No.
2/1995
at
least
10%
of
the
profit
of
the
Group
which
is
not
devoted
to
meeting
losses
from
previous
years
and
is
not
contributed
to
other
legal
reserves
must
be
contributed
to
the
statutory
reserve
until
it
amounts
to
10%
of
the
share
capital.
When
that
limit
has
been
reached
the
contribution
must
be
at
least
5%
of
the
profit
until
the
statutory
reserve
amounts
to
25%
of the share capital of the Bank.
The
foreign
currency
translation
reserve
comprises
all
foreign
exchange
differences
arising
from
the
translation
of
the
Consolidated
Financial Statements of foreign operations.
The
Group
presents
basic
and
diluted
earnings
per
share
(EPS).
Basic
earnings
per
share
is
calculated
by
dividing
the
net
earnings
attributable
to
the
shareholders
of
Arion
Bank
hf.
by
the
weighted
average
number
of
ordinary
shares
outstanding
during
the
year.
Diluted
earnings
per
share
is
calculated
by
adjusting
the
weighted
average
number
of
ordinary
shares
outstanding
during
the
year
to
assume
conversion of all dilutive potential ordinary shares, which comprise share options granted to employees and issued warrants.
According
to
the
Financial
Statements
Act
No.
3/2006
fair
value
changes
of
financial
assets
from
the
initial
reporting,
shall
be
transferred
from
retained
earnings
to
a
fair
value
equity
reserve,
net
of
tax.
The
fair
value
equity
reserve
is
not
subject
to
dividend
payments.
The
fair
value
equity
reserve
shall
be
released
in
accordance
with
fair
value
changes
recognized
when
financial
asset
is
sold
or
redeemed
or
the
assumptions for the fair value change is no longer in force.
In
the
ordinary
course
of
business,
the
Group
gives
financial
guarantees,
consisting
of
letters
of
credit,
guarantees
and
acceptances.
Financial
guarantees
are
initially
recognized
in
the
Consolidated
Financial
Statements
at
fair
value,
being
the
premium
received.
Subsequent
to
initial
recognition,
the
Group's
liability
under
each
guarantee
is
measured
at
the
higher
of
the
amount
initially
recognized
less,
when
appropriate,
cumulative
amortization
recognized
in
the
Income
Statement,
and
the
best
estimate
of
expenditure
required
to
settle
any
financial
obligation
arising
as
a
result
of
the
guarantee.
Any
increase
in
the
liability
relating
to
financial
guarantees
is
recorded
in
the
Income
Statement.
The
premium
received
is
recognized
in
the
Income
Statement
in
Net
fees
and
commission
income
on
a
straight
line
basis
over
the life of the guarantee.
A
reserve
for
unrealized
fair
value
changes,
net
of
tax,
for
assets
held
at
fair
value
through
other
comprehensive
income.
The
fair
value
reserve is released in correlation with realization of gains or losses of financial assets at derecognition. 
According
to
the
Financial
Statements
Act
No.
3/2006
the
difference
between
share
of
profit
of
subsidiary
or
associate
in
excess
of
dividend
payment
or
dividend
payment
pending,
shall
be
transferred
to
a
restricted
shareholding
equity
reserve,
net
of
tax,
which
is
not
subject
to
dividend payments. When shareholding in subsidiary or associate is sold or written off the shareholding equity reserve shall be released and 
the amount transferred to retained earnings.
97

===== SIDA 98 =====

Arion Bank Consolidated Financial Statements 2025
Notes to the Consolidated Financial Statements
76.
Employee benefits
Share-based payment expense
77.
Standards issued but not yet effective
IFRS 18 Presentation and disclosures in financial statements
All
entities
with
employees
within
the
Group
have
defined
contribution
plans.
The
entities
pay
fixed
contributions
to
publicly
or
privately
administered
pension
plans
on
a
mandatory
and
contractual
basis.
The
Group
has
no
further
payment
obligations
once
these
contributions
have
been
paid.
The
contributions
are
recognized
as
an
expense
in
the
Income
Statement
when
they
become
due.
The
Group
does
not
operate any pension fund which confers pension rights.
Equity-settled
share
‐
based
payments
to
employees
are
measured
at
the
fair
value
of
the
equity
instruments
at
grant
date.
The
grant
date
fair
value
of
equity-settled
share
‐
based
payments
granted
to
employees
is
recognized
as
an
salary
expense,
with
a
corresponding
increase
in
equity,
over
the
contratual
period.
The
amount
recognized
as
an
expense
is
adjusted
to
reflect
the
number
of
shares
that
are
expected
to
be exercised at the vesting date.
IFRS
18
Presentation
and
disclosures
in
financial
statements
replaces
IAS
1,
carrying
forward
many
of
the
requirements
in
IAS
1
unchanged
and
complementing
them
with
new
requirements.
IFRS
18
introduces
new
requirements
for
presentation
within
the
statement
of
profit
or
loss,
including
specified
totals
and
subtotals.
Furthermore,
entities
are
required
to
classify
all
income
and
expenses
within
the
statement
of
profit
or
loss
into
one
of
five
categories:
operating,
investing,
financing,
income
taxes
and
discontinued
operations,
whereof
the
first
three
are
new.
The
standard
requires
disclosure
of
newly
defined
management-defined
performance
measures,
subtotals
of
income
and
expenses,
and
it
also
includes
new
requirements
for
aggregation
and
disaggregation
of
financial
information
based
on
the
identified
‘roles’
of
the
primary
financial
statements
(PFS)
and
the
notes.
The
Group
is
currently
working
to
identify
all
impacts
the
amendments
will
have
on
the
primary
Consolidated
Financial
Statements
and
Notes
to
the
Consolidated
Financial
Statements.
The
initial
expected
impacts
on
Group’s
Consolidated
Financial
Statements
are
not
expected
to
be
material.
A
new
disclosure
will
be
added
for
management-defined
performance
measures
as
required
by
the
standard.
In
addition
to
the
adoption
of
IFRS
18,
there
are
consequential
amendments
to
several
other
standards
that
are
not
expected
to
have
material
impacts
on
the
Consolidated
Financial
Statements.
IFRS
18,
and
the
amendments
to
the other standards, are effective for reporting periods beginning on or after 1 January 2027. IFRS 18 will apply retrospectively.
New
standards,
amendments
to
standards
and
interpretations
have
been
issued
but
are
not
yet
effective
for
the
year
ended
31
December
2025,
and
have
not
been
applied
in
preparing
these
Consolidated
Financial
Statements.
Relevant
to
the
Group's
reporting
is
IFRS
18
Presentation and disclosures in financial statements.
98

===== SIDA 99 =====

Arion Bank Consolidated Financial Statements 2025
Amounts are in ISK millions
 
Income Statement
2025
2024
2023
2022*
2021
52,542 
46,302 
44,685 
40,201 
32,063 
17,147 
15,360 
16,389 
16,449 
14,673 
2,111 
2,166 
152 
615 
3,442 
1,075 
2,845 
1,366 
(3,286)
6,220 
5,516 
(222)
1,589 
1,314 
1,827 
78,391 
66,451 
64,181 
55,293 
58,225 
(28,248)
(28,328)
(25,701)
(24,329)
(25,875)
(2,106)
(1,924)
(1,796)
(1,749)
(1,516)
(3,053)
(1,131)
(1,348)
144 
3,169 
44,984 
35,068 
35,336 
29,359 
34,003 
(12,458)
(8,919)
(9,595)
(9,944)
(6,782)
32,526 
26,149 
25,741 
19,415 
27,221 
(19)
(37)
(4)
6,543 
1,394 
32,507 
26,112 
25,737 
25,958 
28,615 
Statement of Financial Position
31.12.2025
31.12.2024
31.12.2023
31.12.2022
31.12.2021
Assets
150,111 
124,094 
114,118 
69,057 
42,136 
22,567 
25,690 
45,501 
30,272 
28,235 
1,329,056 
1,230,058 
1,084,757 
936,237 
822,941 
215,816 
206,417 
193,329 
225,657 
227,251 
7,305 
9,387 
7,862 
6,560 
6,132 
760 
814 
787 
668 
891 
7,533 
7,688 
8,783 
9,463 
9,689 
2 
2 
135 
2 
2 
98 
111 
61 
16,047 
16,811 
22,517 
14,006 
10,276 
19,901 
18,618 
1,755,765 
1,618,267 
1,465,609 
1,313,864 
1,172,706 
Liabilities and Equity
12,003 
6,618 
11,697 
5,000 
13,031 
921,182 
857,443 
755,361 
655,476 
568,424 
3,129 
8,394 
20,997 
5,877 
5,240 
12,983 
11,060 
10,303 
7,102 
4,262 
50,736 
49,950 
39,401 
54,086 
48,897 
494,823 
433,178 
392,563 
356,637 
298,947 
43,518 
44,538 
47,331 
35,088 
36,060 
1,538,374 
1,411,181 
1,277,653 
1,119,266 
974,861 
217,327 
206,582 
187,307 
193,925 
197,672 
64 
504 
649 
673 
173 
217,391 
207,086 
187,956 
194,598 
197,845 
1,755,765 
1,618,267 
1,465,609 
1,313,864 
1,172,706 
Total Liabilities and Equity .........................................................
Operating income ........................................................................
Earnings before income tax .......................................................
Net earnings from continuing operations ..................................
Net earnings ................................................................................
Cash and balances with Central Bank ...........................................
Loans to credit institutions .............................................................
Loans to customers .......................................................................
Intangible assets ...........................................................................
Tax assets ....................................................................................
Investment property ......................................................................
Total Assets .................................................................................
* Comparative figures have been restated in accordance with IFRS 17
Financial instruments ....................................................................
Tax liabilities .................................................................................
Total liabilities .............................................................................
Assets and disposal groups held for sale ......................................
Non-controlling interest .................................................................
Other liabilities ..............................................................................
Borrowings ....................................................................................
Subordinated liabilities ..................................................................
Shareholders' equity ......................................................................
Due to credit institutions and Central Bank ....................................
Deposits ........................................................................................
Financial liabilities at fair value ......................................................
Other assets .................................................................................
Total equity ..................................................................................
Net impairment ..............................................................................
Net financial income ......................................................................
Investments in associates .............................................................
Income tax expense ......................................................................
Net interest income .......................................................................
Bank levy ......................................................................................
Other operating income .................................................................
Net fee and commission income ...................................................
Operating expenses ......................................................................
Insurance service results ..............................................................
5-year overview
Discontinued operations, net of tax ...............................................
99

===== SIDA 100 =====

Appendices
Unaudited

===== SIDA 101 =====



===== SIDA 102 =====

Fundamentals to corporate governance at Arion Bank 
are the Articles of Association which are approved 
by shareholders, and policies and other documents 
adopted by the Board of Directors. These include the 
Board’s Rules of Procedure, and the Rules of Procedure 
of the Board’s Sub-Committees, and policies regarding 
the Bank’s operations and enterprise risk management 
architecture. These policies are revised every year, and 
whenever deemed necessary . Even more important is 
the Bank’s corporate culture, strategy , and operational 
procedures. Good corporate governance and corporate 
culture help to foster open and honest relations between 
the Board of Directors, shareholders, customers, and 
other stakeholders, such as the Bank’s employees and 
the public. Corporate governance also provides the 
foundations for responsible management and decision-
making, with the objective of generating sustainable 
long-term value creation. The Board of Directors places 
great importance on good corporate governance and re-
evaluates its governance practices regularly on the basis 
of recognized guidelines on corporate governance.
A central part of governance for financial institutions 
involves managing risks which will invariably arise in 
operations. Risk management is described in more detail 
later in this statement, in the Bank’s Annual Report.
 Establishing and maintaining effective risk management 
and controls constitutes a key challenge in the Bank’s 
activity and to the Bank’s overall soundness.
This Corporate Governance Statement is based on the 
legislation, regulations and recognized guidelines which 
are in force at the time the Bank’s financial statement is 
adopted by the Board of Directors.
Excellence in corporate governance
Arion Bank has been recognized as a company which has 
achieved excellence in corporate governance, following a 
formal assessment based on the Icelandic Guidelines on 
Corporate Governance issued by the Icelandic Chamber 
of Commerce, SA – Business Iceland and Nasdaq Iceland, 
initially in December 2015, April 2019, August 2022, 
August 2023, August 2024 and again in August 2025. This 
recognition was granted following an in-depth assessment 
by an independent party of corporate governance at the 
Bank, including governance by the Board of Directors, 
sub-committees and management.
Compliance with guidelines on good 
corporate governance
In respect to corporate governance arrangements, Arion 
Bank applies the European Banking Authority (EBA) 
Guidelines on Internal Governance (EBA/GL/2021/05), in 
line with requirements found in Regulation (EU) 1093/2010 
and Act 24/2017 , on European Financial Supervision. The 
Guidelines on Internal Governance are available on the 
website of the Financial Supervisory Authority of the 
Central Bank of Iceland. 
Furthermore, according to the Financial Undertakings 
Act No. 161/2002 Arion Bank is obliged to comply with 
recognized guidelines on corporate governance. The Bank 
complies with the sixth edition of the Icelandic Guidelines 
on Corporate Governance issued by Iceland Chamber of 
Commerce, SA – Business Iceland and Nasdaq Iceland, 
published in February 2021 and in force as of 1 July 2021. 
According to the guidelines a company shall state whether 
it has deviated from the guidelines, if so, which parts and 
also explain why it has done so.
The Bank complies with the guidelines with two variations: 
Article 5.1.2. states that the rules of procedure of sub-
committees of the Board shall be posted on the Bank’s 
website. The rules of the Board Credit Committee have 
not been published on the Bank’s website with respect 
to their nature.
The final sub-paragraph of article 5.4.5 states that the 
role of a remuneration committee shall include taking 
an independent stance on the effect of wages on the 
Company’s risk exposure and risk management, in 
cooperation with the Company’s Audit Committee. In line 
Arion Bank (Arion Bank or the Bank) is an Icelandic public limited company whose 
shares are listed on Nasdaq Iceland and Nasdaq Stockholm. Here the Board submits 
its Corporate Governance Statement for 2025. Corporate governance is focused on 
how responsibilities are allocated among the various bodies of the Bank and how 
systems for decision making are constructed, in accordance with prevailing laws and 
regulations. Arion Bank’s shareholders exercise governance principally by electing 
the Board of Directors, which in turn appoint the CEO and monitor the Bank’s conduct 
of business. The CEO is responsible for the day-to-day operations of the Bank and 
represents the Bank in all matters concerning normal operations. The CEO must in this 
respect comply with the relevant legislation, the Bank’s Articles of Association and 
the policies and instructions laid down by the Board. The CEO is responsible for the 
implementation of the Bank’s policies.

===== SIDA 103 =====

with, inter alia, the EBA Guidelines on Internal Governance 
and article 78(3) of the Act on Financial Undertakings, 
this role falls to the Board’s Remuneration Committee in 
cooperation with the Board’s Risk Committee.
Nomination Committee
The role of the Nomination Committee at Arion Bank is 
to promote good corporate governance and to facilitate 
informed decision-making by shareholders when 
selecting Board members to ensure that Board members 
have wide and versatile qualifications and experience. The 
Committee has an advisory role regarding the election 
of Board members and makes a proposal on their 
remuneration.
The Committee relies on the Bank’s Suitability Policy when 
making nominations. At the Bank’s annual general meeting 
on 12 March 2025, two members of the Nomination 
Committee were appointed, Júlíus Thorfinnsson and 
Audur Bjarnadóttir. According to the Rules of Procedure 
for the Nomination Committee, the third member of the 
Committee shall be the Chairman of the Board of Directors 
or another Board Member appointed by the Board.
Legal framework for the Bank’s operation 
Arion Bank is a financial institution which operates in 
accordance with the Financial Undertakings Act No. 
161/2002.
Acts of law which also apply to the Bank’s operations 
include e.g., the Act on Markets for Financial Instruments 
No. 115/2021, to Act on Undertakings for Collective 
Investment in Transferable Securities (UCITS) No. 116/2021 
and Act on Alternative Investment Fund Managers No. 
45/2020, Act on Payment Services No. 114/2021, Act No. 
5/2023 on Payment Accounts, Act on Measures Against 
Money Laundering and Terrorist Financing No. 140/2018, 
Act on Consumer Mortgages No. 118/2016, Consumer 
Loans Act No. 33/2013, Competition Act No. 44/2005 and 
Public Limited Companies Act No. 2/1995.
Arion Bank is a strongly capitalized bank whose goal is 
to excel by helping those who want to achieve success 
in Iceland and elsewhere in the Arctic through smart 
and reliable financial solutions which enhance financial 
health and create sustainable value as well as aiming to 
be the best at meeting the needs of our target groups – 
a leader which is a driver of success for our customers 
and society as a whole. As noted, the Bank is listed on 
Nasdaq Iceland and Nasdaq Stockholm. The Bank 
has also issued financial instruments which have been 
admitted for trading on regulated securities markets in 
Iceland and Luxembourg. The Bank is, therefore, subject 
to the disclosure requirements of issuers pursuant to the 
Act on Markets for Financial Instruments and the rules of 
the relevant stock exchanges.
The Financial Supervisory Authority of the Central Bank 
of Iceland (FSA) supervises the operations of Arion Bank 
in accordance with the provisions of Act No. 87/1998 
on the Official Supervision of Financial Operations. 
Further information on the FSA and an overview of the 
legal and regulatory framework applicable to the Bank, 
as well as FSA guidelines and guidelines issued by 
European Financial Supervisory institutions, can be seen 
on the FSA’s website, www.cb.is/financial-supervision/. 
Numerous other legislations apply to the operations of 
financial undertakings.
Internal controls, auditing and accounting 
Internal control
The Bank is committed to the highest standards of 
corporate governance and regards internal control as an 
integral part of its operation. An effective internal control 
system is built to mitigate risk to acceptable levels by 
facilitating enlightened decision-making, thus supporting 
the Bank in achieving its objectives and enabling the 
creation and preservation of value.
The objective of the Bank’s system of internal controls 
is to ensure:
 ◆ The Bank’s policies, objectives and business plans  
 are achieved within set risk appetite and threshold.
 ◆ The actions of the Board of Directors, management  
 and employees comply with the Bank’s policies,   
 standards, processes and all relevant laws and   
 regulations.
 ◆ The Bank’s assets and resources, including its data,  
 people and systems are adequately protected.
 ◆ Data and information published either internally or  
 externally is accurate, reliable, and timely .
 ◆ The risks that are inherent in the Bank’s operations  
 are managed.
 ◆ Practical controls and processes have been   
 established that require and encourage the Board,  
 management, and employees to carry out their   
 duties and responsibilities in an efficient and   
 effective manner.
 ◆ The key components of the internal control 
framework are Control Environment, Risk 
Assessments, Control Activities, Information and 
Communication, and Monitoring Activities. These 
components are interrelated with all operations of 
the Bank.

===== SIDA 104 =====

Control Environment includes the governance and 
manage ment function of the Bank, as well as the attitude 
of senior manage ment towards internal control and its 
impor tance. 
The key principles relating to control en vironment include:
 ◆ Integrity and ethical values.
 ◆ The attitude of senior management and tone from the top.
 ◆ Organizational structure.
 ◆ Assignment of authority and responsibility .
 ◆ Employee skills, human resources policy and its   
  implementation.
Risk Assessment is a process of identifying internal and 
external factors that can affect the objectives of the Bank 
and assess their impact and importance. It forms a basis 
for determining how risk should be managed so that risk-
taking is in accordance with risk appetite.
Control Activities are the actions performed at all levels 
within the Bank and are intended to mitigate risks to 
acceptable levels while achieving objectives. Information 
is necessary for the Bank to carry out its internal control 
responsibilities. Communication occurs both internally 
and externally , and provides the Bank with relevant, 
quality information needed to carry out day-to-day 
controls. Monitoring Activities are the ongoing or separate 
evaluations that are used to ascertain whether each of 
the five components of internal controls is present and 
functioning.
Arion Bank looks to the Three Lines Model for organizing 
internal controls. All lines work together to contribute to 
the creation and protection of value. Alignment of activities 
is achieved through communication, cooperation, and 
collaboration. This ensures the reliability , coherence, 
and transparency of information needed for risk-based 
decision making.
The first line  is made up of employees who supervise 
the operations and organization of the Bank on a day-
to-day basis. They are responsible for establishing and 
maintaining effective internal controls and managing 
risk in day-to-day operations. This involves identifying 
and evaluating risk and putting in place appropriate 
countermeasures to reduce risk. The first line is responsible 
for supervising the implementation of internal rules and 
processes in compliance with the law, regulations and 
the Bank’s strategy and it must ensure that all actions 
are in compliance with established procedures and that 
corrective action is taken if any deficiencies are detected.
Board of Directors
Accountability to stakeholders 
for orginizational oversight
Internal audit
Independent assurace
Third line
Independent and objective assurace and 
advice on all matters related to the 
achievement of objectives
Second line
Expertise, support, monitoring and 
challenge on risk-related matters
First line
Provision of products and
services, managing risk
Management
Actions to achive organizational objective
(including risk management)
KEY
Integrity, leadership
and transparency
Accountability,
reporting
Delegation, direction
resources, oversight
Alignment, communication,
coordination, collaboration
The second line is set up to ensure that the first line has 
established adequate internal controls which work as 
intended. The second line supports the first line’s risk 
management with expert advice, monitoring and restraint 
in decision-making. Risk Management and Compliance 
are the main participants in the second line, although other 
units may also be assigned specific monitoring roles.
The third line is Internal Audit, which provides independent 
and objective assurance and advice on the adequacy and 
effectiveness of governance, risk management and controls, 
through systematic and disciplined processes, expertise 
and assessment. It reports its findings to management and 
the Board of Directors to promote and facilitate continuous 
improvement.

===== SIDA 105 =====

Internal audit is accountable to the Board of Directors, as 
independence from management is critical to its objectivity , 
authority , and credibility .
Risk Management
A central feature of the activities of all financial institutions 
is well informed risk-taking according to a predetermined 
strategy . Arion Bank thus takes on risks compatible with 
its defined risk appetite, which is regularly reviewed 
and approved by the Board of Directors. The Bank’s risk 
appetite is translated into exposure and risk limits which are 
monitored by Risk Management. The Board is responsible 
for Arion Bank’s internal capital adequacy assessment 
process, the main objective of which is to ensure awareness 
of the Bank’s risk profile and ensure that it has systems in 
place to assess, quantify and monitor its total risk exposure.
As defined in the Bank’s enterprise risk policy , the Bank is 
exposed to seven significant risk factors and has set up 
risk policies for each one. These are credit risk, market risk, 
liquidity risk, operational risk, conduct and compliance risk, 
sustainability risk and business risk.
The Bank’s Risk Management division is headed by the 
Chief Risk Officer. It is independent and centralized and 
reports directly to the CEO and operates in accordance 
with a special charter from the Board. Risk Management 
comprises four departments whose role is to analyse, 
monitor and regularly report to the management body and 
Board of Directors on the risks faced by the Bank.
Further information on risk management is contained in the 
Bank’s annual report and the Bank’s risk report.
Compliance
Compliance is an independent control function which 
reports directly to the CEO and works in accordance with a 
special charter from the Board.
The main role of Compliance is to ensure that the Bank has 
in place proactive measures to reduce the risk of rules being 
breached in the course of its activities. Compliance is also 
responsible for coordinating the Bank’s measures against 
money laundering and terrorist financing to reduce the 
risk of the Bank’s services being used for illegal purposes. 
Furthermore, the Compliance Officer has the role of the 
Bank’s Data Protection Officer. The Bank has adopted a 
data protection statement which can be seen on the Bank’s 
website.
The duties of Compliance are carried out under a risk-
based compliance plan approved by the Board of Directors, 
including a monitoring and training schedule for employees 
which addresses the laws and rules under which the Bank 
operates. Compliance provides the Board of Directors with 
a quarterly report on its activities.
Further information can be found on the Bank’s website.
Internal Audit
The Internal Auditor is appointed by the Board of Directors 
and reports directly to the Board. The Board sets the 
Internal Auditor a charter which sets out the responsibilities 
associated with the position and the scope of the work. The 
role of the Internal Auditor is to provide independent and 
objective assurance and advice designed to add value and 
improve the Bank’s operations. The scope of the audit is 
the Bank, its subsidiaries and pension funds serviced by 
Arion Bank.
The internal audit department will govern itself and, with 
independent and disciplined methods, confirms the 
adequacy and effectiveness of the first and the second line. 
The internal audit department advises with independent and 
objective assurance on the adequacy and effectiveness of 
Corporate Governance, Risk management, and internal 
controls. This is done with independent audits. The internal 
audit department reports its findings to the management, 
the Board Audit Committee, and the Board of Directors.
Accounting and auditing 
The Bank’s Finance division is responsible for preparing 
the accounts and this is done in accordance with the 
International Financial Reporting Standards (IFRS) and 
Icelandic laws. The Bank publishes its financial statement on 
a quarterly basis and management statements are generally 
submitted to the Board ten times a year. The Board Audit 
Committee examines the annual financial statement and 
interim financial statements, while the external auditors 
review and audit the accounts twice a year. The Board Audit 
Committee gives its opinion on the accounts to the Board of 
Directors, which then approves and endorses the accounts.
Arion’s values and code of ethics
The Bank’s values are designed to provide guidance when 
making decisions and in everything else employees say and 
do. They refer to the Bank’s role, attitude, and conduct. Arion 
Bank’s values are: Find solutions, work together, and say 
what we mean.
The management and employees of Arion Bank are 
conscious of the fact that the Bank’s activities affect 
different stakeholders and society at large. The Bank’s 
code of ethics is designed to serve as a key to responsible 
decision-making at Arion Bank. The code of ethics is 
approved by the Board of Directors.
Sustainability
Arion Bank has a sustainability committee and the 
management of risk in connection with ESG factors has 
been defined as part of the Bank’s risk management system. 
The CEO is the chairman of the committee, whose role is to 
monitor the Bank’s performance in connection with its policy 
and commitment on sustainability and to ensure that ESG 
factors are considered in decisions and plans made by the 
Bank. The sustainable financing committee and the equality 
committee are sub-committees of this committee.
The Bank has adopted a risk policy on sustainability 
which is approved by the Board of Directors and reviewed 
annually . This policy states that the Bank seeks to ensure 
that its operations and services do not have a negative

===== SIDA 106 =====

impact on people or the environment. It also highlights the 
critical importance of understanding the potential impact 
of sustainability risks on the Bank’s operations and overall 
performance. It further states that the Bank supports 
Iceland’s climate action plan whose goal is to meet the 
obligations of the Paris Climate Agreement and to achieve 
the ambitious goal of carbon neutrality in Iceland by 2040. 
Key performance indicators relating to ESG issues are 
part of monthly risk report to the Board and the Bank’s risk 
appetite connected to these issues have been defined.
Further information on sustainability at Arion Bank can be 
found in the Bank’s 2025 Annual and Sustainability Report.
Board of Directors and Sub-committees
The main duty of the Board of Directors of Arion Bank is 
to manage the Bank between shareholders’ meetings 
according to applicable laws, regulations, and articles 
of association. The Board tends to those operations of 
the Bank which are not considered part of the day-to-
day business, i.e. it makes decisions on issues which are 
unusual or of a significant nature. One of the Board’s main 
duties is to supervise the Bank’s activities. The Board’s work, 
duties and role are defined in detail in the rules of procedure 
of the Board of Directors, which have been established on 
the basis of the EBA Guidelines on Internal Governance, 
Article 54 of the Financial Undertakings Act No. 161/2002, 
Article 70 of the Public Limited Companies Act No. 2/1995, 
FSA Guidelines No. 1/2010, and the articles of association of 
the Bank. The rules of procedure of the Board of Directors 
can be found on the Bank’s website.
The Board of Directors appoints a Chief Executive Officer 
who is responsible for the day-to-day operations in 
accordance with a strategy set out by the Board.
The Board of Directors and the Chief Executive Officer shall 
carry out their duties with integrity and ensure that the Bank 
is run in a sound and reasonable manner in the interests 
of the customers, the community , the shareholders and 
the Bank itself, cf. Article 1 (1) of the Financial Undertakings 
Act. The Chief Executive Officer shall ensure that the Board 
receives sufficient support to carry out its duties.
The Board of Directors is generally elected for a term of one 
year at the Bank’s annual general meeting. At Arion Bank’s 
annual general meeting on 12 March 2025, five Directors 
and two Alternates were elected to the Board of Directors.
The elected Board Directors have diverse backgrounds 
and extensive skills, experience, and expertise. When 
electing the Board care is taken to ensure at least 40% 
representation of each gender among directors and 
alternates. Currently the Board consists of two men and 
three women.
Information on the independence of Directors is published 
on the Bank’s website before the annual general meeting 
or a shareholders’ meeting where a Board member is to be 
elected. The minutes of the annual general meeting and 
shareholders’ meetings are also published on the Bank’s 
website.
The Board of Directors meet at least ten times a year. 
In 2025 the Board met on twenty-one occasions. The 
Chairman of the Board is responsible for ensuring that 
the Board performs its role in an efficient and organized 
manner. The Chairman chairs Board meetings and ensures 
that there is enough time allocated to the discussion of 
important issues and that strategy issues are discussed 
thoroughly . The Chairman is not permitted to undertake any 
other work for the Bank unless part of the normal duties of 
the Chairman.
According to the Board’s Rules of Procedure the Board is 
permitted to establish committees to discuss particular 
areas of the Bank’s operations. No later than one month 
following the annual general meeting the Board appoints 
members to each of its sub-committees and assesses 
whether it is necessary to appoint external members 
to certain committees in order to bring in a greater level 
of expertise. One of the committee members in the 
Board Audit Committee, Heimir Thorsteinsson, is not a 
Board member and is independent of the Bank and its 
shareholders. 
The Board sub-committees are as follows:
 ◆    Board Audit Committee (BAC): The BAC’s main role 
is to contribute to the high-quality statutory auditing 
of the Bank and monitor the effectiveness of the 
Bank’s internal quality control, risk management 
systems and internal audit function, with regard to 
the Bank’s financial reporting. The Committee met 
five times in 2025.
 ◆  Board Risk Committee (BRIC): The Committee’s 
main role is, inter alia, to evaluate the Bank’s risk 
policy and risk appetite, monitor all the Bank’s 
defined risks and to have a thorough knowledge of 
the risk assessments and methods used to manage 
risk employed by the Bank. Committee members 
should have the qualifications and experience 
necessary to be able to discharge their duties 
including forming the Bank’s risk policy and risk 
appetite. The Committee met eight times in 2025.
 ◆  Board Credit Committee (BCC): Its main task is to 
attend to credit issues which exceed the credit limits 
of its sub-committees. The Committee met four 
times in 2025.
 ◆  Board Remuneration Committee (BRC): The 
Committee’s main role is to prepare a remuneration 
policy for the Bank on an annual basis. It also 
advises the Board on remuneration to the CEO, 
Managing Directors, the Compliance Officer and the 
Chief Internal Auditor, and on the Bank’s incentive 
scheme and other work-related payments. The 
Bank’s remuneration policy shall be examined and 
approved by a shareholders’ meeting annually . The 
Committee met five times in 2025.

===== SIDA 107 =====

Period
Board
BCC
BRIC
BRC
BTC
Director
1 Jan - 31 Dec
1 Jan - 31 Dec
1 Jan - 31 Dec
1 Jan - 12 March
1 Jan - 31 Dec
12 March - 31 Dec
1 Jan - 12 March
1 Jan - 31 Dec
1 Jan - 31 Dec
12 March - 31 Dec
(21)
20
21
21
7
21
14
-
-
-
-
(5)
5
5
5
2
13
-
-
-
5
-
(8)
8
3
8
-
8
5
-
-
-
-
(4)
4
4
4
-
4
-
-
-
-
-
(5)
5
3
5
2
5
-
-
-
-
-
(4)
4
-
0
0
4
3
-
-
-
-
Paul Horner1
Kristín Pétursdóttir
Liv Fiksdahl2
Steinunn Kr. 
Thórdardóttir
Marianne G.
Ebbesen4
Sigurbjörg Á. 
Jónsdóttir5
Einar Hugi 
Bjarnason
Heimir 
Thorsteinsson7
Sigurbjörg
Ólafsdóttir6
Below is an overview of the attendance of individual Directors and committee members.
 ◆  Board Tech Committee (BTC): The purpose of the 
BTC is to assist the Board of Directors in fulfilling its 
oversight responsibilities with respect to the role of 
technology in executing the business strategy of the 
Bank, including, but not limited to, major technology 
investments, technology strategy , technological 
operation efficiency and technology trends that 
may affect the Bank. The BTC shall furthermore 
have a surveillance role pertaining to the Bank’s 
compliance with rules and regulation applicable to 
Information Technology . The Committee met four 
times in 2025.
Sub-committees regularly inform the Board of their 
activities. Furthermore, the Board has access to all material 
used by the sub-committees and their minutes. 
Below is an overview of the attendance of individual 
Directors and committee members.
BAC
Gunnar Sturluson
1  Paul Horner was elected Chairman of the Board at the Annual General Meeting 12 March 2025.
2 Liv Fiksdahl left the Board of Arion Bank at the Annual General Meeting 12 March 2025.
3 Steinunn Kr. Thórðardóttir attended one meeting in relation to the Banks annual financial statement.
4 Marianne Gjertsen Ebbesen was elected as a Director of the Board of Arion Bank at the Annual General Meeting 12 March 2025.
5 Sigurbjörg Á. Jónsdóttir left as an Alternate Director of the Board of Arion Bank at the Annual General Meeting 12 March 2025.
6 Sigurbjörg Ólafsdóttir was elected as an Alternate Director of the Board of Arion Bank at the Annual General Meeting 12 March 2025.
7 Heimir Thorsteinsson is certified public accountant and appointed as an external member of the BAC.

===== SIDA 108 =====

Annual General Meeting External Auditor
Internal AuditorBoard of DirectorsNomination Committee
Board Credit Committee Board Audit Committee
Board Tech Committee Board Risk Committee
Board Remuneration 
Committee
Chief Executive Officer
Executive Management 
Committee
Asset and Liability 
Committee
Arion Credit Committee
Executive Risk Committee
Compliance
Elected by / Appointed by
Reports to / Informs
Risk Management
Operational Risk Committee
Sustainability Committee
Arion Composition and 
Debt Cancellation Committee
The Board carries out an annual performance appraisal, 
at which it assesses its work, the Board composition with 
respect to experience and skills, working procedures and 
methods, the performance of the CEO, their achievements, 
and the work of the sub-committees with respect to the 
aforementioned. This appraisal was last performed by the 
Board during the period October to December 2025.
The Board of Directors of Arion Bank
 ◆ Paul Horner 
 ◆ Gunnar Sturluson
 ◆ Kristín Pétursdóttir 
 ◆ Marianne Gjertsen Ebbesen
 ◆ Steinunn Kristín Þórðardóttir

===== SIDA 109 =====

Paul graduated with M.A. Honours in music from the 
University of Oxford in 1983 and is an associate of the 
UK Chartered Institute of Bankers. Paul has extensive 
experience of retail, commercial, investment and private 
banking, gained across various international markets. 
Paul held various executive and risk management roles at 
Barclays PLC between 1988 and 2003. In 2003 Paul joined 
The National Westminster Bank (formerly the Royal Bank of 
Scotland Group) Group, where he served as an executive 
and general manager in various senior roles. From 2012 
to 2016, Paul was chief risk officer of Coutts & Co Ltd, the 
International Private Banking arm of National Westminster 
Group. and became CEO of that bank from in 2016-2017 . 
In 2018 Paul became chief risk officer of Ulster Bank in 
Dublin, and from 2018 to 2021 served as a non-executive 
director of Coutts & Co Ltd.
Today Paul serves on the board of AIB (UK) P .L.C., chairs 
its risk committee and is a member of its audit committee. 
He also serves on the Board of LHV (UK) Ltd. and chairs its 
risk committee, as well as sitting as a member of its audit, 
remuneration and nomination committees. In addition, 
he serves on the Board of the National Bank of Kuwait 
International, chairs its Risk Committee and sits on its 
Audit Committee.
Paul was born in 1962. He was first elected as a 
Director at a shareholders’ meeting on 8 August 
2019 and is a non-executive director. He is not a 
shareholder in Arion Bank and is an independent 
candidate. Paul is Chairman of the Board and 
member of the Board Risk Committee, the Board 
Audit Committee, the Board Credit Committee, the 
Board Remuneration Committee and the Board 
Technology Committee.
Paul Horner
Chairman
Gunnar graduated as Cand. Jur from the University of 
Iceland in 1992, gained an LL.M. degree in Law from the 
University in Amsterdam in 1995 and received a license to 
practice before the District Court in Iceland in 1993 and 
before the Supreme Court in 1999.
Gunnar has practiced law at LOGOS legal services since 
1992 and is currently a partner. He served as managing 
partner of LOGOS from 2001-2013. Gunnar has previously 
held various directorships, including the board of directors 
at the Performing of the Arts Center in Iceland, Harpan 
Conference Center, Gamma hf. and the Nordic Arbitration 
Center. In addition, Gunnar served as Chairman of the 
Board of the Icelandic National Broadcasting Service 
(RÚV) 2016-2017 , and as Chairman of the Icelandic Dance 
Company 2013-2016 and was voted by ALTHINGI the 
Icelandic parliament to serve on the National Electoral 
Commission in 2013-2017 .
Gunnar was born in 1967 . He was first elected 
as a Director at a shareholders’ meeting on 8 
August 2019 and is a non- executive director. 
He is not a shareholder of Arion Bank and is an 
independent Director. Gunnar is a Chairman of the 
Board Remuneration Committee, a Chairman of 
the Board Audit Committee and a member of the 
Board Credit Committee.
Gunnar Sturluson

===== SIDA 110 =====

Marianne graduated with a master’s degree from BI 
Norwegian School of Business in 1996 and later completed 
management studies from Turku School of Economics in 
2008 and from The International Institute for Management 
Development (IMD) in 2014.
Since 2019 Marianne has held four different roles in the 
group management at OBOS BBL in Norway and currently 
holds the position of CEO for the group. She has held 
various senior roles within the Norwegian financial market 
such as chief operating officer for group functions at 
Nordea, executive vice president DNB IT and Operations 
at DNB and head of customer service and head of 
business development at If P&C Insurance.
Today Marianne is a member of the boards of AF Gruppen 
ASA, Thrane-Steen Gruppen AS and in several companies 
owned 100% by OBOS BBL. She has previously held 
directorships in the boards of Odevo AB, Gjensidige 
Pensjonsforsikring AS and Sveriges Bostadsrettcentrum 
and chaired the board of directors at OBOS Banken AS, 
OBOS Eiendomsmeglere AS and DNB Meglerservice. 
Marianne was born in 1972. She was elected as a 
Director at Arion Bank’s Annual General Meeting 
on 12 March 2025 and is a non-executive director. 
She is not a shareholder in Arion Bank and is an 
independent Director. Marianne is the Chairman of 
the Board Technology Committee and a member 
of the Board Risk Committee.
 Marianne Gjertsen Ebbesen
Kristín graduated as an economist from the University of 
Iceland in 1991 and with an MBA from Handelshöyskole in 
Norway in 1993.
Kristín was a co-founder of Audur Capital and served as 
chief executive officer of the company from 2007 to 2013 
and as Chairman of the Board of Directors from 2013 to 
2017 (later Virding hf.). Kristín was also a Chairman of the 
Board of Directors at Kvika hf. from 2018 to 2020, CEO 
at Mentor hf. from 2015 to 2017 , Managing Director of 
Treasury at Kaupthing Bank from 1997 to 2005, and Deputy 
CEO at Singer & Friedlander from 2005-2007 . Kristín has 
also served as a board member at Olgerdin, Tal, Yggdrasil, 
Singer & Freidlander, Vidskiptarád, Eyrir Invest, Samtok 
atvinnulífsins and Samtok fjármálafyrirtækja. Kristín has 
also served as a member of investment committees of 
Edda, Freyja, and Audur I initiative funds.
Today Kristín is a self-employed Leadership Consultant 
and Coach and serves as a member of the Board of 
Directors of Grid ehf. and Mideind ehf.
Kristín was born in 1965. She was first elected as 
a Director at Arion bank’s Annual General Meeting 
on 15 March 2023 and is a non-executive director. 
She is not a shareholder in Arion bank and is an 
independent Director. Kristín is Vice Chairman of 
the Board, Chairman of the Board Risk Committee 
and a member of the Board Remuneration 
Committee and the Board Audit Committee.
Kristín Pétursdóttir
Vice Chairman

===== SIDA 111 =====

Steinunn was born in 1972. She was first elected
as a Director at a shareholders’ meeting on
30th November 2017 and is a non-executive 
Director. She is a shareholder in Arion Bank
(her shareholding is 12000 shares) and is an 
independent Director. Steinunn is the chairman of 
the Board Credit Committee and is a member of 
the Board Remuneration Committee, the Board 
Risk Committee and the Board Tech Committee. 
Steinunn is a Board member of Vordur.
Steinunn  holds  a  master’s  degree  in  international
management  from  Thunderbird, Arizona, and  a  BA  in
international  business  and  politics  from  University  of
South Carolina.  Steinunn  has  previously  held  several
directorships   in  Europe  and  was  a  board  member  at
the  Icelandic  State  Financial  Investment  (ISFI) in  2011.
Steinunn  was  previously a   CEO   of   Beringer   Finance
Norway   in   2015-2017   and  interim  CEO  of  Beringer
Finance in Iceland.  She was also  the global head of food
and  seafood.  She  founded  Acton  Capital  AS, a
management consulting and investment  company  in
Norway ,  where  she  has  worked  with investments
and  consulting.  Steinunn  previously  worked  at
Íslandsbanki  (later  Glitnir) as  the  managing  director  and
head of the bank’s UK operation and prior to that she was
an executive director heading the international corporate
credit and syndications.
Today Steinunn works actively with tech companies in
Norway both as an investor and a strategy . The software
companies  she  works  with  are  international  scale-up
companies.  She  is  also  the  chairman  of  the  board  of
Acton Capital AS, and the chairman of the board for the
Norwegian Icelandic Chamber of Commerce. Steinunn
is a member of the nomination committee of Síminn and
serves as a board member at Alda hf a software company
in  Iceland.  Further,  she  is  a  mentor  to  young  talented
women and founded Women Empower Women and is
the  chairman  of  Ólafíusjóður a  charitable  organization
in Norway .
Steinunn Kristín Thórdardóttir
Benedikt joined FBA (later Íslandsbanki) in 1998, held a 
variety of managerial positions at Straumur-Burdarás, was 
managing director of capital markets at FL Group and was 
managing director of the investment banking division of 
MP Bank. Benedikt worked as a senior advisor for Iceland’s 
Ministry of Finance and Economic Affairs and was vice-
chairman of a government task force on the liberalization 
of the capital controls between 2013 and 2016. He served 
on the board of directors of Kaupthing from 2016 to 2018 
and was an advisor to Kaupthing on matters relating to 
Arion Bank. Benedikt was elected to the Board of Directors 
of Arion Bank in September 2018 and served on the Board 
until his appointment as CEO.
Benedikt gained a C.Sc. in mechanical and industrial 
engineering from the University of Iceland in 1998.
Benedikt was born in 197 4. Benedikt was 
appointed CEO on 1 July 2019.
Benedikt Gíslason
Chief Executive Officer

===== SIDA 112 =====

Alternate directors:
Sigurbjörg Ólafsdóttir, Engineer, and Einar Hugi Bjarnason, 
Supreme Court Attorney .
More information on the Board of Directors can be found 
on the Bank’s website.
Communication between the shareholders 
and the Board of Directors
The main venue at which the Board and the Bank report 
information to the shareholders and propose decisions 
to be made is at legally convened shareholders’ 
meetings. The Bank provides an effective and accessible 
arrangement for communications between shareholders 
and the Board of Directors between those meetings. 
Any information sensitive to the market will be released 
through a MAR press release. As part of the investor 
relations program, Arion Bank has also arranged quarterly 
meetings where the CEO, CFO, Chief Economist and 
Investor Relations present the interim financial results. 
Executive Committee
The Bank’s Executive Committee consists of the following 
people and the CEO: 
 ◆      Ida Brá Benediktsdóttir, Deputy CEO and  
           Managing Director of Retail Banking
 ◆    Birna Hlín Káradóttir, COO
 ◆  Hákon Hrafn Gröndal, Managing Director of 
Corporate and Investment Banking
 ◆    Jóhann Möller, Managing Director of Markets
 ◆  Ólafur Hrafn Höskuldsson, Chief Financial Officer
 ◆    Björn Björnsson, Managing Director of Information 
Technology & CTO
 ◆  Úlfar Freyr Stefánsson, Chief Risk Officer
Other Senior Managers:: 
 ◆      Anna Sif Jónsdóttir, Chief Internal Accountant
 ◆    Andrés Fjeldsted, Chief Compliance Officer
More information on the Executive Committee and other 
Senior Managers can be found on the Bank’s website. 
Information on violations of laws and 
regulations and legal cases
Arion Bank has not been denied registration, authorization, 
membership or permission to conduct certain business, 
activity or operations. The Bank has not been subject 
to withdrawal, revocation or dismissal of registration, 
authorization, membership or permission. Information on 
the main legal cases relating to Arion Bank can be found 
in the notes to the annual financial statement.
The Board of Directors annually reviews and approves 
the Corporate Governance Statement. This Corporate 
Governance Statement was examined and approved at 
a meeting of the Board of Directors on 11 February 2026.

===== SIDA 113 =====

EU Taxonomy

===== SIDA 114 =====

1 
 
EU Taxonomy 
Arion Bank publishes information for the third time regarding the EU Taxonomy in an 
annex to the 202 5 Consolidated Financial Statement. Few of t he Bank’s counterparties 
have disclosed information according to the taxonomy, and therefore the Bank’s KPI  for 
the ratio of green assets is 0,00 003% based on turnover. However, the Bank  is still 
challenged with lack of data to be able to meet the stringent technical screen ing criteria 
required for loans to households to be considered environmentally sustainable, and 
therefore it is clear that the GAR will remain low if such data continues to be inaccessible.  
Eligible and environmentally sustainable activities  
An activity is considered to be eligible if it is defined in delegated EU regulations, established in 
the basis of the Taxonomy Regulation, on the technical screening criteria which the activity needs 
to fulfil in order to be considered environmentally sus tainable according to the taxonomy. If the 
taxonomy applies to the activity, it is considered eligible. Eligibility does not, however, determine 
whether a particular activity is sustainable, but just states that there are technical screening 
criteria for the activity which enable it to be analyzed in accordance with the taxonomy. 
The Taxonomy Regulation covers six environmental objectives: 
• Climate change mitigation 
• Climate change adaptation 
• The sustainable use and protection of water and marine resources 
• The transition to a circular economy 
• Pollution prevention and control  
• Protection and restoration of biodiversity and ecosystems 
In order for an economic activity to be considered environmentally sustainable it must be aligned 
with one of the six environmental objectives of the regulation but at the same time must do no 
significant harm to other objectives. This is to prevent an economic activity from being considered 
environmentally sustainable if it then does such harm to the environment that it outweighs the 
activity’s contribution to the environmental objective. The activity also needed to be carried out in 
accordance with minimum safeguards  which, among other things, address human rights, meet 
the DNSH criteria (do no significant harm) and meet technical screening criteria. 
Assets under the scope of KPIs 
The Green Asset Ratio (GAR) is a key performance indicator for credit institutions. The indicator 
shows the ratio of a financial institution’s assets which finance an economic activity aligned to the 
taxonomy, i.e. assets considered environmentally sustainable, as a ratio of total covered assets 
under Delegated Regulation (EU)  2023/2486 supplementing Regulation (EU) 2020/852 which 
was implemented into Icelandic law by act no. 25/2023 on sustainability disclosure in the financial 
service sector and a classification system for sustainable investments. Financial institutions need 
data from their counterparties in order to publish their own key performance indicators on both 
eligible and environmentally sustainable activities. Icelandic companies published information in 
accordance with the taxonomy for the first time in 2024 (for the financial year 2023), unlike other 
companies in the EU which have been doing it in their annual financial statements since the 2021 
financial year. Arion’s calculation for 2025 is based on counterparty data for 2024.

===== SIDA 115 =====

2 
 
 
In the Taxonomy Regulation loans to households are divided into loans with a mortgage in 
residential housing, loans to renovate housing and car loans. These loan categories cover 
approximately 45% of the total covered assets as defined in the regulation.  Loans to households 
therefore represent the majority of assets considered eligible under the Taxonomy Regulation 
today. Loans need to meet stringent technical screening criteria to be considered environmentally 
sustainable. In order to assess whether the c riteria have been met, certain data is required, i.e. 
information on the energy efficiency of housing and the external rolling noise and the rolling 
resistance coefficient of tires, but in reality the lack of data, prevents this from being possible in 
Iceland. It is therefore not possible to determine whether loans to households are considered 
environmentally sustainable. 
Non-financial corporations subject to NFRD (Non-Financial Reporting Directive) disclosure 
obligations1, hereafter NFRD companies, are required to implement the EU taxonomy and 
disclose information with respect to the taxonomy in their annual statements. Loans to such 
corporations are eligible if they finance activities which are defined by the taxonomy but are 
considered environmentally sustainable if they finance activities which are aligned with the 
taxonomy. About 300 companies in Iceland fall within the scope, and information about their 
eligible and environmentally sustainable activities was collected. Only a small portion of these 
companies, which have identified eligible or environmentally sustainable activities, have taken 
loans with the Bank, and thus the corresponding KPIs cover only a limited portion of the overall 
amount lent to NFRD companies. This loan category therefore only accounts for about 3% of 
the total coverage of eligible assets (based on turnover). An analysis indicated that the 
information disclosed by these companies is still in the development stages, and that they 
encounter similar data challenges as the Bank in accessing the necessary information to fulfill 
the technical screening criteria required by the Taxonomy. 
While the GAR has its merits it falls short in giving insights into the state of sustainable financial 
services in Iceland. The indicator is mostly affected by the distribution of the loan portfolio, with 
loans to household as the largest group of assets included in the denominator. In the light of the 
above, no emphasis has been placed on increased the share of environmentally sustainable 
loans in the Bank’s loan book, as this could prove difficult for the Bank to implement due to a 
lack of data for household loans, and limited number of corporates that disclose information on 
their environmentally sustainable activities. However, the Bank has published a Sustainable 
Financing Framework which applies to the Bank’s financing, deposits and loans which are 
classed as environmentally and/or socially sustainable.  The framework received a second-party 
opinion from ISS corporate, which evaluated the quality of the framework in terms of its 
contribution to the UN Sustainable Development Goals and the eligibility of projects according to 
the technical screening criteria of EU Taxonomy. The Bank has set a goal to increase the share 
of loans aligned with the framework on a quarterly basis, and additional aims for sustainable 
loans to represent 20% of the Bank’s total lending by 2030.  
The Bank publishes for the first time the status of green assets in flow this year, as last year it 
was not feasible since compressed templates were published in 2023. However, flow is only 
 
1 Often referred to as NFRD companies, i.e. major companies, parent companies of major groups and 
public-interest entities.

===== SIDA 116 =====

3 
 
provided for the first two environmental objectives, i.e. climate change mitigation and 
adaptation, as the latter four objectives are included in the templates for the first time this year. 
Off-balance sheet exposures 
Concerning financial guarantees, the same methodology shall be used for loans and advances to 
corporates, i.e. information shall be based on counterparty disclosures. Similarly, as for loans to 
corporates, disclosure was lacking and therefore only a small proportion of companies had 
assessed environmentally sustainable activities. 
Icelandic companies which come under the scope of the Taxonomy Regulation, regarding assets 
under management, published for the first second figures on the proportion of environmentally 
sustainable turnover and capital expenditure in 202 5 in the annual financial statement for 202 4. 
The number of domestic companies that have disclosed figures on eligible or environmentally 
sustainable turnover and capital expenditure is still very low . Since the implementation of the 
Taxonomy Regulation commenced earlier for companies in the EU, more foreign companies have 
reported their mitigation and adaptation to climate change. Therefore, there was a higher 
proportion of foreign assets for which eligibility and environmental sustainability could be 
assessed based on turnover and capital expenditure 
Many companies do not disclose how their revenues or capital expenditure fall under the 
regulation, i.e.  under which environmental objective they cover . Data on eligible and 
environmentally sustainable assets was obtained from Bloomberg. Government bonds are not 
covered by the regulation so there is no disclosure requirement for them.

===== SIDA 117 =====

Template 
number Name 
0 Summary of KPIs
1 Assets for the calculation of GAR
2 GAR sector information
3 GAR KPI stock
4 GAR KPI flow
5 KPI off-balance sheet exposures
Annex VI - Template for the KPIs of credit institutions

===== SIDA 118 =====

0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation
Total environmentally 
sustainable assets, 
based on the turnover 
KPI
Total environmentally 
sustainable assets, 
based on the capex 
KPI
KPI based on 
turnover %
KPI 
based on 
capex %
% coverage (over total 
assets)*
% of assets excluded 
from the numerator of 
the GAR (Article 7(2) and 
(3) and Section 1.1.2. of 
Annex V)
% of assets excluded 
from the denominator of 
the GAR (Article 7(1) and 
Section 1.2.4 of Annex V)
Main KPI Green asset ratio (GAR) stock 0.4 282 0.00003 0.02 81.6 30.5 18.4
Total environmentally 
sustainable assets, based 
on the turnover KPI
Total environmentally 
sustainable assets, 
based on the capex KPI
KPI based on 
turnover %
KPI 
based on 
capex %
% coverage (over total 
assets)
% of assets excluded from 
the numerator of the GAR 
(Article 7(2) and (3) and 
Section 1.1.2. of Annex V)
% of assets excluded from 
the denominator of the GAR 
(Article 7(1) and Section 
1.2.4 of Annex V)
Additional KPIs GAR (flow) 0.4 43.6 -0.003 -0.3 76.8 53.1 23.2
Trading book
Financial guarantees 0 0 0 0
Assets under management 23,390 36,728 1.5 2.4
Fees and commissions income
Note:
* % of assets covered by the KPI over banks' total assets.
KPIs for Fees and commissions and Trading book will be disclosed starting 2028.

===== SIDA 119 =====

1.Assets for the calculation of GAR based on turnover
a b c d e f g h i j k l m n o p q r s t u v w x z aa ab ac ad ae af ag ah ai aj ak al am an ao ap aq ar as at au av aw ax ay az ba bb bc bd be bf bg bh bi bj bk
Of which Use of 
Proceeds
Of which 
transitional Of which enabling Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
transitional
Of which 
enabling
Of which Use 
of Proceeds
Of which 
transitional
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
transitional
Of which 
enabling
GAR - Covered assets in both numerator and denominator
1 Loans and advances, debt securities and equity instruments 
not HfT eligible for GAR calculation 888,229 609,517 0.4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 609,517 0.4 0 0 0 855,023 610,232 4 0 0 0 0 0 0 0 610,232 4 0 0 0
2 Financial undertakings 80,590 364 0.4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 364 0 0 0 0 72,250 0 0 0 0 0 0 0 0 0 0 0 0 0 0
3 Credit institutions 1,435 364 0.4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 364 0 0 0 0 977 0 0 0 0 0 0 0 0 0 0 0 0 0 0
4 Loans and advances 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
5 Debt securities, 
including UoP 1,434 364 0.4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 364 0.4 0 0 0 975 0 0 0 0 0 0 0 0 0 0 0 0 0 0
6 Equity instruments 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0
7 Other financial corporations 79,154 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 71,274 0 0 0 0 0 0 0 0 0 0 0 0 0 0
8 of which investment 
firms 3,321 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 66 0 0 0 0 0 0 0 0 0 0 0 0 0 0
9 Loans and 
advances 3,321 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 66 0 0 0 0 0 0 0 0 0 0 0 0 0 0
10 Debt 
securities, 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
11 Equity 
instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12 of which  management 
companies 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
13 Loans and 
advances 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
14 Debt 
securities, 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
15 Equity 
instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
16 of which insurance 
undertakings 16,337 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 16,666 0 0 0 0 0 0 0 0 0 0 0 0 0 0
17 Loans and 
advances 75 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12 0 0 0 0 0 0 0 0 0 0 0 0 0 0
18 Debt 
securities, 1,355 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,306 0 0 0 0 0 0 0 0 0 0 0 0 0 0
19 Equity 
instruments 14,908 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 15,348 0 0 0 0 0 0 0 0 0
20 Non-financial undertakings 160,101 19,359 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 19,359 0 0 0 0 137,592 23,407 4 0 0 0 0 0 0 0 23,407 4 0 0 0
21 Loans and advances 158,936 19,021 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 19,021 0 0 0 0 137,072 23,407 4 0 0 0 0 0 0 0 23,407 4 0 0 0
22 Debt securities, 
including UoP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
23 Equity instruments 1,165 338 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 338 0 0 0 520 0 0 0 0 0 0 0 0 0
24 Households 640,394 589,793 0 0 0 0 0 0 0 0 0 0 0 0 589,793 0 0 0 0 639,404 586,825 0 0 0 0 0 0 0 0 586,825 0 0 0 0
25
of which loans 
collateralised by 
residential immovable 
578,566 578,566 0 0 0 0 0 0 0 0 0 0 0 0 578566 0 0 0 0 578,567 578,567 0 0 0 0 0 0 0 0 578,567 0 0 0 0
26 of which building 
renovation loans 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
27 of which motor vehicle 
loans 11,227 11,227 0 0 0 0 11,227 0 0 0 0 8,257 8,257 0 0 0 0 8,257 0 0 0 0
28 Local governments financing 7,144 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5,776 0 0 0 0 0 0 0 0 0 0 0 0 0 0
29 Housing financing 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
30 Other local government 
financing 7,144 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5,776 0 0 0 0 0 0 0 0 0 0 0 0 0 0
31 Collateral obtained by taking 
possession: residential and commercial 25 25 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 25 0 0 0 0 79 79 0 0 0 0 0 0 0 0 79 0 0 0 0
32 Assets excluded from the numerator for GAR calculation (covered 
in the denominator) 529,350 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 455,162 0 0 0 0 0 0 0 0 0 0 0 0 0 0
33 Financial and Non-financial undertakings 468,033
34
SMEs and NFCs (other than 
SMEs) not subject to NFRD 
disclosure obligations
432,143
35 Loans and advances 428,926
36
of which loans 
collateralised 
by 
187,861
37 of which 
building 0
38 Debt securities 0
39 Equity instruments 3,217
40
Non-EU country counterparties 
not subject to NFRD disclosure 
obligations
35,890
41 Loans and advances 35,874
42 Debt securities 0
43 Equity instruments 15
44 Derivatives 3,210
45 On demand interbank loans 22,040
46 Cash and cash-related assets 2,022
47 Other categories of assets (e.g. 
Goodwill, commodities etc.) 34,045
48 Total GAR assets 1,417,644 609,542 0.4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 609,542 0.4 0 0 0 1,310,185 610,311 4 0 0 0 0 0 0 0 610,311 4 0 0 0
  49 Assets not covered for GAR calculation 318,988
50 Central governments and Supranational 
issuers 136,868
51 Central banks exposure 148,089
52 Trading book 34,031
53 Total assets 1,736,633 609,542 0.4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 609,542 0.4 0 0 0 1,596,723 610,311 4 0 0 0 0 0 0 0 610,311 4 0 0 0
54 Financial guarantees 11,247 214 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 214 0 0 0 0 7,881 146 0 0 0 0 0 0 0 0 146 0 0 0 0
55 Assets under management 1,516,400 109,641 20,984 0 179 3,259 4,017 2,383 0 471 0 0 0 0 247 23 0 11 666 0 0 0 0 0 0 0 114,571 23,390 0 179 3,741 1,366,980 196,813 19,512 0 0 0 633 0 0 0 197,446 19,512 0 0 0
56 Of which debt securities 856,170 79,617 20,808 0 169 2,577 2,383 2,383 0 471 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 82,000 23,191 0 169 3,048 758,962 134,322 17,085 0 0 0 0 0 0 0 134,322 17,085 0 0 0
57 Of which equity instruments 660,229 30,024 176 0 10 211 1,634 0 0 0 0 0 0 0 247 23 0 11 666 0 0 0 0 0 0 0 32,572 199 0 10 221 608,018 62,491 2,427 0 0 0 633 0 0 0 63,124 2,427 0 0 0
Climate Change Adaptation (CCA) Water and marine resources (WTR) Circular economy (CE) Pollution (PPC) Biodiversity and Ecosystems (BIO) Pollution (PPC) Biodiversity and Ecosystems (BIO) TOTAL (CCM + CCA + WTR + CE + PPC + BIO)
Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible)
TOTAL (CCM + CCA + WTR + CE + PPC + BIO)
Total gross 
carrying 
amount 
Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) Water and marine resources (WTR) Circular economy (CE)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned)
Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which environmentally sustainable (Taxonomy-aligned)
Off-balance sheet exposures - Undertakings subject to NFRD disclosure obligations
Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned)
Million ISK
Disclosure reference date 31.12.2025 Disclosure reference date 31.12.2024
Total gross 
carrying amount 
Climate Change Mitigation (CCM)

===== SIDA 120 =====

1.Assets for the calculation of GAR based on capex
a b c d e f g h i j k l m n o p q r s t u v w x z aa ab ac ad ae af ag ah ai aj ak al bg bh bi bj bk
Of which Use 
of Proceeds
Of which 
transitional
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
enabling
Of which Use 
of Proceeds
Of which 
transitional
Of which 
enabling
Of which Use 
of Proceeds
Of which 
transitional
Of which 
enabling
Of which Use 
of Proceeds
Of which 
transitional
Of which 
enabling
GAR - Covered assets in both numerator and denominator
1 Loans and advances, debt securities and equity instruments not 
HfT eligible for GAR calculation 888,229 623,029 282 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 623,631 282 0 0 0 855,023 628,064 652 0 0 0 855,023 628,064 0 0 0
2 Financial undertakings 80,590 342 0.9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 342 1 0 0 0 72,250 0 0 0 0 0 72,250 0 0 0 0
3 Credit institutions 1,435 342 0.9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 342 1 0 0 0 977 0 0 0 0 0 977 0 0 0 0
4 Loans and advances 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
5 Debt securities, including UoP 1,434 342 0.9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 342 0.9 0 0 0 975 0 0 0 0 0 975 0 0 0 0
6 Equity instruments 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 1 0 0 0
7 Other financial corporations 79,154 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 71,274 0 0 0 0 0 71,274 0 0 0 0
8 of which investment firms 3,321 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 66 0 0 0 0 0 66 0 0 0 0
9 Loans and advances 3,321 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 66 0 0 0 0 0 66 0 0 0 0
10 Debt securities, including UoP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
11 Equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
12 of which  management companies 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
13 Loans and advances 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
14 Debt securities, including UoP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
15 Equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
16 of which insurance undertakings 16,337 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 16,666 0 0 0 0 0 16,666 0 0 0 0
17 Loans and advances 75 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12 0 0 0 0 0 12 0 0 0 0
18 Debt securities, including UoP 1,355 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,306 0 0 0 0 0 1,306 0 0 0 0
19 Equity instruments 14,908 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 15,348 0 0 0 0 15,348 0 0 0
20 Non-financial undertakings 160,101 33,496 281 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 33,496 281 0 0 0 137,592 41,239 652 0 0 0 137,592 41,239 0 0 0
21 Loans and advances 158,936 32,331 281 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 32,331 281 0 0 0 137,072 41,239 652 0 0 0 137,072 41,239 0 0 0
22 Debt securities, including UoP 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
23 Equity instruments 1,165 1,165 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,165 0 0 0 520 0 0 0 0 0 520 0 0 0 0
24 Households 640,394 589,793 0 0 0 0 0 0 0 0 0 0 0 0 589,793 0 0 0 0 639,404 586,825 0 0 0 639,404 586,825 0 0
25 of which loans collateralised by 
residential immovable property 578,566 578,566 0 0 0 0 0 0 0 0 0 0 0 0 578,566 0 0 0 0 578,567 578,567 0 0 0 0 578,567 578,567 0 0 0
26 of which building renovation loans 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
27 of which motor vehicle loans 11,227 11,227 0 0 0 0 11,227 0 0 0 0 8,257 8,257 0 0 0 0 8,257 8,257 0 0 0
28 Local governments financing 7,144 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5,776 0 0 0 0 0 5,776 0 0 0 0
29 Housing financing 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
30 Other local government financing 7,144 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5,776 0 0 0 0 0 5,776 0 0 0 0
31 Collateral obtained by taking possession: 
residential and commercial immovable 25 25 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 25 0 0 0 0 79 79 0 0 0 0 79 79 0 0 0
32 Assets excluded from the numerator for GAR calculation 
(covered in the denominator) 529,350 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 455,162 0 0 0 0 0 455,162 0 0 0 0
33 Financial and Non-financial undertakings 468,033
34 SMEs and NFCs (other than SMEs) not 
subject to NFRD disclosure obligations 432,143
35 Loans and advances 428,926
36
of which loans collateralised 
by commercial immovable 
property
187,861
37 of which building renovation 
loans 0
38 Debt securities 0
39 Equity instruments 3,217
40 Non-EU country counterparties not subject 
to NFRD disclosure obligations 35,890
41 Loans and advances 35,874
42 Debt securities 0
43 Equity instruments 15
44 Derivatives 3,210
45 On demand interbank loans 22,040
46 Cash and cash-related assets 2,022
47 Other categories of assets (e.g. Goodwill, 
commodities etc.) 34,045
48 Total GAR assets 1,417,644 623,656 282 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 623,656 282 0 0 0 1,310,185 628,143 652 0 0 0 628,064 652 0 0 0
  49 Assets not covered for GAR calculation 318,988
50 Central governments and Supranational 136,868
51 Central banks exposure 148,089
52 Trading book 34,031
53 Total assets 1,736,633 623,656 282 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 623,656 282 0 0 0 1,596,723 628,143 652 0 0 0 628,064 652 0 0 0
54 Financial guarantees 11,247 334 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 334 0 0 0 0 7,881 146 0 0 0 0 146 0 0 0 0
55 Assets under management 1,516,400 119,113 21,264 0 311 2,921 17,268 15,462 0 2,290 0 0 0 0 97 2 0 0 301 0 0 0 0 0 0 0 136,780 36,728 0 311 5,211 1,366,980 152,973 16,419 0 0 0 152,340 16,419 0 0 0
56 Of which debt securities 856,170 84,486 21,009 0 169 2,762 15,606 15,462 0 2,290 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 100,092 36,472 0 169 5,052 758,962 106,821 13,445 0 0 0 106,821 13,445 0 0 0
57 Of which equity instruments 660,229 34,628 254 0 141 159 1,662 0 0 0 0 0 0 0 97 2 0 0 301 0 0 0 0 0 0 0 36,689 256 0 141 159 608,018 46,152 2,974 0 0 0 45,519 2,974 0 0 0
TOTAL (CCM + CCA + WTR + CE + PPC + BIO)
Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)
Of which towards taxonomy relevant sectors 
(Taxonomy-eligible)  
TOTAL (CCM + CCA + WTR + CE + PPC + BIO)
Total [gross] 
carrying 
amount 
Climate Change Mitigation (CCM)
Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable 
(Taxonomy-aligned)
Of which environmentally sustainable (Taxonomy-
aligned)
Of which towards taxonomy relevant sectors (Taxonomy-eligible)
Of which environmentally sustainable (Taxonomy-aligned)
Million ISK
Disclosure reference date 31.12.2025 Disclosure reference date 31.12.2024
Total [gross] 
carrying 
amount 
Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) Water and marine resources (WTR) Circular economy (CE) Pollution (PPC) Biodiversity and Ecosystems (BIO)
Of which environmentally sustainable (Taxonomy-aligned)
Off-balance sheet exposures - Undertakings subject to NFRD disclosure obligations

===== SIDA 121 =====

2. GAR sector information
a b c d e f g h i j k l m n o p q r s t u v w x y z aa ab
Mn ISK
Of which 
environmentally 
sustainable (CCM)
Mn ISK
Of which 
environmentally 
sustainable 
(CCM)
Mn ISK
Of which 
environmentally 
sustainable 
(CCA)
Mn ISK
Of which 
environmentally 
sustainable 
(CCA)
Mn ISK
Of which 
environmentally 
sustainable 
(WTR)
Mn ISK
Of which 
environmentally 
sustainable 
(WTR)
Mn ISK
Of which 
environmentally 
sustainable (CE)
Mn ISK
Of which 
environmentally 
sustainable (CE)
Mn ISK
Of which 
environmentally 
sustainable (PPC)
Mn ISK
Of which 
environmentally 
sustainable (PPC)
Mn EUR
Of which 
environmentally 
sustainable (BIO)
Mn EUR
Of which 
environmentally 
sustainable (BIO)
Mn ISK
Of which 
environmentally 
sustainable 
(CCM + CCA + 
WTR + CE + 
PPC + BIO)
Mn ISK
Of which 
environmentally 
sustainable 
(CCM + CCA + 
WTR + CE + 
PPC + BIO)
1
2
3
4
…
Water and marine resources (WTR)
Non-Financial corporates (Subject 
to NFRD)
SMEs and other NFC not subject 
to NFRD
Gross carrying amount Gross carrying amount Gross carrying amount
TOTAL (CCM + CCA + WTR + CE + PPC + BIO)
Non-Financial corporates (Subject 
to NFRD)
SMEs and other NFC not subject 
to NFRD
Non-Financial corporates 
(Subject to NFRD)
SMEs and other NFC not subject 
to NFRD
Climate Change Mitigation (CCM)
Gross carrying amount Gross carrying amount Gross carrying amount Gross carrying amount
Climate Change Adaptation (CCA) Biodiversity and Ecosystems (BIO)
Non-Financial corporates (Subject 
to NFRD)
SMEs and other NFC not subject 
to NFRD
Gross carrying amount
Note:
Since only a small proportion of companies have disclosed information on environmentally sustainable activities and a small 
proportion of them have taken loans with he Bank, it is not considered adviseable to disclose a breakdown by sector at the 
NACE 4 digit level classification. It is the Bank's view that such a breakdown is inappropriate at this stage. The Bank will 
review this disclosure if the number of entitites that have disclosed their environmentally sustainable activities increases.
Non-Financial corporates (Subject 
to NFRD)
SMEs and other NFC not subject 
to NFRD
Breakdown by sector - NACE 4 digits level 
(code and label)
Gross carrying amountGross carrying amount
Pollution (PPC)
Non-Financial corporates (Subject 
to NFRD)
SMEs and other NFC not subject 
to NFRD
Gross carrying amount Gross carrying amount
Circular economy (CE)
Non-Financial corporates (Subject 
to NFRD)
SMEs and other NFC not subject 
to NFRD
Gross carrying amount Gross carrying amount

===== SIDA 122 =====