Interview with Marinó Örn Tryggvason, CEO of Kvika, Iceland

Interview with Marinó Örn Tryggvason, CEO of Kvika, Iceland



Prisma Reports (PR): We should begin our interview by discussing the changes that have been provoked by COVID-19, which is still a huge threat that continues raging in certain parts of the world. Could you tell us about Iceland’s resilience when dealing with issues of this magnitude? To what extent have you refocused your priorities to tackle new challenges, but also take advantage of the opportunities that have emerged as a result?

Marinó Örn Tryggvason (MT): I consider uncertainty to be the biggest challenge we face in relation to the COVID-19 pandemic, as we see numerous cases of ‘up is down and black is white’ in these times. Kvika is a small bank and has therefore mainly focused on the micro-economic environment, however, with the uncertainty surrounding COVID-19, we have shifted our focus increasingly on analysing the macro-economic sustainability of Iceland. We maintain a focus on the bigger picture, in order to scrutinise the bank’s strategy and adjust accordingly to the changing environment. The way I see it, when the pandemic hit there are three main phases. The first response is similar to emergency responses, like in case of accidents, where you try everything possible to limit the damage. For banks, this includes close collaboration with customers as we seek to pull through these difficult and turbulent times, which are hopefully temporary for the vast majority of our clientele. The second step is an attempt to reduce levels of uncertainty, as in general, given that uncertainty leads to postponed decision making, resulting in reduced economic activity. This prompts both lost opportunities and general negative consequences. The uncertainty in itself persists, meaning that it is important to try and limit the phenomenon and gain a clear picture. The third step is to try and analyse the impact of COVID-19 on businesses, as their financial position is heavily influenced by the pandemic as well as the relevant sector they operate in. We want to find fundamentally strong companies and work with them towards their economic growth, as it is vital to push economic activity through the support of, primarily, strong companies. The objective is to minimise the consequences of the virus in the economy.


(PR): What are your views on the evolution of the banking sector and the hard lessons learned after the 2008 crisis? Are they still applicable today?

(MT): This situation is different now, as every problem is different than the previous one. If we focus primarily on the banking sector, previously it was the root of the problem while in this case it is part of the solution. In 2007, the equity ratio of the banks, practically demonstrating financial soundness, was less than 10 percent. Now, every bank in Iceland has an equity ratio higher than 25 percent, which is very strong in terms of the Icelandic standards, but also in terms of European or an international context. In addition, the net foreign position of the economy is positive, while being negative in 2007. Because of this situation, the banking sector is strong and can be part of the solution in combatting the pandemic. We have the financial means to rebuild the economy once uncertainty reduces and promote economic growth.


(PR): Focusing more on your bank, could you walk us through KVIKA’s journey over the last decade? How has it evolved into the specialized bank that it is today?

(MT): Today, Kvika’s asset management has over USD 4 billion in assets compared to our balance sheet of less than USD 1 billion, demonstrating where our focus is. In other words, the asset management operation of the bank is larger than retail banking. This is the result of a strategic review made by the bank’s board around six years ago, where the decision was made to focus on revenue generation through fees rather than net interest margin. In terms of financial outlook, the asset management operations are the fastest growing segment within Kvika. When I joined four years ago the bank had merged with smaller asset management companies, already committing on the route. Over the last six years, assets under management have more than quadrupled and Kvika is now the second largest asset manager in Iceland. To further support this strategy, of profitable asset management operations, we have a small operation in the UK as well.


(PR): Under your leadership, KVIKA has managed to weather the storm and yield positive results. For the first 6 months of 2020, KVIKA boasted 3 percent of year-on-year growth in income, with pre-tax profits exceeding the forecast for that period. Could you share with us your experience, leading the bank during these turbulent times? What key elements have contributed to the bank’s growth?

(MT): If you compare Kvika to the other domestic larger banks, the three biggest in particular, I consider the main factor being different income segments. The big three have around 20 percent of their income from fees, compared to Kvika’s of approximately 70 percent. For Kvika, loans to customers consist of around only 1/4th of our total assets, i.e. lending operations are relatively small. As a result, we have a different business model than the big three banks in Iceland, focusing more on operations that do not directly require the bank’s balance sheet to generate revenue. Nonetheless, the uncertainty following the pandemic regarding the value of many assets was a real issue for us. In terms of growth, a bank, at a fundamental level, operates just like any other business. However, for banks, the main operational elements are equity and liquidity. These elements and like-wise constraints in conjunction with strategic planning, affect the way a bank grows. By focusing on asset management, we have a considerable proportion of our operations requiring less, or being less constrained, by equity and liquidity. The key elements in asset management business are simply creativity and customers. This is an entirely different business model.


(PR): What are your ambitions in terms of scaling up KVIKA’s international business, both in London and other financial centres?

(MT): Size is not a goal in itself; profitability is. We want to build a profitable bank and company. If opportunities abroad arise, we will look into it. Kvika’s main business is in Iceland, however, our heritage in the UK derives from one of the asset management companies we acquired some years ago, which had small operations in London. Later on, we acquired another company that similarly had London operations and subsequently we merged these two. More recently, only this year an opportunity arose in assisting a team in the UK and we ended up managing two relatively large, within an Icelandic context, funds in the UK. As of today, we have a little over 20 employees in London. Again, within the national context, this is a small number, but those smalls steps are all aligned with a clear direction.


(PR): The issue of transparency of banks is always in the spotlight. As an institution that has consistently been ranked among the leaders in Iceland in terms of corporate governance, what are your views on transparency? How does KVIKA’s responsible banking values embrace this?

(MT): If you think in the long-term, transparency is a crucial topic. The Icelandic government and the authorities are focusing in that area, increasingly over the last two or three years. We have been working closely with Icelandic start-up companies to further support corporate governance. One is a small compliance start-up that we signed up with as a first customer. It has been an interesting journey this far; we hope that it will be successful. On the transparency part and the cyber-threats that are in-play, we are in cooperation with a company that aims to identify this type of threats as rapidly as possible, if they arise.


(PR): One of the outcomes of the COVID-19 situation was the introduction of more flexible corporate structures and the need for businesses to go online. KVIKA was ahead of the game in online banking and a front-runner over the last decade. How has the bank’s digital strategy been impacted by COVID-19? Are there any new projects that you have in the pipeline in terms of digitalization?

(MT): We are at a great place when it comes to digitalization, but people should meet a few more changes going onwards. For example, I used to go to London to visit our office or attend meetings, once every 6 weeks. I think that, once the pandemic is over, I will be going once every 8 to 10 weeks. Compared to before the pandemic the people that we are working with, and in general, have gotten more used to online meetings. I think that we will see a change there. We may not stop travelling, but some of the meetings that we used to attend in person will be held online in the future. Similarly, in terms of adopting new technology and behaviour, it is always a challenge to implement a new IT tool. For example, a few years back we decided to adopt a new system, which was a very difficult task, as you have to get all employees on the same path of using a new CRM system to work on. The most difficult part of getting people to use this system was to shift their behaviour. People want familiarity and to do work in a way they are used to. However, the pandemic has changed people’s behaviour by force. I think that the pandemic has acted as an accelerator in that way, leading people into becoming more capable and familiar with using newer iterations of systems at work. Hopefully, this will spark a transformation that will positively affect the global economic climate. On development and in terms of new products, one of our priorities is FinTech. There are many companies globally that have managed to succeed through this route. We could say that the reason, or a key element, why smaller banks and insurance companies have succeeded is financial infrastructure. They are offering customer-tailored solutions using their existing infrastructure. This can be a very profitable, or at least interesting, for smaller banks or insurance companies, in taking the plunge towards FinTech. We launched our first FinTech offering about eighteen months ago and aim to continue on this path with new offerings and solutions. For us, the negative COVID-19 impact in the FinTech equation has primarily been related to the belated launch of the products. Nonetheless, we are hopeful of being able to launch something in the following months.



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