Arion Banki hf · OMXICE:ARION
Arion Banki hf — Arion Bank — Q2 2019 Earnings Presentation
36 slides from Arion Banki hf's earnings presentation, Aug 8, 2019
Slide 1: Second quarter results 2019
Second quarter results 2019 Investor presentation 8 August 2019
Slide 2: Highlights during the quarter
Q2 2019 Highlights during the quarter Core earnings continued to improve The temporarily weaker macro is having a minor effect on loan growth and impairments Continued evolution of digital offering. Insurance products and personal financial management tools now integrated in the Arion app Valitor sa
Slide 3: Macroeconomic environment
Macroeconomic environment
Slide 4: Outlook for negative growth in 2019 with a quick rebound
Outlook for negative growth in 2019 with a quick rebound After a strong 4.6% GDP growth in 2018, economic activity looks set to slow down • Falling exports are expected to bring an end to one of the GDP growth GDP per capita in 2018 longest growth periods the 6.6% - USD thousands Icelandic economy h
Slide 5: The economy is cooling down
The economy is cooling down Unemployment is on the rise, inflation has picked up and household consumption is wavering • The removal of capital controls The ISK against major trade The labor market on off-shore ISK in March, the currencies - seasonally adjusted trend bankruptcy of WOW air in late 10
Slide 6: Recent indications of a softer landing than anticipated
Recent indications of a softer landing than anticipated The consumption pattern of tourists has changed since WOW air’s bankruptcy • Since the bankruptcy of WOW air, spending per tourist has Foreign payment card turnover per tourist Net international investment increased significantly, both in - YoY
Slide 7: Core earnings continue to improve
Q2 2019 Core earnings continue to improve Growing NII compared with both Q2 2018 and Q1 2019 – NIM stable and in line with expectations Temporarily slowing economy reduces loan book growth as does the Bank’s focus on NIM and profitability of loans Commission and financial income stable and continued
Slide 8: Digital services are changing customer behavior
Digital services are changing customer behavior The Bank’s digital journey has produced outstanding results • The growth in active Arion Active online bank users1 Active Arion App users1 Bank app users was 12% in 000s 000s the first 6 months +5% (3)% 0% +1% +12% +6% • New digital branches +4% +26% +
Slide 9: New digital product offerings launched in 2019
New digital product Vörður Insurance Launched in July 2019 offerings launched in Customers can get a quote for car and home insurance and complete the purchase within a few seconds in the Arion app. 2019 The insurance offering is personalized to each customer based on data & analytics. Open App Laun
Slide 10: Sustainable and responsible banking
Sustainable and responsible banking Arion Bank recognized as a company which has achieved excellence in corporate governance UN Principles Carbon offsetting 5,000 trees planted • UNEP FI is a partnership between United • Agreement signed with Kolviður on offsetting Nations Environment and more than
Slide 11: Headline Figures
Q2 2019 Headline Figures Net earnings CET 1 Cost-to-income ratio Share of stage 3 loans, gross* ISK 2.1 bn. 21.4% 54.2% 2.4% Q2 2018: 31.12.2018: Q2 2018: 31.12.2018: ISK 3.1 bn. 21.2% 55.4% 2.6% Return on equity Leverage ratio Number of employees Mortgages/Total loans 4.3% 13.3% 880 42.0% Q2 2018:
Slide 12: Income statement
Income statement
Slide 13: Income statement Q2 2019
Income statement Q2 2019 Positive trends in core operations but improvements still needed • Strong growth in net interest Q2 2019 Q2 2018 Diff% Q1 2019 Diff% income despite a decreasing loan book Net interest income 7,808 7,314 7% 7,434 5% • Core operating income Net commission income 2,478 2,712 (9
Slide 14: Income statement H1 2019
Income statement H1 2019 Operating income and expenses trending positively • Strong growth in net interest H1 2019 H1 2018 Diff Diff% income in line with strategy Net interest income 15,242 14,141 1,101 8% • Net insurance income developing in line with Net commission income 4,696 4,917 (221) (4%) ex
Slide 15: Net interest income
Net interest income Continued progress on the lending and funding side • Net interest income increased by Net interest income Effective inflation 7% from Q2 2018 due to loan growth (6% Y0Y), • The Bank’s strategy of 7.3 8.0 7.4 7.8 4.2% 4.4% increased focus on returns 7.2 rather than loan growth is
Slide 16: Net commission and net insurance income
Net commission and net insurance income Net commission income is relatively stable but net insurance income is up 9% from Q2 2018 Net commission income Net insurance income 1.0 2.7 2.7 2.7 0.8 0.3 2.5 0.8 0.3 0.4 2.2 0.3 0.7 0.3 0.3 0.3 0.2 0.3 109.6% 0.3 1.1 1.3 88.4% 90.0% 89.0% 1.2 1.0 1.0 79.4%
Slide 17: Net financial income
Net financial income Market conditions were favorable in Q2 • Profit from sale of Stodir was ISK 0.3 billion and the largest Net financial income Bond holdings single contributor during the 94.6 quarter 81.0 71.5 − The Bank regarded this as an 64.2 30.7 22.9 important transaction as Stodir is 49.7 2
Slide 18: Total operating expenses
Total operating expenses Cost-to-income ratio trending down • FTE’s decreased by 5.4% on a group level and by 6.4% in the parent company from Q2 2018 Cost-to-income ratio (%)* • General wage inflation of 5.6% from Q2 2018 continues to put pressure on salary expenses. The Bank nevertheless managed to
Slide 19: Balance sheet
Balance sheet L eg ps eee RRR Arion Bank wah % oe ka
Slide 20: Balance sheet - Assets
Balance sheet - Assets Larger balance sheet – slight contraction in loans to customers • The balance sheet has grown by 5.9% compared with year-end 30.06.2019 31.03.2019 31.12.2018 2018 ISK 1,233 billion ISK 1,222 billion ISK 1,164 billion • Loans to customers decreased by 1.5% from year-end 2018 an
Slide 21: Loans to customers
Loans to customers Returns prioritized over loan growth • Good balance between individual and corporate loans Loans to customers Loans to customers by sector (%) − Loans to individuals remain stable 834 829 822 Individuals − Loans to corporates decrease by 58 58 12 Real Estate & Construction 3.5% fr
Slide 22: Balance sheet – Liabilities and equity
Balance sheet – Liabilities and equity Very strong capital position – Leverage ratio of 13% substantially stronger than Scandinavian peers • Strong equity position and a very high leverage ratio despite 30.06.2019 31.03.2019 31.12.2018 capital release ISK 1,233 billion ISK 1,222 billion ISK 1,164 bi
Slide 23: Deposits
Deposits Continued focus on deposits both from individuals and corporates • Deposits represent 41% of the Bank’s funding Deposits and due to credit institutions and Maturity of deposits (%) Central Bank • Deposits from individuals have grown significantly in the last few years 514 5 On demand 500 7
Slide 24: Borrowings
Borrowings Well balanced maturity schedule • Strong credit rating but outlook recently changed from stable to Borrowings Maturities of borrowings negative across Icelandic banks 92.1 • The Bank issued several EMTN 445 84.4 private placements in H1, totalling 437 418 13 68.2 ISK 14.4 billion. One iss
Slide 25: Own funds
Own funds Increased focus on capital allocation and return on capital • Capital ratio increased by 50 bps from Q1 mainly due to new Tier Capital ratio (%) Leverage ratio (%) 2 issuance, amounting to ISK 2.5 billion in Q2 − Additional ISK 4.9 billion of Tier 26.7 17.8 2 was issued in July 15.4 14.2 0
Slide 26: Capital adequacy
Capital adequacy Own funds and capital requirements • The Bank’s total capital adequacy ratio is 22.8% as at 30 June Own funds and capital requirements (%) 2019. The ratio increased by 0.5% in the second quarter, primarily due to the issuance of Tier 2 eligible subordinated liabilities 22.8 1.4 21.6
Slide 27: Going forward
Q2 2019 Going forward Continued focus on Net interest margin and reduction of capital employed − The Bank will prepay approx. ISK 60 billion covered bonds (Arion CB2) in October 2019 − The owner of a large majority of the bond is the Housing Financing Fund (HFF) − Parallel to the prepayment, the Ban
Slide 28: A rapidly changing banking environment requires some adjustments in strategy
Q2 2019 A rapidly changing banking environment requires some adjustments in strategy A comprehensive review of the business strategy has been initiated Selected areas of focus in the strategy review Adapt to a rapidly changing banking environment – assess resource allocations and priorities across t
Slide 29: Arion Bank is committed to its medium term targets
Arion Bank is committed to its medium term targets Return on Equity Loan Growth Exceed 10% Prudent lending in line with economic growth CET 1 Ratio Cost to Income Ratio (Subject to regulatory requirements) Decrease to circa 50% Decrease to circa 17% Dividend Policy / Share buy-back Pay-out ratio of
Slide 30: KFI's and other information
KFI’s and other information
Slide 31: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 28.1 56.0 56.9 56.3 48.9 3.0 3.1 2.9 2.8 2.8 32.4 10.5 6.6 3.7 3.2 2015 2016 2017 2018 H1 2019 2015 2016 2017 2018 H1 2019 2015 2016 2017 2018 H1 2019 CPI Imbalance – ISK bn. FX Imbalance – ISK bn
Slide 32: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 55.4 54.2 13.0 30.1 3.1 2.8 5.9 2.8 4.3 Q2-17 Q2-18 Q2-19 Q2-17 Q2-18 Q2-19 Q2-17 Q2-18 Q2-19 Loans-to-deposits ratio (%) Tier 1 ratio (%) Liquidity coverage ratio (LCR) (%) without loans finan
Slide 33: Key figures
Key figures Operations H1 2019 H1 2018 H1 2017 H1 2016 H1 2015 Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 Net interest income 15,242 14,141 14,824 14,626 13,175 7,808 7,434 7,969 7,209 7,314 Net commission income 4,696 4,917 4,608 6,747 7,434 2,478 2,218 2,746 2,687 2,712 Operating income 23,928 23,315
Slide 34: Balance sheet
Balance sheet Assets 30.06.2019 31.03.2019 2018 2017 2016 2015 Cash & balances with CB 108 94 83 140 88 48 Loans to credit institutions 69 85 56 87 80 87 Loans to customers 822 829 834 765 712 680 Financial assets 144 128 115 109 117 133 Investment property 7 7 7 7 5 8 Investments in associates 1 1
Slide 35: Disclaimer
Disclaimer • This document has been prepared for information purposes only and should not be relied upon, or form the basis of any action or decision, by any person. Nothing in this document is, nor shall be relied on as, a promise or representation as to the future. In supplying this document, Ario
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