Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q2 2020 Earnings Presentation
33 slides from Arion Banki Hf's earnings presentation, Jul 29, 2020
Slide 1: Second quarter results 2020
Second quarter results 2020 Investor presentation 29 July 2020
Slide 2: Highlights of the quarter
Highlights of the quarter Arion Bank delivered strong results in Q2 with ROE at 10.5%, core revenues up 1.8% and operating expenses down 3% year-on-year GDP is expected to contract and unemployment has increased despite strong economic stimulus and support from both the Central Bank and the Governme
Slide 3: Response to Covid-19 in Iceland has been a success
Response to Covid-19 in Iceland has been a success Number of active infections and number of recovered Tests per 1000 population (June 30) • On June 16th Iceland welcomed the first international travelers again to Iceland Luxembourg 285 – Travelers from EU and Schengen can 2,000 now travel to Icelan
Slide 4: Regulatory and Government response to Covid-19
Regulatory and Government response to Covid-19 The Government and the Central Bank of Iceland have introduced numerous measures to deal with the expected impact of the pandemic Increased liquidity available for banks from the Central Bank Covered bonds now eligible as collateral in transactions
Slide 5: Digital services are changing customer behavior
Digital services are changing customer behavior The Bank was able to fully operate and service its customers with all branches closed and 85% of staff working from home • Fewer branches with key focus on professional Active online bank users1 Active Arion App users1 +4% +22% services instead of simp
Slide 6: Macroeconomic environment
Macroeconomic environment
Slide 7: Iceland and Covid-19 – Expectation for a V-shaped recovery
Iceland and Covid-19 – Expectation for a V-shaped recovery The spread of Covid-19 and subsequent travel and assembly bans have had a negative effect on the Icelandic economy GDP growth Estimated GDP per capita in 2020 (2011 international • The coronavirus crisis will heavily impact the 6.6% dollar,
Slide 8: Tale of two worlds
Tale of two worlds While unemployment continues to climb wages are on the rise. Nominal wage increases coupled with relatively low inflation have pushed real wages higher in the past couple of months The ISK against major trade currencies Inflation and inflation target • With the largest export sect
Slide 9: Fiscal and monetary responses soften the economic blow
Fiscal and monetary responses soften the economic blow The government and the Governor of the CBI have underlined that all necessary measures will be taken • Unlike many neighboring countries, the Key interest rates (seven-day term deposit rate) CBI’s FX reserves (bn. EUR) Icelandic authorities, esp
Slide 10: Financials
Financials
Slide 11: Operational highlights of the second quarter 2020
Operational highlights of the second quarter 2020 • Arion Bank’s strategy results in core operations trending positively ‒ NIM improves 10 bps YoY ‒ NII to Credit risk improves ‒ Core revenues up 1.8% ‒ OPEX is down 3% YoY • Results are enhanced by very strong net financial income • The balance shee
Slide 12: Income statement Q2 2020
Income statement Q2 2020 Earnings improve substantially Q2 2020 Q2 2019 Diff% Q1 2020 Diff% • Core income, NII, NCI and Net insurance Net interest income 7,857 7,808 1% 7,253 8% income, increases 1.8% YoY Net commission income 2,688 2,478 8% 3,076 (13%) – Net interest income improves despite a Net i
Slide 13: Income statement H1 2020
Income statement H1 2020 H1 2020 H1 2019 Diff Diff% • Earnings from continued operations decrease Net interest income 15,110 15,242 (132) (1%) by 27% due to negative developments in NFI Net commission income 5,764 4,696 1,068 23% and impairments YoY Net insurance income 1,262 1,076 186 17% • Core in
Slide 14: Net interest income
Net interest income 10 bps improvement in NIM in a challenging environment Net interest income Credit risk • Net interest income / average credit risk improved markedly 7.8 7.7 7.9 – Net interest income increased by 7.4 7.3 669 0.6% from Q2 2019 whilst interest 649 bearing assets decreased by 1.4% 3
Slide 15: Net fee and commission and net insurance income
Net fee and commission and net insurance income Positive trends in both fee and insurance based operations Net fee and commission income Net insurance income 1.1 3.1 0.8 0.8 2.7 0.7 2.6 2.6 0.4 2.5 0.3 0.3 0.3 0.4 0.3 0.3 0.3 0.5 0.4 0.4 1.0 0.5 0.7 1.0 94.4% 103.5% 0.4 89.0% 94.5% 80.0% 0.5 0.4 0.4
Slide 16: Net financial income
Net financial income Good performance on bonds and equities in Q2 Bond holdings Net financial income • Net financial income in Q2 was positively 2.7 affected by: 140.6 – Equity holdings measured at fair 131.0 115.4 value as markets were positive 1.0 0.9 following a difficult first quarter 94.6 74.0
Slide 17: Total operating expenses
Total operating expenses Cost-to-income ratio during H1 was 54.7% and cost reduction will remain a core issue Cost-to-income ratio (%) Total operating expenses • Number of FTEs reduced by 14.9% at the parent company from Q2 2019 and 5% from the end of last year 69.2 5.9 • Salaries and related expens
Slide 18: Balance sheet – Assets
Balance sheet – Assets The balance sheet is extraordinarily strong which is prudent at this time of economic uncertainty but not efficient in the short term • The Balance sheet increased by 9.3% 30.06.2020 31.12.2019 30.06.2019 from 31.12.2019, the increase mainly ISK 1,182 billion ISK 1,081 billion
Slide 19: Loans to customers
Loans to customers The loan book is stable from the previous quarter but components vary slightly Loans to customers Loans to customers by sector (%) • The loan book continues to be well balanced between individuals and corporates • Loans to individuals increased by 4.0% Individuals during the quart
Slide 20: Loans to customers – asset quality
Loans to customers – asset quality Very well collateralized loan portfolio supports asset quality Loans to customers by sector (ISK billion) • Approximately 90% of loans to customers are secured by collateral, of which 78% are secured by real estate 333 • Mortgages to individuals are about 43% of th
Slide 21: Loans to customers by IFRS 9 stages
Loans to customers by IFRS 9 stages Significant transfers between stage 1 and stage 2 from year end as Covid-19 affects IFRS 9 models Loans to customers total Individuals Corporates Thereof travel exposure 2 31 2 5 11 19 17 ISK 774 ISK 369 ISK 405 ISK 57 31.12.2019 billion billion billion billion 79
Slide 22: Balance sheet – Liabilities and equity
Balance sheet – Liabilities and equity Deposits are increasing in the funding mix in line with strategy • Strong equity position and a very high 30.06.2020 31.12.2019 30.06.2019 leverage ratio ISK 1,182 billion ISK 1,082 billion ISK 1,234 billion • The Bank is a frequent issuer of covered bonds in t
Slide 23: Deposits
Deposits Corporate deposits increased source of funding Deposits and due to credit institutions and Central Bank Maturity of deposits (%) • Deposits represent 57% of the Bank’s total liabilities • Special emphasis on corporate deposits On demand − 27% growth from YE 2018 and 17% 6 3 growth from YE 2
Slide 24: Borrowings
Borrowings Limited need to access international wholesale funding markets in 2020 Borrowings by type Maturities of borrowings • A strong liquidity position gives the Bank room to maneuver and there has been continued emphasis on the reduction of funding cost both through prepayments, buy-backs or ot
Slide 25: Own funds
Own funds Capital ratio at 28.1% is exceptionally strong as is the leverage ratio of 14.9% Capital ratio (%) Leverage ratio (%) • The CET1 ratio is further enhanced to 22.9% from Q1 through earnings, management of REA and IFRS 9 related 14.5 14.9 14.2 14.1 regulatory changes 13.3 • REA is stable des
Slide 26: Capital adequacy
Capital adequacy Exceptionally strong capital position Own funds and capital requirements (%) • Own funds increased by ISK 4.9 billion in Q2 2020 ‒ ISK 1.5 billion added back to the CET1 capital through the IFRS9 transitional arrangement which was ratified into Icelandic law on 4 May 2020 • Target C
Slide 27: Arion Bank Group
Arion Bank Group Diversified business model and strong market position • A progressive universal bank, focusing on digital products and solutions, with the vast majority of its operations in the domestic market • Number of FTE’s at 30 June 2020: 655 • Total assets: ISK 1,182 bn. • Assets under Manag
Slide 28: Going forward
Going forward Macro economic developments, in Iceland and to a greater extent internationally, will dominate in the coming quarters Arion Bank will support its customers as much as possible and has the financial strength to be an active participant in the rebuilding of the economy Continued focus wi
Slide 29: KFI's and other information
KFI’s and other information
Slide 30: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 10.5 56.0 56.9 56.0 54.7 48.9 3.1 2.9 2.8 2.8 2.9 6.6 3.7 2.9 0.6 2016 2017 2018 2019 H1 2020 2016 2017 2018 2019 H1 2020 2016 2017 2018 2019 H1 2020 CPI imbalance (ISK billion) Operating income /
Slide 31: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 10.5 55.4 54.2 5.9 45.5 4.3 2.8 2.8 2.9 Q2-18 Q2-19 Q2-20 Q2-18 Q2-19 Q2-20 Q2-18 Q2-19 Q2-20 Loans-to-deposits ratio (%) Capital ratio (%) Operating income / REA (%) (without loans financed by
Slide 32: Key figures
Key figures Operations H1 2020 H1 2019 H1 2018 H1 2017 H1 2016 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Net interest income 15,110 15,242 14,141 14,824 14,626 7,857 7,253 7,693 7,382 7,808 Net commission income 5,764 4,696 4,917 4,608 6,747 2,688 3,076 2,615 2,639 2,478 Operating income 23,039 23,928
Slide 33: 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