Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q2 2024 Earnings Presentation
33 slides from Arion Banki Hf's earnings presentation, Jul 25, 2024
Slide 1: Q2 results 2024
Q2 results 2024 Investor presentation 25 July 2024
Slide 2: Key results in Q2
Key results in Q2 Key results Medium-term targets Q2 2024 H1 2024 Return on equity Exceed 13% • 11.5% • 10.2% Solid quarter Core operating income5 / REA Exceed 7.2% 7.3% • 7.0% ‒ 11.5% ROE vs. medium term target of 13% ‒ Good momentum in core earnings drivers Insurance revenue growth In excess of ma
Slide 3: Strong operational momentum in H1 2024
Strong operational momentum in H1 2024 10% growth in Assets under Increased activity in corporate advisory Management YTD Including 28% growth at Stefnir ISK bn • Advised on the sole public of listing so far in 2024 • Mandated advisor for the JBT / Marel takeover offer, the largest corporate action
Slide 4: Ambitious sustainability strategy continues to support strong ESG ratings
At the end of Q2 the Bank’s green asset pool was ISK 137bn Ambitious sustainability strategy continues to support Committed finance by category % 4.9% 16.7% strong ESG ratings 14.9% 0.3% Arion Bank became a member of Science Based Targets initiative Morningstar Sustainalytics places Arion 4.5% (SBTi
Slide 5: Property development assets progressing in line with expected timeline
Property development assets progressing in line with expected timeline Arnarland Arnarland covers 9 hectares, estimated 530 residences and commercial property of 32,000m2. The current book value is ISK 1.5bn. Arion owns 51% in the project Current timeline Planning proposal Processing suggestions Pre
Slide 6: The economy is slowing down
The economy is slowing down Fewer tourists and reduced tourist spending, in addition to tight monetary policy will most likely continue to reduce consumer demand, which is necessary to bring inflation down to target. Still, the labor market has proven to be remarkably resilient, although signs of an
Slide 7: Slow growth as the economy grapples with tighter monetary policy
Slow growth as the Economic growth forecasts for 2023-2026 Tourist arrivals via Keflavik International Airport 4.5% - millions annually economy grapples with 4.0% 3 tighter monetary policy 3.5% 3.0% 2.5 2.5% 2 - Most analysts have revised their economic 2.0% forecasts for this year downwards, with t
Slide 8: Resilient domestic demand creates headwinds for the CBI
Resilient domestic demand creates headwinds for the CBI Payment card turnover and private consumption - quarterly data, YoY-% growth, constant Domestic and imported inflation -YoY change (%) prices/exchange rate 20% - Despite some easing, inflation has proven to be 20% 18% persistent, measuring 6.3%
Slide 9: First signs of labor market cooling
First signs of labor CBI's key interest rates - based on Arion Bank's inflation forecast Number of employed by economic activity - change between years 10% Forecast 25000 market cooling 8% 20000 15000 6% 10000 - Despite the challenges faced by CBI, numerous 5000 signs indicate that the monetary poli
Slide 10: Small economy, strong foundations
Small economy, strong foundations CBI's FX reserves Net international investment position Total exports composition - bn. EUR - % of GDP - index, total in 2012=100 8 50% 160 7 140 6 0% 120 5 4 100 -50% 3 80 2 -100% 60 1 40 0 -150% -1 20 -2 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201
Slide 11: Key takeaways from Q2 2024
Key takeaways from Q2 2024 ‣ Solid quarter with good momentum in core earnings drivers Operational performance ‣ Operating expense and effective tax rate impacted in the quarter by ISK 585m fine following a settlement with the regulator ‣ ROE of 11.5% in the quarter and 12.7% excluding settlement ex
Slide 12: Income statement Q2 2024
Income statement Q2 2024 Q2 2023 Diff Q1 2024 Diff Q2 2024 Net interest income Net fee and commission income 11,948 3,979 11,426 4,187 5% (5%) 11,245 3,365 6% 18% - Net profit of ISK 5.5bn resulting in ROE of 11.5% Insurance service results 522 762 (31%) (215) - - Core income* increase by 1% YoY and
Slide 13: Income statement H1 2024
Income statement H1 2024 H1 2023 Diff H1 2024 Net interest income Net fee and commission income 23,193 7,344 22,420 8,638 3% (15%) - Net profit of ISK 9.9bn resulting in ROE of 10.2% Insurance service results 307 41 - - Core income* stable YoY Net financial income 128 179 (28%) - NII increases by 3%
Slide 14: Net interest income
Net interest income Net interest income (ISK bn) Credit risk (ISK bn) Margin holding at robust level . .3 . 2 0 2 3 0. .2 - Net interest income in Q2 increased by 5% from Q2 2023 and by 6% from Q1 2024 . . . . 3.2 3. 3. 3.2 . 3.0 - New phase of the rate hiking cycle commenced recently with resetting
Slide 15: Net fee and commission income
Net fee and Net fee and commission income (ISK m) Net fee and commission income (ISK m) commission income , ,3 2 , 0 Strong quarter 2 3, 0 , 3 3, 0 .2 3. 03 3, 00 - Strong second quarter following an unusually .0 , 2 subdued first quarter 30 3,3 3. 3 0 3. .0 - Increase driven primarily by lending fe
Slide 16: Ongoing solid momentum in insurance
Insurance service result* (ISK m) Combined ratio (%) Ongoing solid momentum in insurance 0 .2 03. 0 0 . 20.0 . . - Vördur’s stand-alone operations had a net profit of 22 .3 .0 . ISK 407m for the quarter compared with ISK 339m . in Q2 2023 - Combined ratio 89.4% in Q2 and 93.6% YTD 33 .2 . - Revenue
Slide 17: Net financial income
Net financial income Net financial income (ISK m) Bond holdings (ISK bn) Another subdued quarter .2 . ,3 0 20.0 3 . .0 3 .2 . . 20. 20. 02 - Net financial income in the quarter again muted or . 2 . 3. 3 . ISK 99m 2 . 2 - Total investment portfolio of Vördur is ISK 0.3 30.4bn; ISK 21.1bn of bonds and
Slide 18: Operating expenses
Operating expenses* Cost-to-Core income ratio (%) Total operating expenses (ISK bn) Continued cost discipline while headline . . .0 figure impacted by settlement fine . . . . .2 .0 3. - Total operating expenses outlined here include 3.3 3.2 2. costs related to insurance business which is 2. 3 . 2. a
Slide 19: Balance sheet
Balance sheet Robust and relatively simple balance Assets 30.06.2024 31.03.2024 Diff. 31.12.2023 Diff. 31.12.2022 Diff. sheet Cash & balances with CB 136 102 32% 102 33% 114 19% Loans to credit institutions 33 34 (3%) 29 14% 46 (28%) - Loans to customers increased by 2.0% in Q2 Loans to customers 1,
Slide 20: Loans to customers
Loans to customers Loans to customers (ISK bn) Loans to customers by sector (%) Balanced loan portfolio , ,203 , 3 3. 2. ,0 ther sectors 3. .0 inancial and - Loans to customers increased by ISK 23.9bn or 3 . insurance activities . 2.0% during the quarter .0 holesale and 02 .0 .2 retail trade - Loans
Slide 21: Residential mortgages
Residential mortgages Residential mortgages by interest rate type (ISK bn) Indexed mortgages were 56% of the portfolio at 30.6.2024 Interest rate reset profile for fixed rate mortgages (ISK bn) The bulk of fixed nominal rate loans are reset in 2024 and 2025 Low default rates and comfortable LTV 2 0
Slide 22: Real estate sector
Real estate sector Loans to customers Real estate collateral by type1 Diversified portfolio Loans to real estate companies are approx. 9.6% of total loans to customers and 1.0% relate to office buildings Well diversified collateral in terms of real estate type 2 - Real estate related lending in the
Slide 23: Risk profile
Risk profile Development of non-performing loans, moratoria and Development of problem loans ratio for loan portfolios (% of relevant loan book) forbearance (% of total loan book) Strong credit quality indicators while . . 2. 2. payments past due increasing slightly . 2. .2 2. 2. . . . . . . . . . 3
Slide 24: Loss allowance by IFRS 9 stages
Loss allowance by IFRS 9 stages On loans to customers total (ISK bn) Thereof on loans to corporates (ISK bn) IFRS9 economic scenarios and assumptions Loans to customers are 0.74% provisioned at Loans to corporates are 1.09% provisioned at Deteriorating economic outlook is captured in a movement of w
Slide 25: Deposits from customers
Deposits from Deposits (ISK bn) Deposit growth by LCR outflow category (ISK bn) customers 2 3 2 02 20 (including due to credit institutions) 3 3 Continued momentum in stable deposits 2 2 2 3 2 .0 3 0 2 3 2 2 0 3 - Deposits from customers of ISK 847bn represent 3 2 of the Bank’s total liabilities 30
Slide 26: Borrowings
Borrowings Borrowings by type (ISK bn) Maturities of borrowings and call dates on Balanced maturity profile and improved subordinated liabilities (ISK bn) 20 33 spread development 3 3 . 3 2 . - Credit spreads have tightened significantly in recent months 0 - EUR 300 million senior preferred notes is
Slide 27: Own funds
Own funds Capital ratio (%) Leverage ratio (%) Strong capital position 2. 2. . 2.0 . - Capital position remains strong and above medium- 23. 2 .0 2 . term targets 23.2 22. 2. 2. - CET1 position is 330bps above regulatory 3. 2. 2. requirement . . . . . - Leverage ratio of 11.9% significantly above mo
Slide 28: Own funds
Own funds Own funds and capital requirements (%) The capital ratios continue to be strong and Pillar 2 22. requirements reduced 21.0 – 22.0 2. . . . 2. - profits of I . bn and foreseeable dividend of I .0bn, as per the Bank’s . dividend policy, included in the capital ratios shown 2. . - An ISK 2.5b
Slide 29: Going forward
Going forward Strong position to Good momentum in core Capital optimization navigate evolving earnings drivers commitment external environment
Slide 30: Key figures
Key figures* Operations H1 2024 H1 2023 H1 2022 H1 2021 H1 2020 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Net interest income 23,193 22,419 19,221 15,358 15,110 11,948 11,245 11,347 10,918 11,426 Net commission income 7,344 8,631 8,138 6,839 5,764 3,979 3,365 3,903 3,848 4,187 Operating income 31,059
Slide 31: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-Core income ratio (%) Net interest margin (%) 22. 3. . 3.2 3. 3.2 3.2 3. 3. 3. 3. 3.0 . . .2 2.0 . 3 . 3 . 3 .2 3. 2. 2. 0. . 0. . 2 22 2 23 22 2 22 2 23 22 2 22 2 23 22 Loans to deposits ratio (%) (without Core operating income / REA
Slide 32: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-Core income ratio (%) Net interest margin (%) . 3.3 . 3. 3. 3. . 3. .2 2. 2. .0 . 0.2 . 2020 202 2022 2023 202 2020 202 2022 2023 202 2020 202 2022 2023 202 CPI imbalance (ISK bn) Core operating income / REA (%) Risk exposure amount / To
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