Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Arion Bank — Q2 2018 Earnings Presentation
38 slides from Arion Banki Hf's earnings presentation, Aug 2, 2018
Slide 1: Second quarter results 2018
Second quarter results 2018 Investor presentation 2 August 2018
Slide 2: Highlights
Q2 2018 Highlights Arion Bank was listed on Nasdaq Iceland and Stockholm on 15 June. This is the first listing of an Icelandic bank on the main market in Iceland since 2008 The Board of Directors has approved to propose to a shareholders meeting in September that the Bank pays an extraordinary divid
Slide 3: Successful IPO and listing
Successful IPO and listing Arion Bank listed on the main lists of Nasdaq Iceland and Nasdaq Stockholm Heavily oversubscribed IPO Simultaneous listing in Iceland and Sweden Successful IPO marketing took place First simultaneous listing on Nasdaq from 31 May to 14 June – 70% Nordic for around 10 years
Slide 4: Innovative digital solutions
Innovative digital solutions Arion Bank – the leading digital bank in Iceland* Eye-catching digital solutions New website – arionbanki.is Retail Banker International awards New website arionbanki.is – prize to the Bank for the most emphasis on convenient services disruptive innovation for its digita
Slide 5: Our digital strategy is delivering tangible results
Our digital strategy is delivering tangible results The trend continues Increasing digital impact Digital initiatives Active online bank users1 Active Arion Bank app users1 • Digital banking is key in our strategic direction and imperative in responding to our customers‘ ever changing and increasing
Slide 6: Macroeconomic environment
Macroeconomic environment
Slide 7: Impressive start to the year: 6.6% GDP growth in Q1
Impressive start to the year: 6.6% GDP growth in Q1 A strike in the seafood industry in Q1 2017 greatly affects the YoY growth and most expect a much slower growth as the year goes on • Economic growth measured 6.6% in Q1 2018. As in 15% Growth constribution of GDP components previous quarters growt
Slide 8: Tourism has passed its peak growth
Tourism has passed its peak growth Tourist arrivals increased by 4,9% in Q2, making it the weakest quarter in terms of growth since 2010 • Despite the fact that tourism Foreign payment card turnover per visitor The ISK against major trade currencies is rapidly slowing down and 25% - excl. flights, Y
Slide 9: Increasing domestic inflationary pressure
Increasing domestic inflationary pressure Inflation has been climbing in recent months, surpassing the CBI’s inflation target • The composition of inflation Housing price index for the capital area Nominal and real wages has been changing in the - YoY - YoY past months. While inflation 30% 16% is st
Slide 10: Key operational development in Q2
Q2 2018 Key operational development in Q2 Loan growth continued in Q2 and loans to customers increased by 2.8% in the quarter and 5.0% in the first half of 2018 The Bank’s net interest margin increased to 2.8% in Q2 from 2.6% in Q1 despite strong FX liquidity, low inflation and repricing of loans Co
Slide 11: Headline Figures
Q2 2018 Headline Figures Net earnings CET 1 Cost-to-income ratio Share of stage 3 loans, gross ISK 3.1 bn. 21.8% 62.3% 2.3% Q1 2018: 31.12.2017: Q1 2018: 31.12.2017: ISK 1.9 bn. 23.6% 70.8% N/A Return on equity Leverage ratio Number of employees Mortgages/Total loans 5.9% 14.3% 1,309 40.7% Q1 2018:
Slide 12: Income statement
Income statement
Slide 13: Income statement Q2 2018
Income statement Q2 2018 Strong improvement from the first quarter • Healthy volume growth with lending up 2.7% from Q1 and Q2 2018 Q1 2018 Diff% Q2 2017 Diff% 9.5% over the last 12 months Net interest income 7,613 6,908 10% 8,160 (7%) • Net interest income up 10% Net commission income 4,492 3,542 2
Slide 14: Q2 Performance bridge
Q2 Performance bridge Substantial positive one offs in Q2 2017 Change in earnings before tax ROE (%) Cost-to-income (%) • Comparison to Q2 2017 Q2 2017 - Q2 2018 impacted by one offs which were not present in Q2 2018 7.0 62.3 54.5 • Other income of Valitor in Q2 5.9 9,008 2017 includes financial inc
Slide 15: Income statement H1 2018
Income statement H1 2018 Operating income down 5% - both salaries and OPEX is up 6.4% • Decreased net interest income from H1 2017 mainly due to high liquidity in FX and H1 2018 H1 2017 Diff Diff% competitive market Net interest income 14,521 15,320 (799) (5%) environment Net commission income 8,034
Slide 16: Net interest income
Net interest income NIM improves despite subdued inflation, repricing of loans and large FX liquidity position • Net Interest Margin (NIM) Net interest income Inflation increases from previous quarters through repayment of legacy senior bonds and 8.2 7.6 activity on the lending side 7.3 7.3 6.9 Infl
Slide 17: Net commission income
Net commission income Solid improvement in net commission income both from Q1 and Q2 last year • Net commission income from cards and payment solutions up by 61% from Q2 2017 partly due to increased Net commission income international operations in Valitor and increased activity in Retail Banking 4.
Slide 18: Net financial income
Net financial income Bond and equity holdings continue to decrease as the Bank sells equity holdings • NFI is normalizing after a period of volatility in recent Net financial income Bond holdings years • Net financial income is mostly 66.9 68.2 63.7 59.1 57.8 due to fair value changes in 22.8 23.2 e
Slide 19: Net insurance income and other income
Net insurance income and other income Vördur is back on track • Massive increase of net insurance income from Q1 attributable to abnormal levels Other operating income Net insurance income of car insurance claims in Q1 • The average claim has increased relating to a newer car fleet and higher wage 0
Slide 20: Total operating expenses
Total operating expenses Positive developments in the cost-to-income ratio in Q2 • FTE’s at group level increased by 7% from Q2 last year, Cost-to-income ratio (%)* 27% at Valitor and 1% at parent company 70.8 • Valitor growth strategy increases the cost-to-income ratio 65.0 61.6 62.3 substantially
Slide 21: Balance sheet
Balance sheet
Slide 22: Balance sheet - Assets
Balance sheet - Assets The balance sheet remains strong and simple • The balance sheet grew by 30.06.2018 31.12.2017 2.4% in the first half of 2018 ISK 1,175 billion ISK 1,148 billion • Loans to customers grew by 35 Other and intangibles: 4% Other1 33 5.0% during the first half of Intangibles 14 14
Slide 23: Loans to customers
Loans to customers Well balanced loan portfolio between corporates and individuals • Loans to customers increased by 2.7 % in Q2 (5.0% in H1 Loans to customers Loans to customers by sector (%) and 9.5% from 30.06.2017) Individuals − 2.1% growth in the mortgage 804 782 14 portfolio in Q2 driven by ne
Slide 24: Loans to customers
Loans to customers The quality of the loan book continues to improve • Internal credit rating has Risk classification IFRS 9 credit quality improved significantly in (risk classification only applies to loans that are neither Share of stage 3 loans, gross 2.3% recent years: past due nor impaired unt
Slide 25: Balance sheet – Liabilities and equity
Balance sheet – Liabilities and equity Strong equity position and well balanced funding • Deposits increase by 3% from 30.06.2018 31.12.2017 YE 2017 and 5.1% in Q2 ISK 1,175 billion ISK 1,148 billion • A share buyback and dividend payment in Q1 reduces the equity of the Bank • Successful wholesale f
Slide 26: Deposits
Deposits Deposits increased by 5.1% in the second quarter • Deposits represent 41% of the Bank’s funding Deposits and due to credit institutions Maturity of deposits (%) and Central Bank • Deposits from retail customers have grown 26% On demand 4 9 (compound annual growth rate) in the last two years
Slide 27: Borrowings
Borrowings Maturity schedule of wholesale funding well spread out • In March the Bank’s first senior Eurobond matured. This was a Borrowings Repayment of borrowings three year, EUR 300 million senior unsecured bond issues 411 91.8 401 at 3.1% over interbank rates 385 16 72.2 18 • In March the Bank i
Slide 28: Capital base
Capital base Release of surplus capital initiated in Q1 with further distribution expected • Capital ratio decreases by 170 bps in Q2, mainly due to Capital ratio (%) Leverage ratio (%) a proposed dividend payment of ISK 10 bn. expected to be 26.7 17.8 distributed in Q3 but also 0.6 15.4 15.4 14.3 b
Slide 29: Capital adequacy
Capital adequacy Own funds and capital requirements Own funds and capital requirements (%) • The Group’s capital adequacy is based on Arion Bank’s consolidated situation under CRR, which excludes 23.2 insurance subsidiaries. The capital position and solvency 0.1 21.9 requirement of Vördur hf. should
Slide 30: Going forward
Going forward Lending in 2018 is expected to exceed economic growth and the Bank will focus on maintaining NIM Strategic review of Valitor will be concluded before year end Stakksberg (the United Silicon plant) will be put in a sales process in the second half of the year Performance in Q2 is a soli
Slide 31: Medium Term Targets
Medium Term Targets CET 1 Ratio Loan Growth (Subject to regulatory requirements) Prudent lending in Decrease to circa 17% line with economic growth Return on Equity Dividend Policy Exceed 10% Pay-out ratio of circa 50% of net earnings attributable to Cost to Income Ratio shareholders Decrease to cir
Slide 32: KFI’s and other information
KFI’s and other information
Slide 33: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 66.2 28.1 56.0 56.1 49.4 3.0 3.1 2.8 2.9 2.7 18.6 32.4 10.5 6.6 4.7 2014 2015 2016 2017 H1 2018 2014 2015 2016 2017 H1 2018 2014 2015 2016 2017 H1 2018 CPI Imbalance – ISK bn. FX Imbalance – ISK b
Slide 34: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 62.3 51.2 38.2 3.1 3.1 2.8 13.3 13.0 5.9 Q2-16 Q2-17 Q2-18 Q2-16 Q2-17 Q2-18 Q2-16 Q2-17 Q2-18 Loans-to-deposits ratio (%) Tier 1 ratio (%) Liquidity coverage ratio (LCR) (%) without loans fina
Slide 35: Key figures
Key figures Operations H1 2018 H1 2017 H1 2016 H1 2015 H1 2014 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Net interest income 14,521 15,320 14,626 13,175 11,966 7,613 6,908 7,265 7,250 8,160 Net commission income 8,034 6,838 6,747 7,434 6,593 4,492 3,542 4,654 3,865 3,508 Operating income 26,586 27,857
Slide 36: Balance sheet
Balance sheet Assets 30.06.2018 31.03.2018 2017 2016 2015 2014 Cash & balances with CB 113 98 140 88 48 21 Loans to credit institutions 114 95 87 80 87 109 Loans to customers 804 782 765 712 680 648 Financial assets 95 106 109 117 133 102 Investment property 7 7 7 5 8 7 Investments in associates 1 1
Slide 37: 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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