Kvika Banki Hf · OMXICE:KVIKA
Kvika Banki Hf — 9M 2022 Earnings Presentation
35 slides from Kvika Banki Hf's earnings presentation, Nov 11, 2022
Slide 1: Kvika banki hf. 9M 2022 Financial Results
Kvika banki hf. 9M 2022 Financial Results 11 November 2022
Slide 2: Profit before tax for 9M 2022 ISK 4,007 million with RoTE 12.3%
Profit before tax (PBT) for 9M 2022 ISK 4,007 million with RoTE 12.3% driven by strong core income Q3 resulting in PBT of ISK 1,841 million and RoTE of 17.7% despite NFI loss of ISK 569 million Strong financial position with consolidated solvency of 1.34 and LCR of 308% Well above regulatory require
Slide 3: Auður + Aur
Maskína's recommendation award is based on measurements of how likely people are to recommend (or warn others of) companies they have done business with. In 2022 Auður received the award for scoring highest across all categories. The runner-up in the category of financial- and insurance services was
Slide 4: Loan book, TRS book, Combined ratio
▪ Healthy loan book growth of over 3% ▪ Increased interest in FX felt both ▪ Combined ratio of 88.3% in Q3 ▪ Market share in retail investment ▪ Strong loan book growth during Q3, in the quarter through currency forward contracts exceeded expectations, insurance funds grew by 13% in the period, as q
Slide 5: Profit before tax (PBT)
Profit before tax (PBT) Diversified income across segments • Kvika’s profit before tax for the first nine months PBT development / ISK m. Net operating income by segment / 9M 2022 of 2022 is ISK 4,007 million with a RoTE of 12.3% ’21 ’22 Asset Management Insurance UK 3,624 • PBT in Q3 amounted to IS
Slide 6: Income statement
Income statement ISK m. 9M 2022 9M 2021 • Net operating income for the period amounted to ISK 13,694 million, driven by continued strong Net interest income 5,764 2,928 performance in commercial banking and asset management Net fees and commissions 4,905 5,094 • Net interest income grows significant
Slide 7: Net interest income (NII)
Net interest income (NII) Segment split • Rising NII mainly driven by loan book growth and ISK m. 9M 2022 / (%) composition as well as a growing balance sheet ’21 ’22 2,338 7.2% 6.2% TM Insurance → Lykill NII only included from 1 April 2021 1,855 Asset Management → Ortus NII only included from 1 Mar
Slide 8: Net fee and commission income (NFC)
Net fee and commission income (NFC) Segment split • NFC income continues to provide a strong ISK m. 9M 2022 / (%) recurring fee base, creating less reliance on ’21 ’22 TM Insurance 5.4% variable fees 1,829 1,733 Asset Management → Asset management is a key contributor to NFC 1,684 1,642 1,686 1,576
Slide 9: Net premiums and claims (NPC)
Net premiums and claims (NPC) Combined ratio • Increase in premiums in the period, with growth ISK m. (%) seen in all insurance categories, countered by ’21 ’22 Major claims ratio Claims ratio Expense ratio Reinsurance ratio increased claims cost and resulting in a similar 101.0 NPC as the same peri
Slide 10: Net financial income (NFI)
Net financial income (NFI) Segment split • Negative total NFI performance due to difficult ISK m. 9M 2022 / ISK m. market conditions in the period ’21 ’22 Asset Management Insurance UK • Kvika receives financial income, and losses, 2,185 Commercial Banking Investment Banking through various operatin
Slide 11: Operating expenses (OPEX)
Operating expenses (OPEX) Segment split • Operating expenses were in line with the Group’s ISK m. 9M 2022 / (%) budget in Q3 2022 ’21 ’22 8.2% → Cost to income ratio rebounds from an abnormally TM Insurance high level in Q2 due to negative net financial 3,949 Asset Management 14.5% 32.1% income 3,32
Slide 12: Core income
• Core income is defined as net operating income excluding net financial Core income cover income, which is the revenue stream most affected by external market (%) circumstances Core income to OPEX → Kvika incurs NFI due to both its banking and insurance operations, both of which require Kvika to ho
Slide 13: Assets
Assets Cash and financial instruments • ISK 51.3 billion increase in assets since year-end 30.9.22 / ISK billions 30.9.22 / ISK billions 2021 driven by loan book growth, as well as an Liquid assets ISK 106 billion ISK 14.1 billion increase in other assets Cash and balances with Central Bank Intangib
Slide 14: Loan book by category
Vehicles Commercial vehicles Real estate Real estate development and equipment • Car dealers are the primary source of loan • Mostly to legal entities backed by residential and • Construction level from land to fully equipped property applications • Collateralized by commercial vehicles or various c
Slide 15: IFRS 9 risk stage allocation
Net carrying amount Gross carrying amount • Temporary change in credit quality in Q1 2022 IFRS 9 risk stage allocation / ISK billions IFRS 9 risk stage allocation / ISK billions mainly due to acquisition of Ortus (new financial Stage 1 Stage 2 Stage 3 FVTPL assets) FVTPL 103.5 105.9 Stage 3 1.6 100.
Slide 16: Liquidity coverage ratio and net stable funding ratio
Liquidity coverage ratio (LCR) Net stable funding ratio (NSFR) • HQLA assets ISK 60 billion excluding mandatory 30.9.2022 / ISK billions 30.9.2022 / ISK billions reserves and collateral to the Central Bank • Liquidity coverage ratio is strong at 308%, where High quality liquid assets 60 Available st
Slide 17: Liabilities and equity
Liabilities and equity Maturity of deposits • Liabilities increase by ISK 50.9 billion since year- ISK billions 30.9.22 / (%) end 2021, driven by growth in deposits and Debt issuance Deposits On demand 3.5% increased borrowings Borrowings Other 1-3 months 9.1% 1.6% Subordinated liabilities Equity 3-
Slide 18: Sources of borrowings
Sources of borrowings Issue currency • Kvika has been an active issuer in Iceland since 30.9.22 / ISK billions 30.9.22 / ISK billions 2015 and in 2021 established an EMTN 75 2 70 programme and obtained a credit rating from 2 65 12 ISK 53 14 2 16.6% Moody’s Investors Service 17 15 EUR 48 0 2 6 16 3 1
Slide 19: Capital requirement waterfall
Capital requirement waterfall • In October Kvika was informed by the FSA of its (%) draft decision, pending comment by Kvika, regarding capital requirements following a 20.6 Supervisory Review and Evaluation Process (SREP) → Kvika will not comment nor object to the draft 3.0% -3.6% decision regardin
Slide 20: Capital adequacy and solvency
Capital adequacy is calculated on a consolidated level as the solvency ratio of the financial conglomerate • Kvika has a group solvency of 1.34 and a CAR of while a consolidated capital adequacy ratio (CAR) is calculated for entities not belonging to the insurance 23.5% at the end of September 2022
Slide 21: PBT Outlook 2022-23
At the end of each quarter the Group revises key assumptions for the next four quarters and updates • PBT Outlook for the next four quarters, Q4 2022 – Q3 2023, updated to ISK 9,071 million from ISK previously reported outlook as required, maintaining a running four quarter guidance at each time 9,8
Slide 22: Key Takeaways
Key Takeaways Diverse income streams form strong core operations » » » » » Five operating segments continue to provide a highly diverse source of income for the Group Updated draft SREP results lower capital requirements by 4.9% creating significant excess capital Strong financial position with sign
Slide 23: Appendix I: Kvika UK
Appendix I Kvika UK
Slide 24: UK loan portfolio size and mix
• Since the start of the year, strong demand has 31.12.21 30.9.22 allowed the Ortus team to grow the overall gross book from ISK 15bn to ~ISK24 bn in the year to date while maintaining strict underwriting ISK 15bn ISK 24bn standards. Size of portfolio Size of portfolio • Given the difficult external
Slide 25: Underlying security and maturity distribution
Underlying Security Maturity Distribution % of book by value % of book by value 63% 37% 31.12.21 30.9.22 31.12.21 30.9.22 24% 20% 17% 17% 18% 28% 16% 25% 16% 8% 9% 8% 12% 8% 10% 10% 10% 6% 8% 7% 6% 5% 4% 6% 2% 1% Residental Commercial Mixed Other Leisure CBILS* 0-5 5-10 10-15 15-20 20-25 25-30 >30 E
Slide 26: Loan-to-value ratio and loan size
Loan-to-Value Ratio Loan Size % of book by value % of book by value in ISK 48% 38% 45% 31.12.21 30.9.22 31.12.21 30.9.22 31% 31% 17% 16% 20% 16% 15% 16% 13% 13% 12% 13% 9% 10% 11% 9% 7% 6% 3% 1% 1% 1% 0% <10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% <80m 80-165m 165-250m 250-335m 335-420m >420m Ave
Slide 27: Geography and loan book staging
Geography Loan Book Staging % of book by value % of total net loan book 89% ISK bn. 31.3.22 30.6.22 30.9.22 72% 31.12.21 30.9.22 Stage 1 87.7% 92.2% 94.7% Stage 2 0.8% 0.1% 0.9% Stage 3 11.6% 7.6% 4.4% 25% Total 100% 100% 100% 35% 26% London London 8% 4% 2% England and Wales Northern Ireland Scotlan
Slide 28: Overnight Index Swaps and business impact
Overnight Index Swaps 5,0% 4,0% Business impact 3,0% 2,0% Slowdown in sector activity Opportunities for re-structuring and refinancing 1,0% We expect a gradual sector-wide slowdown in bridging activity and acquisition financing, led by declining economic output and a slowing Focus on close borrower
Slide 29: Risk management actions on UK lending
Reduce maximum LTV on residential ✓ Response to increased uncertainty over house prices in the medium term property backed loans to 65% and commercial property backed loans to 60% ✓ Further enhances resilience of portfolio to adverse movements in asset prices All new lending strictly on variable rat
Slide 30: Key Takeaways
Key Takeaways And focus going forward » » » » » Strong granular loan book growth in 2022 reflecting rich pipeline and growing diversity of sourcing channels Well positioned to weather challenging external conditions and take advantage of arising market opportunities Loan book risk profile has improv
Slide 31: Appendix II: Additional information
Appendix II Additional information
Slide 32: Comparison with other domestic banks
Net operating income / 30.9.22 Cost to income Loans to Asset Liquidity coverage Net stable funding 2% ratio deposits encumbrance ratio ratio 69% 148% 23% 308% 129% 122% 23% 246% 100% 44% 96% Reg. min. 8% 100% Reg. min. 82% 44% KVIKA Other KVIKA Other KVIKA Other KVIKA Other KVIKA Other banks* banks*
Slide 33: Investment asset income
Investment asset income Insurance investment assets* • Negative return on investment assets in the first 9 ISK m. 30.9.2022 / ISK m. months of 2022 of -1.6% mainly due to difficult 1,291 equity market circumstances 1,181 Cash and term deposits 1,139 • Positive performance in bonds and real estate mo
Slide 34: Disclaimer
This presentation and the information contained therein has been prepared by Kvika banki hf. on a best knowledge basis. Any statements or assumptions are set forth by Kvika alone and not by any third party. Forward looking statements may deviate from what is presented in this presentation, e.g. due
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