Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q3 2020 Earnings Presentation
35 slides from Arion Banki Hf's earnings presentation, Oct 28, 2020
Slide 1: Third quarter results 2020
Third quarter results 2020 Investor presentation 28 October 2020
Slide 2: Key takeaways
Key takeaways Robust quarter in a challenging environment while delivering on strategy and operational targets • Return on optimized equity above 10% target Delivering on strategy in a challenging • Solid core income growth of 6.2% economical environment • Improved operating efficiency demonstrated
Slide 3: Icelandic economy – dealing with the effects of the pandemic
Icelandic economy – dealing with the effects of the pandemic The spread of Covid-19 and subsequent travel bans have had a Strong leverage position of the government treasury coupled with The pandemic has a significant negative impact on GDP but negative effect on the Icelandic economy, especially to
Slide 4: COVID-19 has accelerated growth in digital channels
COVID-19 has accelerated growth in digital channels The Bank has been able to fully operate and service its customers with all branches closed and most staff working from home • The banks strong position in digital channels provided a robust Active Arion App users platform for managing through recen
Slide 5: ESG strategy influences product development
ESG strategy influences product development Green deposits Green Mortgages Green car financing Outstanding results in ESG ratings • First bank in Iceland to offer Green • Our customers now pay zero loan • Customers do not pay any arrangement • In September 2020 Arion Bank Deposits origination fees o
Slide 6: Financials
Financials
Slide 7: Operational highlights of the third quarter 2020
Operational highlights of the third quarter 2020 • Arion Bank’s strategy results in core operations trending positively ‒ NIM improves 30 bps YoY ‒ NII to Credit risk improves YoY and is stable from Q2 despite increased credit risk ‒ Core revenues up 6.2% ‒ OPEX is down 25% and 10.7% when excluding
Slide 8: Net earnings improve significantly YoY
Net earnings improve significantly YoY Positive trends in core operations 426 2,045 1,079 (1,824) - 10.7% 3,966 182 + 6.2% 629 (18) 686 761 Net earnings Q3 Increas in core Other income Decrease in Redundancy Decrease in Increase in Lower income Less negative Net earnings Q3 2019 income operating cos
Slide 9: Income statement Q3 2020
Income statement Q3 2020 Strong earnings with 8.3% return on equity in the quarter Q3 2020 Q3 2019 Diff% Q2 2020 Diff% • Core income; NII, NCI and Net insurance Net interest income 7,989 7,382 8% 7,857 2% income, increases 6.2% YoY and 4.3% from Q2 Net commission income 2,762 2,639 5% 2,688 3% – Net
Slide 10: Income statement 9M 2020
Income statement 9M 2020 Strong performance in core operations 9M 2020 9M 2019 Diff Diff% • Core income; NII, NCI and Net insurance Net interest income 23,099 22,624 475 2% income, increases 5.6% YoY Net commission income 8,526 7,335 1,191 16% – NCI increased mainly due to capital Net insurance inco
Slide 11: Net interest income
Net interest income NIM is up 30 bps YoY in a more challenging rate environment Net interest income Credit risk • Net interest income increased by 8.2% from Q3 2019 whilst interest bearing 7.9 8.0 assets increased by only 0.6% 7.7 7.4 7.3 • Strong net interest margin in light of: 649 – Policy rate,
Slide 12: Net fee and commission income and net insurance income
Net fee and commission income and net insurance income Net fee and commission income is trending positively despite reduced retail banking activity due to Covid-19 Net fee and commission income Net insurance income 1.1 1.0 3.1 0.8 2.7 2.8 0.7 2.6 2.6 0.4 0.3 0.3 0.3 0.3 0.4 0.3 0.3 0.3 0.5 0.4 1.0 1
Slide 13: Net financial income
Net financial income Significant increase in bond holdings due to strong liquidity position Bond holdings Net financial income • Net financial income in Q3 driven by: 2.7 – Equity holdings measured at fair 171.9 value as markets were positive following a difficult first quarter 140.6 131.0 0.9 115.4
Slide 14: Total operating expenses
Total operating expenses Cost-to-income ratio during the first nine months was 49.5% but further cost reduction remains a core focus point Cost-to-income ratio (%) Total operating expenses • Total operating expenses decreased by 10.7% excluding one-off redundancy payment in Q3 2019 69.2 6.9 • Number
Slide 15: Balance sheet – Assets
Balance sheet – Assets The balance sheet is extraordinarily strong which is not efficient in the long term • The Balance sheet grew by 14.3% from 30.09.2020 31.12.2019 30.09.2019 YE 2019, the increase mainly being liquid ISK 1,236 billion ISK 1,081 billion ISK 1,213 billion assets – REA has increase
Slide 16: Loans to customers
Loans to customers New mortgage lending and refinancing ISK 68 billion in Q3 and ISK 151 billion YTD Loans to customers Loans to customers by sector (%) • The loan book continues to be well balanced between individuals and corporates Individuals • Loans to individuals increased by 6.6% during 11 Rea
Slide 17: Covid-19 impacts ISK 149 billion or 18% of the loan book
Covid-19 impacts ISK 149 billion or 18% of the loan book IFRS 9 impairments are forward looking but management overlay is necessary Breakdown of loans to customers (% of gross carrying Loans with Covid-19 related payment moratoria (ISK billion) • IFRS 9 models do not fully capture amount) Cumulative
Slide 18: Loans to customers – asset quality
Loans to customers – asset quality Very well collateralized loan portfolio supports asset quality - Coverage ratio of 31%, which is low due to high collateral rate in the loan portfolio Loans to customers by sector (ISK billion) • Approximately 90% of loans to customers are secured by collateral, of
Slide 19: Loss allowance on loans to customers by IFRS 9 stages
Loss allowance on loans to customers by IFRS 9 stages Covid-19 has so far had minor effects on loans to individuals which comprises 50% of the loan book On loans to customers total On individuals On corporates Thereof on tourism exposure 13.7 12.7 12.2 10.5 9.3 8.7 9.2 8.3 8.3 6.6 6.6 8.1 6.3 6.0 5.
Slide 20: 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 30.09.2020 31.12.2019 30.09.2019 leverage ratio ISK 1,236 billion ISK 1,082 billion ISK 1,213 billion • The Bank is a frequent issuer of covered bonds in t
Slide 21: Deposits
Deposits Strong growth of 11.1% in core deposits from YE 2019 Deposits and due to credit institutions and Central Bank Maturity of deposits (%) • Deposits represent 58% of the Bank’s total liabilities • Core deposits are from individuals, SME’s and corporates On demand 3 14 • Very strong growth in o
Slide 22: Borrowings
Borrowings Limited activity in the wholesale funding markets due to the strong liquidity position Borrowings by type Maturities of borrowings • Liquidity Coverage Ratio of 206%, far above the regulatory minimum of 100% • Emphasis on the reduction of funding 94.1 cost both through prepayments and lia
Slide 23: Own funds
Own funds The Bank is deducting 50% of net earnings from its capital according to its dividend policy Capital ratio (%) Leverage ratio (%) • The CET1 ratio is further enhanced to 22.5% from the end of 2019 through earnings, management of REA and 14.9 14.2 14.1 14.3 IFRS 9 related regulatory changes
Slide 24: Capital adequacy
Capital adequacy Exceptionally strong capital position Own funds and capital requirements (%) • Own funds decreased by ISK 0.2 billion in Q3 2020 mainly due to inclusion of foreseeable dividend ‒ ISK 2.0 billion added back to the CET1 capital through the IFRS9 ISK 41 bn. 27.6 transitional arrangemen
Slide 25: Arion Bank’s capital position in a Nordic context
Arion Bank’s capital position in a Nordic context Leverage ratio is an unbiased measurement of financial strength Capital ratio (%) * • Arion Bank is one of the best capitalized banks in the Nordic region 27.6 – Total capital ratio of 27.6% is 340 bps 24.2 5.1 23.7 above the second strongest bank 22
Slide 26: Going forward
Going forward Arion Bank is delivering on it’s strategy and will strive to build on the positive operational progress from the last quarters Macro economic developments could have an effect on growth and performance but Arion Bank will support its customers as much as possible and has the financial
Slide 27: Appendix
Yer ~ Appendix
Slide 28: 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 48.9 49.5 3.1 2.9 2.8 2.8 2.9 6.6 4.7 3.7 0.6 2016 2017 2018 2019 9M 2020 2016 2017 2018 2019 9M 2020 2016 2017 2018 2019 9M 2020 CPI imbalance (ISK billion) Operating income /
Slide 29: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 56.2 8.3 50.3 40.2 2.3 1.6 2.7 2.6 2.9 Q3-18 Q3-19 Q3-20 Q3-18 Q3-19 Q3-20 Q3-18 Q3-19 Q3-20 Loans-to-deposits ratio (%) Capital ratio (%) Operating income / REA (%) (without loans financed by
Slide 30: Key figures
Key figures Operations 9M 2020 9M 2019 9M 2018 9M 2017 9M 2016 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Net interest income 23,099 22,624 21,350 21,857 22,058 7,989 7,857 7,253 7,693 7,382 Net commission income 8,526 7,335 7,603 7,087 10,213 2,762 2,688 3,076 2,615 2,639 Operating income 36,051 36,27
Slide 31: Macroeconomic environment
Yer ~ Macroeconomic environment
Slide 32: Sharp contraction followed by growth next year
Sharp contraction followed by growth next year With prolonged travel restrictions more likely than ever the economic outlook for next year has deteriorated. GDP growth GDP per capita in 2020 (US dollars, thous. IMF’s • The coronavirus crisis has heavily impacted 6.6% estimates) the Icelandic economy
Slide 33: The operating environment is challenging in the near term
The operating environment is challenging in the near term 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. • With some of the largest export sectors EUR/ISK and CBI‘s
Slide 34: Fiscal and monetary responses soften the adverse economic situation
Fiscal and monetary responses soften the adverse economic situation The government and the CBI have underlined that all necessary measures will be taken. • Icelandic authorities have plenty of firepower at their disposal to support the Key interest rates (seven-day term deposit rate) Net internation
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