Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q2 2023 Earnings Presentation
38 slides from Arion Banki Hf's earnings presentation, Jul 26, 2023
Slide 1: Q2 results 2023
Q2 results 2023 Investor presentation 26 July 2023
Slide 2: Key results in Q2
Key results in Q2 Key results Medium-term targets Q2 2023 6M 2023 Arion Bank continues momentum with strong quarter Return on equity Exceed 13% ✔ 15.5% ✔ 14.5% ‒ 15.5% ROE in the quarter and 14.5% YTD Core operating income4 / REA Exceed 6.7% on core income ✔ 7.5% ✔ 7.2% ‒ Key medium-term targets exc
Slide 3: Key operational highlights in Q2
Key operational highlights in Q2 Positive progress in the development of Blikastadir Pillar 2 capital requirement for the Bank reduced to 2.1% of REA. A decrease of 1.4 percentage points YoY which greatly shortens the lending process Strong AuM development despite Ongoing activity in Corporate & cha
Slide 4: Arion supporting growth companies
Examples of Arion’s merchant banking activities with Icelandic growth Arion supporting companies growth companies • Kerecis recently announced a takeover bid from Coloplast A/S for all share capital in the company, with a valuation above USD 1.2bn (approx. ISK 175bn) making it an Icelandic Unicorn E
Slide 5: Positive progress in the development of Blikastadir
Positive progress in the development of Blikastadir Ambitious project which can strongly support future housing supply in the capital region - Draft of new master plan published by the municipality in June - One of the largest undeveloped plots of land in the capital area - Land covers 93.31 hectare
Slide 6: Macroeconomic environment
Macroeconomic environment
Slide 7: Tourism driven growth amid slowing private consumption
Tourism driven growth amid slowing private consumption GDP growth of 7% in Q1 2022. Strong growth albeit lower than Arion Research anticipated. Since May, evidence of cooling domestic demand has gradually emerged but many other sectors, most importantly tourism, have flourished. The number of touris
Slide 8: The outlook remains positive
The outlook remains GDP Growth - contribution of GDP components Exports - growth contribution of components 7% 22% positive 6% 4.3% 6.4% Economic growth Foreign trade 20% 20.6% Exports 5.1% Investment 18% Services - The Icelandic economy is set for strong 5% Public consumption 16% 14.7% Other Fisher
Slide 9: Mixed signals in the housing market
Mixed signals in the Housing price index in the Capital area - % change Housing investment - bn. ISK at 2022 prices Forecast housing market 30% 250 25% 200 - Recent price movements in the housing 20% market have been giving mixed signals. 15% 150 There was an unexpected surge in prices 10% in March
Slide 10: Inflation declining. Terminal rates in sight?
Inflation declining. Terminal 12% CPI by expenditure groups Wages and real wages - YoY %-change 12.0% Forecast rates in sight? 9.8% 10% 10.0% 8.3% 8.3% - Slower increases in housing prices or actual 8.0% 7.4% 8% declines are helping to reduce inflationary 6.5% 6.3% 6.4% pressure. Less imported infla
Slide 11: Financials
Financials
Slide 12: Key takeaways in Q2 2023
Key takeaways in Q2 2023 Operational ‣ Strong quarter with net profit of ISK 7.1bn resulting in ROE of 15.5% performance ‣ While loan growth is slowing, operational development across the Group remains robust Solid momentum ‣ Prudent loan loss provisioning despite risk indicators of credit quality r
Slide 13: Income statement Q2 2023
Income statement Q2 2023 Q2 2023 Q2 2022 Diff Q1 2023 Diff - Net profit of ISK 7.1bn resulting in ROE of 15.5% Net interest income 11,426 9,745 17% 10,994 4% Net commission income 4,187 4,582 (9%) 4,451 (6%) - Core income* increases 8% YoY and 10% from Q1 Insurance service results 762 924 (18%) (721
Slide 14: Income statement H1 2023
Income statement H1 2023 H1 2023 H1 2022 Diff Net interest income 22,420 19,221 17% - Net profit of ISK 13.4bn resulting in ROE of 14.5% Net commission income 8,638 8,138 6% - Core income* increases 13% YoY Insurance service results 41 360 (89%) - Strong increase in NII YoY, mainly due to increased
Slide 15: Net interest income
Net interest income Net interest income Main interests* (%) 11.4 Robust margin but rate sensitivity slowing 10.4 10.5 11.0 9.7 as expected 3.1% 3.2% 3.1% 3.1% 3.2% - Net interest income in Q2 increased by 17% from Q2 2022 and 4% between quarters from Q1 2023 - Policy rate increased from 2.75% at the
Slide 16: Net fee and commission income
Net fee and Net fee and commission income (ISK m) Net fee and commission income (ISK m) commission income 4,581 Diversified fee businesses support 45 4,451 8,638 343 142 8,138 continued strong fee generation 4,187 5,764 6,839 4,002 3,971 133 4,696 364 21 630 139 714 - Solid quarter in all fee genera
Slide 17: Insurance service results
Insurance service Combined ratio (%) Insurance service results results 103.0 115.2 22.4 80.7 21.4 79.3 73.7 Positive traction in bancassurance journey 16.7 18.5 924 768 762 18.7 92.9 ( 120) - Change in presentation of insurance results due to 81.5 64.1 60.8 ( 721) adoption of IFRS 17. Comparative hi
Slide 18: Net financial income
Net financial income Net financial income (ISK m) Bond holdings Continued market volatility impacts results 180.3 while equity holdings at Bank level 796 19.2 151.7 are reduced 157 722 138.2 148.3 146 11 16 (453) 18.5 50.8 (802) 74 17.5 - Another challenging quarter, especially for equity (164) 106
Slide 19: Operating expenses
Operating expenses* Cost-to-Core income ratio** (%) Total operating expenses A return to a more normalized quarter following Q1 which was impacted by one-off 8.3 items 6.6 1.6 7.3 6.8 54.3 5.8 - Total operating expenses outlined here include costs 3.2 2.8 2.8 2.9 related to insurance business which
Slide 20: Balance sheet
Balance sheet Deposit position supports lending growth Assets 30.06.2023 31.03.2023 Diff. 31.12.2022 Diff. 30.06.2022 Diff. Cash & balances with CB 76 80 (5%) 114 (33%) 78 (2%) - Robust and relatively simple balance sheet Loans to credit institutions 43 63 (31%) 46 (5%) 40 8% Loans to customers 1,13
Slide 21: Loans to customers
Loans to customers Loans to customers Loans to customers by sector (%) Combination of factors resulting in reduced 1,114 1,135 1,085 loan growth over past quarters 936 Other sectors 11.4 12.4 - Loans to customers increased by ISK 20.5bn or 823 542 3.8 3.8 1.8% during the quarter 502 525 7.8 8.3 Fina
Slide 22: Residential mortgages
Residential mortgages Residential mortgages by interest rate type (ISK bn) Interest rate reset profile for fixed rate mortgages (ISK bn) Nominal rate loans are 57% of the mortgage portfolio at end of The bulk of fixed nominal rate loans are reset in 2024 and 2025. Low default rates and comfortable L
Slide 23: Risk profile
Risk profile Strong credit quality indicators while a slight Development of non-performing loans, moratoria and Development of problem loans ratio for loan portfolios trend towards higher rate of payments past due forbearance (% of total loan book) (% of relevant loan book) observed 4.5 - Despite in
Slide 24: Loss allowance by IFRS 9 stages
Loss allowance by IFRS 9 stages On loans to customers total Thereof on loans to corporates IFRS9 economic scenarios and assumptions Loans to customers are 0.6% provisioned at Loans to corporates are 1.0% provisioned at Worsening economic outlook is captured in a movement of weights from the optimist
Slide 25: Deposits from customers
Deposits from Deposits Deposits by insurance scheme customers 727 755 34 775 35 781 28 74 69 343 655 59 72 Robust position in competitive market 45 32 40 81 45 53 74 - Seasoned and diversified deposit base supports 28 48 155 181 150 another quarter of growth in deposits 96 115 - Total deposits of IS
Slide 26: Borrowings
Borrowings Borrowings by type Maturities of borrowings and call dates on subordinated liabilities Conservative funding strategy with early 393 391 406 139.7 financing of upcoming FX maturities 123.1 357 93.5 299 172 180 164 Q4 - EUR 300 million senior preferred issue during the quarter 154 to prefun
Slide 27: Own funds
Own funds Capital ratio (%) Leverage ratio (%) Strong capital position 15.1 12.7 11.8 27.0 11.3 11.7 - Capital position increases between quarters with CET1 ratio increasing by 30 bps to 18.9% 2.9 23.8 24.0 23.7 23.9 - CET1 position 400 bps above regulatory 1.8 requirements 2.6 3.5 3.7 3.6 31.12.20
Slide 28: Own funds
Own funds Own funds and capital requirements (%) Capital ratios comfortably above regulatory requirements – considerable reduction of Pillar 2 capital requirement 23.9% - The FME has published a revised Pillar 2 requirement for the Bank at 2.1% of REA, based on year-end 2022 financials, a decrease o
Slide 29: Own funds
Own funds Own funds: capital requirements and rating benchmarks (%) Rating considerations impact capital management in the near-term CET1 capital 18.9% 18.1% ~ 400 bps 14.9% - The Bank’s issuer ratings from S&P and Moody’s are BBB (negative outlook) and Baa1 (positive outlook), respectively. - Both
Slide 30: MREL requirement
MREL requirement MREL requirement as % of REA* Comfortably exceeding MREL requirements - The BRRD I approach to MREL has been codified in Icelandic law 32.4% - Senior unsecured debt is MREL eligible unless it is excluded from the scope of bail-in - The Icelandic Resolution Authority (IRA) has publis
Slide 31: Going forward
Going forward Positive momentum and conservative balance sheet management Operating momentum has continued with a positive first Prudent balance sheet management with light wholesale half of the year where key medium-term targets are maturity profile. Loan provisioning also prudent despite risk exce
Slide 32: Appendix
Appendix
Slide 33: Key financial indicators - quarter
Key financial indicators - quarter Return on equity (%) Cost-to-Core income ratio (%)* Net interest margin (%) 21.8 2.9 3.1 3.2 16.3 15.5 51.0 42.0 39.4 Q2-21 Q2-22 Q2-23 Q2-21 Q2-22 Q2-23 Q2-21 Q2-22 Q2-23 Loans-to-deposits ratio (%) Core operating income / REA (%)* Capital ratio (%) (without loans
Slide 34: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-Core income ratio (%)* Net interest margin (%) 14.7 14.5 62.3 13.7 53.3 51.6 2.9 3.1 3.1 45.6 43.0 2.8 2.8 6.5 0.6 2019 2020 2021 2022 H1 2023 2019 2020 2021 2022 H1 2023 2019 2020 2021 2022 H1 2023 CPI imbalance (ISK bn) Core operating
Slide 35: Key figures
Key figures* Operations H1 2023 H1 2022 H1 2021 H1 2020 H1 2019 Q2 2023 Q1 2023 Q4 2022 Q3 2022 Q2 2022 Net interest income 22,420 19,221 15,358 15,110 15,242 11,426 10,994 10,524 10,421 9,745 Net commission income 8,638 8,138 6,839 5,764 4,696 4,187 4,451 3,972 4,002 4,582 Operating income 32,883 2
Slide 36: Vördur adopted IFRS 17 Insurance contracts
Vördur adopted IFRS 17 Insurance contracts IFRS 17 standard Main changes in presentation and amounts The insurance subsidiary Vördur adopted IFRS 17 Insurance A shift of insurance service expenses (both salary expenses and contracts 1 January 2023 when the standard came into effect. The other opex)
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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