Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q4 2023 Earnings Presentation
40 slides from Arion Banki Hf's earnings presentation, Feb 7, 2024
Slide 1: Q4 and full-year results 2023
Q4 and full-year results 2023 Investor presentation 7 February 2024
Slide 2: Arion Bank at a glance
Arion Bank at a glance Diversified financial institution in Iceland with strong market position Retail Banking Operating income 2023 (ISK 64.2bn) Corporate & Investment Banking (including insurance) (including insurance) ‣ Comprehensive financial services to individuals ‣ Corporate banking, advisory
Slide 3: Key results in Q4 and FY 2023
Key results in Q4 and Key results Medium-term targets Q4 2023 FY 2023 FY 2023 Return on equity Exceed 13% • 12.7% ✔ 13.6% Solid Q4 supports strong results for the full year Exceed 6.7% Core operating income4 / REA on core income ✔ 7.0% ✔ 7.1% ‒ 12.7% ROE in the quarter and 13.6% for the year Premium
Slide 4: Key milestones of the year
Key milestones of the year Markets and Stefnir delivered a solid performance despite a challenging market The Bank received strong ESG ratings Moody’s upgraded Arion Bank’s issuer backdrop and targets to be net zero by 2040 rating to A3 and assigned a new covered • AuM increased by 6.5% in 2023 and
Slide 5: Volcanic activity in the vicinity of Grindavík
Volcanic activity in the vicinity of Grindavík The Bank will continue to support its customers in the town of Grindavík through times of uncertainty Measures in response to volcanic activity near Grindavík - Following the events near Grindavík starting in November 2023, Arion Bank has offered to fre
Slide 6: Positive credit rating trajectory
Positive credit rating trajectory - An inaugural credit rating for Arion covered bonds from Moody’s was received in December. The Aa2 rating assigned is currently 3 notches higher than the sovereign rating and is now the highest rating by an Icelandic issuer - The rating reflects the high credit qua
Slide 7: The Bank received strong ESG ratings and aims to be net zero by 2040
The Bank received strong ESG ratings and aims to be net zero At the end of 2023 the Bank’s green asset pool was ISK 128bn by 2040 Committed finance by category Arion Bank became a member of Science Based Targets initiative (SBTi) and Net-Zero Banking Alliance (NZBA) at the end of % 5.3% 2023. For th
Slide 8: Women invest!
How it’s going Market campaign launched in January 2024 Women invest! Followed by seminars and online accessible information on how to Why start investing Women are underrepresented 3 weeks into the project, over 600 when it comes to investments women have already attended and finance seminars The o
Slide 9: Arion Bank's Capital Markets Day
Save the date – 1 March 2024 Arion Bank’s Capital Markets Day - Update on key strategic initiatives and outlook - Medium-term targets under review -The event will take place at the Bank’s headquarters and streamed live
Slide 10: Economic growth still slowing but strong exports reflect sound foundations
Economic growth still slowing but strong exports reflect sound foundations The Icelandic economy is slowing down, as is evident by the latest preliminary figures from Statistics Iceland. The economy only grew by 1.7% YoY (seasonally adjusted), with both private consumption and investment contracting
Slide 11: Households press harder on the brakes
Households press harder on the brakes - As interest rates have been increasing, consumer confidence is declining, and salaries are increasingly being spent on financial costs. As a result, households have started to hold back on spending. In Q3 2023 private consumption was 2.8% lower than its peak i
Slide 12: Inflation declining while homes await lower interest rates
Inflation declining while homes await lower interest rates - Inflation has started to slow down with the YoY price changes decreasing in the past few months in all major expenditure groups except for housing. Conveniently, imported inflation has been lower than price increases in other categories. T
Slide 13: Supporting Grindavík
Supporting Grindavík - The situation in Grindavík remains uncertain due to repeated volcanic eruptions and seismic activity. While the government has promised to support residents with reallocation, there is still little clarity on how this will be implemented. - The government could face significan
Slide 14: Housing prices in the Consumer Price Index
Housing prices in the Consumer Price Index - Housing cost has historically been increasing more than other subcomponents of the CPI and has therefore been a driving force in keeping up inflation. - This is especially true with imputed rentals for housing, which is essentially driven by real estate p
Slide 15: Small economy, strong foundations
Small economy, strong foundations Net international investment position Exports CBI's FX reserves - % of GDP - index, total in real terms in 2012=100 - bn. EUR 160 8 50% 7 140 6 0% 120 5 100 4 -50% 3 80 2 -100% 60 1 40 0 -150% -1 20 -2 0 -200% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2
Slide 16: Key takeaways from Q4 2023
Key takeaways from Q4 2023 Operational ‣ Solid quarter with ROE of 12.7%, resulting in a strong ROE for the year of 13.6%, with capital level significantly above medium-term target performance ‣ Robust core income momentum and strong recovery in financial income in the quarter Solid quarter complete
Slide 17: Income statement Q4 2023
Income statement Q4 2023 Q4 2022* Diff Q3 2023 Diff Q4 2023 Net interest income Net commission income 11,347 3,903 10,623 4,254 7% (8%) 10,918 3,848 4% 1% - Net profit of ISK 6.2bn resulting in ROE of Insurance service results (284) (232) 22% 395 - 12.7% Net financial income 1,370 (52) - (183) - - C
Slide 18: Income statement
Income statement 2022 * 2023 Net interest income 2023 44,685 40,201 Diff 11% - Net profit of ISK 25.7bn resulting in ROE of 13.6% Net commission income 16,389 16,449 (0%) Insurance service results 152 615 (75%) - Core income** increases 6.8% YoY Net financial income 1,366 (3,286) - - Strong increase
Slide 19: Net interest income
Net interest income Net interest income (ISK m) Main interests (%) Robust net interest margin - Net interest income in Q4 increased by 6.8% from Q4 2022 and by 3.9% from Q3 2023 - Central Bank base rate was 9.25% at year-end 2023 compared with 6% at year-end 2022 - Higher inflation in Q4 vs. Q3 part
Slide 20: Net fee and commission income
Net fee and Net fee and commission income (ISK m) Net fee and commission income (ISK m) commission income Diversified fee businesses support continued robust fee generation - Solid quarter with total fees of ISK 3.9bn, taking fees for the year to ISK 16.4bn representing 13% CAGR since 2019 - Net fee
Slide 21: Insurance results
Insurance service result (ISK m) Vördur ROE (%) Insurance results* - Continued steady growth of 15% in revenues between years and 11% CAGR over past five years with market share gradually increasing - Number of new customers increased by 2.1% YoY, corporate customers by 8.1% and individuals by 1.5%
Slide 22: Net financial income
Net financial income Net financial income (ISK m) Bond holdings (ISK bn) Recovery to a more normalized quarter following a period of volatility - More normalized quarter in income from equity and bond holdings following a challenging year in capital markets - Total investment portfolio of Vördur is
Slide 23: Operating expenses
Operating expenses* Cost-to-Core income ratio (%) Total operating expenses (ISK bn) Continued cost discipline while inflationary pressure remains - Total operating expenses outlined here include costs related to insurance business which is accounted for through insurance service results post IFRS17.
Slide 24: Balance sheet
Balance sheet Robust and relatively simple balance Assets 31.12.2023 30.09.2023 Diff. 31.12.2022 Diff. 31.12.2021 Diff. sheet Cash & balances with CB 102 80 27% 114 (11%) 69 48% Loans to credit institutions 29 51 (44%) 46 (37%) 30 (5%) - Loans to customers increased by 0.8% in Q4 Loans to customers
Slide 25: Loans to customers
Loans to customers Loans to customers (ISK bn) Loans to customers by sector (%) Growth slowing in line with economic activity and S&P constraints - Loans to customers increased by ISK 9.3bn or 0.8% during the quarter - Loans to corporates increased by ISK 2bn or 0.3% and loans to individuals increas
Slide 26: Residential mortgages
Residential mortgages Residential mortgages by interest rate type (ISK bn) Indexed mortgages were 51% of the portfolio at year-end. Interest rate reset profile for fixed rate mortgages (ISK bn) The bulk of fixed nominal rate loans are reset in 2024 and 2025. Currently, most mortgage applications are
Slide 27: Real estate sector
Real estate sector Loans to customers (ISK bn) Real estate collateral by type1 Diversified portfolio Loans to real estate companies are approx. 9.5% of total loans to customers and 1.0% are against office buildings Well diversified collateral in terms of real estate type - Overall real estate relate
Slide 28: 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 a slight trend towards higher rate of payments past due observed - Despite increa
Slide 29: 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 Deteriorating economic outlook is captured in a movement of weights during the past quarters from the Loans to customers are 0.74% provisioned at Loan
Slide 30: Deposits from customers
Deposits from Deposits (ISK bn) Deposit growth by LCR outflow category (ISK bn) customers (including due to credit institutions) Diversified deposit base supports strong position in competitive environment - Total deposits of ISK 793bn represent 60% of the Bank’s total liabilities - Decrease in depo
Slide 31: Borrowings
Borrowings Borrowings by type (ISK bn) Maturities of borrowings and call dates on Balanced maturity profile and improved subordinated liabilities (ISK bn) spread development - New Moody’s covered bond rating Aa2 on EUR dominated covered bonds. - 3 notches higher than the sovereign rating - Highest r
Slide 32: Own funds
Own funds Capital ratio (%) Leverage ratio (%) Strong capital position - Capital position remains very strong and well above medium term targets - CET1 ratio increasing in the quarter by 30 bps to 19.7% - Tier 2 ratio decreased by 70 bps due to ISK 6.6bn redemption of Tier 2 bonds without replacemen
Slide 33: Own funds
Own funds Own funds and capital requirements (%) Capital ratios comfortably above regulatory requirements - The Pillar 2 requirement for the Bank at 2.1% of REA, based on year-end 2022 financials - The countercyclical capital buffer in Iceland will increase from 2.0% to 2.5% in March 2024, bringing
Slide 34: Own funds
Own funds Own funds: capital requirements and rating benchmarks (%) Rating considerations impact capital management in the short- CET 1 Capital term ~ 480 bps - The Bank’s issuer ratings from Moody’s and S&P are A3 (stable outlook) and BBB (stable outlook) respectively - Both rating agencies’ assess
Slide 35: MREL requirement
MREL requirement MREL requirement as % of REA* Comfortably exceeding MREL requirements - The BRRD II approach to MREL has been codified in Icelandic law - Senior unsecured debt is MREL eligible unless it is excluded from the scope of bail-in - The Icelandic Resolution Authority (IRA) has published i
Slide 36: Going forward
Going forward Another strong operational year and a robust platform for the future Solid fourth quarter concludes another strong operational Very robust capital, liquidity and funding position. Near-term year for the Group in what continues to be a volatile capital management driven by S&P position,
Slide 37: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-Core income ratio (%) Net interest margin (%) Loans to deposits ratio (%) Core operating income / REA (%)* Risk exposure amount / Total assets (%) (without loans financed by covered bonds)
Slide 38: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-Core income ratio (%) Net interest margin (%) CPI imbalance (ISK bn) Core operating income / REA (%)* Risk exposure amount / Total assets (%)
Slide 39: Key figures
Key figures* Operations 2023 2022 2021 2020 2019 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022 Net interest income 44,685 40,201 32,063 31,158 30,317 11,347 10,918 11,426 10,994 10,623 Net commission income 16,389 16,449 14,673 11,642 9,950 3,903 3,848 4,187 4,451 4,254 Operating income 64,181 55,293 58,2
Slide 40: 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