Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q1 2022 Earnings Presentation
35 slides from Arion Banki Hf's earnings presentation, May 4, 2022
Slide 1: Q1 results 2022
Q1 results 2022 Investor presentation 4 May 2022
Slide 2: Key results Q1 2022
Key results Q1 2022 Q1 2022 Medium term targets • Solid start to the year and the Bank is on track to Return on equity 12.7% Exceed 13% meet medium-term targets Operating income / REA 6.9% Exceed 7.3% – Operating income increased 11% YoY, mainly due to net interest income Premium growth (net of Insu
Slide 3: Recent management changes
Recent management Board of Directors changes Internal Audit Sigrídur Gudmundsdóttir Recent changes leverage in-house talent and CEO cooperation across the organization Benedikt Gíslason • Ida Brá Benediktsdóttir - Deputy CEO Deputy CEO CEO's Office Ida Brá Benediktsdóttir • Hákon Hrafn Gröndal - MD
Slide 4: Strong progress with CIB strategy
Strong progress with CIB strategy Over ISK 36bn of corporate loans sold/syndicated in past couple of years and international exposure in the Arctic region has increased by 87% in the same period Capital velocity Diversification into broader Arctic region Loans to corporates sold to institutional inv
Slide 5: Target is for the green loan book to grow at double the growth rate
Target is for the green loan book to grow at double the growth rate of the total loan book * Arion Bank has issued ISK 51.7bn in green bonds, Arion Bank has committed green projects that Green financing is committed to numerous project categories which represents 14.0% of total debt instruments repr
Slide 6: Mosfellsbær and Arion Bank agreement on development of Blikastaðir land
Mosfellsbær and Arion Bank approve an agreement on the development of the land of Blikastaðir One of the largest undeveloped areas in the capital region of Iceland to be planned in cooperation with the municipality of Mosfellsbær Blikastaðaland ehf., a holding company wholly owned by Arion Bank and
Slide 7: Valitor and Solbjarg - progress with assets held for sale
Valitor and Solbjarg - progress with assets held for sale • Rapyd´s agreement with Arion Bank to acquire Valitor extended until 1 June 2022 • According to the original agreement the purchase price paid by Rapyd for Valitor was $100 million. • Due to the delays in completing the transaction Rapyd has
Slide 8: Macroeconomic environment
Macroeconomic environment
Slide 9: From Omicron to war: Economic growth is still going strong
From Omicron to war: Economic growth is still going strong At the end of February all public restrictions due to the pandemic were lifted in Iceland - and Russia invaded Ukraine. So far, the direct effects of the war on the economy have been limited, mostly confined to the seafood industry, but the
Slide 10: The economic outlook is still bright
The economic outlook is still bright Tourism is on the mend – despite the war in Ukraine -, unemployment has reached pre-pandemic levels and domestic demand is thriving. The economy is set for a strong GDP growth in 2022, driven by private consumption and business investment. GDP growth – IMF’s fore
Slide 11: Key challenges ahead
Key challenges ahead Sharp rises in the housing market and persistent inflation Advertised capital area property and housing prices – no. Composition of the Icelandic CPI • House prices rose sharply in Q1, increasing and YoY %-change 8% by 22% YoY. At first, the price increases were 4,000 25% 7% dri
Slide 12: The war in Ukraine has had limited effect – so far!
The war in Ukraine has had limited effect – so far! The impact is almost entirely limited to the seafood industry. Share in total exports of goods Trade in goods in Q1 – bn. ISK at constant exchange rate • Due to the war in Ukraine certain market 300 areas for pelagic fish and used fishing vessels 3
Slide 13: Financials
Financials Relevant and competitive customer experience CFO – Ólafur Hrafn Höskuldsson
Slide 14: Key takeaways in Q1 2022
Key takeaways in Q1 2022 Solid quarter driven by robust growth and improving net interest margin Profitability • ROE of 12.7% in the quarter and Core Income1 increases 15.9% YoY In line with target • Strong pipeline and good outlook across business units • Very strong development in NIM, increasing
Slide 15: Income statement Q1 2022
Income statement Q1 2022 Continuing growth in core income Q1 2022 Q1 2021 Diff% Q4 2021 Diff% • Net earnings of ISK 5.8bn and 12.7% ROE compared with 13.4% and 12.5% in Q4 and Q1 Net interest income 9,528 7,342 30% 8,768 9% 2021 respectively Net commission income 3,552 3,277 8% 4,079 (13%) • Core in
Slide 16: Core income increases significantly YoY
Core income increases significantly YoY Decrease in net earnings YoY, mostly due to turnaround in net impairments from previous year. Strong momentum in Core Earnings. Q1 2021 vs Q1 2022 (378) (153) 1,795 (1,575) 100 (10) 6,039 5,818 Net earnings Difference in Difference in Difference in operating D
Slide 17: Net interest income
Net interest income Increased policy rates and growth in corporate lending supports net interest income Net interest income Credit risk • Net interest income increased by 29.8% from Q1 2021 whilst average interest bearing assets increased 9.5 745 by 12%, mainly loans to customers but interest 8.8 8.
Slide 18: Net fee and commission income
Net fee and commission income Diversified operation supports the fee business Net fee and commission income Assets under management • Income from asset management increased 21% from (ISK bn) Q1 2021 through higher AUM and increasing flows 14.0% into equity funds 8.4% • Strong result from capital mar
Slide 19: Net insurance income
Net insurance income Improving operations but increased claims due to bad weather conditions in the quarter and more traveling due to less COVID restrictions Combined ratio of Q1 Gross written premiums per quarter • Net earnings for Vördur in the quarter was a loss of ISK 80m compared to a profit of
Slide 20: Net financial income
Net financial income Acceptable outcome in the quarter following difficult beginning of the year Net financial income (ISK mn) Bond holdings • Bond holdings are predominantly used for liquidity 163.7 151.9 management and fluctuate in line with funding needs 15.1 139.0 2,203 16.0 and equity distribut
Slide 21: Total operating expenses
Total operating expenses Significant efficiency gains over past years results in lower cost-to-income ratio Cost-to-income ratio (%) Total operating expenses • Ongoing focus on opex and efficiency results in favorable development 51.6 • Number of FTEs continues to trend down, 2.5% from 46.2 7.9 Q1 2
Slide 22: Balance sheet
Balance sheet Strong loan growth supported by increase in core deposits Assets 31.03.2021 31.12.2021 31.03.2022 • Loans to customers increased by 4.3% in Q1 and 16.6% from Q1 2021 Cash & balances with CB 60 69 64 • Liquidity position remains strong despite ISK 26.7bn capital distribution through div
Slide 23: Loans to customers
Loans to customers Growth mainly in corporate lending during the first quarter of 2022 Loans to customers Loans to customers by sector (%) • Loans to customers increased by 4.3% during the 976 936 quarter, largely in loans to corporates or 8% but only 1% in loans to individuals 823 837 10.0 11.2 Oth
Slide 24: Loss allowance on loans to customers by IFRS 9 stages
Loss allowance on loans to customers by IFRS 9 stages Total loss allowance increased in Q1 2022, mainly due to changes in IFRS models and increase in corporate loan book On loans to customers total On individuals On corporates Thereof tourism exposure 12.2 11.6 9.7 9.3 6.9 8.0 6.6 7.6 5.6 5.5 6.1 5.
Slide 25: Risk profile of balance sheet improving and economic outlook constructive
Risk profile of balance sheet improving and economic outlook constructive Increased portion of mortgages in total loan book reducing normalized Cost of Risk and moratorium assets now mostly performing Development of non-performing loans, moratoria and forbearance (% total loan book) • The change in
Slide 26: Deposits
Deposits Strong development in core deposits continues Deposits and due to credit institutions Maturity of deposits (%) • Deposits represent 59% of the Bank’s total liabilities, and Central Bank 684 the same as at year-end 2021 660 602 93 580 94 • Growth of 3.7% in core deposits from YE 2021 and 13
Slide 27: Borrowings
Borrowings Balanced funding profile with evenly distributed maturities of long term funding Borrowings by type Maturities of borrowings • Successful EUR 200m covered bond tap in March 2022 • Active in the Domestic market with total issuance of ISK 84.9 89.8 9.2bn 73.6 • The Bank will continue to reg
Slide 28: Own funds
Own funds The capital ratios continue to be very strong while capital optimization efforts are ongoing Total capital ratio (%) Leverage ratio (%) • The CET1 decreased by 0.5% in Q1, mainly due to 15.1 14.7 14.1 increase in credit risk 12.6 12.5 • REA increased by 7.1% in Q1 with lending growth 27.0
Slide 29: Capital adequacy
Capital adequacy Capital ratios remain strong following significant distributions to shareholders Own funds and capital requirements (%) • ISK 22.5 billion of dividends paid out in March 2022 • Interim profits of ISK 5.8bn and corresponding foreseeable dividends of ISK 2.9bn included in the capital
Slide 30: MREL requirement
MREL requirement The Icelandic Resolution Authority has published its MREL policy MREL requirement as % of REA* • The BRRD I approach to MREL has been codified in Icelandic law Actual 31.03.2022 Assuming phased in CCyB • Senior unsecured debt is MREL eligible unless it is excluded from the scope of
Slide 31: Going forward
Going forward Strong progress in core operations, while external environment continues to produce challenges Continued strength of core operations, with increasing net interest income building on the foundations of the enhanced non-interest revenue base of fees and net insurance Normalization of rat
Slide 32: Key financial indicators – annual
Key financial indicators – annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 14.7 56.9 56.0 12.7 48.1 2.9 3.1 44.4 42.7 2.8 2.8 2.8 6.5 3.7 0.6 2018 2019 2020 2021 Q1 2022 2018 2019 2020 2021 Q1 2022 2018 2019 2020 2021 Q1 2022 CPI imbalance (ISK bn) Operating income / REA
Slide 33: Key financial indicators – quarterly
Key financial indicators – quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 69.2 46.2 12.5 12.7 42.7 2.8 2.7 3.1 Q1-20 Q1-21 Q1-22 Q1-20 Q1-21 Q1-22 Q1-20 Q1-21 Q1-22 (4.6) Loans-to-deposits ratio (%) Operating income / REA (%) Capital ratio (%) (without loans financed
Slide 34: Key figures
Key figures Operations Q1 2022 Q1 2021 Q1 2020 Q1 2019 Q1 2018 Q1 2022 Q4 2021 Q3 2021 Q2 2021 Q1 2021 Net interest income 9,528 7,342 7,253 7,434 6,827 9,528 8,768 7,937 8,016 7,342 Net commission income 3,552 3,277 3,076 2,218 2,205 3,552 4,079 3,755 3,562 3,277 Operating income 14,514 13,097 8,97
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