Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q4 2020 Earnings Presentation
39 slides from Arion Banki Hf's earnings presentation, Feb 12, 2021
Slide 1: Fourth quarter and full year results 2020
Fourth quarter and full year results 2020 Investor presentation 10 February 2021
Slide 2: Key takeaways in Q4
Key takeaways in Q4 Strong performance as Arion Bank prepares for the future with revised Strategic Direction and updated Medium Term Targets • The best quarter in over 3 years as most line items exceed expectations The Bank delivers strong results as • Return on equity above the 10% target and 14.9
Slide 3: Revised strategy introduced in 2021
Revised strategy introduced in 2021 Values We find We make a We get We say what solutions difference things done we mean Positioning: To excel by offering smart and reliable financial solutions which create future value for our customers, shareholders and society as a whole. Excel at what Offer smar
Slide 4: Successfully dealing with COVID-19
Successfully dealing with COVID-19 Numerous volume indicators show economic resilience despite pandemic impact Payment card turnover Direct COVID-19 fiscal measures (% of GDP) Mortgage market activity – turnover ISK millions and number of new contracts 20% 20% 15% 18% 70.000 1.200 10% 16% 60.000 1.0
Slide 5: The economy is forecast to rebound in second half of 2021
The economy is forecast to rebound in second half of 2021 Monetary and fiscal measures have been significant but the low government debt levels show that there is scope for more if required. Inflation is expected to be short lived and unemployment which is currently around 12% will trend down over t
Slide 6: Leading financial services platform with considerable further potential
Leading financial services platform with considerable further potential Over 42 million annual interactions with our clients, 99% of which are through digital channels. Leading to 73% of sales transactions through digital channels. Digital Interactions Traditional Interactions Video conferencing Loy
Slide 7: A comprehensive digital journey has created a market leading platform
A comprehensive digital journey has created a market leading platform Next phase focused on further utilizing this platform and intergrade into broader customer journeys Daily interactions made Winning daily Integrate into broader available online interactions customer journeys • 3-minute process fo
Slide 8: Responsible banking that creates value for the future
Responsible banking that creates value for the future The Bank has reduced carbon emission in its own operations by 35% since 2015 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 • Customer
Slide 9: Net earnings from continuing operations improve significantly YoY
Net earnings from continuing operations improve significantly YoY Positive developments both in core income items and operating expenses Q4 2019 vs. Q4 2020 94 (164) (1,129) 1,116 2,077 910 8,110 Operating income increases 25% YoY 5,206 Net earnings from Difference in core Difference in other Differ
Slide 10: Improved performance and outlook reflected in updated medium-term financial targets
Improved performance and outlook reflected in updated medium- term financial targets Return on Equity Exceed 10% Revenues / REAs Exceed 6.7% - was 6.5% Cost to Income Ratio Reduce to 45% - was 50% Loan growth The loan book will grow in line with economic growth, with growth in mortgage lending expec
Slide 11: Financials
Financials
Slide 12: Operational highlights of the fourth quarter 2020
Operational highlights of the fourth quarter 2020 • Arion Bank’s strategy results in core operations trending positively ‒ Core revenues up 8.2% YoY ‒ NII to Credit risk improves YoY ‒ OPEX is under control • All other items favorable ‒ Financial income up as is other income ‒ Impairments are margin
Slide 13: Income statement Q4 2020
Income statement Q4 2020 Very strong quarter – Revised strategy results in robust growth in earnings Q4 2020 Q4 2019 Diff% Q3 2020 Diff% • Strong growth in core income; NII, NCI and Net interest income 8,059 7,693 5% 7,989 1% Net insurance income, increase of 8.2% YoY and 1.2% from Q3 Net commission
Slide 14: Income statement 2020
Income statement 2020 Continuous improvement in core operations 2020 2019 Diff Diff% • Core income; NII, NCI and Net insurance Net interest income 31,158 30,317 841 3% income, increases 6.3% YoY Net commission income 11,642 9,950 1,692 17% – Focus on earnings in corporate lending Net insurance incom
Slide 15: Net interest income
Net interest income Strong NIM in a record low interest rate environment Net interest income Credit risk • Net interest income increased by 4.8% from Q4 2019, average interest bearing assets increased by 7.5%, mainly 8.0 8.1 7.7 7.9 mortgages and liquid assets 7.3 • Strong net interest margin in lig
Slide 16: Net fee and commission income and net insurance income
Net fee and commission income and net insurance income Net fee and commission income continue to trend positively Net fee and commission income Net insurance income 1.0 3.1 3.1 0.8 0.8 2.7 2.8 0.3 0.7 2.6 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.5 1.1 1.0 94.4% 103.5% 0.7 1.0 0.9 94.5% 96.8% 82.9% 0.4
Slide 17: Net financial income
Net financial income Very strong quarter driven by strong performance in equities Net financial income Bond holdings • Net financial income in Q4 driven by: 2.7 – Equity holdings measured at fair value 171.9 157.7 1.4 – Solid performance in equities market 131.0 140.6 making 0.7 0.5 108.9 74.0 96.9
Slide 18: Total operating expenses
Total operating expenses Cost-to-income ratio of 48.1% in 2020, a significant improvement from 56.0% in prior year Cost-to-income ratio (%) Total operating expenses • Salaries expenses are stable in Q4 but other OPEX increases slightly YoY • Number of FTEs down 3% YoY (6% at 69.2 6.4 6.2 6.4 6.6 par
Slide 19: Balance sheet – Assets
Balance sheet – Assets Mortgage lending and increased liquid assets drive 8.4% balance sheet growth in 2020 • Loans to customers increased by 6.3% 31.12.2020 30.09.2020 31.12.2019 from YE 2019 ISK 1,173 billion ISK 1,236 billion ISK 1,082 billion – Mortgage lending was up 21.9% – Corporate lending m
Slide 20: Loans to customers
Loans to customers Low risk and capital light retail mortgages 46% of the loan book Loans to customers Loans to customers by sector (%) • Loans to individuals increased by 17.6% during the year due to strong mortgage lending Individuals which increased by 21.8%. Mortgage lending 11 Real Estate & Con
Slide 21: Covid-19 impacts ISK 102 billion or 12% of the loan book
Covid-19 impacts ISK 102 billion or 12% of the loan book IFRS 9 impairments are forward looking but management overlay is necessary Breakdown of loans to customers (% of gross carrying Loans to individuals with Covid-19 related payment moratoria • IFRS 9 models do not fully capture amount) (ISK bill
Slide 22: Loans to customers – asset quality
Loans to customers – asset quality Very well collateralized loan portfolio supports asset quality Loans to customers by sector (ISK billion) • Approximately 91% of loans to customers are secured by collateral, of 379 which 73% are secured by real estate • Mortgages to individuals are about 46% of th
Slide 23: 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 effect on loans to individuals which comprises 53% of the loan book On loans to customers total On individuals On corporates Thereof on tourism exposure 13.7 12.2 10.5 11.9 9.5 8.7 9.2 8.3 6.9 6.6 6.6 8.1 5.6 6.0 5.1
Slide 24: Balance sheet – Liabilities and equity
Balance sheet – Liabilities and equity Deposits increasing in the funding mix in line with strategy • Strong equity position and a very high 31.12.2020 30.09.2020 31.12.2019 leverage ratio ISK 1,173 billion ISK 1,236 billion ISK 1,082 billion • The Bank is a frequent issuer of covered bonds in the d
Slide 25: Deposits
Deposits Strategic focus on deposits is showing Deposits and due to credit institutions and Central Bank Maturity of deposits (%) • Deposits represent 58% of the Bank’s total liabilities • Strong growth of 14.0% in core deposits from YE 2019 On demand 6 3 – Core deposits are from individuals, SME’s
Slide 26: Borrowings
Borrowings Prudent balance sheet management – New €300 million senior unsecured issue in Q4 in conjunction with a tender offer Borrowings by type Maturities of borrowings • In November 2020 Arion launched a new EUR 300 million senior unsecured bond following an announcement of the issue the previous
Slide 27: Own funds
Own funds The Bank deducts ISK 18 billion in dividend payment and buy back in 2021 Capital ratio (%) Leverage ratio (%) • The CET1 ratio is further enhanced to 22.2% from 21.2% at year end 2019 through earnings, management of REA 15.4 15.1 and IFRS 9 related regulatory changes 14.2 14.1 14.3 27.6 •
Slide 28: Capital adequacy
Capital adequacy Exceptionally strong capital position which needs to be moved to normal levels Own funds and capital requirements (%) • Total capital ratio of 27.0% and CET1 ratio of 22.3% 29.4 • Total foreseeable dividend and buy back of own shares of ISK 18.0 billion included in the capital ratio
Slide 29: 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 – Total capital ratio of 27.0% is 190 bps 27.0 24.3 25.1 above the second strongest bank 4.7 22
Slide 30: Going forward
Going forward • Arion Bank, armed with an updated strategic vision which follows on the back of extensive organizational changes from September 2019, will strive to build on the positive operational progress from the last quarters • Growth of mortgage lending is expected to continue and further step
Slide 31: Appendix
6 me Appendix
Slide 32: 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 48.1 3.1 2.9 2.8 2.8 2.9 6.6 6.5 3.7 0.6 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 CPI imbalance (ISK billion) Operating income / REA (%)
Slide 33: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 11.8 60.3 54.9 44.9 3.2 2.9 3.0 2.9 (5.8) Q4-18 Q4-19 Q4-20 Q4-18 Q4-19 Q4-20 Q4-18 Q4-19 Q4-20 Loans-to-deposits ratio (%) Capital ratio (%) Operating income / REA (%) (without loans financed
Slide 34: Key figures
Key figures Operations 2020 2019 2018 2017 2016 Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Net interest income 31,158 30,317 29,319 28,920 29,900 8,059 7,989 7,857 7,253 7,693 Net commission income 11,642 9,950 10,349 10,211 13,978 3,116 2,762 2,688 3,076 2,615 Operating income 50,764 47,998 46,169 46,
Slide 35: Macroeconomic environment
Macroeconomic environment
Slide 36: Uncertain short-term outlook while the future should be bright
Uncertain short-term outlook while the future should be bright The year is off to a slow start, with the economic contraction set to extend into the year • The Coronavirus Crisis has heavily impacted the Icelandic economy due to its GDP growth GDP per capita in 2020 (PPP, International dollars, thou
Slide 37: Divided domestic market
Divided domestic market While unemployment continues to climb wages are on the rise. Despite inflation inching upwards purchasing power has increased, pushing housing prices higher. EUR/ISK and CBI‘s intervention in the FX market (bn. Inflation and inflation target 14 ISK) 170 • With the largest exp
Slide 38: Fiscal and monetary responses soften the economic blow
Fiscal and monetary responses soften the economic blow The government and the CBI Governor have underlined that all necessary measures will be taken to support the economy through the crisis. • Unlike many neighboring countries the Icelandic authorities had plenty of firepower at their disposal to s
Slide 39: 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