Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Arion Bank — FY2019 Earnings Presentation
33 slides from Arion Banki Hf's earnings presentation, Feb 12, 2020
Slide 1: Fourth quarter and full year results 2019
Fourth quarter and full year results 2019 Investor presentation 12 February 2020
Slide 2: Highlights of the year 2019
Highlights of the year 2019 Arion Bank is on a new trajectory after having undergone significant management and organizational changes and improvement measures in Q3 Earnings from continuing operations are ISK 14 billion and improve significantly. ROE from continuing operations improves YoY from 4.3
Slide 3: Arion Bank Group
Arion Bank Group Diversified business model and strong market position Retail Banking CIB Markets Insurance • Digital leader in the retail • Corporate banking and • Largest asset manager in the • The Bank’s subsidiary Vördur market strategic advisory Icelandic market is the largest life insurance •
Slide 4: Digital services are changing customer behavior
Digital services are changing customer behavior The Bank’s digital journey has increased revenues and reduced costs Active online bank users1 Active Arion App users1 • The growth in active Arion Bank app users was +22% 000s 000s 22% in 2019 +26% +5% (3)% 0% (4)% +6% +31% ‒ During the year active app
Slide 5: Arion Bank focuses on sustainable and responsible banking
Arion Bank focuses on sustainable and responsible banking International and domestic Arion Bank’s Environment Gender Equality Corporate Governance commitments and Climate Policy • A founding signatory of the UN PRB • Adopted in December 2019 • First bank in Iceland to gain the equal • Center for Cor
Slide 6: Macroeconomic environment
oe Macroeconomic environment
Slide 7: Iceland is focused on sustainability
Iceland is focused on sustainability Committed to being carbon neutral by 2040 Iceland: Share of Renewables in Primary Energy Use 1940-2018 • Iceland ranks at the forefront when it comes to 1946 share of renewables in energy consumption, Member of United Nations 100% mostly through hydro and geother
Slide 8: Soft landing, slow takeoff
Soft landing, slow takeoff GDP growth measured 0.2% in the first nine months of 2019, indicating milder slowdown than expected GDP growth GDP per capita in 2018 (USD thousands) • Despite falling exports the contribution of 6.6% 75 foreign trade to GDP growth is positive due to an even larger drop in
Slide 9: Unemployment expected to peak in 2020
Unemployment expected to peak in 2020 Economic adjustment through the labor market, not price levels The ISK against major trade currencies Unemployment– seasonally adjusted trend • Much larger drop in imports than anticipated 150 8% and slower outflow into foreign assets 7% supported the ISK in Q4,
Slide 10: Strong foundations
Strong foundations The export sectors, especially tourism, have proved to be resilient in the face of adversity Consumption per tourist - YoY %-change Net international investment position - % of GDP • Since WOW air’s bankruptcy, spending per 30% 30% tourist has increased significantly, both in 25%
Slide 11: Financials
Financials
Slide 12: Highlights of the fourth quarter 2019
Highlights of the fourth quarter 2019 Arion Bank’s revised strategy and organizational changes are already showing results as earnings from continuing operations continue to improve, yielding 10.8% ROE in Q4 ‒ NIM improves to 3% ‒ OPEX trends lower on the back of actions in Q3 ‒ Revenues / RWA’s at
Slide 13: Net earnings from continuing operations Q4'18 vs. Q4'19
Net earnings from continuing operations Q4’18 vs. Q4’19 (98) 1,582 204 508 (352) 357 5,209 1,489 (613) 2,132 Net earnings Inflation Equities Salaries and Other operating Bank levy Impairment Sale of Mortgage Other Net earnings Q4'18 related expenses expenses portfolio Q4'19 13 13 February 2020
Slide 14: Income statement Q4 2019
Income statement Q4 2019 Net earnings from continued operations improve markedly but discontinued operations have significant negative effect • Net interest income decreases slightly as Q4 2019 Q4 2018 Diff% Q3 2019 Diff% inflation is low and loan book is reduced in Net interest income 7,693 7,969 (
Slide 15: Income statement 2019
Income statement 2019 The positive effect of the Bank’s revised strategy in Q3 is not fully reflected in the full year numbers • Strong growth in net interest income despite 2019 2018 Diff Diff% lower inflation mostly due to higher (average) Net interest income 30,317 29,319 998 3% interest bearing
Slide 16: Net interest income
Net interest income Revised strategy reflected in positive development in NIM as well as ratio of net interest income to credit risk Net interest income Credit risk • Net interest margin increases to 3% in Q4 in line with revised strategy of 8.0 7.8 7.7 694 increased focus on returns rather than 7.4
Slide 17: Net fee and commission and net insurance income
Net fee and commission and net insurance income Stable net commission income with scope for improvement - net insurance income continues to trend positively Net insurance income Net fee and commission income 1.1 2.7 2.6 2.6 0.3 2.5 0.8 2.2 0.4 0.3 0.3 0.7 0.7 0.4 0.3 0.3 0.4 0.4 109.6% 0.6 0.3 0.4 0
Slide 18: Net financial income
Net financial income Decrease in bond holdings as the Bank is managing liquidity and tax at year end Bond holdings Net financial income • Net financial income in Q4 was positively affected by: 115.4 – Equity holdings measured at fair value as markets were favorable 94.6 1.0 31.1 81.0 during the quar
Slide 19: Total operating expenses
Total operating expenses Cost-to-income is trending towards target Cost-to-income ratio (%) Total operating expenses • Number of FTE’s reduced by 13.5% at the parent company from Q4 2018, mostly due to organizational changes at the end of Q3 with cost savings 6.6 6.9 6.6 6.9 6.5 materializing in Q4
Slide 20: Balance sheet - Assets
Balance sheet - Assets Balance sheet brought down in line with strategy as both loans and liquidity decrease • The Balance sheet decreases by 10.8% 31.12.2019 30.09.2019 31.12.2018 from 30.09.2019 ISK 1,082 billion ISK 1,213 billion ISK 1,164 billion • Loans to customers decrease by 4.7% from 30.09.
Slide 21: Loans to customers
Loans to customers Focus on profitability results in the loan book trending lower thus releasing RWA’s Loans to customers Loans to customers by sector (%) • Loans to customers decrease by 7.2% during 2019 • The loan book continues to be well Individuals balanced between individuals and corporates 13
Slide 22: Balance sheet – Liabilities and equity
Balance sheet – Liabilities and equity Deposits are increasing in the funding mix • Strong equity position and a very high 31.12.2019 30.09.2019 31.12.2018 leverage ratio despite capital release ISK 1,082 billion ISK 1,213 billion ISK 1,164 billion – Dividend payments of ISK 9.1 billion in Q1 2019 –
Slide 23: Deposits
Deposits Continued focus on deposits both from individuals and corporates Deposits and due to credit institutions and Central Bank Maturity of deposits (%) • Deposits represent 46% of the Bank’s funding • Deposits from individuals have grown On demand significantly over the last few years 5 9 − 4.8%
Slide 24: Borrowings
Borrowings Reduced wholesale activity in line with changed focus on the asset side Borrowings by type Maturities of borrowings (%) • Continued emphasis on reduction of funding cost both through prepayments, buy-backs or other activities • The Bank fully prepaid ISK 62 billion of its 79.9 structured
Slide 25: Own funds
Own funds Capital ratio very strong despite dividends, buy-back of own shares and impairment of held for sale assets Capital ratio (%) Leverage ratio (%) • CET 1 ratio decreases from 21.6% to 21.2% due to proposed dividend of ISK 10.0 billion and buy-back of the Bank’s shares amounting to ISK 4.7 bi
Slide 26: Capital adequacy
Capital adequacy The Bank’s management buffer now communicated as a range from 100 to 200bps Own funds and capital requirements (%) • Improved capital ratios in Q4 ‒ Risk-weighted assets decreased by 5% ‒ ISK 5.4 bn. issuance of Tier 2 capital instruments • Distribution of ISK 14.2 bn in Q1 2020 ded
Slide 27: Arion Bank is committed to its medium-term targets
Arion Bank is committed to its medium-term targets New revenue target introduced and loan growth target amended Return on Equity Exceed 10% Revenues / RWA’s Exceed 6.5% Cost to Income Ratio Reduce to circa 50% Loan growth The loan book will grow in line with economic growth. However, the corporate l
Slide 28: Going forward
Going forward Continued emphasis on measures to reach financial targets The macroeconomic developments are of concern both domestically and internationally Continued decrease in RWA’s Increased focus on other operating expenses Sale process of Valitor continues but is taking more time than originall
Slide 29: KFI's and other information
6 x KFI’s and other information
Slide 30: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 28.1 56.0 56.9 56.0 48.9 3.0 3.1 2.9 2.8 2.8 32.4 10.5 6.6 3.7 0.6 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 CPI imbalance (ISK billion) Operating income / RWA (%)
Slide 31: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 60.3 53.0 54.9 7.3 3.2 2.7 2.9 3.0 (5.8) Q4-17 Q4-18 Q4-19 Q4-17 Q4-18 Q4-19 Q4-17 Q4-18 Q4-19 Loans-to-deposits ratio (%) Capital ratio (%) Operating income / RWA (%) (without loans financed b
Slide 32: Key figures
Key figures Operations 2019 2018 2017 2016 2015 Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Net interest income 30,317 29,319 28,920 29,900 26,992 7,693 7,382 7,808 7,434 7,969 Net commission income 9,950 10,349 10,211 13,978 14,485 2,615 2,639 2,478 2,218 2,746 Operating income 47,998 46,169 46,863 54,
Slide 33: 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