Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q3 2023 Earnings Presentation
35 slides from Arion Banki Hf's earnings presentation, Oct 26, 2023
Slide 1: Q3 Results 2023
Q3 Results 2023 Investor presentation 26 October 2023
Slide 2: Key results in Q3
Key results in Q3 Key results Medium-term targets Q3 2023 9M 2023 Arion Bank continues momentum with solid quarter Return on equity Exceed 13% • 12.9% ✔ 13.9% ‒ 12.9% ROE in the quarter and 13.9% YTD Core operating income4 / REA Exceed 6.7% on core income ✔ 7.0% ✔ 7.2% ‒ Key medium-term targets exce
Slide 3: Icelandic economy: Growth continues to slow amid mixed short-term signals
Icelandic economy: Growth continues to slow amid mixed short-term signals GDP grew by 4.2% in Q2 2023 by OECD measurements, and 4.5% YoY, signaling the economy remains strong. Labour market figures indicate continued growth in Q3, and strong exports are improving the current account. However, signs
Slide 4: The outlook remains positive
Economic growth Exports The outlook remains - growth contributions of GDP components 24% - growth contribution of components 22.3% 8% 7.2% positive 7% 22% 20% Exports 6% 18% Services - The Icelandic economy is set for strong growth 5% 4.5% 4.5% 16% 14.6% Other Fisheries in 2023, as illustrated by hi
Slide 5: Households tap the brakes
Households tap the Payment card turnover and private consumption - quarterly data, YoY-% growth, constant prices/exchange 30% Housing price index in the Capital area - % change rate brakes 20% 160 25% 15% 140 20% - Households are visibly affected by tighter 120 10% monetary policy and expectations o
Slide 6: Inflation has slowed but rates might rise further
Inflation has slowed but 12% CPI by expenditure groups Wages and real wages - YoY %-change 10.0% 9.5% Forecast rates might rise further 10% 8.3% 8.3% 8.0% 7.1% - Inflation continued to decelerate in Q3, although 6.5% 6.7% 6.3% 8% the signals from the most recent CPI numbers 6.0% 4.9% 5.3% have been
Slide 7: The Icelandic economy built on strong foundations
The Icelandic economy built on strong foundations CBI's FX reserves Net international investment position Real exports - bn. EUR - % of GDP - index, total in 2012=100 160 8 50% 7 140 6 0% 120 57 57 49 5 51 48 38 100 39 4 32 19 -50% 28 25 11 3 80 23 23 22 21 24 22 23 23 21 25 23 2 23 -100% 60 23 24 2
Slide 8: Iceland's dynamic business climate and Arion's role
Iceland's dynamic business climate With a ratio of one active company per six adults, … and Arion plays an important role in Iceland's active Iceland exemplifies a culture of innovation and business landscape, tailoring solutions for diverse economic engagement… needs. Record growth of the Icelandic
Slide 9: Key operational highlights in Q3
Key operational highlights in Q3 Arion Bank, Vörður insurance and Stefnir Funds issued its first Moody’s upgraded Arion Bank’s rating Stefnir Funds all received recognition PCAF report to A3 with a stable outlook for being exemplary companies in corporate governance Introduced real time market data
Slide 10: Operation & Culture is a new cross functional support unit
Operation & Culture is a new cross functional Board of Directors support unit Internal Audit Anna Sif Jónsdóttir CEO Benedikt Gíslason Deputy CEO Iða Brá Benediktsdóttir CEO's Office Communications and Sustainability / Birna Hlín Káradóttir has been General Counsel at Credit Manager Arion Bank since
Slide 11: Driving coordinated delivery of strategic goals
Driving coordinated delivery of strategic goals Operation and Culture Important support units Delivery of strategic goals Closer collaboration united • The COO will consolidate • Operation and Culture will • Operation and Culture will management of support take over a range of projects incorporate h
Slide 12: Key takeaways in Q3 2023
Key takeaways in Q3 2023 Operational ‣ Solid quarter with ROE of 12.9%, resulting in ROE for 9M 2023 of 13.9% performance ‣ Diversity and maturity of the Group’s main businesses support continued robust operating performance Solid quarter ‣ Ongoing cost discipline and efficiency focus support contin
Slide 13: Income statement Q3 2023
Income statement Q3 2023 Q3 2023 Q3 2022 Diff Q2 2023 Diff - Net profit of ISK 6.1bn resulting in ROE of Net interest income 10,918 10,357 5% 11,426 (4%) 12.9% Net commission income 3,848 4,057 (5%) 4,187 (8%) - Core income* increases 2% YoY Insurance service results 395 487 (19%) 762 (48%) - NII de
Slide 14: Income statement 9M 2023
Income statement 9M 2023 9M 2023 9M 2022 Diff - Net profit of ISK 19.5bn resulting in ROE Net interest income 33,338 29,578 13% of 13.9% Net commission income 12,486 12,195 2% - Core income* increases 8.9% YoY Insurance service results 436 847 (49%) - Strong increase in NII YoY, mainly due to Net fi
Slide 15: Net interest income
Net interest income Net interest income (ISK bn) Main interests (%) Robust margin but reduction in the quarter - Net interest income in Q3 increased by 5.4% from Q3 2022 but decrease by 4.4% from Q2 2023 - Lower inflation in Q3 vs. Q2 partially explains impact between quarters - Deposit margin has b
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 Diversified fee businesses support continued robust fee generation - Solid quarter with total fees of ISK 3.8bn, taking fees for the year to ISK 12.5bn (compared with ISK 7.3bn for the same peri
Slide 17: Insurance service results
Insurance service Combined ratio (%) Insurance service result (ISK m) results Positive traction in driving growth in premiums - Strong growth of 12.9% in premiums from 9M 2022 and 18.6% for the quarter YoY* - Corporate sales have increased considerably following the transition of the corporate insur
Slide 18: Net financial income
Net financial income Net financial income (ISK m) Bond holdings (ISK bn) Ongoing market volatility impacts results while equity holdings at bank level are reduced - Another challenging quarter with ongoing challenging capital markets - Bond holdings fluctuate between quarters in line with liquidity
Slide 19: 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 20: Balance sheet
Balance sheet Robust and relatively simple balance Assets 30.09.2023 30.06.2023 Diff. 31.12.2022 Diff. 30.09.2022 Diff. sheet Cash & balances with CB 80 76 5% 114 (30%) 68 18% Loans to credit institutions 51 43 18% 46 13% 53 (3%) - Loan growth slowing while deposits continue Loans to customers 1,143
Slide 21: 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 8.9bn or 0.8% during the quarter - Loans to corporates did not change but loans to individuals increased by ISK 8bn,
Slide 22: Residential mortgages
Residential mortgages Residential mortgages by interest rate type (ISK bn) Nominal rate loans are 53% of the mortgage portfolio at end of Interest rate reset profile for fixed rate mortgages (ISK bn) The bulk of fixed nominal rate loans are reset in 2024 and 2025. Q3 2023. Demand for indexed loans i
Slide 23: 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 24: 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 Loans to customers are 0.75% provisioned at Loans to corporates are 1.14% provisioned at Deteriorating economic outlook is captured in a movement of w
Slide 25: Deposits from customers
Deposits from Deposits (ISK bn) Deposit growth by LCR outflow category (including customers loans to credit institutions) (ISK bn) Robust position in competitive market - Seasoned and diversified deposit base supports another quarter of growth in deposits - Total deposits of ISK 806bn represent 60%
Slide 26: Borrowings
Borrowings Borrowings by type (ISK bn) Maturities of borrowings and call dates on Moody's upgrade supports funding effort subordinated liabilities (ISK bn) and maturity profile balanced - Moody's upgraded Arion Bank's issuer rating to A3. - The long-term and short-term deposit rating Q4 was upgraded
Slide 27: Own funds
Own funds Capital ratio (%) Leverage ratio (%) Strong capital position - Capital position increases between quarters with CET1 ratio increasing by 50 bps to 19.4% - CET1 position 450 bps above regulatory requirements - Leverage ratio of 11.8% significantly above most international peers - The solven
Slide 28: Own funds
Own funds Own funds and capital requirements (%) Capital ratios comfortably above regulatory requirements - The FME has published in Q2 a revised Pillar 2 requirement for the Bank at 2.1% of REA, based on year-end 2022 financials, a decrease of 1.4 percentage points from the previous result - The co
Slide 29: Own funds
Own funds Own funds: capital requirements and rating benchmarks (%) Rating considerations impact capital management in the short- CET 1 Capital term ~ 450 bps - The Bank’s issuer ratings from Moody’s and S&P are A3 (stable outlook) and BBB (negative outlook) respectively. - Both rating agencies’ ass
Slide 30: MREL requirement
MREL requirement MREL requirement as % of REA* Comfortably exceeding MREL requirements - Buffer above MREL requirements 12.4% of REA at the end of the quarter - The BRRD II approach to MREL has been codified in Icelandic law - In October 2023, the Central Bank of Iceland published a decision on the
Slide 31: Going forward
Going forward Solid performance over the year in a volatile external market backdrop Solid third quarter results conclude a strong operating The rating upgrade from Moody's during the quarter was a performance by the Group for the first nine months of the positive confirmation of the Group's operati
Slide 32: 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 33: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-Core income ratio (%) Net interest margin (%) CPI imbalance, excl. insurance operations (ISK bn) Core operating income / REA (%)* Risk exposure amount / Total assets (%)
Slide 34: Key figures
Key figures* Operations 9M 2023 9M 2022 9M 2021 9M 2020 9M 2019 Q3 2023 Q2 2023 Q1 2023 Q4 2022 Q3 2022 Net interest income 33,338 29,578 23,295 23,099 22,624 10,918 11,426 10,994 10,706 10,357 Net commission income 12,486 12,195 10,594 8,526 7,335 3,848 4,187 4,451 4,073 4,057 Operating income 47,8
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