Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Arion Bank — 9M 2017 Earnings Presentation
42 slides from Arion Banki Hf's earnings presentation, Nov 14, 2017
Slide 1: Financial Statements 30 September 2017
Financial Statements 30 September 2017 Investor presentation 14 November 2017
Slide 2: 9M 2017 highlights
9M 2017 highlights 1 Improvement in core revenues First step in the sale of Arion Bank, largest equity portfolio 2 investment by foreign parties in Icelandic history 3 Lifting of capital controls Kaupthing facility repaid and Arion Bank is now fully 4 market funded Impairments and provisioning relat
Slide 3: Developments in the first nine months of 2017
Developments in the first nine months of 2017 Changes to the Bank’s ownership a major milestone Financial results heavily affected by one-off Managerial and organizational changes loan impairment in Q3 • Lydur Thorgeirsson appointed managing director of • Improved core revenue in net interest and ne
Slide 4: Developments in the first nine months of 2017
Developments in the first nine months of 2017 Together we make good things happen Improved terms on international credit Euromoney’s bank of the year for 2017 markets • Arion Bank named bank of the year in Iceland by • In June the bank issued bonds in euros at record Euromoney low spread, 88 bps mar
Slide 5: Developments in the first nine months of 2017
Developments in the first nine months of 2017 Arion Bank – For the future Leading digital bank Convenient banking • Arion app is the best banking app in Iceland • Renovated branch at Kringlan Mall was opened according to a survey by MMR and now has the same opening hours as other • New pension porta
Slide 6: Macroeconomic environment
Macroeconomic environment
Slide 7: The economy continues to grow but at a slower pace
The economy continues to grow but at a slower pace Pressure in the economy has begun to ease, affecting the output gap Growth contribution of GDP components Economic growth forecasts • GDP growth in Q2 20% 8% 2017 measured 3.4%. Despite slower growth 6% 10% than previous quarters 4% the economy is s
Slide 8: Volatile króna: The summer appreciation that became depreciation
Volatile króna: The summer appreciation that became depreciation Following the capital account liberalization in March, volatility in the ISK has increased FX market and the ISK • Fluctuations in the - EUR millions 500 150 exchange rate have 400 140 increased after capital 300 130 controls for indiv
Slide 9: Reduced inflationary pressures bring along rate cuts
Reduced inflationary pressures bring along rate cuts The CBI has lowered its interest rates by a total of 150 bps. in just over a year • Currently increasing house prices Housing price index for the capital area CBI's key interest rates are the main driving factor behind -YoY % 8.0% inflation while
Slide 10: Headline figures for 9M 2017
Headline figures for 9M 2017 Net earnings Cost-to- Problem CET 1 income ratio loans ISK 10,353 26.6% million 31.12.2016: 55.3% 1.4% 26.5% 9M 2016: 31.12.2016: 9M 2016: 56.3% 1.6% ISK 17,262 million Return on Leverage Number of Mortgages/ equity ratio employees Total loans 6.3% 16.9% 1,293 40.0% 9M 2
Slide 11: Income statement
Income statement
Slide 12: Income statement
Income statement All amounts in ISK million Core revenues improve from last year but one-offs relating to United Silicon have a negative effect • United Silicon has a significant effect on multiple line items as stated in slide 14 9M 2017 9M 2016 Diff Diff% Net interest income 22,570 22,057 513 2% •
Slide 13: Income statement
Income statement All amounts in ISK million Provision relating to United Silicon have a major effects on Q3 results • Net interest income slightly lower than for the same period Q3 2017 Q3 2016 Diff Diff% last year Net interest income 7,250 7,431 (181) (2%) • Net commission income Net commission inc
Slide 14: United Silicon
United Silicon All amounts in ISK million Effects of United Silicon on 9M and Q3 figures • Arion Bank has fully United Without United Without provisioned for ISK 1,164 9M 2017 Silicon USi Q3 2017 Silicon USi million in equity investments Net interest income 22,570 - 22,570 7,250 - 7,250 in USi and I
Slide 15: Net interest income
Net interest income All amounts in ISK billion Increased liquidity affects net interest margin • Decrease in net interest Net interest income Interest income income from previous period and the same period last year 8.2 15.9 7.8 14.7 15.1 7.4 13.5 13.2 • Interest-bearing assets 7.2 7.3 0.9 0.5 1.2 0
Slide 16: Net commission income
Net commission income All amounts in ISK billion Commission income up from last year – mainly in cards and payment solutions Net commission income • Net commission income from cards and payment solutions 3.9 increased by 23% from Q2 2017 3.8 • Acquisition of Chip & Pin and IPS already affecting inco
Slide 17: Net financial income
Net financial income All amounts in ISK billion Volatility is high despite sales of listed equity positions • The Icelandic equity and bond markets were both Net financial income Bond holdings negatively affected by the 81.2 76.9 73.8 resignation of the Icelandic 2.0 66.9 68.2 26.2 25.0 government i
Slide 18: Net insurance income and other income
Net insurance income and other income All amounts in ISK billion Insurance has become a key part of the Bank’s service offering • Increase in insurance income from Q3 2016 due to Net insurance income Other operating income acquisition of Vördur in Q4 2016 • Insurance income is expected to increase g
Slide 19: Total operating expenses
Total operating expenses All amounts in ISK billion The cost-to-income ratio is positively affected by one-off items in Q2 • Decrease in number of full-time employees (FTE’s) at Parent company from the same period last year is mainly due to digitalization and Cost-to-income ratio (%)* outsourcing of
Slide 20: Taxation
Taxation All amounts in ISK million Specific taxes on banks have a significant effect on ROE 10,488 • In November 2017 the 599 Icelandic Tax Authorities Effects of bank levy and additional published figures on official income tax on ROE 1,395 fees relating to 2016 Excluding bank operations levy and
Slide 21: Balance sheet
Balance sheet
Slide 22: Balance sheet - Assets
Balance sheet - Assets All amounts in ISK billion Robust loan growth – strong liquidity position • The balance sheet grew by 30.09.2017: 31.12.2016: 10.5% during the first nine ISK 1,145 Bn ISK 1,036 Bn months, partially due to pre- financing for upcoming bond Other1 34 Other and intangibles: 4% Int
Slide 23: Loans to customers
Loans to customers All amounts in ISK billion Good balance in loans to corporates and individuals • Loans to customers increased by 5.4% during the Loans to customers Loans to customers by sector (%) first nine months 751 Individuals • The mortgage portfolio grew 712 680 54 14 Real Estate & Construc
Slide 24: Balance sheet – Liabilities and Equity
Balance sheet – Liabilities and Equity All amounts in ISK billion Successful international bond issues – Strong equity position • Increase in deposits, 30.09.2017 31.12.2016 mainly from retail customers ISK 1,145 Bn ISK 1,036 Bn • New and successful international bond issues Equity during the first
Slide 25: Funding
Funding All amounts in ISK billion Success on the international bond market – Kaupthing facility fully prepaid • In June the Bank issued new Funding Repayment of borrowings 854 101.6 3 year, EUR 300 million senior unsecured bond or approx. ISK 74.4 37 billion at interest cost equal 747 760 736 62.0
Slide 26: Good performance in the secondary bond market
Good performance in the secondary bond market The spread between Arion Bank and large Nordic banks continues to decrease Euro Senior Unsecured Bonds – Spread (bps) over mid-swaps 26
Slide 27: Capital base
Capital base All amounts in ISK billion Continued strong capital position • Solid level of capital due to Capital ratio (%) Leverage ratio (%) strong profit generation • Risk-weighted assets of 27.1 27.1 16.7 18.0 26.3 15.4 16.7 68.4% are calculated on the 0.6 0.5 14.5 24.2 basis of standardized app
Slide 28: Capital base
Capital base Capital structure and requirements Capital structure and capital need • In Q4 of 2017, the combined capital buffer requirement will 27.1 reach 8.4%, based on the Group’s current risk profile. 0.5 CET1 • The FME’s SREP result based on the Group’s balance sheet as at 21.6 21.6 AT1 31 Dece
Slide 29: Cash flow
Cash flow All amounts in ISK billion Increased deposits and borrowings increase cash position 186 (6) 48 (8) 35 124 (34) 27 Cash and cash Interest Interest Loans to Deposits Borrowings Other Cash and cash eq. 31.12.2016 received paid customers changes eq. 30.09.2017 • Lending activities increased du
Slide 30: Going forward
Going forward 1 Arion Bank operates in a strong and growing economy Growth in loan portfolio reflects the underlying growth 2 in the Icelandic economy Focus on digitalization across both client-facing offerings 3 and automation to further increase efficiency Arion Bank will seek to optimize equity b
Slide 31: KFI’s and adjusted income
KFI’s and adjusted income
Slide 32: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) Problem loans* (%) 66.4 57.6 42.6 3.1 3.1 14.2 14.4 2.7 3.2 2.0 1.4 -0.2 Q3-15 Q3-16 Q3-17 Q3-15 Q3-16 Q3-17 Q3-15 Q3-16 Q3-17 Q3-15 Q3-16 Q3-17 Loans-to-deposits ratio (%) Tier 1 ratio (%) Liq
Slide 33: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 56.9 57.2 55.3 28.1 49.8 3.0 3.1 2.9 2.9 2.8 18.6 32.3 9.2 10.5 6.3 2013 2014 2015 2016 9M 2017 2013 2014 2015 2016 9M 2017 2013 2014 2015 2016 9M 2017 CPI Imbalance – ISK bn. FX Imbalance – ISK b
Slide 34: Development of key figures
Development of key figures All amounts in ISK billion Net interest income Net commission income 9.0 4.5 8.0 4.0 7.0 3.5 6.0 3.0 5.0 2.5 4.0 2.0 3.0 1.5 2.0 1.0 1.0 0.5 - - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Total operating expenses Net earnings 10.0 30.0 9.0 25
Slide 35: Key figures
Key figures All amounts in ISK million 9M 2017 9M 2016 9M 2015 9M 2014 9M 2013 Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Operations Net interest income 22,570 22,057 20,287 18,309 18,313 7,250 8,160 7,160 7,842 7,431 Net commission income 10,703 10,213 10,727 10,119 8,284 3,865 3,508 3,330 3,764 3,467
Slide 36: Adjusted income
Adjusted income All amounts in ISK million Adjustments on impairment has most affect 9M 2017 Adjustment Adjusted Net interest income 22,570 10 22,580 1) 1) Interest income from non-core Net commission income 10,703 0 10,703 subsidiaries eliminated and interest Net financial income 2,471 0 2,471 inco
Slide 37: Segment information
Segment information
Slide 38: Retail Banking
Retail Banking All amounts in ISK million Positive development in Retail Banking • Retail Banking provides a comprehensive range of services. Income statement and key figures: This includes deposits and loans, savings, payment cards, Tímabil 9M 2017 9M 2016 Diff. pension savings, insurance, securiti
Slide 39: Corporate Banking
Corporate Banking All amounts in ISK million Strong corporate loan book, somewhat affected by stronger ISK • Corporate Banking provides comprehensive financial Income statement and key figures: services and integrated solutions across the Bank's divisions, Tímabil 9M 2017 9M 2016 Diff. to larger cor
Slide 40: Asset Management
Asset Management All amounts in ISK million Largest asset management operation in Iceland Income statement and key figures: • Comprises Institutional Asset Management, Private Tímabil 9M 2017 9M 2016 Diff. Banking, Investment Services and Pension Fund Net interest income ............................
Slide 41: Investment Banking
Investment Banking All amounts in ISK million Continued focus on fee and commission development • Investment Banking is divided into Corporate Finance, Income statement and key figures: Capital Markets and Research. Tímabil 9M 2017 9M 2016 Diff. Net interest income ..................................
Slide 42: 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