Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q1 2023 Earnings Presentation
37 slides from Arion Banki Hf's earnings presentation, May 4, 2023
Slide 1: Q1 results 2023
Q1 results 2023 Investor presentation 4 May 2023
Slide 2: Key results in Q1
Key results in Q1 Key results22 Medium term targets Q1 2023 Strong quarter Return on equity Exceed 13% ✔ 13.7% ‒ 13.7% ROE in the quarter ‒ Key medium-term targets exceeded in the first quarter Core operating income / REA Exceed 6.7% on core income ✔ 6.9% ‒ Driven by ongoing positive momentum in Cor
Slide 3: Recent management changes
Recent management changes Björn Björnsson CIO From 2015, until joining the Bank, Björn worked for Boston Consulting Group (BCG) in Australia and the Nordics, with a focus on financial institutions, information technology strategy and transformation. Before joining BCG, he held several executive role
Slide 4: Green Financing Framework Impact and Allocation Report 2022
Green Financing Framework Impact and Allocation Report 2022 Executive summary for green financing 2022 Total committed Arion Bank's green Investor breakdown of green bonds by region 2022 Committed financing breakdown % green financing financing - total 4% 3% bond issues and Region % ISK bn deposits
Slide 5: Executive summary of impact of green financing 2022
Executive summary of impact of green financing 2022 Annual emissions of Annual CO2 greenhouse gases avoided with emissions avoided green financing corresponds to: 4,049 tCO2 13,497 return flight tickets from Copenhagen Clean Number of MSC and transportation ASC certified projects 1,514 16 Number of
Slide 6: We are confident about the economy's ability to generate new exports
We are confident about the economy’s ability to generate new exports IP-intensive and other new exports are a significant Recent growth has been Ambitious plans going part of the economy impressive forward Composition of Iceland’s exports in 2022 Exports of selected sectors in real terms -% - bn. IS
Slide 7: Macroeconomic environment
Macroeconomic environment
Slide 8: Strong GDP growth amid global turbulence
Strong GDP growth amid global turbulence GDP increased by 6.4% in 2022, a result that was in line with Arion Bank’s expectations. Growth was driven by exports, namely increased growth in tourism, and record-breaking private consumption. With tourism regaining its former strength, the current account
Slide 9: Outpacing our main trading partners
Outpacing our main GDP growth - IMF's forecast Tourist departures via Keflavik International Airport - millions annually 8 3.5 trading partners 6 3 - The Icelandic economy is set for strong 4 2.5 growth in 2023, despite the rocky global 2 recovery. 2 0 - The IMF expects Iceland to have one of the 1.
Slide 10: Facing a familiar foe
Facing a familiar foe 12% CPI by expenditure groups Nominal wage index - YoY %-change 16% - Inflation has proven to be much more 10% 14% persistent than expected and price increases are now widespread. 8% 12% 10% - Although the contribution of housing prices 6% 8% is still substantial, domestic good
Slide 11: Cooling, not freezing
Housing price index in the Capital area New mortgage loans less prepayments Cooling, not freezing - % change - bn. ISK 30% 60 - The housing market is rapidly cooling, 25% 50 largely due to the Central Bank’s actions. 20% 40 Not only has the Bank raised rates by 475 15% 30 bps in the past twelve mont
Slide 12: The economy is built on stronger foundations than before
The economy is built on stronger foundations than before Household and non-financial corporate debt General government debt - % of GDP - % of GDP 400% 140% 350% 120% 300% 100% 250% 80% IMF projections 200% 60% 150% 40% 100% 20% 50% 0% 0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 20
Slide 13: Financials
Financials
Slide 14: Key takeaways in Q1 2023
Key takeaways in Q1 2023 Profitability ‣ Strong quarter with net profit of ISK 6.3bn resulting in ROE of 13.7% Strong core income ‣ Continued positive development in Core Income1, increasing by 18.3% YoY and 1.0% from Q4 2022 generation Net interest income ‣ Net interest income increases by 15.6% Yo
Slide 15: Income statement Q1 2023
Income statement Q1 2023 Net interest income Q1 2023 11,015 Q1 2022 9,528 Diff 16% Q4 2022 10,524 Diff 5% Net commission income 4,353 3,552 23% 3,972 10% - Net profit of ISK 6.3bn resulting in ROE of 13.7% Net insurance income 118 5 - 833 (86%) - Core income (NII, NCI and net insurance income) Net f
Slide 16: Net interest income
Net interest income Net interest income Main interests* (%) Continued momentum but rate sensitivity 11.0 10.4 10.5 slowing as expected 9.5 9.8 - Net interest income in Q1 increased by 16% from 3.1% 3.1% 3.2% 3.1% 3.1% Q1 2022 and 5% between quarters from Q4 2022 - Policy rate increased from 2.0% at
Slide 17: 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 generating operations 4,539 4,353 4,353 support continued momentum 343 3,076 3,277 3,552 4,002 3,971 2,218 364 630 3,552 - Strong quarter in all fee generating businesses 787 839
Slide 18: Net insurance income
Net insurance Combined ratio (%) Net insurance income income 115.3 116.3 1,086 18.9 96.1 98.4 22.5 Strong growth in premiums written during 833 1.2 86.8 3.2 16.0 21.4 690 the quarter 17.9 1.1 2.8 0.3 95.2 90.6 - Strong 15.5% growth in premiums written YoY 68.6 79.0 74.2 - Corporate sales have increa
Slide 19: Net financial income
Net financial income Net financial income (ISK m) Bond holdings Improving market conditions support results 991 839 157.2 151.7 148.3 427 722 14.6 138.2 157 16.0 564 18.5 146 117 17.5 - Solid performance both in equity and bond (802) 11 106.0 51.4 46.6 holdings 76.5 (1,966) 16.6 43.8 (530) - Bond ho
Slide 20: Operating expenses
Operating expenses Cost-to-Core income ratio (%) Total operating expenses 8.3 Growth in total OPEX mainly due to new 6.6 1.6 7.3 6.2 labor agreements and several projects in the 53.8 5.8 3.2 quarter 2.7 2.8 2.9 47.4 47.0 2.7 - Ongoing focus on OPEX and efficiency 43.1 38.4 - Cost-to-core income for
Slide 21: Balance sheet
Balance sheet Continued growth in deposits supports lending growth Assets 31.03.2023 31.12.2022 Diff. 31.03.2022 Diff. - Robust and simple balance sheet Cash & balances with CB 80 114 (30%) 64 25% Loans to credit institutions 63 46 38% 36 75% - Loan growth supported by ongoing positive Loans to cust
Slide 22: Loans to customers
Loans to customers Loans to customers Loans to customers by sector (%) Growth in corporate lending in the quarter 1,114 1,085 but expected to slow 11.4 12.0 Other sectors 976 936 3.8 3.8 - Loans to customers increased by ISK 29bn or Finance & 823 7.8 8.4 2.7% during the quarter 525 Insurance 502 8.4
Slide 23: Residential mortgages
Residential mortgages Residential mortgages by interest rate type (ISK bn) Interest rate reset profile for fixed rate mortgages (ISK bn) Nominal rate loans are 59% of the mortgage portfolio at end of The bulk of fixed nominal rate loans are reset in 2024 and 2025. Low default rates and comfortable L
Slide 24: Real Estate Sector
Real Estate Sector Loans to customers (ISK bn) Loans to real estate companies are approx. 9.4% of total loans to Borrower type The Bank is primarily focused on CRE exposures that are Diversified portfolio customers and 1.1% are against office buildings owned and occupied by operational companies tha
Slide 25: Loss allowance by IFRS 9 stages
Loss allowance by IFRS 9 stages On loans to customers total Thereof on loans to corporates IFRS9 economic scenarios and assumptions Loans to customers are 0.6% provisioned at Loans to corporates are 1.0% provisioned at Worsening economic outlook is captured in a movement of weights from the optimist
Slide 26: Risk profile
Risk profile Strong credit quality indicators while a slight Development of non-performing loans, moratoria and forbearance (% of total loan book) trend towards higher rate of payments past due observed - Despite increased provisioning through management’s 1.8 2.7 forward looking macro-economic assu
Slide 27: Deposits from customers
Deposits from Deposits Deposits by insurance scheme customers 755 775 335 34 35 680 Continuing growth in deposits 655 72 74 70 25 40 45 45 568 66 - Deposits represent 58.7% of the Bank’s total 53 33 21 28 155 liabilities 52 150 115 127 56 - Growth in deposits from customers during the first 77 131 1
Slide 28: Borrowings
Borrowings Borrowings by type Maturities of borrowings and call dates on subordinated 393 391 liabilities Balanced maturity profile with broad funding 370 357 options 125.1 122.1 299 164 142 180 96.0 154 Q4 - Arion Bank issued private placements amounting to NOK 200 million and SEK 300 million in Se
Slide 29: Own funds
Own funds Total capital ratio (%) Leverage ratio (%) Strong capital ratios 15.1 27.0 12.7 12.5 11.8 11.3 - Capital position stable between quarters despite 2.9 balance sheet growth and share buybacks 23.8 24.0 23.7 22.4 - REA increased by 2.6% in Q1. The increase is 2.6 3.7 3.6 mainly in credit risk
Slide 30: Own funds
Own funds Own funds and capital requirements (%) The capital ratios continue to be strong while capital optimization efforts are slowing 23.7 22.3 - 23.3 - Unaudited Q1 profits of ISK 6.3 bn and corresponding foreseeable dividends of ISK 3.6 3.1bn included in the capital ratios shown 20.8 20.8 20.8
Slide 31: MREL requirement
MREL requirement MREL requirement as % of REA* Comfortably exceeding MREL requirements - The BRRD I approach to MREL has been codified in Icelandic law 31.7% - Senior unsecured debt is MREL eligible unless it is excluded from the scope of bail-in - The Icelandic Resolution Authority (IRA) has publis
Slide 32: Going forward
Going forward Strong momentum Strong operating momentum across our business The liquidity and funding position of the Group is has continued into 2023 strong and allows for flexibility when it comes to issuance plans near term The external environment continues to add Agility continues to be key in
Slide 33: Key financial indicators - quarter
Key financial indicators - quarter Return on equity (%) Cost-to-Core income ratio (%) Net interest margin (%) 53.6 47.4 47.0 3.1 3.1 12.7 13.7 2.7 12.5 Q1-21 Q1-22 Q1-23 Q1-21 Q1-22 Q1-23 Q1-21 Q1-22 Q1-23 Loans-to-deposits ratio (%) Core operating income / REA (%) Capital ratio (%) (without loans f
Slide 34: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-Core income ratio (%) Net interest margin (%) 14.7 62.3 13.7 13.7 53.3 51.6 45.6 47.0 2.9 3.1 3.1 2.8 2.8 6.5 0.6 2019 2020 2021 2022 Q1 2023 2019 2020 2021 2022 Q1 2023 2019 2020 2021 2022 Q1 2023 CPI imbalance (ISK bn) Core operating i
Slide 35: Key figures
Key figures Operations Q1 2023 Q1 2022 Q1 2021 Q1 2020 Q1 2019 Q1 2023 Q4 2022 Q3 2022 Q2 2022 Q1 2022 Net interest income 11,015 9,528 7,342 7,253 7,434 11,015 10,524 10,421 9,804 9,528 Net commission income 4,353 3,552 3,277 3,076 2,218 4,353 3,972 4,002 4,539 3,552 Operating income 16,344 14,514
Slide 36: 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
Slide 37: Slide 37