Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q4 2021 Earnings Presentation
35 slides from Arion Banki Hf's earnings presentation, Feb 9, 2022
Slide 1: Q4 and full year results 2021
Q4 and full year results 2021 Investor presentation 9 February 2022
Slide 2: Key results for the year
Key results for the year Cost Cost // CET1 Core income ROE ROE Income Income ratio ratio growth ratio 44.4% 19.6% 9.4% 14.7% 14.7% vs. target <45% vs. target ~17% vs. 2020 vs. target 10% 44.4% Deposit Deposit growth Loan growth AuM growth growth 15.3% 13.8% 19.5% All business units exceeding Group t
Slide 3: Key milestones of the year
Key milestones of the year Equal pay Delivering value to our customers Balance sheet management Operational excellence Strong partner to our customers in Corporate & Arion Bank’s green financing New Customer Experience Investment banking and Capital Markets framework issued in July followed division
Slide 4: Sustainable banking
Sustainable banking Close to 3,000 green projects defined at YE 2021 representing 11.3% of the loan book. The Bank targets 20% by 2030* Arion Bank has issued ISK 47.7bn in green bonds, Arion Bank has committed to 2,969 green projects. This which represents 11.8% of total debt instruments. represents
Slide 5: Medium-term targets updated in December 2021
Medium-term targets updated in December 2021 2021 FY Previous target New target • All medium-term targets reached in 2021 except for the CET1 ratio target Return on equity 14.7% Exceed 10% Exceed 13% • Improved operations and outlook Operating income / REA 7.6% Exceed 6.7% Exceed 7.3% supports revis
Slide 6: Positive momentum and constructive outlook supports revised ROE target
Positive momentum and constructive outlook supports revised ROE target Development of ROE 14.7% 2% >13% Valitor ~13% 3.6% on average 2019-2020 2021 2022E 2023E and onwards ▲ Opex efficiency drive ▲ Reversal of provisions ▲ Building on 2021 operational performance ▲ Icelandic economy in strong positi
Slide 7: Macroeconomic environment
Macroeconomic environment Erna Björg Sverrisdóttir – Chief economist
Slide 8: Domestic demand takes the wheel
Domestic demand takes the wheel Domestic demand has flourished, supported by better employment prospects, high consumer confidence and rapid asset growth in the housing market. Despite a surge in new COVID-19 cases Icelanders have enjoyed relatively soft measures, as 80% of the population 5 years an
Slide 9: On the road to full recovery – omicron shaped bumps ahead?
On the road to full recovery – omicron shaped bumps ahead? Tourism is on the mend, unemployment has reached pre-pandemic levels and domestic demand is thriving. The economy is set for a strong GDP growth in 2022, driven by private consumption and business investment. GDP growth – IMFs’ forecast Regi
Slide 10: The major challenges ahead
The major challenges ahead Sharp rises in the housing market and persistent inflation Housing prices in the Capital Area - YoY %-change Composition of the Icelandic CPI • House prices rose sharply in Q4, increasing 6% 25% by 18% YoY. At first, the price increases were 5% driven by hefty interest rat
Slide 11: All about timing: Tighter fiscal and monetary policies
All about timing: Tighter fiscal and monetary policies Tricky road ahead, navigating between rate hikes, stimulating investment and reducing government deficit Key interest rates - seven-day term deposit rate Investment – growth contribution of components • Persistent inflation, rising house prices
Slide 12: Financials
Financials Relevant and competitive customer experience CFO – Ólafur Hrafn Höskuldsson
Slide 13: Key takeaways in Q4 2021
Key takeaways in Q4 2021 Another robust quarter completes a positive year in a challenging environment • ROE of 13.4% in the quarter and 14.7% for the year Profitability • All main business areas achieving returns in excess of target which supports strategic flexibility Robust trajectory and • Lendi
Slide 14: Income statement Q4 2021
Income statement Q4 2021 Completing a strong year, continuing positive trend in core operations Q4 2021 Q4 2020 Diff% Q3 2021 Diff% • Net earnings of ISK 6.5bn and 13.4% ROE. Without incentive scheme, Net earnings would Net interest income 8,768 8,059 9% 7,937 10% have been ISK 7.6bn and 15.7% ROE N
Slide 15: Income statement 2021
Income statement 2021 Strong year with momentum in core operations combined with favorable market dynamics 2021 2020 Diff Diff% • Net earnings of ISK 28.6bn and 14.7% ROE. Without incentive scheme Net earnings would Net interest income 32,063 31,158 905 3% have been ISK 29.8bn and 15.3% ROE Net comm
Slide 16: Net earnings improve significantly YoY
Net earnings improve significantly YoY Core operations improve markedly while other segments also make a substantial contribution Q4 2020 vs Q4 2021 1,771 (1,250) (1,260) 485 2,878 (1,863) 6,522 5,761 Net earnings Difference in core Difference in other Difference in operating Difference in net Diffe
Slide 17: Net interest income
Net interest income Increased policy rates and growth in corporate lending supports net interest income going forward Net interest income Credit risk • Net interest income increased by 8.8% from Q4 2020 whilst average interest bearing assets increased by 8.8 10%, mainly loans but interest bearing li
Slide 18: Net fee and commission income
Net fee and commission income Strong growth in commissions continues. Net fee and commission income and insurance income amounted to 70% of OPEX in 2021 compared to 60% in 2020 Net fee and commission income Assets under management • Sixth quarter in a row producing an increase in net fee (ISK bn) an
Slide 19: Strong growth in insurance premiums in 2021 and ROE remains robust
Strong growth in insurance premiums in 2021 and ROE remains robust Significant opportunities to drive further growth and earnings strength through bancassurance drive Premiums Vördur’s return on equity • Net profit in Q4 for Vördur was ISK 502mn and ISK +12.4% 2.5bn for the year 25.9% 12,902 24.4% 2
Slide 20: Net financial income
Net financial income Favorable market conditions and active management deliver strong performance Net financial income (ISK mn) Bond holdings • Net financial income in Q4 driven by equity holdings 163.7 157.7 in the market making business and at Vördur 151.9 15.1 14.6 139.0 16.0 124.8 15.0 • Equity
Slide 21: Total operating expenses
Total operating expenses Significant efficiency gains with cost-to-income ratio of 44.4% for the year. Plan to build on operational momentum with strategic investments Cost-to-income ratio (%) Total operating expenses • Significant efficiency gains over past years results in a Cost/Income ratio of 4
Slide 22: Balance sheet
Balance sheet Strong loan growth supported by increase in core deposits Assets 31.12.2019 31.12.2020 30.09.2021 31.12.2021 • Loans to customers increased by 4.4% in Q4 Cash & balances with CB 96 42 70 69 • Strong equity position and very high and 13.8% from YE 2020 Loans to credit institutions 18 28
Slide 23: Loans to customers
Loans to customers Growth over the year driven by mortgages but more balanced growth between corporate and individuals in second half of the year Loans to customers Loans to customers by sector (%) • Loans to customers increased by 4.4% during the 936 quarter, both due to mortgage lending to individ
Slide 24: Loss allowance on loans to customers by IFRS 9 stages
Loss allowance on loans to customers by IFRS 9 stages Loss allowance has decreased significantly YoY On loans to customers total On individuals On corporates Thereof tourism exposure 12.2 9.5 9.7 9.0 6.9 7.6 7.4 7.0 5.3 5.6 5.3 5.7 5.1 4.5 4.3 4.2 4.2 3.9 3.6 3.3 3.3 3.3 2.5 2.5 2.4 2.0 2.0 2.0 1.9
Slide 25: Risk profile of balance sheet improving and economic outlook constructive
Risk profile of balance sheet improving and economic outlook constructive Increased portion of mortgages in total loan book reducing normalized Cost of Risk and moratorium assets now mostly performing Development of non-performing loans, moratoria and forbearance (% total loan book) • The change in
Slide 26: Deposits
Deposits Strong growth in core deposits continues in Q4 Deposits and due to credit institutions Maturity of deposits (%) • Deposits represent 59% of the Bank’s total liabilities and Central Bank (58% and 55% in YE 2020 and 2019 respectively) 650 660 580 94 2 On demand 108 12 • Strong growth of 21.7%
Slide 27: Borrowings
Borrowings Successful issuances in 2021 supporting a balanced funding profile Borrowings by type Maturities of borrowings • Good access to debt capital markets in senior, covered and subordinated format • Increase in borrowings in 2021 due to debut EUR 300mn 87.0 international covered bond in the en
Slide 28: Own funds
Own funds The capital ratios continue to be very strong while capital optimization efforts are ongoing Total capital ratio (%) Leverage ratio (%) • The CET1 decreased by 1.6% in Q4 – Dividend proposal of ISK 22.5bn and remaining ongoing share buy-backs of ISK 4.3bn is deducted 15.1 27.0 14.2 14.1 fr
Slide 29: Capital adequacy
Capital adequacy Capital ratios remain strong despite significant capital distributions in 2021 Own funds and capital requirements (%) • Purchase of own shares and dividend payment in 2021 is ISK 31.5bn • Total foreseeable dividend and buy-back of own shares of ISK 26.8bn is 27.1 included in the cap
Slide 30: MREL requirement
MREL requirement The Icelandic Resolution Authority has published its MREL policy with Arion. Significant headroom above requirements even with optimized capital position. Potential requirement for non- preferred issuance of ~0.8% of REA in coming years when subordination requirements become effecti
Slide 31: Going forward
Going forward Strong operating momentum, clear business plan and positive outlook underpins raised targets Robust operational performance a strong testament to the strategic direction of the Group. Growth and diversity in fee income and increased importance in the Group’s core earnings a clear posit
Slide 32: Key financial indicators – annual
Key financial indicators – annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 14.7 56.9 56.0 48.9 48.1 2.9 2.8 2.9 44.4 2.8 2.8 6.6 6.5 3.7 0.6 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 CPI imbalance (ISK bn) Operating income / REA Risk weig
Slide 33: Key financial indicators – quarterly
Key financial indicators – quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 54.9 51.6 13.4 44.9 11.8 3.0 2.9 2.8 Q4-19 Q4-20 Q4-21 Q4-19 Q4-20 Q4-21 Q4-19 Q4-20 Q4-21 (5.8) Loans-to-deposits ratio (%) Operating income / REA (%) Capital ratio (%) (without loans financed
Slide 34: Key figures
Key figures Operations 2021 2020 2019 2018 2017 Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Net interest income 32,063 31,158 30,317 29,319 28,920 8,768 7,937 8,016 7,342 8,059 Net commission income 14,673 11,642 9,950 10,349 10,211 4,079 3,755 3,562 3,277 3,116 Operating income 58,225 50,764 47,998 46,
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