Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q3 2022 Earnings Presentation
34 slides from Arion Banki Hf's earnings presentation, Oct 26, 2022
Slide 1: Q3 results 2022
Q3 results 2022 Investor presentation 26 October 2022
Slide 2: Key results in Q3
Key results in Q3 Key results Q3 2022 9M 2022 Medium term targets Return on equity 10.5% 14.8% Exceed 13% Continued strength in core income Operating income / REA 6.4% 6.5% Exceed 7.3% ‒ 10.5% ROE in the quarter and 14.8% for the first nine months Premium growth (net of reinsurance) to exceed the ‒
Slide 3: Operating environment relatively strong and growing potential in the Arctic
Our operating environment is … and we are seeing growing potential relatively strong… in the Arctic region Macro ➢ Eco-tourism is growing in Iceland, Northern Norway and Faroe Islands. Greenland is also emerging with great potential ➢ Key interest rates are now close to terminal rates ➢ Inflation ex
Slide 4: Macroeconomic environment
Macroeconomic environment
Slide 5: Strong economic growth in growing global uncertainty
Strong economic growth in growing global uncertainty GDP increased by 6.1% YoY in Q2, a result that was in line with, or even slightly below, expectations. Growth was driven by record-breaking private consumption and increased growth in tourism, while business investment lent a helping hand. Robust
Slide 6: No country is an island
No country is an island GDP growth - IMF's forecast Tourist arrivals via Keflavik International Airport - millions annually 8% 2.5 2.2 - Despite highly uncertain global economic outlook 6% 1.9 the Icelandic economy is set for strong growth in 2 4% 2023, driven by tourism and household 1.7 consumptio
Slide 7: Different kind of crisis
Contribution to annual inflation rate CPI by expenditure groups Different kind of crisis - September 12% 12% 10% - Despite similar headline inflation, Icelandic 10% households are not faced with the same cost-of- 8% living crisis as their European counterparts, 8% thanks to Iceland’s hydro- and geot
Slide 8: Next up: Wage negotiations
Next up: Wage negotiations 7% The Central Bank's key interest rates Labor supply - seasonally adjusted quarterly figures 120% 6% 100% - High inflation, fear over de-anchoring of inflation 5% 80% expectations and robust domestic demand has compelled the Central Bank to raise rates further, 4% 60% by
Slide 9: Small economy, strong foundations
Small economy, strong foundations Household and non-financial corporate debt Debt of general and central government - % of GDP 160% 400% 140% 350% 120% 300% 100% 250% 80% 200% 60% 150% 100% 40% 50% 20% 0% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20
Slide 10: Financials
Financials
Slide 11: Key takeaways in Q3 2022
Key takeaways in Q3 2022 Profitability ‣ Net profit of 4.9 bn and ROE of 10.5% in the quarter, resulting in a 20.4 bn profit for the first 9 months with an ROE of 14.8% Continued core income ‣ Continued positive development in Core Income1, increasing by 19.2% YoY momentum ‣ Positive momentum across
Slide 12: Income statement Q3 2022
Income statement Q3 2022 Net interest income Q3 2022 10,421 Q3 2021 7,937 Diff 31% Q2 2022 9,804 Diff 6% Net commission income 4,002 3,755 7% 4,539 (12%) - Core income (NII, NCI and net insurance income) increases 19.2% YoY Net insurance income 690 992 (30%) 1,086 (36%) Net financial income (1,332)
Slide 13: Income statement 9M 2022
Income statement 9M 2022 Net interest income 9M 2022 29,753 9M 2021 23,295 Diff 28% Net commission income 12,093 10,594 14% - Core income (NII, NCI and net insurance income) increases 19.6% YoY Net insurance income 1,781 2,577 (31%) Net financial income (3,252) 5,069 - - Very strong increase in NII
Slide 14: Continued strong development in core income
Continued strong development in core income Negative net financial income affects other income Q3 2021 vs. Q3 2022 2,429 (3,435) (222) (676) (841) (630) 8,238 4,863 Net earnings Difference in Difference in Difference in operating Difference in net Difference in income tax Difference in impact Net ea
Slide 15: Net interest income
Net interest income Net interest income Credit risk 10.4 9.8 769 Strong 3.2% NIM but sensitivity to rate hikes 9.5 745 752 8.8 slowing 7.9 701 - Net interest income increased by 31% from Q3 673 3.1% 3.1% 3.2% 2021 whilst average interest bearing assets 2.8% 2.7% 5.5% increased by 12%, mainly loans t
Slide 16: Net fee and commission income
Net fee and Net fee and commission income (ISK m) Assets under management (ISK m) commission income Diversified fee generating operations 4,539 support continued momentum 343 4,079 1,352 1,350 4,002 1,291 1,288 1,277 364 3,755 346 3,552 - Strong income from cards and payment solutions. 344 787 392 T
Slide 17: Net insurance income
Net insurance Combined ratio (%) Earned premiums income 115.3 11.1% 97.7 18.9 96.1 Challenging year with unusually high 85.5 1.2 86.8 24.1 16.0 volume in claims in Q1 and Q3 15.9 17.9 1.1 2.8 3.8 0.3 3,640 3,808 3,428 3,478 3,499 95.2 79.0 - Earned premiums increased by 11.1% YoY 66.8 69.8 68.6 and
Slide 18: Net financial income
Net financial income Net financial income (ISK m) Bond holdings Challenging market conditions 163.7 157.5 1,366 151.9 1,151 15.1 991 16.0 131.7 19.3 623 556 427 - Negative net financial income in Q3 driven by loss 743 63.7 106.0 17.5 595 564 in equity and bond holdings at the Bank and at 53.4 (802)
Slide 19: Total operating expense
Total operating Cost-to-income ratio (%) Total operating expenses expense 57.4 7.9 51.6 50.1 1.5 6.6 Stable YoY total OPEX despite high inflation 47.4 5.6 6.2 5.8 44.1 43.1 2.8 42.7 41.8 3.0 2.7 - Ongoing focus on opex and efficiency 2.7 2.7 37.5 38.4 - Core cost to income ratio and core income per
Slide 20: Balance sheet
Balance sheet Continued growth in deposits supports lending growth - Loan growth supported by strong momentum in Assets 30.09.2022 30.06.2022 Diff. 31.12.2021 Diff. 30.09.2021 Diff. deposits Cash & balances with CB 68 78 (13%) 69 (1%) 70 (3%) - Loans to customers increased by 3.4% in Q3 and Loans to
Slide 21: Loans to customers
Loans to customers Loans to customers Loans to customers by sector (%) 1,045 Balanced growth between corporates and 1,011 individuals during the quarter 936 10.0 11.4 Other sectors 897 4.9 4.3 - Loans to customers increased by ISK 34bn or 823 7.0 7.0 474 Finance & 3.4% during the quarter, loans to c
Slide 22: 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 0.8% provisioned at Loans to corporates are 1.3% provisioned at Increase in loss allowance in Q3 2022. Worsening economic outlook reflected in 30
Slide 23: Risk profile
Risk profile Increased proportion of mortgages over the past Development of non-performing loans, moratoria and forbearance (% of total loan book) couple of years has reduced overall expected losses 1.77 2.49 2.68 - Despite increased provisioning through management’s 4.59 4.13 3.6 3.2 forward lookin
Slide 24: Deposits
Deposits Deposits* Maturity of deposits (%) Continued strong growth in core deposits 732 745 650 660 121 123 - Deposits represent 60% of the Bank’s total 580 108 94 63 23 On demand liabilities, was 59% at year-end 2021 81 90 56 17 52 104 - Growth in core deposits of 4.2% in the quarter 52 92 85 Up t
Slide 25: Borrowings
Borrowings Borrowings by type Maturities of borrowings and call dates on subordinated liabilities No material funding maturities until 2024 113.9 95.6 397 377 357 363 86.4 299 184 - Arion Bank issued EUR 500 million, NOK 550 million, 136 168 154 SEK 230 million and ISK 17.9 bn in Senior Preferred 35
Slide 26: Own funds
Own funds Total capital ratio (%) Leverage ratio (%) Strong capital ratios while capital 15.1 optimization continues 12.4 12.7 12.7 12.0 27.0 - Capital position stable between quarters despite 25.4 balance sheet growth and share buybacks 2.9 23.8 23.5 2.7 23.1 31.12.20 30.09.21 31.12.21 30.06.22 30.
Slide 27: Own funds
Own funds Own funds and capital requirements (%) The capital ratios continue to be very strong while capital optimization efforts are ongoing 22.2 - 23.2 23.1 20.7 20.7 20.7 2.3 2.9 - ISK 22.5bn dividend paid out in March 2022 and ISK 6.5bn buyback during 9M 2022 ISK 9.2-17.9bn 1.5 2.9 ISK 13.0-21.7
Slide 28: MREL requirement
MREL requirement MREL requirement as % of REA* The Icelandic Resolution Authority has published its MREL policy - The BRRD I approach to MREL has been codified in Icelandic law - Senior unsecured debt is MREL eligible unless it is excluded from the scope of bail-in 30.4% - The Icelandic Resolution A
Slide 29: Going forward
Going forward Strong position to navigate the current market environment Underlying business dynamics are strong, The Icelandic economy is in a relatively strong position with a healthy net interest margin and good and has approached terminal policy rates faster than in trajectory in non-interest in
Slide 30: Key financial indicators - quarter
Key financial indicators - quarter Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 17.0 40.2 37.5 41.8 10.5 8.3 2.9 3.2 2.7 Q3-20 Q3-21 Q3-22 Q3-20 Q3-21 Q3-22 Q3-20 Q3-21 Q3-22 Loans-to-deposits ratio (%) Operating income / REA (%) Capital ratio (%) (without loans financed by
Slide 31: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 14.7 14.8 56.9 56.0 48.1 2.9 3.1 44.4 44.8 2.8 2.8 2.8 6.5 3.7 0.6 2018 2019 2020 2021 9M 2022 2018 2019 2020 2021 9M 2022 2018 2019 2020 2021 9M 2022 CPI imbalance (ISK bn) Operating income / REA
Slide 32: Key figures
Key figures Operations 9M 2022 9M 2021 9M 2020 9M 2019 9M 2018 Q3 2022 Q2 2022 Q1 2022 Q4 2021 Q3 2021 Net interest income 29,753 23,295 23,099 22,624 21,350 10,421 9,804 9,528 8,768 7,937 Net commission income 12,093 10,594 8,526 7,335 7,603 4,002 4,539 3,552 4,079 3,755 Operating income 41,658 42,
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
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