Arion Banki hf · OMXICE:ARION
Arion Banki hf — Arion Bank — FY2017 Earnings Presentation
49 slides from Arion Banki hf's earnings presentation, Feb 14, 2018
Slide 1: Financial Statements 2017
Financial Statements 2017 Investor presentation 14 February 2018
Slide 2: Highlights
2017 Highlights Operating environment strong and capital controls were lifted First step in the sale of Arion Bank, largest equity portfolio investment by foreign parties in Icelandic history Improvement in core revenues – 7% increase in loans to customers Kaupthing facility repaid and Arion Bank is
Slide 3: Success in digitalization of services
Success in digitalization of services The Bank’s mortgage application process is now fully digitalized – best banking app in Iceland* Convenient Banking Digital services change behaviour (increase in 2017) Digital credit assessment and mortgage application – quick and straightforward New pension por
Slide 4: Accessible services and open communication
Accessible services and open communication 120,000 560,000 70,000 customers branch visits e-mails from customers 330,000 2,500 696 phone calls from customers conversations on publications by Arion Facebook and webchat Research 4
Slide 5: Strong position in key markets
Strong position in key markets Digital focus in retail services Continued market success Renovated branch at Kringlan Mall Number 1 in equities trading on was opened – an experimental the stock exchange branch with focus on digital services Arion Bank advised on the Klappir Green Solutions listing o
Slide 6: Bank of the year in Iceland
Bank of the year in Iceland Managerial and board of directors changes • Eva Cederbalk took over as chairman of the Board of Directors in June Euromoney named Arion Bank bank of the year • Steinunn Kristin Thordardottir elected to the in Iceland Board of Directors in November Global Finance named Ari
Slide 7: Sustainability for the Future
Sustainability for the Future Innovation and Financial Literacy Active in the Community Startup Reykjavik held for the sixth year in Sponsorship of DesignMarch row and the Bank has now invested in 80 plus special events startups through its business accelerators A range of seminars on finance, inclu
Slide 8: Macroeconomic Environment
Macroeconomic Environment ®——
Slide 9: The economy continues to grow but at a slightly slower pace
The economy continues to grow but at a slightly slower pace Pressure in the economy has begun to ease, resulting in a diminishing output gap • GDP growth in Q3 Growth contribution of GDP components 15% 2017 measured 3.1%. Despite slower growth 10% than previous quarters the economy is still 5% devel
Slide 10: Tourism growth is slowing down
Tourism growth is slowing down The ISK has been relatively steady following the summer depreciation FX market and the ISK • After a volatile summer 400 - EUR millions 130 that was characterized by an exchange rate depreciation, 125 300 the ISK has become more 120 stable 200 115 • The CBI has gradual
Slide 11: Inflationary pressures on the rise
Inflationary pressures on the rise Hurdle on the path to lower interest rates • Currently housing prices are still Housing price index for the capital area CBI's key interest rates the main factor behind inflation -YoY % 8.0% 30% while imported goods partly offset 7.0% the pressure. However, these t
Slide 12: Headline Figures
2017 Headline Figures Net earnings CET 1 Cost-to-income ratio Gross impairment / gross loans ISK 14.4 bn. 23.6% 56.1% 1.6% 2016: 31.12.2016: 2016: 31.12.2016: ISK 21.7 bn. 26.1% 56.0% 3.2% Return on equity Leverage ratio Number of employees Mortgages/Total loans 6.6% 15.4% 1,284 40.6% 2016: 31.12.20
Slide 13: Income statement
Income statement ® —
Slide 14: Income statement
Income statement All amounts in ISK million Improvements in core operations • Net interest income at the same level as in 2016 2017 2016 Diff Diff% • Increase in interest bearing Net interest income 29,835 29,899 (64) (0%) assets offset by low inflation and Net commission income 15,357 13,978 1,379
Slide 15: Income statement Q4
Income statement All amounts in ISK million Growth in net commission income – high liquidity affects net interest income • Net interest income decreases compared to the Q4 2017 Q4 2016 Diff Diff% same period last year mainly due to high liquidity buffer in Net interest income 7,265 7,842 (577) (7%)
Slide 16: United Silicon
United Silicon All amounts in ISK million Effects of United Silicon (USi) on 2017 figures • Arion Bank has fully Effects of 2017 provisioned for ISK 1,164 United without million in equity investments in USi and ISK 708 million in 2017 Silicon USi bonds related to USi Net interest income 29,835 - 29,
Slide 17: Net interest income
Net interest income All amounts in ISK billion Increased liquidity and low inflation affects net interest margin • Net Interest Income (NII) Net interest income Interest income stable between years 60.8 56.2 53.7 56.2 29.9 29.8 50.2 4.3 • Net Interest Margin (NIM) 27.0 6.6 3.5 2.0 3.7 decreases from
Slide 18: Net commission income
Net commission income All amounts in ISK billion Solid growth in commission income from last year • Net commission income from cards and payment solutions Net commission income increased by 16% in 2017 mostly due to successful acquisitions within Valitor 15.4 • Acquisition of Chip & Pin and IPS in t
Slide 19: Net financial income
Net financial income All amounts in ISK billion Normalizing after a period of one-off gains in recent years • Provision of bonds relating Net financial income to United Silicon of ISK 708 Bond holdings million and ISK 257 million of 12.8 equity 80.3 76.9 69.7 • Derivative gains are mainly 62.7 21.1
Slide 20: 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 previous years due to acquisition of Vördur in Net insurance income Other operating income late 2016 • Insurance income is expected to i
Slide 21: Total operating expenses
Total operating expenses All amounts in ISK billion The cost-to-income ratio is stable year on year • Decrease in number of full-time employees (FTE’s) at Parent company from last year is mainly due to outsourcing and digitalization of IT Cost-to-income ratio (%) operations • FTE’s at the group incr
Slide 22: Taxation
Taxation All amounts in ISK million Bank specific taxes have a significant effect on ROE • Icelandic corporate income Effects of bank levy and additional tax rate is 20% income tax on ROE • Financial institutions pay 10.3 Excluding bank additional taxes: 9.8 0.8 levy and • Additional income tax whic
Slide 23: Balance sheet
Balance sheet © Pee
Slide 24: Balance sheet - Assets
Balance sheet - Assets All amounts in ISK billion Robust loan growth in line with economic growth • The balance sheet grew by 31.12.2017 31.12.2016 10.8% in 2017 ISK 1,148 billion ISK 1,036 billion • Strong growth in loans to Other and intangibles: 4% Other1 33 customers, specially in the Intangible
Slide 25: Loans to customers
Loans to customers All amounts in ISK billion Well balanced loan portfolio between corporates and individuals • Loans to customers increased by 7.4% in 2017 Loans to customers Loans to customers by sector (%) • The mortgage portfolio grew 765 Individuals by 9.7%, driven by new digital 712 55 680 13
Slide 26: Loans to customers
Loans to customers All amounts in ISK billion Quality of the loan book continues to improve • Internal credit rating has Risk classification Collateral held againts loans (%) improved significantly during (risk classification only applies to loans that are 83.8 85.7 88.5 85.1 80.9 the year: neither
Slide 27: Balance sheet – Liabilities and Equity
Balance sheet – Liabilities and Equity All amounts in ISK billion Strong equity position and well balanced funding • Increase in deposits, 31.12.2017 31.12.2016 mainly from retail customers ISK 1,148 billion ISK 1,036 billion • Successful wholesale funding activities both in Equity Iceland and in th
Slide 28: Deposits
Deposits All amounts in ISK billion Deposits from retail customers growing at a fast pace in the last two years • Deposits represent approx. 40% of the Bank’s funding Deposits Maturity of deposits (%) • Deposits from retail On demand customers have grown 26% 7 3 (compound annual growth 490 471 477 4
Slide 29: Borrowings
Borrowings All amounts in ISK billion Success in the international and domestic bond markets • In June the Bank issued new Repayment of borrowings 3 year, EUR 300 million senior Borrowings 88.5 unsecured bond or approx. ISK 72.8 37 billion at interest cost equal 59.9 to 0.88% over interbank rates 38
Slide 30: 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 200 150 100 50 0 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 -50 ARION 06/2020 ARION 04/2019 ARION 12/2021 NORDEA 02
Slide 31: Capital base
Capital base All amounts in ISK billion Optimizing of equity started with foreseeable dividend of ISK 25 billion • Reduction in capital base Capital ratio (%) Leverage ratio (%) due to foreseeable dividend payment of ISK 25 billion 26.7 16.7 17.8 26.3 15.4 15.4 • Solid level of capital due to 0.6 14
Slide 32: Capital adequacy
Capital adequacy Own funds and capital requirements • The Group’s capital adequacy is based on Arion Bank’s consolidated situation under CRR, which excludes insurance 27.3 subsidiaries. The capital position and solvency requirement of 0.4 CET 1 Vördur Insurance hf. should be viewed separately. 24.0
Slide 33: IFRS 9 implementation
IFRS 9 implementation All amounts in ISK billion Total estimated up to date adjustments of ISK 1 billion due to IFRS 9 implementation Classification • The implementation of the new classification requirements of IFRS 9 • The application of the IFRS 9 impairment requirements might increase volatility
Slide 34: Cash flow
Cash flow All amounts in ISK billion Increased deposits and borrowings increase cash position 182 (7) (29) 42 60 124 (59) 51 Cash and cash Interest Interest Loans to Deposits Borrowings Other Cash and cash eq. 31.12.2016 received paid customers changes eq. 31.12.2017 • Lending activities increased d
Slide 35: Going forward
Going forward Arion Bank operates Growth in loan in a strong and portfolio exceeds the growing economy underlying growth in the Icelandic economy Focus on digitalization Arion Bank will seek across both client-facing to optimize capital offerings and by paying out automation to further dividends and
Slide 36: Medium Term Targets
Medium Term Targets CET 1 Ratio Loan Growth (Subject to regulatory requirements) Prudent lending to Decrease to circa 17% outpace economic growth Return on Equity Exceed 10% Dividend Policy Payout ratio of circa Cost to Income Ratio 50% of net earnings Decrease to circa 50% attributable to sharehold
Slide 37: KFI’s, adjusted income and other information
KFI’s, adjusted income and other information
Slide 38: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 57.6 56.0 56.1 28.1 49.4 3.0 3.1 2.9 2.9 2.8 18.6 32.4 9.2 10.5 6.6 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 CPI Imbalance – ISK bn. FX Imbalance – ISK bn. Risk w
Slide 39: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) Gross impaired loans / Gross loans (%) 57.9 61.6 51.6 24.4 2.9 3.2 2.7 4.7 3.2 8.6 7.3 1.6 Q4-15 Q4-16 Q4-17 Q4-15 Q4-16 Q4-17 Q4-15 Q4-16 Q4-17 Q4-15 Q4-16 Q4-17 Loans-to-deposits ratio (%) Ti
Slide 40: Development of key figures
Development of key figures All amounts in ISK billion Net interest income Net commission income 9,0 5,0 8,0 4,5 7,0 4,0 6,0 3,5 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,
Slide 41: Key figures
Key figures All amounts in ISK million 2017 2016 2015 2014 2013 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 Operations Net interest income 29,835 29,900 26,992 24,220 23,800 7,265 7,250 8,160 7,160 7,842 Net commission income 15,357 13,978 14,484 13,309 11,223 4,654 3,865 3,508 3,330 3,765 Operating inc
Slide 42: Balance sheet
Balance sheet All amounts in ISK billion 5 year overview Assets 2017 2016 2015 2014 2013 Cash & balances with CB 140 88 48 21 38 Loans to credit institutions 87 80 87 109 102 Loans to customers 765 712 680 648 636 Financial assets 109 117 133 102 87 Investment property 7 5 8 7 29 Investments in asso
Slide 43: Adjusted income
Adjusted income All amounts in ISK million Adjustments on impairment have greatest affect 2017 Adjustment Adjusted Net interest income 29,835 17 29,852 1) 1) Interest income from non-core Net commission income 15,357 0 15,357 subsidiaries eliminated and interest Net financial income 4,091 0 4,091 in
Slide 44: Segment information
Segment information © ——
Slide 45: 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 2017 2016 Diff. pension savings, insurance, securities and
Slide 46: 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 2017 2016 Diff. to larger corporate
Slide 47: Asset Management
Asset Management All amounts in ISK million Largest asset management operation in Iceland Comprises Institutional Asset Management, Private Banking, Income statement and key figures: Investment Services and Pension Fund Administration. Tímabil 2017 2016 Diff. Net interest income ....................
Slide 48: 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: Tímabil 2017 2016 Diff. Capital Markets and Research. Net interest income .................................... 240
Slide 49: 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