Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q1 2021 Earnings Presentation
37 slides from Arion Banki Hf's earnings presentation, May 5, 2021
Slide 1: First quarter results 2021
First quarter results 2021 Investor presentation 5 May 2021
Slide 2: Key takeaways in Q1
Key takeaways in Q1 The Bank’s revised strategic direction is delivering strong results which exceed market expectations • The best quarter in 4 years despite a challenging environment The Bank delivers strong results and demonstrates the ability to successfully • Return on equity above the 10% targ
Slide 3: The light at the end of the tunnel is getting brighter
The light at the end of the tunnel is getting brighter Iceland expects all residents 16 years and older to be vaccinated before 30 June and all domestic Covid restrictions to be lifted Percentage of vaccinated persons by age Fiscal Measures in Response to the COVID-19 Pandemic since January 2020 (%
Slide 4: The economy is forecast to rebound in second half of 2021
The economy is forecast to rebound in second half of 2021 Monetary and fiscal measures have been significant but the low government debt levels show that there is scope for more if required. Inflation is expected to be short lived and unemployment which is currently around 12% will trend down over t
Slide 5: Digital solutions have impacted customer interaction and sales significantly
Digital solutions have impacted customer interaction and sales significantly More than 42 million annual interactions with our clients • Approximately 99% of our total interactions are through digital Digital Interactions channels • Digital core sales have increased steadily as a percentage of total
Slide 6: New solutions introduced to optimize the customer journey and service excellence
New solutions introduced to optimize the customer journey and service excellence Pension fund solution and onboarding • Approximately 99% of our total interactions are through digital • Digital core sales have increased steadily as a percentage of total sales • The results show Arion Bank is now Onl
Slide 7: Vörður Insurance - Robust pillar of the Group with further growth potential
Vörður Insurance - Robust pillar of the Group with further growth potential Insurance products integrated into the Bank‘s customer journey Consistent profitability through the cycle - ROE Profitable insurance business – combined ratio* 30% 102% 100% 101% 25% 24% 22% 99% 20% 98% 19% 18% 17% 15% 96% 1
Slide 8: Project Sopra: a new core banking system went live in April 2021
Project Sopra: a new core banking system went live in April 2021 A key milestone in supporting open banking journey and reducing IT cost in the long term Context Future benefits • Dated core banking infrastructure • Support Open banking journey • Two deposits systems: RB and an • Support digitizatio
Slide 9: Net earnings improve significantly YoY
Net earnings improve significantly YoY Core income and expenses continue to improve (1,006) 995 3,940 6,039 159 3,663 (2,171) 460 Net earnings Q1 2020 Difference in core Difference in other Difference in operating Difference in net Difference in income Difference in impact Net earnings Q1 2021 incom
Slide 10: Financials
Financials
Slide 11: Operational highlights of the first quarter 2021
Operational highlights of the first quarter 2021 • Arion Bank’s strategy results in core operations trending positively ‒ Core revenues are up 4.2% YoY ‒ NII to credit risk is relatively stable YoY in an extreme low interest rate environment ‒ OPEX is down 3% YoY • Other items are favorable ‒ Financ
Slide 12: Income statement Q1 2021
Income statement Q1 2021 Very strong quarter – Revised strategy results in robust growth in earnings YoY Q1 2021 Q1 2020 Diff% Q4 2020 Diff% • Core income; NII, NCI and net insurance Net interest income 7,342 7,253 1% 8,059 (9%) income, increases 4.2% YoY Net commission income 3,277 3,076 7% 3,116 5
Slide 13: Net interest income
Net interest income Acceptable NIM in light of increased share of mortgage lending with superb asset quality and the record low interest rate environment Net interest income Credit risk • Net interest income increased by 1.2% from Q1 2020 whilst average interest bearing assets increased by 5.2%, 7.9
Slide 14: Net fee and commission income and net insurance income
Net fee and commission income and net insurance income Improvement across the board in line with strategy Net fee and commission income Net insurance income 3,277 1,043 3,076 3,132 325 2,762 311 443 2,688 257 343 305 304 265 761 766 276 315 671 1,094 1,072 1,025 501 1,006 914 103.5% 575 94.5% 96.8%
Slide 15: Net financial income
Net financial income Active management and favorable market conditions result in very strong quarter Net financial income (ISK million) Bond holdings • Net financial income in Q1 driven by: – Equity holdings measured at fair 2,691 171.9 value 157.7 140.6 1,500 131.0 124.8 – Solid performance in equi
Slide 16: Total operating expenses
Total operating expenses Cost-to-income around 45% during in the last four quarters Cost-to-income ratio (%) Total operating expenses • Number of FTEs down 5% YoY (7% at the parent company) – Salaries expense increased by 5% 69.2 6.2 6.4 6.6 through wage inflation, changed staff 6.1 5.2 composition
Slide 17: Balance sheet - assets
Balance sheet - assets Retail mortgages drive loan growth during the quarter 31.03.2021 31.12.2020 31.03.2020 ISK 1,181 billion ISK 1,172 billion ISK 1,188 billion • Loans to customers increased by 1.7% in Other and intangibles: Q1 4.8% of total assets 47 42 56 10 10 9 – Mortgage lending was up 3.7%
Slide 18: Loans to customers
Loans to customers Retail mortgages that are light on capital usage and offer the highest asset quality represent 47% of the loan book Loans to customers Loans to customers by sector (%) • The loan book increased by a modest 1.7% from YE 2020 Individuals • Loans to individuals increased by 3.2% duri
Slide 19: Loss allowance on loans to customers by IFRS 9 stages
Loss allowance on loans to customers by IFRS 9 stages Minor changes in loss allowance during the quarter On loans to customers total On individuals On corporates Thereof on tourism exposure 13.7 12.2 11.9 11.6 10.5 9.5 9.3 8.3 8.7 6.9 6.6 8.1 6.6 5.6 5.5 5.1 5.1 5.1 6.0 3.6 3.5 3.2 3.2 3.3 3.0 3.5 3
Slide 20: Balance sheet – equity and liabilities
Balance sheet – equity and liabilities Equity decreases with buy-back and dividend in line with strategy 31.03.2021 31.12.2020 31.03.2020 ISK 1,181 billion ISK 1,172 billion ISK 1,188 billion • Strong equity position and a very high leverage ratio Equity 189 184 • The Bank is a frequent issuer of co
Slide 21: Deposits
Deposits The strategic focus on deposits is showing Deposits and due to credit institutions and Central Bank Maturity of deposits (%) • Deposits represent 61% of the Bank’s total liabilities • Strong growth of 9.8% in core deposits On demand 9 3 from 31.3.2020 – Core deposits are from individuals, 6
Slide 22: Borrowings
Borrowings Balanced maturity profile and limited refinancing needs Borrowings by type Maturities of borrowings • Senior unsecured debt maturing in December 2021 mostly refinanced in November 2020 61.5 – Refinancing risk is minimal • Modest debt repayment in coming 44.6 45.8 418 41.5 41.8 years coupl
Slide 23: Own funds
Own funds The capital ratios are unrivalled in a European context Capital ratio (%) Leverage ratio (%) • The CET1 increased by 10 bps from YE 2020 – 50% of net earnings are foreseeable 15.1 14.2 14.1 14.5 14.7 dividend 27.5 27.0 26.9 – REA’s creep up 1.1% • Arion Bank filled the Tier 2 bucket with 2
Slide 24: Capital adequacy
Capital adequacy Capital ratios remain very strong following significant distributions to shareholders Own funds and capital requirements (%) • Purchase of own shares and dividend payment was ISK 14.8 billion • Total foreseeable dividend and buy-back of own shares of ISK 6.1 billion is included in t
Slide 25: Going forward
Going forward • Arion Bank, armed with an updated strategic vision, will strive to build on the positive operational progress from the last quarters • The economy is expected to pick up in Q3 which offers a number of opportunities for the Bank • Growth of mortgage lending will continue and further s
Slide 26: Appendix
6 me Appendix
Slide 27: Arion Bank's medium term targets
Arion Bank's medium term targets Return on Equity Exceed 10% Revenues / REAs Exceed 6.7% Cost to Income Ratio Reduce to 45% Loan growth The loan book will grow in line with economic growth, with growth in mortgage lending expected to outpace corporate lending CET 1 Ratio (Subject to regulatory requi
Slide 28: Sustainable and responsible banking
Sustainable and responsible banking Responsible and profitable business practices – taking into account the environment and society Commitment to sustainability Reporting and measurements • Global Reporting Initiative standard. GRI Core • Founding signatory to the Principles for Responsible Banking
Slide 29: Covid-19 affects ISK 99 billion or 11.7% of the loan book
Covid-19 affects ISK 99 billion or 11.7% of the loan book IFRS 9 impairments are forward looking but management overlay is necessary Breakdown of loans to customers (% of gross carrying Loans with Covid-19 related payment moratoria (% of gross • IFRS 9 models do not fully capture amount) carrying am
Slide 30: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 12.5 56.9 56.0 48.9 48.1 46.2 2.9 2.9 2.8 2.8 2.7 6.6 6.5 3.7 0.6 2017 2018 2019 2020 Q1 2021 2017 2018 2019 2020 Q1 2021 2017 2018 2019 2020 Q1 2021 CPI imbalance (ISK billion) Operating income /
Slide 31: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 69.2 12.5 58.6 46.2 2.1 2.7 2.8 2.7 (4.6) Q1-19 Q1-20 Q1-21 Q1-19 Q1-20 Q1-21 Q1-19 Q1-20 Q1-21 Loans-to-deposits ratio (%) Capital ratio (%) Operating income / REA (%) (without loans financed
Slide 32: Key figures
Key figures Operations Q1 2021 Q1 2020 Q1 2019 Q1 2018 Q1 2017 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020 Net interest income 7,342 7,253 7,434 6,827 6,904 7,342 8,059 7,989 7,857 7,253 Net commission income 3,277 3,076 2,218 2,205 2,198 3,277 3,116 2,762 2,688 3,076 Operating income 13,097 8,976 11,70
Slide 33: Macroeconomic environment
Macroeconomic environment
Slide 34: Economic impact 2020 softer than expected
Economic impact 2020 softer than expected Economic support schemes are paying off as robust demand of households and government investment is starting to take off • The Coronavirus Crisis has heavily impacted the Icelandic economy due to its GDP growth Change in number of people working in each sect
Slide 35: Divided domestic market
Divided domestic market While unemployment continues to climb wages are on the rise • With the largest export sectors struggling, it’s EUR/ISK and CBI‘s intervention in the FX market (bn. Inflation and inflation target no surprise that the ISK has depreciated. ISK) 5,0% The CBI has intervened in the
Slide 36: Fiscal and monetary responses soften the economic blow
Fiscal and monetary responses soften the economic blow Collective wage agreements indicate substantial real wage increases and competitiveness could come under pressure • Unlike many neighboring countries the Icelandic authorities had plenty of firepower at their disposal to support the economy. Key
Slide 37: 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