Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q2 2021 Earnings Presentation
35 slides from Arion Banki Hf's earnings presentation, Jul 28, 2021
Slide 1: Q2 results 2021
Q2 results 2021 Investor presentation 28 July 2021
Slide 2: Key takeaways in Q2 2021
Key takeaways in Q2 2021 The Bank delivers outstanding results which are well above market expectations • The best quarter in 6 years with ROE of 16.3%, well above the 10.0% target After a good Q1 the Bank again • Solid core income growth of 10.5% from the same quarter in 2020 demonstrates the abili
Slide 3: Economic rebound has started but uncertainty persists due to recent increase in Covid infections
Economic rebound has started but uncertainty persists due to recent increase in Covid infections The Central Bank of Iceland hiked interest rates by 25bp in the second quarter GDP growth (EU average in brackets) Key interest rates (seven-day term deposit rate) Mortgage market activity (turnover ISK
Slide 4: Recent operational milestones
Recent operational milestones Sale of Valitor to Rapyd for USD 100 Strong activity in Corporate & Investment million – subject to regulatory approval banking and Capital Markets Stock and fund trading app solution SOPRA core system went live in April launched in July
Slide 5: Implementing the bancassurance model with subsidiary Vordur
Implementing the bancassurance model with subsidiary Vordur to leverage attractive customer segments The objective is to increase market share in insurance Drivers for bancassurance from Drivers for bancassurance from an the Bank’s perspective Insurer perspective • Fee income • Reduced distribution
Slide 6: Arion Bank's sustainability journey
Arion Bank’s sustainability journey Establishment of a Green Financing Framework is an important milestone in Arion Bank’s sustainability journey Signatory to Principles for Responsible Set-up of Green Financing Investment (UN PRI) in 2017 and to Framework with SPO from Cicero. Principles for Respon
Slide 7: Arion Bank issued its inaugural 300m EUR green bond in July
Arion Bank issued its inaugural 300m EUR green bond in July Eligible categories under Arion Bank’s Green Financing Framework Sustainable fishery Green buildings and aquaculture Energy efficiency • Commercial real estate with certification (BREEAM • Loans to the fisheries sector, which has a pivotal
Slide 8: Net earnings improve significantly YoY
Net earnings improve significantly YoY Core operations improve markedly but other segments also make a substantial contribution Q2 2020 vs Q2 2021 29 180 1,730 (245) 23 1,186 7,816 4,913 Net earnings Difference in core Difference in other Difference in operating Difference in net Difference in incom
Slide 9: Financials
Financials 9
Slide 10: Operational highlights of Q2 2021
Operational highlights of Q2 2021 • Outstanding quarter for Arion Bank Q2 2021 H1 2021 Target ‒ All financial targets have been met • Arion Bank’s strategy results in core operations trending positively Exceed ‒ Return on equity 16.3% 14.3% Core revenues are up 10.5% YoY 10% ‒ NII to credit risk is
Slide 11: Income statement Q2 2021
Income statement Q2 2021 Outstanding quarter with all items trending positively Q2 2021 Q2 2020 Diff% Q1 2021 Diff% • Core income (NII, NCI and net insurance income) increases 10.5% YoY Net interest income 8,016 7,857 2% 7,342 9% – Slight increase in net interest income YoY. The loan book increases
Slide 12: Income statement H1 2021
Income statement H1 2021 Turnaround in net earnings from Covid affected first half last year H1 2021 H1 2020 Diff Diff% • Core income increases 7.4% from last year Net interest income 15,358 15,110 248 2% – Slight increase in net interest income YoY. The loan book increases from the same period Net
Slide 13: Net interest income
Net interest income Very strong NIM in light of the record low interest rate environment – The Central Bank’s hawkish tone is positive for the Bank Net interest income Credit risk • Net interest income increased by 2.0% from Q2 2020 whilst average interest bearing assets increased by 1.0%, mainly mo
Slide 14: Net fee and commission income and net insurance income
Net fee and commission income and net insurance income Extremely strong quarter in corporate activities, both lending and advisory Net fee and commission income Net insurance income 3,562 3,277 241 1,043 3,132 325 327 2,762 311 914 2,688 257 265 343 305 761 766 1,122 276 315 671 1,161 1,072 1,040 94
Slide 15: Net financial income
Net financial income Favorable market conditions and active management deliver strong performance Net financial income (ISK million) Bond holdings • Net financial income in Q2 driven by: 171.9 – Equity holdings measured at fair value 157.7 – Solid performance in equities at market making 2,691 140.6
Slide 16: Total operating expenses
Total operating expenses Cost-to-income ratio around the 45% target over the last five quarters Cost-to-income ratio (%) Total operating expenses • Number of FTEs continues to trend down – 5% YoY (7% at the parent company) • Salary expense remains at the same level as in Q2 2020 due to wage inflatio
Slide 17: Balance sheet – assets
Balance sheet – assets Retail mortgages drive loan growth during the quarter 30.06.2021 31.12.2020 30.06.2020 ISK 1,218 billion ISK 1,173 billion ISK 1,182 billion Other and intangibles: • Loans to customers increased by 0.8% in Q2 45 4.5% of total assets 42 10 59 and 2.6% from YE 2020 10 9 ISK 319
Slide 18: Loans to customers
Loans to customers Retail mortgages, which are light on capital usage and offer the highest asset quality, represent 49% of the loan book Loans to customers Loans to customers by sector (%) • Loans to individuals increased by 5.7% during the quarter due to mortgage lending. Mortgage lending is up 24
Slide 19: Loss allowance on loans to customers by IFRS 9 stages
Loss allowance on loans to customers by IFRS 9 stages Loss allowance decreased significantly during the quarter On loans to customers total On individuals On corporates Thereof tourism exposure 12.7 12.2 11.6 9.5 9.7 9.3 9.3 6.9 8.3 6.6 7.4 5.3 5.6 5.5 6.3 5.1 5.1 4.3 4.2 3.8 3.4 3.3 3.0 3.3 3.3 2.3
Slide 20: Covid-19 affects ISK 91 billion or 10.6% of the loan book
Covid-19 affects ISK 91 billion or 10.6% 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 • Since the IFRS 9 models did not fully capture the Covi
Slide 21: Balance sheet – equity and liabilities
Balance sheet – equity and liabilities Strong capital position and good funding mix 30.06.2021 31.12.2020 30.06.2020 ISK 1,218 billion ISK 1,173 billion ISK 1,182 billion • Strong equity position and very high Equity leverage ratio 194 CET1 ratio 22.7% 198 189 • The funding mix is well balanced betw
Slide 22: Deposits
Deposits The strategic focus on deposits is showing Deposits and due to credit institutions Maturity of deposits (%) • Deposits represent 59% of the Bank’s total liabilities and Central Bank • Strong growth of 12.5% in core deposits from 30.6.2020 On demand – Core deposits are from individuals, SME’
Slide 23: Borrowings
Borrowings Limited wholesale funding activities in Q2 – Inaugural Green Bond in July Borrowings by type Maturities of borrowings • Limited funding activities during the quarter. The Bank sold previously issued covered bonds for ISK 11 billion 68.4 • Green Financing Framework established in July 45.0
Slide 24: Own funds
Own funds The capital ratios are unrivalled in a European context Total capital ratio (%) Leverage ratio (%) • The CET1 increased by 30 bps from 31.03.2021 – Deducting from the capital base 50% of net earnings and foreseeable share buy-backs 28.1 14.9 15.1 14.7 14.6 27.2 14.1 27.0 26.9 • REA’s decre
Slide 25: 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 in H1 2021 was ISK 17.8 billion 27.2 • Foreseeable dividend and buy-backs of own shares of total ISK 14.9 billio
Slide 26: Going forward
Going forward Arion Bank will strive to build on the positive operational progress from the last quarters and the improving economy offers a number of opportunities for the Bank Bancassurance and further inclusion of the insurance company Vördur will be in focus with the objective to increase market
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: Key financial indicators – annual
Key financial indicators – annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 14.3 56.9 56.0 48.9 48.1 2.9 2.8 2.9 44.2 2.8 2.8 6.6 6.5 3.7 0.6 2017 2018 2019 2020 H1 2021 2017 2018 2019 2020 H1 2021 2017 2018 2019 2020 H1 2021 CPI imbalance (ISK billion) Operating income /
Slide 29: Key financial indicators – quarterly
Key financial indicators – quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 54.2 16.3 45.5 42.5 10.5 2.8 2.9 2.9 4.3 Q2-19 Q2-20 Q2-21 Q2-19 Q2-20 Q2-21 Q2-19 Q2-20 Q2-21 Loans-to-deposits ratio (%) Operating income / REA (%) Capital ratio (%) (without loans financed b
Slide 30: Key figures
Key figures Operations H1 2021 H1 2020 H1 2019 H1 2018 H1 2017 Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Net interest income 15,358 15,110 15,242 14,141 14,824 8,016 7,342 8,059 7,989 7,857 Net commission income 6,839 5,764 4,696 4,917 4,608 3,562 3,277 3,116 2,762 2,688 Operating income 28,101 23,039
Slide 31: Macroeconomic environment
Macroeconomic environment 31
Slide 32: Economic impact of the pandemic softer than expected
Economic impact of the pandemic softer than expected Economic support schemes are paying off and increased number of tourists are positively affecting unemployment figures GDP growth (EU average in brackets) Change in number of people working in each sector according to • The number of tourists is r
Slide 33: Soaring housing prices stoke inflation
Soaring housing prices stoke inflation Housing prices are rising, and inflation figures are reducing slower than anticipated EUR/ISK and CBI‘s intervention in the FX market Inflation and inflation target • Inflation has been more persistent than 14 170 6% expected and is still above 4%. Although thi
Slide 34: Soaring housing prices stoke inflation
Soaring housing prices stoke inflation Housing prices are rising, and inflation figures are reducing slower than anticipated Key interest rates (seven-day term deposit rate) Household and non-financial corporate debt (% of GDP) • Persistent inflation has compelled the CBI to raise interest rates by
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