Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q1 2020 Earnings Presentation
32 slides from Arion Banki Hf's earnings presentation, May 6, 2020
Slide 1: First quarter results 2020
First quarter results 2020 Investor presentation 6 May 2020
Slide 2: Highlights of the quarter
Highlights of the quarter Covid-19 has had a severe impact on the Icelandic economy and society The authorities and the health care system have responded extremely well and the pandemic is on the decline in Iceland GDP is expected to contract and unemployment will increase despite strong economic st
Slide 3: Development of COVID-19 in Iceland
Development of COVID-19 in Iceland The pandemic is on the decline as Iceland has responded robustly Number of active infections and number of recovered Tests per 1000 population (May 5 2020) • Testing was started early Iceland 150 • Tracing of infected individuals was 2,000 extensive 1,800 Luxemburg
Slide 4: Macroeconomic environment
oe Macroeconomic environment
Slide 5: The development of GDP looks bleak in the short term
The development of GDP looks bleak in the short term The spread of Covid-19 and subsequent bans on travel and public gatherings have a very negative effect on the Icelandic economy GDP growth Estimated GDP per capita in 2020 (2011 international • In a short time the world has changed. It’s 6.6% doll
Slide 6: Unprecedented times
Unprecedented times Unemployment has reached new heights while inflation is expected to remain close to target The ISK against major trade currencies Inflation and inflation target • With the largest export sectors struggling, 170 4.0% especially tourism where the source of 160 3.5% income has disap
Slide 7: Better equipped to handle the recession than most
Better equipped to handle the recession than most Both fiscal and monetary policy have the ammunition to support the economy • Before the pandemic hit the CBI, unlike Central government debt (% of GDP) Household and corporate debt (% of GDP) many central banks, still had the firepower to 100% 400% s
Slide 8: Regulatory and Government response to Covid-19
Regulatory and Government response to Covid-19 The Government and the Central Bank of Iceland have introduced numerous measures to deal with the expected impact of the pandemic Increased liquidity available for banks from the Central Bank Covered bonds now eligible as collateral in transactions
Slide 9: Business continuity supported by effective digital solutions
Business continuity supported by effective digital solutions 98% of all customer touch points in Q1 are digital The Bank operates in accordance with its business continuity plan implemented at the end of February, aimed to ensure business continuity and to safeguard the welfare of customers and empl
Slide 10: Financials
Financials
Slide 11: Operational highlights of the first quarter 2020
Operational highlights of the first quarter 2020 Arion Bank’s strategy results in core operations trending positively ‒ NIM improves YoY ‒ NII to Credit risk improves YoY ‒ Core revenues up 9% ‒ OPEX is down 10% YoY Covid-19 related issues push earnings into negative territory ‒ Equity positions dec
Slide 12: Income statement Q1 2020
Income statement Q1 2020 Q1 2020 Q1 2019 Diff% Q4 2019 Diff% • Earnings from continued operations are Net interest income 7,253 7,434 (2%) 7,693 (6%) negative due to the effects of Covid-19 Net commission income 3,076 2,218 39% 2,615 18% • The 2% reduction in NII derives from smaller Net insurance i
Slide 13: Net interest income
Net interest income 10 bps improvement in NIM despite challenging environment Net interest income Credit risk • Net interest income decreased by 2% from Q1 2019 whilst interest bearing 7.8 7.7 7.4 7.4 7.3 683 assets decreased by 5% 669 649 • Strong net interest margin in light of: 2.8% 3.0% 2.7% 2.6
Slide 14: Net fee and commission and net insurance income
Net fee and commission and net insurance income Steady positive trends in both fee and insurance based operations Net insurance income Net fee and commission income 1.1 3.1 0.8 0.7 2.6 2.6 0.4 2.5 2.2 0.4 0.3 0.3 0.3 0.3 0.5 0.3 0.4 0.4 109.6% 0.3 1.0 103.5% 0.4 0.5 0.7 94.4% 89.0% 0.5 80.0% 0.5 0.4
Slide 15: Net financial income
Net financial income Loss on equity holdings as markets are hit hard by Covid-19 Bond holdings Net financial income • Net financial income in Q1 was negatively affected by: 1.0 0.9 131.0 – Equity holdings measured at fair 0.8 115.4 0.5 value as markets were negative from 94.6 the start of Covid19 pa
Slide 16: Total operating expenses
Total operating expenses Operating expenses trending right but Cost-to-income ratio is hit by volatility in net financial income Cost-to-income ratio (%) Total operating expenses • Net financial income has a detrimental negative effect on cost-to-income ratio in the quarter • Number of FTE’s reduced
Slide 17: Balance sheet – Assets
Balance sheet – Assets The balance sheet is extraordinarily strong which is prudent at this time due to Covid-19 but not efficient under more stable circumstances • The Balance sheet increased by 9.8% 31.03.2020 31.12.2019 31.03.2019 from 31.12.2019, the increase mainly ISK 1,188 billion ISK 1,081 b
Slide 18: Loans to customers
Loans to customers Loan book increases by 0.6% but would have decreased by 2.5% at year end FX rates Loans to customers Loans to customers by sector (%) • The loan book continues to be well balanced between individuals and corporates • Loans to individuals increased by 1.5% Individuals during the qu
Slide 19: Loans to customers – asset quality
Loans to customers – asset quality Very well collateralized loan portfolio supports asset quality Loans to customers by sector (ISK billion) • Approximately 91% of loans to customers are secured by collateral, of 378 which 70% are secured by real estate • Mortgages to individuals are about 43% of th
Slide 20: Loans to customers by IFRS 9 stages
Loans to customers by IFRS 9 stages Significant transfers between stage 1 and stage 2 as Covid-19 affects IFRS 9 models Loans to customers total Individuals Corporates Thereof travel exposure 2 31 2 5 11 19 17 ISK 774 ISK 369 ISK 405 ISK 57 31.12.2019 billion billion billion billion 79 77 87 95 2 4
Slide 21: Balance sheet – Liabilities and equity
Balance sheet – Liabilities and equity Deposits are increasing in the funding mix • Strong equity position and a very high 31.03.2020 31.12.2019 31.03.2019 leverage ratio ISK 1,188 billion ISK 1,082 billion ISK 1,222 billion • Dividend payment of ISK 10.0 billion in March 2020 cancelled as well as s
Slide 22: Deposits
Deposits Continued focus on deposits both from individuals and corporates Deposits and due to credit institutions and Central Bank Maturity of deposits (%) • Deposits represent 55% of the Bank’s total liabilities • Special emphasis on corporate deposits − 27% growth from YE 2018 and 17% On demand 3
Slide 23: Borrowings
Borrowings Limited need to access international wholesale funding markets in 2020 Borrowings by type Maturities of borrowings (%) • Liquidity Coverage Ratio of 224%, far above the regulatory minimum of 100% • In addition to a strong stand alone liquidity position the Central Bank of Iceland has made
Slide 24: Own funds
Own funds Capital ratio at 27.5% is exceptionally strong as is the leverage ratio Capital ratio (%) Leverage ratio (%) • The CET1 ratio is enhanced to 22.5% with the cancelation of ISK 10 billion dividend payment planned in Q1 15.4 14.2 14.1 14.5 13.5 • Arion Bank filled the 3% Tier 2 bucket with is
Slide 25: Capital adequacy
Capital adequacy The Bank will weather COVID-19 with an exceptionally strong capital position following AT1 issuance and dividend postponement Own funds and capital requirements (%) • Own funds increased by ISK 23.3 billion in Q1 2020 ‒ Issuance of USD 100m Additional Tier 1 capital instrument in Fe
Slide 26: Valitor: Reducing international presence and scaling down direct channel investment
Valitor: Reducing international presence and significantly scaling down a very expensive direct channel investment journey Previous strategy International growth Results and countermeasures 1. Get more volumes through its acquiring 1. Valitor started Markadis UK as organic • Results disappointing pl
Slide 27: Going forward
Going forward Macro economic developments, both internationally and in Iceland, will dominate in the coming quarters Arion Bank will support its customers as possible and has financial strength to work with the government on the preservation and rebuild of the economy Continued focus will be on core
Slide 28: KFI's and other information
6 x KFI’s and other information
Slide 29: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 10.5 69.2 6.6 56.0 56.9 56.0 3.7 48.9 3.1 2.9 2.8 2.8 2.8 0.6 (4.6) 2016 2017 2018 2019 Q1 2020 2016 2017 2018 2019 Q1 2020 2016 2017 2018 2019 Q1 2020 CPI imbalance (ISK billion) Operating income
Slide 30: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 69.2 62.5 58.6 3.6 2.1 2.7 2.7 2.8 (4.6) Q1-18 Q1-19 Q1-20 Q1-18 Q1-19 Q1-20 Q1-18 Q1-19 Q1-20 Loans-to-deposits ratio (%) Capital ratio (%) Operating income / REA (%) (without loans financed b
Slide 31: Key figures
Key figures Operations Q1 2020 Q1 2019 Q1 2018 Q1 2017 Q1 2016 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019 Net interest income 7,253 7,434 6,827 6,904 7,273 7,253 7,693 7,382 7,808 7,434 Net commission income 3,076 2,218 2,205 2,198 3,219 3,076 2,615 2,639 2,478 2,218 Operating income 8,976 11,708 10,81
Slide 32: 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