Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q2 2022 Earnings Presentation
37 slides from Arion Banki Hf's earnings presentation, Jul 27, 2022
Slide 1: Q2 results 2022
Q2 results 2022 Investor presentation 27 July 2022
Slide 2: Key results Q2 and H1 2022
Key results Q2 and Key results Q2 2022 H1 2022 Medium term targets H1 2022 Return on equity 21.8% 16.9% Exceed 13% Eventful H1 with strong core income generation Operating income / REA1 6.1% 6.6% Exceed 7.3% Premium growth (net of ‒ Strong 21.8% ROE in the quarter and 16.9% for reinsurance) to excee
Slide 3: Number of milestones in the quarter
Number of milestones in the quarter – further enhancing customer value and experience The sale of Valitor Digital registration New rating from Moody’s and completed updated rating from S&P of title for car loans which greatly shortens the lending process The Markets division delivers strong Digital
Slide 4: New communication strategy
The outcome of this work is the creative concept „Þinn árangur“. A literal New communication strategy translation would be something like "Your success", but „árangur“ is a big Icelandic word that has multiple meanings; results, achievement, In the spring of 2021, we began the process of a accomplis
Slide 5: Macroeconomic environment
Macroeconomic environment
Slide 6: Strong economic growth in growing global uncertainty
Strong economic growth in growing global uncertainty GDP increased by 8.6% YoY in Q1, a result that was well above analysts’ expectations. Growth was driven by record-breaking private consumption and increased growth in tourism. Robust domestic economic activity is reflected in large current account
Slide 7: Relatively positive outlook
Relatively positive GDP growth - IMF's forecast Payment card turnover and private consumption - quarterly data, YoY-% growth, constant prices/exchange 6% rate outlook 20% 4% 15% 2% - Despite the highly uncertain global economic 10% outlook the Icelandic economy is set for strong 0% growth in 2022, d
Slide 8: Taming the housing market
Taming the housing Advertised capital area property and housing price - quarterly data, no. and YoY %-change House prices relative to fundamentals - indices, January 2011 = 100 4.000 25% 200 market 3.500 180 20% 3.000 - House prices rose sharply in Q2, increasing by 2.500 160 24% YoY. In the first h
Slide 9: Challenging times
Challenging times 12% CPI by expenditure groups Labor supply - seasonally adjusted quarterly figures 120% 10% 100% - Climbing housing prices, imported inflation and 8% 80% domestic demand pressures have stoked 60% inflation, which has proven to be much more 6% persistent than previously forecast 40%
Slide 10: Small economy, strong foundations
Small economy, strong foundations Household and non-financial corporate debt Debt of general and central government - % of GDP - % of GDP, net debt is gross debt less currency and deposits 400% 160% 350% 140% 300% 120% 250% 100% 200% 80% 150% 60% 100% 40% 50% 20% 0% 0% 2003 2004 2005 2006 2007 2008
Slide 11: Financials
Financials
Slide 12: Key takeaways in Q2 2022
Key takeaways in Q2 2022 ‣ Net profit of 9.7bn and ROE of 21.8% in the quarter Profitability ‣ Momentum in Core Income1, increasing by 23.5% YoY, countered somewhat by loss on financial assets and high effective tax rate Eventful quarter ‣ Strong pipeline and positive momentum across our businesses,
Slide 13: Income statement Q2 2022
Income statement Q2 2022 Q2 2022 Q2 2021 Diff Q1 2022 Diff - Core income (NII, NCI and net insurance income) Net interest income 9,804 8,016 22% 9,528 3% increases 23.5% YoY and 17.9% from last quarter Net commission income 4,539 3,562 27% 3,552 28% - Strong growth in NII YoY, mainly due to increase
Slide 14: Income statement H1 2022
Income statement H1 2022 H1 2022 H1 2021 Diff - Core income (NII, NCI and net insurance income) increases 19.9% YoY Net interest income 19,332 15,358 26% Net commission income 8,091 6,839 18% - Very strong increase in NII YoY, mainly due to increased base rate and 20% growth in loans to Net insuranc
Slide 15: Sale of Valitor and core income support earnings growth
Sale of Valitor and core income support earnings growth Negative net financial income affects other income Q2 2021 vs. Q2 2022 2,937 (4,681) 6,684 (277) (626) 9,712 7,816 (2,141) Net earnings Difference in Difference in Difference in operating Difference in net Difference in income tax Difference in
Slide 16: Net interest income
Net interest income Net interest income Credit risk 9.8 Strong 3.1% NIM retained from first quarter 9.5 8.8 752 8.0 745 7.9 701 - Net interest income increased by 22% from Q2 673 2021 whilst average interest bearing assets 3.1% 3.1% 2.9% 2.8% 638 2.7% increased by 5%, mainly loans to customers but i
Slide 17: Net fee and commission income
Net fee and Net fee and commission income (ISK m) Assets under management commission income YoY growth in all fee generating businesses 4,539 343 4,079 1,291 1,352 1,350 1,288 364 1,230 3,755 346 - Strong income from lending and guarantees, 3,562 3,552 344 392 partly due to performance based fees 24
Slide 18: Net insurance income
Net insurance Combined ratio (%) Earned premiums income 115.3 97.7 18.9 91.5 Strong improvement in the combined ratio 85.5 1.2 86.8 20.6 24.1 from a difficult first quarter 15.9 3.8 17.9 2.5 2.8 0.3 3,478 3,428 3,499 3,640 95.2 3,313 68.4 66.8 69.8 68.6 - Combined ratio of 86.8% for the quarter and
Slide 19: Net financial income
Net financial income Net financial income (ISK m) Bond holdings Challenging market conditions 2,203 163.7 630 151.9 1,366 15.1 1,151 991 139.0 16.0 131.7 623 15.0 1,573 556 427 17.5 - Negative net financial income in Q2 driven by loss 743 595 564 63.7 53.4 106.0 in equity holdings at the Bank and at
Slide 20: Total operating expense
Total operating Cost-to-income ratio (%) Total operating expenses expense 7.9 6.6 Stable total OPEX despite high inflation 51.6 50.1 6.4 1.5 6.2 5.6 2.8 2.8 42.7 3.0 2.7 42.5 2.7 41.7* - Ongoing focus on opex and efficiency results in 37.5 acceptable development 3.6 3.4 3.5 3.8 2.9 - Number of FTEs
Slide 21: Balance sheet
Balance sheet Robust balance sheet further simplified with sale of HFS assets Assets 30.06.2022 31.03.2022 Diff. 31.12.2021 Diff. 30.06.2021 Diff. Cash & balances with CB 78 64 21% 69 13% 70 12% - Loan growth supported by strong momentum in Loans to credit institutions 40 36 12% 30 33% 36 13% deposi
Slide 22: Loans to customers
Loans to customers Loans to customers Loans to customers by sector (%) Balanced growth between corporates and 1,011 976 individuals during the quarter 936 10.0 10.8 Other sectors 4.9 4.5 - Loans to customers increased by 3.5% during the 844 823 7.0 7.0 Finance & quarter, loans to corporates 4.3% and
Slide 23: Loss allowance on loans to customers by IFRS 9 stages
Loss allowance on loans to customers by IFRS 9 stages Increase in H1 2022, mainly due to higher downside risk in IFRS scenarios and increase in corporate loans On loans to customers total On individuals On corporates Thereof tourism exposure 9.5 8.0 7.8 7.6 7.4 5.3 6.1 6.0 5.7 4.6 4.3 4.5 4.3 4.2 3.
Slide 24: Risk profile
Risk profile Increased portion of mortgages over the past Development of non-performing loans, moratoria and forbearance (% of total loan book) couple of years reducing normalized Cost of Risk 1.77 2.49 2.68 - No material changes during Q2, with strong GDP, 4.59 increase in asset value and low unemp
Slide 25: Residential mortgages
Residential mortgages Comfortable position - proactive and dynamic management Residential mortgages by interest rate type (ISK bn) Interest rate reset profile for fixed rate mortgages (ISK bn) Macroprudential measures: The share of indexed vs. nominal rate mortgages has been The bulk of fixed nomina
Slide 26: Real Estate and Construction sector
Real Estate and Construction sector Development of exposures to real estate activities (ISK bn) Development of construction exposures (ISK bn) Exposures to real estate companies (excl. construction) 24% of corporate loan book. Internal Average LTV 66% for exposures to real estate companies Focus on
Slide 27: Deposits
Deposits Deposits* Maturity of deposits (%) Growth backed by continued focus on competitive position with core clients 732 684 - Deposits represent 61% of the Bank’s total 660 112 612 23 On demand liabilities, was 59% at year-end 2021. 580 94 93 17 92 81 69 Up to 3M - Growth of 5.6% in core deposits
Slide 28: Borrowings
Borrowings Borrowings by type Maturities of borrowings 400 Balanced maturity profile with broad funding 370 84.6 87.7 363 options 72.1 299 301 154 142 136 - Diverse funding options further supported in the quarter 42.0 with added Moody's rating and access to ECB repo 135 34.7 145 44 window 25.2 67 6
Slide 29: Own funds
Own funds Total capital ratio (%) Leverage ratio (%) 15.1 14.6 12.7 12.5 12.7 Very strong capital ratios while capital optimalization continues 27.0 27.2 2.9 2.8 23.8 23.5 1.7 22.4 - The sale of Valitor has a positive capital impact of 1.8 31.12.20 30.06.21 31.12.21 31.03.22 30.06.22 2.6 2.3 ISK 12.
Slide 30: Own funds
Own funds Own funds and capital requirements (%) ISK 23.6bn surplus capital partially contingent on further subordinated issue 23.5 22.0 - ISK 22.5bn of dividends paid out in March 2022 2.3 20.6 20.6 20.6 2.9 ISK 23.6bn 1.5 - H1 profits of ISK 15.5bn and corresponding foreseeable dividends of ISK 7.
Slide 31: MREL requirement
MREL requirement MREL requirement as % of REA* The Icelandic Resolution Authority has published its MREL policy Actual 30.06.2022 Assuming phased in CCyB and optimized capital - The BRRD I approach to MREL has been codified in Icelandic law - Senior unsecured debt is MREL eligible unless it is exclu
Slide 32: Going forward
Going forward Strong position to navigate the current operating environment Underlying business dynamics are strong, The external environment is complicated but there can with a healthy net interest margin and good be scope for optimism as agility in supply and demand trajectory in non-interest inco
Slide 33: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 16.9 14.7 56.9 56.0 48.1 46.3 2.9 3.1 44.4 2.8 2.8 2.8 6.5 3.7 0.6 2018 2019 2020 2021 H1 2022 2018 2019 2020 2021 H1 2022 2018 2019 2020 2021 H1 2022 CPI imbalance (ISK bn) Operating income / REA
Slide 34: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 21.8 16.3 50.1 45.5 42.5 10.5 2.9 2.9 3.1 Q2-20 Q2-21 Q2-22 Q2-20 Q2-21 Q2-22 Q2-20 Q2-21 Q2-22 Loans-to-deposits ratio (%) Operating income / REA (%) Capital ratio (%) (without loans financed by
Slide 35: Key figures
Key figures Operations H1 2022 H1 2021 H1 2020 H1 2019 H1 2018 Q2 2022 Q1 2022 Q4 2021 Q3 2021 Q2 2021 Net interest income 19,332 15,358 15,110 15,242 14,141 9,804 9,528 8,768 7,937 8,016 Net commission income 8,091 6,839 5,764 4,696 4,917 4,539 3,552 4,079 3,755 3,562 Operating income 27,774 28,101
Slide 36: 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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