Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q3 2021 Earnings Presentation
34 slides from Arion Banki Hf's earnings presentation, Oct 27, 2021
Slide 1: Q3 results 2021
Q3 results 2021 Investor presentation 27 October 2021
Slide 2: Key takeaways in Q3 2021
Key takeaways in Q3 2021 Another robust quarter and key milestones achieved for further strategic progression of the group • Robust quarter with ROE of 17.0%, and all KFI‘s trending positively • Strong growth in core income of 7.5% from Q3 2020 Strategic focus and diversification in • ISK 3.8 billio
Slide 3: Sharp reduction in unemployment a testament to the economic recovery
Sharp reduction in unemployment a testament to the economic recovery The Central Bank of Iceland hiked interest rates by 75bp since May 2021 to mitigate inflation GDP growth estimates Key interest rates (seven-day term deposit rate) Non-financial corporate and household debt relative to GDP 6,00% 40
Slide 4: A customer centric organization
Board of Directors Internal Audit A customer Sigríður Guðmundsdóttir centric CEO organization Benedikt Gíslason Deputy CEO Ásgeir H. Reykfjörð Gylfason CEO's Office HR / Communications • Incorporates Vördur into both Retail and CIB Chief Economist / General Counsel Compliance • Emphasizes the custom
Slide 5: Successful entry into the Euro Covered Bond market
Successful entry into the Euro Covered Bond market Arion achieved the best funding spread that any Icelandic entity including the Treasury of Iceland has achieved since the Bank was established 13 years ago Funding cost advantage over peers Allocation statistics • Arion successfully finalized a €300
Slide 6: An updated equality and human rights policy with clear objectives
An updated equality and human rights policy with clear objectives The Bank strives to create an environment where people of comparable education, work experience and responsibility have equal opportunities and terms, irrespective of gender, gender identity, sexual orientation, origin, nationality, s
Slide 7: Arion Bank Capital Markets Day November 17
Arion Bank Capital Markets Day November 17 7
Slide 8: Financials
Financials 8
Slide 9: Operational highlights of Q3 2021
Operational highlights of Q3 2021 • Another robust quarter for Arion Bank where all operational targets have Q3 2021 9M 2021 Target been met Return on equity 17.0% 15.2% Exceed 10% • Arion Bank’s strategy results in core operations trending positively ROE assuming 17% CET1 21.8% 19.5% Exceed 10% • O
Slide 10: Net earnings improve significantly YoY
Net earnings improve significantly YoY Core operations improve markedly while other segments also make a substantial contribution Q3 2020 vs Q3 2021 1,619 (927) 2,058 988 (356) 890 8,238 3,966 Net earnings Difference in core Difference in other Difference in operating Difference in net Difference in
Slide 11: Income statement Q3 2021
Income statement Q3 2021 Outstanding quarter with all items trending positively Q3 2021 Q3 2020 Diff% Q2 2021 Diff% • Core income (NII, NCI and net insurance income) increases 7.5% YoY Net interest income 7,937 7,989 (1%) 8,016 (1%) – Continuing strong net commission income growth across the Bank, e
Slide 12: Income statement 9M 2021
Income statement 9M 2021 Turnaround in net earnings from Covid affected 9M last year 9M 2021 9M 2020 Diff Diff% • Core income increases 7.5% from last year Net interest income 23,295 23,099 196 1% – Slight increase in net interest income YoY. The loan book increases from the same period Net commissi
Slide 13: Net interest income
Net interest income Acceptable NIM in light of the low interest rate environment Net interest income Credit risk • Net interest income decreased by 0.7% from Q3 2020 whilst average interest bearing assets increased by 671 5.9%, mainly loans and unsettled trading 8.0 8.1 8.0 7.9 7.3 • Acceptable net
Slide 14: Net interest income Q1-Q3 2021
Net interest income Q1-Q3 2021 Q1 2021 vs Q2 2021 7 343 (46) (17) 10 351 26 8,016 7,342 NII Q1 2021 Loans to credit Loans to customers Securities Deposits Borrowings Subordinated and Net inflation effect NII Q2 2021 institutions and CB other Q2 2021 vs Q3 2021 140 (147) 125 1 370 (392) 73 8,016 7,93
Slide 15: Net fee and commission income and net insurance income
Net fee and commission income and net insurance income Historically strong quarter in fee income Net fee and commission income Net insurance income 3,755 3,562 3,277 344 243 1,043 3,132 992 325 325 373 2,762 311 914 257 343 305 1,065 766 1,122 315 671 1,161 1,072 944 496 792 575 96.8% 98.5% 464 91.5
Slide 16: 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 Q3 driven by equity holdings 171.9 in the market making business and at Vördur 163.7 13.4 157.7 139.0 15.1 • Equity holdings co
Slide 17: Total operating expenses
Total operating expenses Cost-to-income ratio trending positively Cost-to-income ratio (%) Total operating expenses • Number of FTEs continues to trend down YoY – 3% YoY (4% at the parent company) • Salary expense higher than in Q3 2020 affected by capitalized salaries. No capitalized salaries in Q3
Slide 18: Balance sheet – assets
Balance sheet – assets Retail mortgages drive loan growth over the year – strong increase in corporate lending in Q3 30.09.2021 31.12.2020 30.09.2020 ISK 1,346 billion ISK 1,173 billion ISK 1,236 billion Other and intangibles: • Loans to customers increased by 6.3% in Q3 6.1% of total assets 89 and
Slide 19: 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 customers increased by 6.3% during the quarter, both due to mortgage lending to individuals and cor
Slide 20: Loss allowance on loans to customers by IFRS 9 stages
Loss allowance on loans to customers by IFRS 9 stages Loss allowance has decreased significantly YoY On loans to customers total On individuals On corporates Thereof tourism exposure 13.7 12.2 10.5 9.5 9.7 8.3 9.0 6.9 7.4 7.0 5.3 6.6 5.6 5.3 5.1 5.1 4.3 4.2 4.2 3.9 3.5 3.3 3.2 3.5 3.3 2.5 2.5 2.4 2.
Slide 21: Balance sheet – equity and liabilities
Balance sheet – equity and liabilities Strong capital position and good funding mix 30.09.2021 31.12.2020 30.09.2020 ISK 1,346 billion ISK 1,173 billion ISK 1,236 billion • Strong equity position and very high Equity leverage ratio CET1 ratio 20.9% 195 • The funding mix is well balanced between CAD
Slide 22: Deposits
Deposits The strategic focus on deposits has been successful Deposits and due to credit institutions Maturity of deposits (%) • Deposits represent 56% of the Bank’s total liabilities and Central Bank • Strong growth of 14.2% in core deposits from 30.9.2020 11 On demand – Core deposits are from indiv
Slide 23: Borrowings
Borrowings Stable low cost funding profile – successful inaugural issuance of euro denominated covered bonds and green bonds during the quarter Borrowings by type Maturities of borrowings • Increase in borrowings in Q3 due to debut EUR 300 million green bond in July and EUR 300 million debut 87.7 in
Slide 24: Own funds
Own funds The capital ratios continue to be very strong while capital optimization efforts are ongoing Total capital ratio (%) Leverage ratio (%) • The CET1 decreases by 1.8% from 30.06.2021 – Deducting from the capital base 50% of net earnings and foreseeable share buy-backs 15.1 14.6 27.6 27.2 14.
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 9M 2021 is ISK 25.5 billion • Total foreseeable dividend and buy-back of own shares of ISK 21.3 billion is 25
Slide 26: Going forward
Going forward Robust operational trajectory a strong testament to the strategic direction of the group. Growth and diversity in fee income and increased importance in the Groups core earnings a clear positive. An improving economic climate further supports a positive outlook and expected to facilita
Slide 27: Key financial indicators – annual
Key financial indicators – annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 15.2 56.9 56.0 48.9 48.1 2.9 2.8 2.9 41.9 2.8 2.7 6.6 6.5 3.7 0.6 2017 2018 2019 2020 9M 2021 2017 2018 2019 2020 9M 2021 2017 2018 2019 2020 9M 2021 CPI imbalance (ISK billion) Operating income /
Slide 28: Key financial indicators – quarterly
Key financial indicators – quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 56.2 17.0 40.2 37.5 8.3 2.9 2.6 2.7 1.6 Q3-19 Q3-20 Q3-21 Q3-19 Q3-20 Q3-21 Q3-19 Q3-20 Q3-21 Loans-to-deposits ratio (%) Operating income / REA (%) Capital ratio (%) (without loans financed by
Slide 29: Key figures
Key figures Operations 9M 2021 9M 2020 9M 2019 9M 2018 9M 2017 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020 Net interest income 23,295 23,099 22,624 21,350 21,857 7,937 8,016 7,342 8,059 7,989 Net commission income 10,594 8,526 7,335 7,603 7,087 3,755 3,562 3,277 3,116 2,762 Operating income 42,991 36,05
Slide 30: Macroeconomic environment
Macroeconomic environment 30
Slide 31: 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 Change in number of people working in each sector according to • The Icelandic economy is slowly but surely tax regis
Slide 32: Soaring housing prices stoke inflation
Soaring housing prices stoke inflation Housing prices are rising, and inflation figures are reducing slower than anticipated Housing prices in the Capital Area (YoY %-change) Composition of the Icelandic CPI • Inflation has been more persistent than 6% 18,0% Domestic goods and vegetables Imported go
Slide 33: Financial stability committee – Debt service to income ratio is set at 35%
Financial stability committee – Debt service to income ratio is set at 35% Housing prices are rising, and inflation figures are reducing slower than anticipated Key interest rates (seven-day term deposit rate) Average LTV on new consumer mortgages • Persistent inflation has compelled the CBI to 20 6
Slide 34: 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