Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Arion Bank — Q3 2018 Earnings Presentation
37 slides from Arion Banki Hf's earnings presentation, Oct 31, 2018
Slide 1: Third quarter results 2018
Third quarter results 2018 Investor presentation 31 October 2018
Slide 2: Highlights during the quarter
Q3 2018 Highlights during the quarter Earnings before tax from regular operations were stable from Q2 The impairment relating to the credit event at Primera in September had a significant impact on the quarter’s net earnings and ROE. Arion Bank remains committed to its medium term targets New Pillar
Slide 3: Equality to the fore
Equality to the fore Arion Bank is the first Icelandic bank to be allowed to use the Ministry of Welfare’s equal pay symbol – equal pay certification since 2015 Equal Pay Symbol AllBright First bank in Iceland allowed to In 17th place out of 329 listed use equal pay symbol companies in Sweden settin
Slide 4: Quality services which catch the eye
Quality services which catch the eye Arion Bank’s innovation accelerators win international awards First prize for Digital Future Startup Reykjavík named as best business accelerator in Iceland 1st prize at BAI Global Innovation Awards for Digital Future – Internal Named for 4th time in 5 years as b
Slide 5: Going forward
Q3 2018 Going forward The Bank is placing a special emphasis on increasing net interest margin Cost control is of critical importance and the Bank is undertaking a number of cost cutting initiatives, supported by it’s digital strategy The Bank is in the process of engaging an investment bank for the
Slide 6: Macroeconomic environment
Macroeconomic environment
Slide 7: Strong GDP growth of 6.4% in the first half
Strong GDP growth of 6.4% in the first half According to Statistics Iceland, the Icelandic economy has only once grown more in H1, in 2007 • Economic growth measured 15% Growth contribution of GDP components 7.2% in Q2 2018. This is much stronger growth than analysts had expected 10% • Growth in pri
Slide 8: The ISK has depreciated against major currencies
The ISK has depreciated against major currencies Uncertainty regarding tourism growth has an impact on the ISK • Following news of increased Foreign payment card turnover per visitor uncertainty regarding the The ISK against major trade currencies - excl. flights, YoY growth future outlook for touri
Slide 9: Increasing domestic inflationary pressure
Increasing domestic inflationary pressure Inflation is currently above the Central Bank’s inflation target • The composition of inflation Housing price index for the capital area Nominal and real wages has been changing in the past - YoY - YoY months. While inflation is still 30% 16% driven by risin
Slide 10: Key operational development in Q3
Q3 2018 Key operational development in Q3 Loan growth slowed down in Q3 and increased by 2% in the quarter and 7.2% in the first 9M of 2018 The Bank’s net interest margin is mostly unchanged despite inflation due to repricing of loans and low yielding FX liquidity position Commission income is stron
Slide 11: Headline Figures
Q3 2018 Headline Figures Net earnings CET 1 Cost-to-income ratio Share of stage 3 loans, gross* ISK 1.1 bn. 21.6% 58.5% 2.9% Q2 2018: 31.12.2017: Q2 2018: 01.01.2018: ISK 3.1 bn. 23.6% 62.3% 3.5% Return on equity Leverage ratio Number of employees Mortgages/Total loans 2.3% 13.8% 1,334 41.1% Q2 2018
Slide 12: Income statement
Income statement
Slide 13: Income statement Q3 2018
Income statement Q3 2018 Net earnings before tax excluding impairments improved slightly from Q2 • Net interest income somewhat below expectations • Commission income slows Q3 2018 Q2 2018 Diff% Q3 2017 Diff% slightly from Q2, but growth is strong compared with last year Net interest income 7,445 7,
Slide 14: Q3 Performance bridge
Q3 Performance bridge Earnings before tax improve compared to Q3 2017 Change in earnings before tax Q3 2018 Q3 2018 • Comparison to Q3 2017 is Q3 2017 - Q3 2018 ROE (%) Cost-to-income (%) heavily impacted by impairments and Valitor’s performance 3.3 • Underlying earnings before tax 58.2 improve from
Slide 15: Income statement 9M 2018
Income statement 9M 2018 Strong growth in commission and insurance but net interest income needs to improve • Net Interest income supported by increased inflation, but the change in liquidity position from high yielding ISK to low yielding 9M 2018 9M 2017 Diff Diff% FX has a negative effect Net inte
Slide 16: Net interest income
Net interest income NIM is unchanged despite higher inflation • The Bank’s liquidity buffer which Net interest income Effective Inflation was in ISK to a large degree has been redenominated to lower yielding FX due to substantial capital release and loan growth 7.3 7.3 7.6 7.4 6.9 - ISK 25 billion p
Slide 17: Net commission income
Net commission income Net commission income up 10% from Q3 2017 • Slight decrease in net commission income from Q2 is mainly due to Valitor, which is affected by a major client who is insourcing Net commission income acquiring activities • Other commission income stable 4.7 4.5 − Retail Banking bene
Slide 18: Net financial income
Net financial income The equity market in Iceland was underperforming in Q3 • A period of subdued Icelandic stock and bond market put Net financial income Bond holdings pressure on NFI 73.4 - The NASDAQ Iceland OMXI8 68.1 63.8 stock index was down 6.4% in 6.9 57.8 59.2 9.2 Q3 and down 1.8% in the fi
Slide 19: Net insurance income and other income
Net insurance income and other income Very strong performance at Vördur • Net insurance income from Vördur up by 25% from Q2 - After a weak Q1 the insurance business continues its strong Net insurance income Other operating income momentum 1.0 • Vördur has managed to increase premium income by 11% d
Slide 20: Total operating expenses
Total operating expenses Positive trends in the cost-to-income ratio but OPEX continues to be in focus • FTE’s at group level increased by 3.2% from Q3 last year, 16.9% at Valitor but 2.3% decrease at parent company Cost-to-income ratio (%)* • Valitor growth strategy increases the cost-to-income rat
Slide 21: Balance sheet
Balance sheet
Slide 22: Balance sheet - Assets
Balance sheet - Assets The balance sheet remains strong and simple • The balance sheet grew by 6.3% 30.09.2018 during the first nine months of 31.12.2017 2018 ISK 1,220 billion ISK 1,148 billion • Loans to customers grew by 7.2% during the first nine Other and intangibles: 5.5% Other1 53 months of t
Slide 23: Loans to customers
Loans to customers Well balanced loan portfolio between corporates and individuals • Loans to customers increased by 2.0 % in Q3 Loans to customers Loans to customers by sector (%) − 3.2% growth in the mortgage portfolio in Q3 driven by digital solutions in a competitive market 820 Individuals 804 −
Slide 24: Balance sheet – Liabilities and equity
Balance sheet – Liabilities and equity Strong equity position and well balanced funding • Deposits increase by 4.8% from 30.09.2018 YE 2017 and 3.0% in Q3 31.12.2017 ISK 1,220 billion ISK 1,148 billion • Active wholesale funding both in Iceland and in the international markets • A share buyback in Q
Slide 25: Deposits
Deposits Deposits increased by 4.8% during the first nine months • Deposits represent 40% of the Bank’s funding Deposits and due to credit institutions and Maturity of deposits (%) Central Bank • Deposits from retail customers have grown significantly in the On demand 9 3 last two years 500 483 Up t
Slide 26: Borrowings
Borrowings Strong credit rating and well balanced maturity schedule • The Bank had limited wholesale funding need in Q3 Borrowings Repayment of borrowings − Earlier in the year the Bank 426 93.8 issued new 5 year, EUR 300 411 15 million senior unsecured bond or 385 16 74.8 approx. ISK 37 billion at
Slide 27: Own funds
Own funds Release of surplus capital initiated in Q1 with a share buy back and dividend payments in Q1 and Q3 • Capital ratio decreased by 0.2% in Q3 primarily due to increased lending to retail clients Capital ratio (%) Leverage ratio (%) • Arion Bank monitors the debt capital markets to identify t
Slide 28: Capital adequacy
Capital adequacy Own funds and capital requirements • The Group’s capital adequacy is based on Arion Bank’s consolidated situation under CRR, which excludes insurance Own funds and capital requirements (%) subsidiaries. The capital position and solvency requirement of Vördur hf. should be viewed sep
Slide 29: Going forward
Q3 2018 Going forward The Bank is placing a special emphasis on increasing net interest margin Cost control is of critical importance and the Bank is undertaking a number of cost cutting initiatives, supported by it’s digital strategy The Bank is in the process of engaging an investment bank for the
Slide 30: Arion Bank is committed to its medium term targets
Arion Bank is committed to it’s medium term targets Return on Equity Loan Growth Exceed 10% Prudent lending in line with economic growth CET 1 Ratio (Subject to regulatory requirements) Decrease to circa 17% Dividend Policy Pay-out ratio of circa 50% of net earnings attributable to Cost to Income Ra
Slide 31: KFI's and other information
KFI’s and other information
Slide 32: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 63.5 28.1 56.0 56.1 49.4 3.0 3.1 2.8 2.9 2.7 18.6 32.4 10.5 6.6 3.9 2014 2015 2016 2017 9M 2018 2014 2015 2016 2017 9M 2018 2014 2015 2016 2017 9M 2018 CPI Imbalance – ISK bn. FX Imbalance – ISK b
Slide 33: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 65.0 56.4 58.2 3.1 2.7 2.7 14.4 2.3 Q3-16 -0.2 Q3-18 Q3-16 Q3-17 Q3-18 Q3-16 Q3-17 Q3-18 Q3-17 Loans-to-deposits ratio (%) Tier 1 ratio (%) Liquidity coverage ratio (LCR) (%) without loans fina
Slide 34: Key figures
Key figures Operations 9M 2018 9M 2017 9M 2016 9M 2015 9M 2014 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Net interest income 21.966 22.570 22.058 20.287 18.309 7.445 7.613 6.908 7.265 7.250 Net commission income 12.280 10.703 10.213 10.727 10.119 4.246 4.492 3.542 4.654 3.865 Operating income 40.308 3
Slide 35: Balance sheet
Balance sheet Assets 30.09.2018 30.06.2018 2017 2016 2015 2014 Cash & balances with CB 100 113 140 88 48 21 Loans to credit institutions 123 114 87 80 87 109 Loans to customers 820 804 765 712 680 648 Financial assets 109 95 109 117 133 102 Investment property 7 7 7 5 8 7 Investments in associates 1
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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