Arion Banki Hf · OMXICE:ARION
Arion Banki Hf — Q4 2022 Earnings Presentation
42 slides from Arion Banki Hf's earnings presentation, Feb 28, 2023
Slide 1: Q4 and full year results 2022
Q4 and full year results 2022 Investor presentation 8 February 2023
Slide 2: Key results in Q4 and full year 2022
Updated medium term Key results Medium term targets 2022 targets Key results in Q4 Return on equity Exceed 13% ✔ 13.7% Unchanged and full year 2022 Strong year for the group >6.7% Operating income / REA Exceed 7.3% • 6.7% on Core Income ‒ 10.7% ROE in the quarter and 13.7% for the year Premium growt
Slide 3: Updated medium term targets
Updated medium Cost to Core income ratio (%) term targets 62.2 62.3 55.3 57.4 Focus on core income targets 53.3 51.6 45.6 53.8 Updated target below 48% ‒ Changes aimed to enhance the effectiveness of operating income target ‒ Financial income movements largely 2018 2019 2020 2021 2022 Q4-20 Q4-21 Q4
Slide 4: Key milestones of the year
Key milestones of the year Arion Bank and Vordur joined The sale of Valitor New rating from Moody’s and operations completed updated rating from S&P The operations of Vordur insurance moved to the Bank with the goal of escalating the bancassurance strategy which greatly shortens the lending process
Slide 5: Arion Bank at a glance
Arion Bank at a glance Diversified financial institution in Iceland with strong market position Operating income 2022: ISK 26.5bn Operating income 2022: ISK 25.5bn Total assets 2022: ISK 667bn Total assets 2022: ISK 458bn Allocated equity: ISK 77.2 bn Retail Banking Allocated equity: ISK 59.7bn Corp
Slide 6: Key reasons for Iceland’s resilience in turbulent markets
Key reasons for Iceland’s resilience in turbulent markets Contribution to annual inflation rate CBI's FX reserves Household and non-financial corporate debt - December - bn. EUR - % of GDP 10% 8 400% 9% 7 350% 8% 6 300% 7% 5 4 250% 6% 3 200% 5% 2 150% 4% 1 3% 100% 0 2% -1 50% 1% -2 0% 1999 2000 2001
Slide 7: Vordur growing market share, supported by bancassurance momentum
Vordur growing market share, supported by bancassurance momentum Total number of customers (in thousands) Bancassurance ratio* - individuals Market share (premiums earned) 65.5 4Q 2021 4Q 2022 64.5 32.2% 33.7% 62.0 60.1 18.2% 17.7% 17.0% 16.2% Bancassurance ratio* - corporates and SMEs 4Q 2021 4Q 20
Slide 8: The Bank received strong ESG ratings and the green asset pool grew by 16%
The Bank received strong ESG ratings and the green Diversified pool of eligible green assets (total ISK 151bn) at YE 2022 asset pool grew by 16% in 2022 36% Sustainable fishery The Bank will continue to focus on sustainability in its operations and measure its impact. We aim to raise the ratio of gr
Slide 9: Arctic activity increased both on the lending and advisory side
Arctic activity increased both on the lending and advisory side Arctic loan book (ISK bn.) - The Arctic loan book grew by 62% in 2022 CAGR - 48% CAGR since 2019 48% 39.9 - First listing on Nasdaq Iceland relating to a company in Greenland – Amaroq Minerals 24.7 17.2 8.7% 12.4 6.6% 4.9% 3.5% 2019 202
Slide 10: The Bank's development assets consolidated in subsidiary Landey
The Bank's development assets consolidated in subsidiary Landey Landey is a property and land development company which, since it was founded in 2009, has been involved in the ownership of various properties and development projects Blikastaðaland (Book value ISK 5.1bn) Arnarland (Book value ISK 1.5
Slide 11: Macroeconomic environment
Macroeconomic environment
Slide 12: Successfully navigating through choppy waters
Successfully navigating through choppy waters GDP increased by 7.3% YoY in Q3, a result that was well above analysts’ expectations. Growth was driven by exports, namely increased growth in tourism, and record-breaking private consumption. With tourism regaining its former strength, the current accou
Slide 13: Relatively favorable outlook
Relatively favorable GDP growth - IMF's forecast Tourist arrivals via Keflavik International Airport - millions annually, forecasts 8% 2.5 outlook 6% - The Icelandic economy is still set for strong 2 4% growth in 2023, despite the headwinds faced by the global economy 2% 1.5 - Growth will be driven
Slide 14: Inflationary pressures persist
Inflationary pressures 12% CPI by expenditure groups Nominal wage index - % YoY change 16% persist 10% 14% - Despite similar headline inflation, Icelandic 12% households are not faced with the same cost-of- 8% living crisis as their European counterparts, 10% thanks to Iceland’s hydro- and geotherma
Slide 15: Monetary policy backdrop
Monetary policy 7% The Central Bank's key interest rates New mortgage loans less prepayments - bn. ISK 60 backdrop 6% 50 - High inflation, fear over de-anchoring of inflation 5% 40 expectations and robust domestic demand has 30 compelled the Central Bank to raise rates further, 4% by 25 bps in Octob
Slide 16: Well equipped to handle challenging times
Well equipped to handle challenging times Household and non-financial corporate debt Debt of central government - % of GDP - % of GDP 400% 140% 350% 120% 300% 100% 250% 80% 200% 60% 150% 40% 100% 50% 20% 0% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Slide 17: Financials
Financials
Slide 18: Key takeaways in Q4 2022
Key takeaways in Q4 2022 ‣ Solid net profit in the quarter of ISK 5.0bn and ROE of 10.7%, resulting in a ISK 25.4bn profit for the year with an ROE of 13.7% Profitability ‣ Continued positive development in Core Income1, increasing in Q4 by 11.8% YoY and 17.5% for the full year Continued core income
Slide 19: Income statement Q4 2022
Income statement Q4 2022 Net interest income Q4 2022 10,524 Q4 2021 8,768 Diff 20% Q3 2022 10,421 Diff 1% Net commission income 3,972 4,079 (3%) 4,002 (1%) - Net profit of ISK 5bn resulting in ROE of 10.7% Net insurance income 833 865 (4%) 690 21% - Core income (NII, NCI and net insurance income) Ne
Slide 20: Income statement
Income statement 2022 Net interest income 2022 40,277 2021 32,063 Diff 26% Net commission income 16,065 14,673 9% - Net profit of ISK 25.4bn resulting in ROE of 13.7% Net insurance income 2,614 3,442 (24%) - Core income (NII, NCI and net insurance income) Net financial income (3,095) 6,220 - increas
Slide 21: Net earnings bridge
Net earnings bridge Continued strong development in core income Q4 2021 vs. Q4 2022 1,617 (1,311) (384) (148) (378) (895) 6,522 5,023 Net earnings Difference in Difference in Difference in operating Difference in net Difference in income tax Difference in impact Net earnings Q4 2021 core income othe
Slide 22: Net interest income
Net interest income Net interest income Development of main interests* (%) 10.4 10.5 Increase between quarters but rate 9.5 9.8 8.8 sensitivity slowing 3.1% 3.1% 3.2% 3.1% - Net interest income in Q4 increased by 20% from 2.8% Q4 2021 and 1% between quarters from Q3 2022 - Policy rate increased from
Slide 23: Net fee and commission income
Net fee and Net fee and commission income (ISK m) Net fee and commission income (ISK m) commission income 4,539 Diversified fee generating operations 343 16,065 4,079 14,673 support continued momentum 4,002 3,972 10,349 11,642 364 9,950 346 3,552 787 840 392 - ISK 4bn in fees for the quarter results
Slide 24: Net insurance income
Net insurance Combined ratio (%) Net insurance income income 115.3 3,071 3,442 97.7 98.4 2,886 18.9 96.1 2,614 2,589 Record year in terms of premiums but 1.2 86.8 24.1 16.0 21.4 increasing claims in post-COVID 17.9 1.1 2.8 3.8 0.3 environment 95.2 - Vördur saw 11% growth in gross premiums in 2022, 6
Slide 25: Net financial income
Net financial income Net financial income (ISK m) Bond holdings Challenging market conditions 157.5 151.9 138.2 16.0 131.7 19.3 1,151 991 19.1 - Low net financial income in Q4 in an ongoing 556 157 17.5 427 106.0 146 47.5 volatile market backdrop 595 564 16.6 75.4 46.7 11 (802) - Loss on bonds inclu
Slide 26: Total operating expense
Total operating Cost-to-Core income ratio (%) Total operating expenses expense 26.3 26.8 1.1 24.4 25.8 1.5 27.0 1.6 62.2 62.3 Stable YoY total OPEX despite high inflation 12.0 12.2 11.2 11.1 12.1 53.3 51.6 - Ongoing focus on OPEX and efficiency 45.6 - Cost-to income ratio for the year 2022 was 47.0%
Slide 27: Balance sheet
Balance sheet Continued growth in deposits supports lending growth Assets 31.12.2022 30.09.2022 Diff. 31.12.2021 Diff. - Loan growth supported by ongoing positive Cash & balances with CB 114 68 67% 69 65% momentum in deposits Loans to credit institutions 46 53 (14%) 30 50% - Loans to customers incre
Slide 28: Loans to customers
Loans to customers Loans to customers Loans to customers by sector (%) 1,085 1,045 Robust growth in corporates but slowing for individuals 936 10.0 11.4 Other sectors 823 4.9 3.8 - Loans to customers increased by ISK 40bn or 774 474 502 7.0 7.8 Finance & 3.8% during the quarter Insurance 410 8.3 8.4
Slide 29: Residential mortgages
Residential mortgages Low default rates and comfortable LTV Residential mortgages by interest rate type (ISK bn) Interest rate reset profile for fixed rate mortgages (ISK bn) levels, while rising costs for borrowers is met with tighter criteria for credit approvals Nominal rate loans are 60% of the
Slide 30: Loss allowance by IFRS stages
Loss allowance by IFRS 9 stages On loans to customers total Thereof on loans to corporates IFRS9 economic scenarios and assumptions Loans to customers are 0.6% provisioned at Loans to corporates are 1.0% provisioned at Worsening economic outlook during 2022 is captured in a movement of weights from
Slide 31: Risk profile
Risk profile Increased proportion of mortgages over the past Development of non-performing loans, moratoria and forbearance (% of total loan book) couple of years has reduced overall expected losses 1.8 2.7 - Despite increased provisioning through management’s 4.1 forward looking macro-economic assu
Slide 32: Deposits
Deposits Deposits* Maturity of deposits (%) Strong growth over the year 767 745 660 109 129 - Deposits represent 60% of the Bank’s total 3 On demand 580 114 63 11 72 liabilities 499 90 Up to 3M 56 14 - Growth in total deposits of 15.2% in 2022 and 171 159 64 52 113 3-12M 15.5% in core deposits 50 76
Slide 33: Borrowings
Borrowings Borrowings by type Maturities of borrowings and call dates on subordinated 393 liabilities 377 Balanced maturity profile with broad funding 357 options. Positive spread development into 119.4 2023. 305 299 99.6 2 180 168 154 91.0 - Arion Bank issued total of EUR 500 million, NOK 550 milli
Slide 34: Own funds
Own funds Total capital ratio (%) Leverage ratio (%) Strong capital ratios while capital 27.0 15.1 optimization continues 12.7 12.7 12.0 11.8 2.9 24.0 23.8 24.0 23.1 1.8 - Capital position stable between quarters despite 2.8 2.6 3.7 balance sheet growth and share buybacks 2.3 1.6 31.12.20 31.12.21 3
Slide 35: Own funds
Own funds Own funds and capital requirements (%) The capital ratios continue to be strong while capital optimization efforts are ongoing 24.0 22.3 - 23.3 3.7 20.8 20.8 20.8 2.9 - FY profits of ISK 25.4bn and corresponding foreseeable dividends of ISK 12.5bn ISK 4.5-13.3bn 2.9 1.5 included in the cap
Slide 36: MREL requirement
MREL requirement MREL requirement as % of REA* The Icelandic Resolution Authority has published its MREL policy - The BRRD I approach to MREL has been codified in Icelandic law 32.4% - Senior unsecured debt is MREL eligible unless it is excluded from the scope of bail-in - The Icelandic Resolution A
Slide 37: Going forward
Going forward Building on a strong year and robust foundations 2022 was another strong year for the group. Ongoing volatility can be expected in the funding Underlying operations are robust with numerous, markets, but the Bank is in a good position diversified pillars of business supporting each oth
Slide 38: Key financial indicators - quarter
Key financial indicators - quarter Return on equity (%) Cost-to-Core income ratio (%) Net interest margin (%) 55.3 57.4 53.8 13.4 2.9 2.8 3.1 11.8 10.7 Q4-20 Q4-21 Q4-22 Q4-20 Q4-21 Q4-22 Q4-20 Q4-21 Q4-22 Loans-to-deposits ratio (%) Core operating income / REA (%) Capital ratio (%) (without loans f
Slide 39: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-Core income ratio (%) Net interest margin (%) 14.7 62.2 62.3 13.7 53.3 51.6 45.6 2.9 3.1 2.8 2.8 2.8 6.5 3.7 0.6 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 CPI imbalance (ISK bn) Core operating income / RE
Slide 40: Key figures
Key figures Operations 2022 2021 2020 2019 2018 Q4 2022 Q3 2022 Q2 2022 Q1 2022 Q4 2021 Net interest income 40,277 32,063 31,158 30,317 29,319 10,524 10,421 9,804 9,528 8,768 Net commission income 16,065 14,673 11,642 9,950 10,349 3,972 4,002 4,539 3,552 4,079 Operating income 57,198 58,225 50,764 4
Slide 41: 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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