Arion Banki hf · OMXICE:ARION
Arion Banki hf — Arion Bank — Q4 2018 Earnings Presentation
36 slides from Arion Banki hf's earnings presentation, Feb 13, 2019
Slide 1: Fourth quarter results 2018
Fourth quarter results 2018 Investor presentation 13 February 2019
Slide 2: Highlights during the quarter
Q4 2018 Highlights during the quarter Positive core banking trends compared with Q4 2017 Impairments and difficult equity and bond markets have a negative effect 5 digital initiatives launched during the quarter in line with the Bank’s strategy Valitor categorized as discontinued operations held for
Slide 3: Arion Bank listed on Nasdaq Iceland and Nasdaq Stockholm June 2018
Arion Bank listed on Nasdaq Iceland and Nasdaq Stockholm 15 June 2018 Highly successful IPO – heavily oversubscribed 70% of investors in IPO were international Shareholders at year-end 2018 28.7% of share capital sold in IPO – Shareholders by country: 70% investors were international Iceland* 47.1%
Slide 4: Convenient and award-winning banking
Convenient and award-winning banking Arion Bank named marketing company of the year in Iceland by ÍMARK – for development and success of digital services Winner of three international awards for 125% increase in digital sales in 2018 digital solutions and development – similar to best banks globally
Slide 5: Digital services and the change in customer behavior
Digital services and the change in customer behavior Customers prefer more convenient banking services – Number of Arion app users increase at steady pace • New digital services introduced Active Arion App users1 Active online bank users1 have resulted in the number of 000s 000s active app users inc
Slide 6: Sustainability in action in 2018
Sustainability in action in 2018 Arion Bank was recognized by the Center for Corporate Governance at the University of Iceland as a company which had achieved excellence in corporate governance In 1st place of companies named Arion Bank has decided to become a model companies by Keldan and signatory
Slide 7: Macroeconomic environment
Macroeconomic environment
Slide 8: Economic environment is positive
Economic environment is positive GDP growth strong in 2018 but is expected to slow down • GDP growth descending to GDP growth Nordic levels, mainly due to GDP per capita slowdown in the tourist sector 7,4% -E2018, USD thousands 79 • GDP per capita continues to be one of the highest in the 66 world 4
Slide 9: Economy heading towards a soft landing
Economy heading towards a soft landing Inflation is rising and is sligtly above the Central Banks target of 2.5% • ISK volatility has led to The labor market interventions from the CBI, The ISK against major trade currencies 9% 85% who sees FX having a strong 150 8% impact on inflation 84% 140 7% 83
Slide 10: Core banking trends continue to be positive
Q4 2018 Core banking trends continue to be positive The Bank’s net interest margin is at 2.9% up from 2.7% in Q3 Loan growth slowed in Q4 in line with strategy to focus further on net interest margin and returns Stable commission income and continued strong insurance performance Net financial income
Slide 11: Headline Figures
Q4 2018 Headline Figures Net earnings CET 1 Cost-to-income ratio Share of stage 3 loans, gross* ISK 1.6 bn. 21.2% 60.3% 2.6% Q3 2018: 31.12.2017: Q3 2018: 01.01.2018: ISK 1.1 bn. 23.6% 50.3% 3.5% Return on equity Leverage ratio Number of employees Mortgages/Total loans 3.2% 14.2% 904 41.1% Q3 2018:
Slide 12: Income statement
Income statement
Slide 13: Income statement Q4 2018
Income statement Q4 2018 Positive core banking trends but financial income and further impairments negatively affect earnings • Valitor is classified as discontinued operations held for sale. 2017 and 2018 numbers have been adjusted accordingly Q4 2018 Q3 2018 Diff% Q4 2017 Diff% Net interest income
Slide 14: Income statement 2018
Income statement 2018 Net earnings decrease from 2017 due to one-off items • Core operating income trends positive from 2017 • Net financial income was 2018 2017 Diff Diff% unusually high in 2017 due to Net interest income 29,319 28,920 399 1% sales of a share in Refresco and other items, but rather
Slide 15: Net interest income
Net interest income Net interest income and NIM increase in line with strategy • Strong loan growth YoY Net interest income Effective inflation • Significant pick up in NIM from Q4 2017 8.0 • Increase in lending rates 7.1 7.3 7.2 4.2% 6.8 • Inflation increases net interest 3.5% income 2.9% 3.1% 2.7%
Slide 16: Net commission and net insurance income
Net commission and net insurance income Net commission flat but positive momentum in insurance income continues Net commission income Net insurance income 3.1 1.0 0.2 2.7 2.7 2.7 0.3 0.3 0.3 0.8 0.4 2.2 0.7 0.3 0.3 0.3 1.2 0.2 0.2 111.9 1.3 105.4 1.1 1.2 0.9 0.3 88.4 90.0 79.4 1.4 0.9 0.9 0.9 0.1 0.
Slide 17: Net financial income
Net financial income Traditionally positive but turns negative in Q4 • Bond holdings are mainly part of liquidity management Net financial income Bond holdings 81.5 • Equity holdings are mainly 73.4 strategic positions, to a large 63.8 10.0 part legacy holdings 57.8 59.2 9.2 7.1 22.3 6.0 9.5 18.8 •
Slide 18: Total operating expenses
Total operating expenses The effects of Valitor are now removed from the FTE and OPEX figures • Cost-to-income ratio in Q4 negatively affected by negative net financial income Cost-to-income ratio (%)* • FTE’s at group level decreased by 3.1% from Q3 and 4.7% from Q4 2017 • FTE’s at the Bank decreas
Slide 19: Taxes
Taxes Bank specific taxes in Iceland are extraordinarily high and have a negative effect on ROE • Icelandic corporate income tax rate is 20% • Financial institutions pay additional Taxes taxes: • Additional income tax which is 6% on taxable income above ISK 1.0 billion 2.9 • Bank levy which is 0.376
Slide 20: Balance sheet
Balance sheet
Slide 21: Balance sheet - Assets
Balance sheet - Assets The balance sheet is strong and simple • The balance sheet grew by 1.4% 31.12.2018 during the year but decreased 31.12.2017 by 4.5% during Q4 ISK 1,164 billion ISK 1,148 billion • Loans to customers grew by 9.0% during the year and 1.7% during Q4 Other and intangibles: 6.6% Ot
Slide 22: Loans to customers
Loans to customers Loan growth slowed down in Q4 as emphasis was on margins • Loans to customers increased by 1.7% in Q4 Loans to customers Loans to customers by sector (%) − 1.5% growth in the mortgage portfolio in Q4, partly due to inflation 820 834 Individuals 12 − The corporate loan portfolio 76
Slide 23: Balance sheet – Liabilities and equity
Balance sheet – Liabilities and equity Strong equity position and well balanced funding • A share buyback in Q1 and 31.12.2018 dividend payments in Q1 and Q3 31.12.2017 totaling ISK 33.3 billion reduces ISK 1,164 billion ISK 1,148 billion the equity of the Bank • Deposits remain stable but combinati
Slide 24: Deposits
Deposits Stable deposit base and favorable changes in composition • Deposits represent 40% of the Bank’s funding Deposits and due to credit institutions and Maturity of deposits (%) Central Bank • Deposits from individuals have grown significantly in the last few On demand years 7 3 500 • Improved m
Slide 25: Borrowings
Borrowings Strong credit rating and well balanced maturity schedule • The Bank had limited wholesale funding need in Q4 Borrowings Repayment of borrowings 426 • Earlier in the year the Bank 418 96.0 issued new 5 year, EUR 300 15 16 77.8 million senior unsecured bond 385 or approx. ISK 37 billion at
Slide 26: 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 increased by 0.3% in Q4 despite proposed dividend Capital ratio (%) Leverage ratio (%) payment, primarily due to T2 issuance of 500M SEK • Arion Bank monitors the debt 26.7 1
Slide 27: Capital adequacy
Capital adequacy Own funds and capital requirements • In November 2018, the Bank issued a subordinated bond that amounted to ISK 6.5 billion of Tier 2 capital at year-end 2018 Own funds and capital requirements (%) • The Bank‘s capital adequacy ratios at year-end 2018 account for a foreseeable divid
Slide 28: Going forward
Q4 2018 Going forward Continued focus on Net interest income, Net interest margin and return on capital employed in the Bank’s operations Cost control continues to be one of the key focus points supported by cost cutting initiatives and effects of the digital strategy The intended divestment of Vali
Slide 29: 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) Cost to Income Ratio Decrease to circa 17% Decrease to circa 50% Dividend Policy Pay-out ratio of approximately 50
Slide 30: KFI's and other
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Slide 31: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 28.1 56.0 56.9 49.4 48.9 3.0 3.1 2.8 2.9 2.8 18.6 32.4 10.5 6.6 3.7 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 CPI Imbalance – ISK bn. FX Imbalance – ISK bn. Risk w
Slide 32: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 57.9 60.3 53.7 3.2 2.7 2.9 8.6 7.3 3.2 Q4-16 Q4-17 Q4-18 Q4-16 Q4-17 Q4-18 Q4-16 Q4-17 Q4-18 Loans-to-deposits ratio (%) Tier 1 ratio (%) Liquidity coverage ratio (LCR) (%) without loans financ
Slide 33: Key figures
Key figures Operations 2018 2017 2016 2015 2014 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Net interest income 29,319 28,921 29,900 26,992 24,220 7,969 7,209 7,314 6,827 7,064 Net commission income 10,350 10,211 13,978 14,485 13,309 2,746 2,687 2,712 2,205 3,124 Operating income 46,171 46,859 54,546 87
Slide 34: Balance sheet
Balance sheet Assets 31.12.2018 30.09.2018 2017 2016 2015 2014 Cash & balances with CB 83 100 140 88 48 21 Loans to credit institutions 56 123 87 80 87 109 Loans to customers 834 820 765 712 680 648 Financial assets 115 109 109 117 133 102 Investment property 7 7 7 5 8 7 Investments in associates 1
Slide 35: 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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