Arion Banki hf · OMXICE:ARION
Arion Banki hf — Arion Bank — Q1 2018 Earnings Presentation
45 slides from Arion Banki hf's earnings presentation, May 2, 2018
Slide 1: Financial Statements 31 March 2018
Financial Statements 31 March 2018 Investor presentation 2 May 2018
Slide 2: Q1 2018 Highlights
Q1 2018 Highlights Mortgages and corporate loans continue to grow at a healthy pace with good asset quality Large liquidity buffer and repricing of loans put pressure on Net Interest Income but Commission and Financial Income develop well Valitor continues its growth strategy with good top line reve
Slide 3: Changes in Arion Bank's ownership structure
Changes in Arion Bank’s ownership structure Arion Bank now 100% privately owned - Icelandic government exits the shareholders group Icelandic funds invest in Arion Bank Board authorized to propose dividend 24 funds managed by four Icelandic Arion Bank issued 5-year bond in fund management companies
Slide 4: New digital services launched
New digital services launched Short-term loans introduced which can be applied for online Convenient banking Every day banking made easier: Regular savings and short-cuts to pay bills, transfer money and pay off credit card bills Enhanced start-up page in Online Banking – clearer overview of balance
Slide 5: Changes in the branch network announced
Changes in the branch network announced 96% of the Bank’s contact with customers now through digital solutions Changes to branch network announced Changes at board and regional management The goal is to better meet customers’ needs as 96% Herdís Dröfn Fjeldsted elected on to the board of of the Bank
Slide 6: Arion Bank recognized for excellence in corporate governance
Arion Bank recognized for excellence in corporate governance Detailed reporting on environmental issues and non-financial performance indicators in annual report Startup Reykjavík held for seventh time Corporate governance and reporting 238 applications received for Startup Arion Bank recognized as
Slide 7: Macroeconomic environment
Macroeconomic environment « —
Slide 8: Continued economic growth at 3.6% in 2017
Continued economic growth at 3.6% in 2017 The output gap has narrowed after peaking in late-2016 • Economic growth in Growth contribution of GDP components 10% 2017 measured 3.6%. Growth was driven by private consumption 5% while investment and service exports also played a role 0% • Domestic demand
Slide 9: Tourism growth is rapidly slowing down
Tourism growth is rapidly slowing down Forecasted to grow 6% yoy Foreign payment card turnover • The krona has been The ISK against major trade currencies YoY, constant exchange rate, excl. flights 150 relatively stable recently and 100% the CBI has frequently 80% mentioned a good balance on 140 60%
Slide 10: Inflation peaks above the inflation target
Inflation peaks above the inflation target Further policy rate cuts look unlikely Unit labour costs and productivity • Inflation continues to be driven Housing price index for the capital area CBI's forecast by rising house prices while being YoY % 10% somewhat offset by lower import 30% 8% prices d
Slide 11: Headline Figures
Q1 2018 Headline Figures Net earnings CET 1 Cost-to-income ratio Share of stage 3 loans, gross ISK 1.9 bn. 23.6% 70.8% 3.2% Q1 2017: 31.12.2017: Q1 2017: 31.12.2017: ISK 3.4 bn. 23.6% 63.5% Not available Return on equity Leverage ratio Number of employees Mortgages/Total loans 3.6% 15.4% 1,299 40.9%
Slide 12: Income statement
Income statement ® —
Slide 13: Income statement
Income statement All amounts in ISK million A slightly more challenging quarter • 4% decrease in net interest income from Q1 2017 mainly due to high liquidity buffer and Q1 2018 Q1 2017 Diff Diff% competitive market environ- Net interest income 6,908 7,160 (252) (4%) ment Net commission income 3,542
Slide 14: Net interest income
Net interest income All amounts in ISK billion Increased liquidity position and a competitive lending market negatively affect Net interest margin • Net Interest Income slightly Net interest income Interest income down from Q1 last year despite loan book growth 8.2 7.2 7.3 7.3 6.9 • Net Interest Mar
Slide 15: Net commission income
Net commission income All amounts in ISK billion Positive development in net commission income compared to Q1 2017 • Net commission income increases compared to Q1 2017 Net commission income driven by card and payment solutions 4.7 • Compares unfavourably to Q4 2017 as expected due to seasonality •
Slide 16: Net financial income
Net financial income All amounts in ISK billion Normalizing after a period of volatility in recent years • Net financial income is Net financial income Bond holdings mostly due to fair value changes in equity holdings 73.8 66.9 68.2 63.7 • Holdings in unlisted bond 57.8 26.9 22.8 23.2 funds relating
Slide 17: Net insurance income and other operating income
Net insurance income and other operating income All amounts in ISK billion Insurance income negatively affected by difficult winter conditions • Sharp decrease in net insurance income in Q1 Net insurance income Other operating income attributable to high levels in car insurance claims, the highest i
Slide 18: Total operating expenses
Total operating expenses All amounts in ISK billion Efficiency measures continue with the announcement of closures of 3 of 24 branches later in the year • The cost-to-income ratio significantly affected by Valitor’s growth strategy Cost-to-income ratio (%)* • FTE’s at group level increased by 8% fro
Slide 19: Balance sheet
Balance sheet
Slide 20: Balance sheet - Assets
Balance sheet - Assets All amounts in ISK billion A stable balance sheet after capital release • The loan portfolio grew at 31.03.2018 31.12.2017 a healthy pace during the ISK 1,132 billion ISK 1,148 billion first quarter Other and intangibles: 4% Other1 33 • The loan portfolio Intangibles 37 13 14
Slide 21: Loans to customers
Loans to customers All amounts in ISK billion Well balanced loan portfolio between corporates and individuals • Loans to customers increased by 2.2 % in Q1 Loans to customers Loans to customers by sector (%) 782 • The mortgage portfolio grew 765 Individuals 712 55 by 3.1%, driven by new digital 55 1
Slide 22: Loans to customers
Loans to customers All amounts in ISK billion IFRS 9 fully implemented resulting in different methodology on credit quality • Quality of the loan book Risk classification Collateral held against loans (%) continues to improve (risk classification only applies to loans that are neither past 85.7 88.5
Slide 23: Balance sheet – Liabilities and Equity
Balance sheet – Liabilities and Equity All amounts in ISK billion Strong equity position and well balanced funding • Stable deposits from year 31.03.2018 31.12.2017 end ISK 1,132 billion ISK 1,148 billion • Successful wholesale funding activities both in Equity Iceland and in the CET1 ratio 23.6% Eq
Slide 24: Deposits
Deposits All amounts in ISK billion Deposit base is stable from year end • Deposits represent 41% of the Bank’s funding Deposits Maturity of deposits (%) • Deposits from retail On demand customers have grown 26% 7 3 (compound annual growth 477 471 470 461 19 Up to 3 months rate) in the last two year
Slide 25: Borrowings
Borrowings All amounts in ISK billion Maturity schedule of wholesale funding is evenly spread out • In March the Bank issued new 5 year, EUR 300 million Borrowings Repayment of borrowings senior unsecured bond or 90.0 approx. ISK 37 billion at 401 386 71.3 interest cost equal to 0.65% 18 13 58.5 ove
Slide 26: Good performance in the secondary bond market
Good performance in the secondary bond market The spread between Arion Bank and large Nordic banks decreasing Euro Senior Unsecured Bonds – Spread (bps) over mid-swaps 120 100 80 60 40 20 0 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 -20 ARION 06/2020 ARION 04/2019 ARION 12/2021 NORDEA 02/2021
Slide 27: Capital base
Capital base All amounts in ISK billion Release of surplus capital initiated in Q1 with a share buy back and dividend payment • Reduction in capital base Capital ratio (%) Leverage ratio (%) due to share buy back and dividend payment in Q1 26.7 16.7 17.8 26.3 15.4 15.4 15.4 • Solid level of capital
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 subsidiaries. The capital position and solvency requirement of 23.6 Vördur hf. should be viewed separately. 21.3 21.3 CET 1 • Based o
Slide 29: IFRS 9 implemented on 1 January 2018
IFRS 9 implemented on 1 January 2018 All amounts in ISK million Total adjustments due to IFRS 9 implementation on the Shareholders’ equity Classification • Following the implementation of the new classification requirements • The application of the IFRS 9 impairment requirements might increase volat
Slide 30: Cash flow
Cash flow All amounts in ISK billion Decrease in cash and cash equivalents mainly due to capital release 182 13 (5) (20) 20 (24) (9) (11) 146 Cash and Interest Interest Loans to Deposits Borrowings Dividend and Other Cash and cash eq. received paid customers share changes cash eq. 31.12.2017 buyback
Slide 31: Going forward
Going forward Arion Bank operates Prudent lending in in a strong and line with economic growing economy growth Focus on digitalization Arion Bank will seek across both client-facing to optimize capital offerings and by paying out automation to further dividends and increase efficiency acquiring own
Slide 32: Medium Term Targets
Medium Term Targets CET 1 Ratio Loan Growth (Subject to regulatory requirements) Prudent lending in Decrease to circa 17% line with economic growth Return on Equity Exceed 10% Dividend Policy Pay-out ratio of circa Cost to Income Ratio 50% of net earnings Decrease to circa 50% attributable to shareh
Slide 33: KFI's, adjusted income and other information
KFI’s, adjusted income and other information
Slide 34: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 70.8 28.1 56.0 56.1 49.4 3.0 3.1 2.9 2.8 2.6 18.6 32.4 10.5 6.6 3.6 2014 2015 2016 2017 Q1 2018 2014 2015 2016 2017 Q1 2018 2014 2015 2016 2017 Q1 2018 CPI Imbalance – ISK bn. FX Imbalance – ISK b
Slide 35: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) Gross impaired loans / Gross loans (%) 70.8 63.5 59.5 3.1 2.8 2.6 3.7 5.7 6.3 2.4 IFRS 9 3.6 Q1-16 Q1-17 Q1-18 Q1-16 Q1-17 Q1-18 Q1-16 Q1-17 Q1-18 Q1-16 Q1-17 Q1-18 Loans-to-deposits ratio (%)
Slide 36: Development of key figures
Development of key figures All amounts in ISK billion Net interest income Net commission income 9.0 5.0 8.0 4.5 7.0 4.0 6.0 3.5 3.0 5.0 2.5 4.0 2.0 3.0 1.5 2.0 1.0 1.0 0.5 - - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Total operating expenses Net earnings 10.0 30.0 9.
Slide 37: Key figures
Key figures All amounts in ISK million Q1 2018 Q1 2017 Q1 2016 Q1 2015 Q1 2014 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Operations Net interest income 6,908 7,160 7,273 5,783 5,483 6,908 7,265 7,250 8,160 7,160 Net commission income 3,542 3,330 3,219 3,757 3,148 3,542 4,654 3,865 3,508 3,330 Operatin
Slide 38: Balance sheet
Balance sheet All amounts in ISK billion 5 year overview Assets Q1 2018 2017 2016 2015 2014 Cash & balances with CB 98 140 88 48 21 Loans to credit institutions 95 87 80 87 109 Loans to customers 782 765 712 680 648 Financial assets 106 109 117 133 102 Investment property 7 7 5 8 7 Investments in as
Slide 39: Adjusted income
Adjusted income All amounts in ISK million Adjustments on impairment have greatest affect Q1 2018 Adjustment Adjusted Net interest income 6,908 0 6,908 1) One-off professional service expense Net commission income 3,542 0 3,542 of ISK 239 million Net financial income 1,340 0 1,340 2) Net impairment
Slide 40: Segment information
Segment information © ——
Slide 41: Retail Banking
Retail Banking All amounts in ISK million Positive development in Retail Banking • Retail Banking provides a comprehensive range of services. Income statement and key figures: This includes deposits and loans, savings, payment cards, Tímabil Q1 2018 Q1 2017 Diff. pension savings, insurance, securiti
Slide 42: Corporate Banking
Corporate Banking All amounts in ISK million Strong corporate loan book, somewhat affected by stronger ISK Income statement and key figures: • Corporate Banking provides comprehensive financial Tímabil Q1 2018 Q1 2017 Diff. services and integrated solutions across the Bank's divisions, Net interest
Slide 43: Asset Management
Asset Management All amounts in ISK million Largest asset management operation in Iceland Income statement and key figures: Comprises Institutional Asset Management, Private Banking, Tímabil Q1 2018 Q1 2017 Diff. Investment Services and Pension Fund Administration. Net interest income ..............
Slide 44: Investment Banking
Investment Banking All amounts in ISK million Continued focus on fee and commission development Income statement and key figures: • Investment Banking is divided into Corporate Finance, Tímabil Q1 2018 Q1 2017 Diff. Capital Markets and Research. Net interest income ..................................
Slide 45: 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