Arion Banki hf · OMXICE:ARION
Arion Banki hf — Arion Bank — Q1 2017 Earnings Presentation
39 slides from Arion Banki hf's earnings presentation, May 11, 2017
Slide 1: Financial Statements 31 March 2017
Financial Statements 31 March 2017 Investor presentation 11 May 2017
Slide 2: Q1 2017 highlights
Q1 2017 highlights First step in the sale of Arion Bank, largest equity 1 portfolio investment by foreign parties in Icelandic history 2 Lifting of capital controls Stable operations during the first quarter and increased 3 Return on equity compared with last year
Slide 3: Highlights of the first three months of 2017
Highlights of the first three months of 2017 Stable operations – changes to bank’s ownership Stability New shareholders in Arion Bank • Stable operations in first quarter • In March it was announced that Kaupthing, • Net interest income virtually unchanged between through its subsidiary Kaupskil, ha
Slide 4: Highlights: focus on digital solutions and information technology
Highlights of the first three months of 2017 Focus on digital solutions and information technology Next generation of digital solutions Administration of IT systems outsourced • Arion Bank is resolved to be a pioneer in digital • In January Arion Bank reached an agreement with financial solutions Ný
Slide 5: Highlights: diverse funding
Highlights of the first three months of 2017 Diverse funding Bond issues in euros Changes to the branch network • The Bank tapped its bond issue from December for • The branch at Egilsstaðir opened in a new location an additional €200 million, bringing the total issue after 50 years in the same plac
Slide 6: Highlights: strong voice in debate on finance and education
Highlights of the first three months of 2017 Strong voice in the debate on finance and financial education Meetings and events AGM and digital reporting • Event held to present the agreement reached • The Bank’s AGM was held and the Bank’s annual between Arion Bank and the European Investment report
Slide 7: Macroeconomic environment
Macroeconomic environment
Slide 8: Strong economic growth and favorable outlook
Strong economic growth and favorable outlook A positive macro environment for Arion Bank to operate in Economic growth Public debt • Economic growth in - growth contribution of GDP components - as % of GDP 10% 100% 2016 was 7.2%, driven by private consump- tion, investment and 5% service exports 50%
Slide 9: Further steps taken towards capital account liberalization
Further steps taken towards capital account liberalization A significant step towards unrestricted cross-border capital movements • In March capital Sovereign credit rating of Iceland FX market and the ISK controls on individuals, - long-term foreign currency - EUR millions 500 220 firms and pension
Slide 10: Households' financial position continues to improve
Households’ financial position continues to improve Strong labour market and rapid growth in purchasing power Housing prices index for the capital area Wages and purchasing power - YoY % - YoY % • Real wages continued to increase 25% 16% in Q1, albeit at a slower pace than 14% 20% 12% before. The Yo
Slide 11: Headline figures for Q1 2017
Headline figures for Q1 2017 Net earnings Cost-to- Problem CET 1 income ratio loans ISK 3,353 27.3% million 31.12.2016: 64.4% 1.5% 26.5% Q1 2016: 31.12.2016: Q1 2016: 60.2% 1.6% ISK 2,883 million Return on Leverage Number of Mortgages/ equity ratio employees Total loans 6.3% 17.0% 1,204 39.7% Q1 201
Slide 12: Income statement
Income statement
Slide 13: Income statement
Income statement All amounts in ISK million Core revenues improve from last year • Slight decrease in net interest income mainly due to lower inflation Q1 2017 Q1 2016 Diff Diff% Net interest income 7,160 7,273 (113) -2% • Stable net commission Net commission income 3,330 3,219 111 3% income from Q1
Slide 14: Net interest income
Net interest income All amounts in ISK billion Interest income from lending stable but interest margin decreases temporarily due to technical factors • Inflation typically low Net interest income Interest income during Q1 and under the Central Bank’s target for some 16.3 7.8 14.7 14.7 15.1 time 7.3
Slide 15: Net commission income
Net commission income All amounts in ISK billion Small increase from Q1 last year but high potential • High top line revenue growth continues at Valitor but the Net commission income company is temporarily hampered by margin compression and 3.8 FX volatility in European markets 3.5 3.5 • Changes in
Slide 16: Net financial income
Net financial income All amounts in ISK billion Good performance in a challenging environment • The Bank’s listed bonds and equity holdings performed well Net financial income Bond holdings during the period 80.0 78.1 81.2 76.9 73.8 3.8 • The Icelandic stock market 21.8 22.6 26.2 25.0 26.9 index OMX
Slide 17: Other income
Other income All amounts in ISK billion Insurance has become a part of the Bank’s service offering • Increase in insurance income from Q1 2016 due to acquisition of Vördur in Q4 Net insurance income Other operating income 2016 • Insurance income is expected to increase going forward as insurance pro
Slide 18: Total operating expenses
Total operating expenses All amounts in ISK billion Number of FTE’s stable at group level and reduced at the parent company despite increased activities • Decrease in number of FTE’s at Parent company despite a Cost-to-income ratio (%)* new branch at Keflavik Airport is mainly due to digitalization
Slide 19: Balance sheet
Balance sheet
Slide 20: Balance sheet
Balance sheet All amounts in ISK billion Limited loan growth in the quarter partially due to external factors • Long strike in the seafood industry at the beginning of Assets 31.03.2017 2016 2015 2014 2013 the year had a negative effect Cash & balances with CB 179 88 48 21 38 on corporate lending Lo
Slide 21: Loans to customers
Loans to customers All amounts in ISK billion Good balance in loans to corporate and individuals • Loans to corporates increase due to new lending Loans to customers Loans to customers by sector (%) 720 • FX changes had minor 712 Individuals 680 effect 648 54 53 13 Real Estate & Construction 636 57
Slide 22: Liabilities and equity
Liabilities and equity All amounts in ISK billion Well distributed maturity profile of wholesale funding (borrowings) • In January the Bank issued Funding Repayment of borrowings 102.1 an additional EUR 200 million 842 tap of the euro benchmark 760 72.7 bond issued in December 2016 736 747 bringing
Slide 23: Good performance in the bond market
Good performance in the bond market The spread between Arion Bank and large Nordic banks has decreased substantially Euro Senior Unsecured Bonds – Spread (bps) over mid-swaps 400 350 300 250 200 150 100 50 0 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 -
Slide 24: Capital base
Capital base All amounts in ISK billion Continued strong equity position • Solid level of capitalization Capital ratio (%) Leverage ratio (%) due to strong profit generation 28.0 • Risk-weighted assets are 27.1 16.7 18.0 17.0 26.3 0.7 15.4 calculated on the basis of 0.6 14.5 24.2 standardized approa
Slide 25: Capital base: capital structure and requirements
Capital base Capital structure and requirements Capital structure and capital need • At Q4 of 2017, the combined capital buffer requirement reaches 28.0 8.4% given the Group’s current risk profile. The official requirement 0.7 CET1 is expected to moderately increase following FME’s recognition of ca
Slide 26: Cash flow
Cash flow All amounts in ISK billion Strong cash flow mainly from deposits 218 17 13 61 (4) (3) 124 10 Cash and cash Interest Interest Loans to Deposits Borrowings Other Cash and cash eq. 31.12.2016 received paid customers changes eq. 31.03.2017 • Growth in short-term deposits from institutional inv
Slide 27: Going forward
Going forward 1 Arion Bank operates in a strong and growing economy Growth in loan portfolio on the back of the underlying 2 growth in the Icelandic economy Focus on digitalization across both client-facing offerings 3 and automation to further increase efficiency Arion Bank will seek to optimize eq
Slide 28: KFI's and adjusted income
, 1 KFl’s and adjusted income
Slide 29: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) Problem loans* (%) 60.2 64.4 35.1 29.1 3.1 2.6 2.8 6.3 3.2 2.1 5.7 1.5 Q1-15 Q1-16 Q1-17 Q1-15 Q1-16 Q1-17 Q1-15 Q1-16 Q1-17 Q1-15 Q1-16 Q1-17 Loans-to-deposits ratio (%) Tier 1 ratio (%) Liqui
Slide 30: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 64.4 56.9 57.2 28.1 49.8 3.0 3.1 2.9 2.8 2.8 18.6 32.3 9.2 10.5 6.3 2013 2014 2015 2016 Q1 2017 2013 2014 2015 2016 Q1 2017 2013 2014 2015 2016 Q1 2017 CPI Imbalance – ISK bn. FX Imbalance – ISK b
Slide 31: Development of key figures
Development of key figures All amounts in ISK billion Net interest income Net commission income 9.0 4.0 8.0 3.5 7.0 3.0 6.0 2.5 5.0 2.0 4.0 1.5 3.0 2.0 1.0 1.0 0.5 - - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Total operating expenses Net earnings 10.0 30.0 8.0 25.0 2
Slide 32: Key figures
Key figures All amounts in ISK million Q1 2017 Q1 2016 Q1 2015 Q1 2014 Q1 2013 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 Operations Net interest income 7,160 7,273 5,783 5,483 6,288 7,160 7,842 7,431 7,353 7,273 Net commission income 3,330 3,219 3,757 3,148 2,449 3,330 3,764 3,467 3,527 3,219 Operatin
Slide 33: Adjusted income
Adjusted income All amounts in ISK million Q1 2017Adjustment Adjusted Net interest income 7,160 66 7,226 1) 1) Interest income from non-core Net commission income 3,330 0 3,330 subsidiaries eliminated and interest Net financial income 1,230 (64) 1,166 2) income calculated on book value of Net insura
Slide 34: Segment information
Segment information
Slide 35: 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 2017 Q1 2016 Δ pension savings, insurance, securities a
Slide 36: Corporate Banking
Corporate Banking All amounts in ISK million Strong corporate loan book • Corporate Banking provides comprehensive financial Income statement and key figures: services and integrated solutions across the Bank's divisions, Tímabil Q1 2017 Q1 2016 Δ to larger corporate clients in Iceland Net interest
Slide 37: 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 Tímabil Q1 2017 Q1 2016 Δ Banking, Investment Services and Pension Fund Net interest income ......................... 146 15
Slide 38: Investment Banking
Investment Banking All amounts in ISK million Continued focus on fee and commission operation Income statement and key figures: • Investment Banking is divided into Corporate Finance, Tímabil Q1 2017 Q1 2016 Δ Capital Markets and Research. Net interest income ................................... 69 8
Slide 39: 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