Arion Banki hf · OMXICE:ARION
Arion Banki hf — Arion Bank — Q3 2019 Earnings Presentation
41 slides from Arion Banki hf's earnings presentation, Oct 31, 2019
Slide 1: Third quarter results 2019
Third quarter results 2019 Investor presentation 31 October 2019
Slide 2: Highlights of the third quarter 2019
Highlights of the third quarter 2019 Core earnings of Arion Bank continue to improve Significant organizational changes and improvement measures launched in September Agreement concluded with Housing Financing Fund on the sale of a ISK 48 billion mortgage portfolio. Positive impact of ISK 1.3 billio
Slide 3: Organizational changes introduced
Organizational changes introduced Measures introduced as part of trajectory to reach financial targets Core strategy remains unchanged – comprehensive financial services to individuals, companies and investors and to be at the forefront of digital banking The Bank will enhance its services to custom
Slide 4: New organizational structure
New organizational structure Board of Directors Internal Audit Sigrídur Gudmundsdóttir CEO Benedikt Gíslason Deputy CEO Ásgeir H. Reykfjörd Gylfason CEO’s Office HR / Communications and IR / Chief Economist / Corporate Development / General Counsel Compliance Hákon Már Pétursson Information Technolo
Slide 5: Arion Bank today
Arion Bank today Fully prepared to navigate a challenging market and regulatory environment Arion Bank Market drivers 2019 and onwards • The only listed full service bank in Iceland • Robust but slowing Icelandic economy • Robust capital and liquidity position • High taxation and capitalization requ
Slide 6: Arion Bank is committed to its medium-term targets
Arion Bank is committed to its medium-term targets New revenue target introduced and loan growth target amended Return on Equity Exceed 10% Revenues / RWA’s Exceed 6.5% Cost to Income Ratio Reduce to circa 50% Loan growth The loan book will grow in line with economic growth. However, the corporate l
Slide 7: Building long-term shareholder value
Building long-term shareholder value Customer focus with efficient use of capital Reduce cost of capital Increase cash flows Enhance equity story • Share buy-back program • Enhance product / client ownership and • Strengthen and build on existing responsibility and improve cost competitive advantage
Slide 8: The road to sustainable +10% ROE
The road to sustainable +10% ROE 1 Release of CET1 plays a fundamental role >10.0% ROE • Cost to income to reach target of < 50% • Increased revenues from RWA’s – Structural changes to support more efficient – New target of 6.5% operation and for the Bank, an continued focus on increase from 5-6% in
Slide 9: Digital services are changing customer behavior
Digital services are changing customer behavior The Bank’s digital journey has produced outstanding results Active online bank users1 Active Arion App users1 • The growth in active Arion Bank app users was 000s 000s 16% in the first 9 months +26% +6% +5% (3)% 0% +4% +31% • New digital branches conti
Slide 10: Launching customer facing products in 2019
Launching 7 customers facing products in 2019 Leader in digital banking Open App Personal Finance Management Launched in February 2019 Launched in July 2019 Everyone can use the Arion app by logging in through In the Arion app customers now have an insights option digital authentication, without hav
Slide 11: Sustainable and responsible banking
Sustainable and responsible banking Arion Bank became one of the founding signatories of the UN Principles for Responsible Banking UN Principles for AllBright Other commitments and Responsible Banking (PRB) certifications • Festa and City of Reykjavík’s Declaration on Climate • In 25th place out of
Slide 12: Macroeconomic environment
oe Macroeconomic environment
Slide 13: Outlook for negative growth in 2019 with a gradual turnaround
Outlook for negative growth in 2019 with a gradual turnaround After strong 4.8% GDP growth in 2018, economic activity looks set to slow down GDP growth GDP per capita in 2018 (USD thousands) • Falling exports are expected to bring an end GDP per capita in 2018 to one of the longest growth periods th
Slide 14: The economy is resilient
The economy is resilient Unemployment is on the rise and household consumption is wavering, while inflation is receding The ISK against major trade currencies Unemployment– seasonally adjusted trend • Smaller export contraction than expected and larger drop in imports than anticipated supported the
Slide 15: Indications of softer landing than anticipated
Indications of softer landing than anticipated The consumption pattern of tourists has changed since WOW air’s bankruptcy Foreign payment card turnover per tourist Net international investment position • Since WOW air’s bankruptcy, spending per – YoY %-change – % of GDP tourist has increased signifi
Slide 16: Headline Figures Q3 2019
Headline Figures Q3 2019 Net earnings CET 1 Cost-to-income ratio Share of stage 3 loans, gross ISK 0.8 bn. 21.6% 56.2% 2.5% Q3 2018: 31.12.2018: Q3 2018: 31.12.2018: ISK 1.1 bn. 21.2% 50.3% 2.6% Return on equity Leverage ratio Number of employees Mortgages/Total loans 1.6% 12.8% 802 43.0% Q3 2018: 3
Slide 17: Core earnings continue to improve
Core earnings continue to improve Net earnings from continuing operations improve markedly ROE 1.6% in Q3 but approximately 8.5% from continuing operations Insurance becoming more important in the revenue mix Operating expenses down from last year when adjusted for redundancy expenses Impairments ar
Slide 18: Income statement
Income statement
Slide 19: Income statement Q3 2019
Income statement Q3 2019 Core operations performing better and a substantial improvement in earnings from continuing operations Q3 2019 Q3 2018 Diff% Q2 2019 Diff% • Growth in net interest income mostly due to Net interest income 7,382 7,209 2% 7,808 (5%) increase in loans to customers − Decreased e
Slide 20: Income statement 9M 2019
Income statement 9M 2019 Substantial improvement in continuing operations 9M 2019 9M 2018 Diff Diff% • Strong growth in net interest income despite Net interest income 22,624 21,350 1,274 6% lower inflation in line with strategy Net commission income 7,335 7,603 (268) (4%) • Net commission income ra
Slide 21: Net interest income
Net interest income Holding up at time of base rate reduction and T2 issuance Net interest income Effective inflation • Net interest income increased by 2.4% from Q3 2018, mainly through funding 8.0 7.8 and liquidity management 7.2 7.4 7.4 • The Bank’s strategy of increased focus 4.2% 4.4% on return
Slide 22: Net fee and commission and net insurance income
Net fee and commission and net insurance income Stable net commission income – net insurance income continues to grow Net insurance income Net fee and commission income 1.1 1.0 2.7 2.7 2.6 0.3 2.5 0.4 0.2 0.8 0.3 2.2 0.3 0.4 0.7 0.3 0.2 0.3 0.3 109.6% 1.3 1.1 90.0% 1.1 1.0 89.0% 1.0 79.4% 80.0% 0.3
Slide 23: Net financial income
Net financial income Increase in bond holdings a sign of strong liquidity position Bond holdings Net financial income • Net financial income in Q3 is mainly FX gain (ISK 826 million). Markets were 115.4 rather bearish for equities during the quarter 94.6 31.1 1.0 81.0 • Bond holdings are mainly part
Slide 24: Total operating expenses
Total operating expenses Positive development in cost-to-income excluding cost relating to redundancies at the end of third quarter Cost-to-income ratio (%) Total operating expenses • 10.5% reduction of FTE’s at the parent company from Q2 and 16.2% from Q3 2018 – ISK 1.1 billion one-off expense in Q
Slide 25: Balance sheet
6 me Balance sheet
Slide 26: Balance sheet - Assets
Balance sheet - Assets Strong liquidity position allows the Bank to prepay unfavorable wholesale funding or buy back bonds and own shares • The Balance sheet decreases by 4.2% 30.09.2019 30.06.2019 31.12.2018 from 30.06.2019 ISK 1,213 billion ISK 1,233 billion ISK 1,164 billion • Loans to customers
Slide 27: Loans to customers
Loans to customers Focus on profitability results in the corporate loan book trending lower thus releasing RWA’s Loans to customers Loans to customers by sector (%) • Good balance between individual and corporate loans – Loans to individuals increase slightly Individuals from YE 2018 13 Real Estate
Slide 28: Significant assets held for sale
Significant assets held for sale Assets in an active sale process but with a highly negative impact on net earnings Valitor Holding is an international payments platform, with operations primarily in Iceland, the UK and the Nordic countries, and comprizes both card acquiring services and card issuin
Slide 29: Balance sheet – Liabilities and equity
Balance sheet – Liabilities and equity Very strong capital position – Leverage ratio of 12.8% substantially stronger than Scandinavian peers • Strong equity position and a very high 30.09.2019 30.06.2019 31.12.2018 leverage ratio despite capital release ISK 1,213 billion ISK 1,234 billion ISK 1,164
Slide 30: Deposits
Deposits Continued focus on deposits both from individuals and corporates Deposits and due to credit institutions and Central Bank Maturity of deposits (%) • Deposits represent 42% of the Bank’s funding • Deposits from individuals have grown On demand 4 significantly over the last few years 12 Up to
Slide 31: Borrowings
Borrowings Reduced wholesale activity in line with changed focus on the asset side Borrowings by type Maturities of borrowings (%) • Continued emphasis on reduction of funding cost both through prepayments, buy-backs or other activities • The Bank prepaid ISK 19 billion of its 81.0 83.7 437 structur
Slide 32: Own funds
Own funds Focus on capital allocation and return on capital has increased capital ratio albeit capital release Capital ratio (%) Leverage ratio (%) • Capital adequacy ratio increased by 60 bps from Q2 mainly due to new Tier 2 issuance − In Q3 the Bank issued NOK 300 million 10NC5 and EUR 5 million 1
Slide 33: Capital adequacy
Capital adequacy Own funds and capital requirements Own funds and capital requirements (%) • The Bank’s total capital adequacy ratio was 23.6% as at 30 September 2019. The planned purchase of own shares of up to ISK 4.5 billion, to be executed in Q4 2019, is deducted from the Bank’s own funds and th
Slide 34: Potential capital release in the near term
Potential capital release in the near term Distributions will be through dividends, share buy-backs or tender offers Main levers under current RWA’s, Pillar 2 and capital buffer requirements: Share buy-back Up to ISK 4.5 billion and will be launched 31 October in Reykjavík (Kvika Bank) and Stockholm
Slide 35: Going forward
Going forward Greater emphasis on measures to reach financial targets HFF transaction will have a positive impact of ISK 1.3 billion after tax and salary expenses will decrease by ISK 0.3 billion in Q4 Recent macroeconomic developments in Iceland have been surprisingly positive and modest growth is
Slide 36: KFI's and other information
6 x KFI’s and other information
Slide 37: Key financial indicators - annual
Key financial indicators - annual Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 28.1 56.0 56.9 56.3 48.9 3.0 3.1 2.9 2.8 2.7 32.4 10.5 6.6 3.7 2.6 2015 2016 2017 2018 9M 2019 2015 2016 2017 2018 9M 2019 2015 2016 2017 2018 9M 2019 CPI imbalance (ISK billion) Return on RWA Ris
Slide 38: Key financial indicators - quarterly
Key financial indicators - quarterly Return on equity (%) Cost-to-income ratio (%) Net interest margin (%) 59.9 56.2 50.3 2.7 2.7 2.6 2.3 1.6 (0.2) Q3-17 Q3-18 Q3-19 Q3-17 Q3-18 Q3-19 Q3-17 Q3-18 Q3-19 Loans-to-deposits ratio (%) Tier 1 ratio (%) Liquidity coverage ratio (LCR) (%) (without loans fin
Slide 39: Key figures
Key figures Operations 9M 2019 9M 2018 9M 2017 9M 2016 9M 2015 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 Net interest income 22,624 21,350 21,857 22,058 20,287 7,382 7,808 7,434 7,969 7,209 Net commission income 7,335 7,603 7,087 10,213 10,727 2,639 2,478 2,218 2,746 2,686 Operating income 36,272 35,2
Slide 40: Balance sheet
Balance sheet Assets 30.09.2019 30.06.2019 2018 2017 2016 2015 Cash & balances with CB 122 108 83 140 88 48 Loans to credit institutions 32 69 56 87 80 87 Loans to customers 812 822 834 765 712 680 Financial assets 162 144 115 109 117 133 Investment property 7 7 7 7 5 8 Investments in associates 1 1
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