Arion Bank’s financial results for Q2 2020
- Arion Bank’s earnings improve substantially
- Net earnings of ISK 4,958 million from continuing operations, improvement of 76% from Q2 2019
- Return on equity 10.5%, compared with 4.3% in Q2 2019
- Net interest margin 2.9% and improves between years despite lowering interest environment
- Core revenues increase by 1.8% between years
- Operating expenses decreases by 3.5%, mainly due to organizational changes in 2019
- Impairments on loans decrease from the first quarter but uncertainty remains due to the pandemic
- Valitor’s operations improve but volatility can be expected in discontinued operation at lower level
Arion Bank reported net earnings of ISK 4,958 million from continuing operations in the second quarter and ISK 3,676 million from continuing operations during the first six months of the year. Net earnings amounted to ISK 4,913 million for the quarter and ISK 2,742 million for the first six months. Return on equity was 10.5% for the quarter and 2.9% for the first six months of the year.
Total assets amounted to ISK 1,182 billion at the end of June 2020, compared with ISK 1,082 billion at the end of 2019. Liquid assets increased as the proposed ISK 10 billion dividend payment did not materialize, the Bank issued AT1 in February and deposits increased. Loans to customers increased slightly from year-end 2019, mainly due to mortgage lending. Deposits increased by 12.8% from year-end 2019. Total equity amounted to ISK 189 billion at the end of June, compared with ISK 190 billion at the end of 2019.
The Bank’s capital ratio at the end of June 2020 was 28.1%, compared with 24.0% at the end of 2019. The CET 1 ratio was 22.9% at the end of June 2020, compared with 21.2% at the end of 2019. The Group's own funds increased by ISK 28.1 billion from year-end 2019, primarily due to the successful issuance of a USD 100 million Additional Tier 1 capital instrument in February 2020, and as a result of the Board of Directors’ decision to propose that no dividends are paid in connection with operations in 2019 in light of the Covid-19 pandemic.
The Bank is committed to its medium term targets, assuming the economy recovers in the medium term.
Benedikt Gíslason, CEO of Arion Bank
“Arion Bank’s financial results for the second quarter are most satisfactory and we have achieved our target of 10% return on equity. This is particularly pleasing given that the Bank’s capital ratio is exceptionally strong and far in excess of the requirements made by the regulators. Regular operations developed positively in the quarter, and unusually high financial income, both from equities and fixed income holdings, had a very positive impact on the results. Improving regular operations therefore remains a key priority. The subsidiaries Vörður and Stefnir are performing well and Valitor, which is for sale, has reduced its losses after undergoing restructuring at the beginning of the year. The aim is to strengthen Valitor’s core business, and the company’s operations in Denmark were sold during the quarter. Although there is still some way to go before the goals of restructuring are fully realized, excellent results have already been attained.
Despite the positive second quarter results, the Covid-19 pandemic is still causing considerable uncertainty in the Bank’s operating environment. The impact of the pandemic on the domestic and international economy will continue to leave its mark on operations. The key area of uncertainty is the performance of the Bank’s asset portfolio. Loan impairments decreased significantly during the second quarter compared with the first quarter, although it must be remembered that further impairments may be required in the present economic climate. However, the Bank’s robust capital and liquidity positions mean that it is well placed to cope with the current conditions.
There was strong demand for mortgages during the quarter, both new loans and the refinancing of existing loans. Lower interest rates undoubtedly played their part in this, and the Bank lent ISK 17 billion in the form of new mortgages during the second quarter. Furthermore, business support loans which formed part of the raft of government measures and which are partly or entirely government-backed, are proving popular and straightforward to process to our customers.
Arion Bank recently launched green deposits which are aimed at anyone wishing to help contribute towards a greener future. Initially green deposits will be used to finance investments by customers in vehicles which are powered by green energy. Green vehicles are an appropriate place to start as nearly all electricity in Iceland comes from sustainable sources. Offering our customers the option of green deposits is an innovative step in Iceland and in keeping with the Bank's environment and climate policy according to which we aim to focus more strongly on financing projects which relate to sustainable development and green infrastructure.
In May we merged our corporate services in the Reykjavík area into a single unit located at the Bank’s headquarters. It brings together a dedicated team of highly experienced specialists from our branches in the Reykjavik area whose focus is on SMEs. The goal of creating the Corporate Business Hub is to enhance our services to companies in the Reykjavík area and to make our specialist services and expert advice more easily available to our customers. It is also part of the continuing trend at the Bank to adapt our services to the new and evolving needs of our customers, with a greater emphasis on digital solutions and personal financial advice.”
Investor meeting in English on 30 July at 10:30 CET (8:30 GMT)
Arion Bank will be hosting a meeting / webcast on Thursday 30 July at 10:30 CET (8:30 GMT) where CEO Benedikt Gíslason, CFO Stefán Pétursson, Deputy CFO Eggert Teitsson and Head of Investor Relations Theodór Fridbertsson will present the results and answer questions from participants. The meeting will take place in English at the Bank’s headquarters, Borgartún 19, Reykjavík, and will be streamed live.
Those attending at Borgartún 19 need to register here. The webcast will be accessible live on financialhearings.com and a link will also be made available on the Bank’s website under InvestorRelations.
To participate in the webcast via telephone and to submit questions please call in using the relevant number indicated below before the start of the webcast:
SE: +46 850 558 369
UK: +44 333 300 9261
Iceland: +354 800 7520
United States: +1 833 823 0586
For further information please contact Theodór Fridbertsson, Head of Arion Bank’s Investor Relations, at email@example.com or tel.+354 856 6760.
For media enquiries please contact Haraldur Gudni Eidsson, Head of Corporate Communications, at firstname.lastname@example.org or tel. +354 856 7108.
The financial calendar of Arion Bank is available on the Bank’s website.
This is information that Arion Bank hf. is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication through the agency of the contact persons set out above.
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