English Icelandic
Published: 2020-02-12 19:25:09 CET
Arion banki hf.
Annual Financial Report

Arion Bank’s financial results for Q4 2019 and for the year 2019

NET EARNINGS FROM CONTINUING OPERATIONS IMPROVE MARKEDLY FROM PREVIOUS YEAR

Arion Bank reported negative net earnings of ISK 2,775 million for the fourth quarter of 2019 as impairment of assets and operational difficulties at subsidiaries held for sale negatively affected the Banks results. The Bank reported net earnings of ISK 1,616 million for the same period of 2018. Return on equity was negative by 5.8% for the fourth quarter of 2019, compared with a positive return of equity of 3.2% in 2018. Net earnings for the year 2019 amounted to ISK 1,100 million, compared with ISK 7,777 million in 2018. Return on equity was 0.6% in 2019, compared with 3.7% in 2018.

Net earnings from continuing operations amounted to ISK 5,209 million for the fourth quarter and ISK 14,055 million for 2019, compared with ISK 2,132 million for the fourth quarter of 2018 and ISK 8,938 million for 2018. Earnings in the fourth quarter of 2019 are positively affected by ISK 1.1 billion by the sale of a mortgage portfolio to the Housing Financing Fund. Return on equity from continuing operations measured 10.8% for the fourth quarter of 2019 and 7.2% for the year 2019, compared with 4.3% for both the fourth quarter and the year 2018.

Total assets amounted to ISK 1,082 billion at the end of 2019, compared with ISK 1,164 billion at the end of 2018, which is in line with the Bank’s strategy of increased revenues on risk weighted assets rather than loan growth. Loans to customers decreased by ISK 59.9 billion, or 7%, during the year which is largely due to the sale of the aforementioned mortgage loan portfolio of ISK 48 billion in October. In spite of the decrease the Bank was actively supporting its customers as ISK 24 billion of new loans were granted to corporates and individuals in the fourth quarter. Borrowings decrease by ISK 113.0 billion in 2019 or 27% mainly due to prepayments of structured covered bonds and the repurchase of EMTN bonds. Total equity amounted to ISK 190 billion, compared with ISK 201 billion at the end of 2018.

An important aspect of the Bank’s capital optimizing process is the reduction of surplus capital. In line with the Bank’s medium-term target of reducing its CET 1 ratio to circa 17%, the Bank paid dividends and bought back own shares in 2019 for the total amount of ISK 12.4 billion. The Board proposes a dividend payment in 2020 of ISK 10.0 billion equaling ISK 5.5 per share.

The Bank’s capital ratio at the end of 2019 was 24.0%, compared with 22.0% at the end of 2018. The CET 1 ratio was 21.2% at the end of 2019, the same as it was at the end of 2018. The capital ratios take into account the proposal for ISK 10 billion dividend payment in 2020 and the on-going ISK 4.2 billion share buy-back program.

BENEDIKT GÍSLASON, CEO OF ARION BANK

“During the fourth quarter we saw clear indications that the organizational and strategic changes made at the end of the third quarter are delivering results, as Arion Bank reported earnings of ISK 5.2 billion from continuing operations during the quarter, the strongest quarter in 2019. The net interest margin increased and operating expenses decreased at the same time as customers repaid low yielding loans and the Bank prepaid expensive funding. Insurance activities delivered strong growth and we have high hopes for our continuing partnership with Vördur and the benefits it will bring to our customers.  The outlook is therefore bright in many areas of operations.  

However, companies held for sale weighed heavily during the year. Taking into account the negative impact of these companies, net earnings for 2019 only amounted to ISK 1.1 billion, and there was a net loss of ISK 2.8 billion in the fourth quarter. One of these companies is Valitor and towards the end of the year its board of directors decided to implement extensive organizational changes with the aim of consolidating the company's core operations and reducing its investment need. Valitor’s budget for 2020 assumes that the company will be EBITDA positive during the year.  

The Bank remains strongly capitalized and one of our key priorities now is to optimize our capital structure through the issuance of Tier 2 and Additional Tier 1 capital, by using capital more efficiently in operations and by placing greater emphasis on financial activities which require less capital. Equity represents the Bank’s debt to its owners and is the most expensive source of funding. It is therefore important not to have more equity than necessary. A share buy-back program was initiated in the second half of 2019 and dividends were paid during the year. It will also be proposed at the Bank's AGM in March to pay extraordinary dividends. Reducing core equity is vital in order for the Bank to achieve its target of 10% return on equity as growth opportunities offering satisfactory profitability are limited in an environment where interest rates are declining.

Another key factor in achieving satisfactory return on equity has to do with lending to major corporations. As a result of high capital requirements and extensive taxation the Bank is in actual fact unable to compete effectively with pension funds and international banks when it comes to lending to large companies. Therefore the focus at Arion Bank will be on providing these companies with expert advice and helping them find the most effective financing at any given time, as well as of course providing credit when required. Our strategy on lending to individuals and SMEs remains unchanged and despite our emphasis on the profitability of the loan portfolio rather than loan growth, the fourth quarter did see a healthy increase in new lending, totalling ISK 24 billion, of which loans to individuals amounted to ISK 10 billion. 

In December the Board of Directors adopted an ambitious environmental and climate policy and targets for the next few years. The policy dictates that Arion Bank is committed to contributing to efforts to ensure that Iceland can meet its obligations under the Paris Climate Agreement and other local and international environmental and climate agreements. Our goal in 2020 is to evaluate the Bank’s loan portfolio according to green criteria and establish targets in this respect. We will also increasingly turn our focus on to financing projects which relate to sustainable development and green infrastructure. Furthermore, we will require our suppliers to take into account the environmental and climate impact of their activities.”

INVESTOR MEETING / WEBCAST IN ENGLISH ON 13 FEBRUARY AT 9:30 CET (8:30 GMT)

Arion Bank will be hosting a meeting / webcast on Thursday 13 February at 8:30 GMT (9:30 CET) 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, and will be streamed live.

Those attending the meeting in Borgartún 19 need to register here. To participate in the webcast via telephone and put forward questions please call in using the relevant number indicated below before the start of the webcast:

SE: +46 850 558 353 
UK: +44 333 300 9031
Iceland: +354 800 7520
United States: +1 833 823 0587 

The webcast will be accessible live on financialhearings.com and a link will also be made available on the Bank’s website under Investor Relations.


For further information please contact Theodór Fridbertsson, Head of Arion Bank’s Investor Relations, at ir@arionbanki.is or tel.+354 856 6760.

For media enquiries please contact Haraldur Gudni Eidsson, Head of Corporate Communications, at haraldur.eidsson@arionbanki.is 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.

Attachments


Arion Bank Consolidated Financial Statements 2019.pdf
Arion Bank Investor Presentation Q4 2019.pdf
Arion Bank Press release Q4 2019.pdf