Arion Bank's results in Q1 affected by Covid-19 pandemic
Covid-19 had a substantial effect on the Icelandic economy and Arion Bank during the last month of the first quarter of 2020. Arion Bank reported a net loss of ISK 1,282 million from continuing operations and a net loss of ISK 2,171 million in the quarter. Return on equity was negative by 4.6% and 2.7% from continuing operations. The Bank reported net earnings of ISK 1,018 million for the same period in 2019, with return on equity of 2.1%. There were three main factors that contributed towards these negative earnings for the first quarter of 2020: Net financial income was negative by ISK 2,000 million, highly affected by fair value changes of equity holdings due to unfavorable market conditions; Net impairment was negative by ISK 2,860 million, mostly due to more pessimistic assumptions in the Bank's IFRS 9 models, especially as regards unemployment and the transfer of tourism related customers to Stage 2; and discontinued operations were negative by ISK 889 million, due to an operating loss at Valitor and value changes of Sólbjarg ehf. and Stakksberg ehf., all of which are classified as held for sale assets.
Total assets amounted to ISK 1,188 billion at the end of March 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 9.4% from year-end 2019 as a result of the continued focus on deposits. Total equity amounted to ISK 184 billion, compared with ISK 190 billion at the end of 2019, a decrease mainly related to the buy-back program in Q1.
The Bank's capital ratio at the end of March 2020 was 27.5%, compared with 24.0% at the end of 2019. The CET 1 ratio was 22.5% at the end of March 2020, compared with 21.2% at the end of 2019. The Group's own funds increased by ISK 23.3 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 and the recommendation of the Central Bank of Iceland to that effect. This effectively reintroduces the foreseeable ISK 10 billion dividend at year-end 2019 as loss absorbing capital.
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 first quarter of 2020 were significantly impacted by the Covid-19 pandemic. The Bank reported an operating loss of approximately ISK 2 billion for the first quarter, which can largely be attributed to the effect of Covid-19 and the performance of the securities markets and the economy in general. The market value of the Bank's equity holdings decreased by ISK 2 billion, net impairment amounted to approximately ISK 3 billion, or 0.38% of the Bank's loan portfolio, and the negative impact of held for sale assets was approximately ISK 1 billion. Net impairment is mostly due to the more negative economic outlook and the increased probability of default as a result. The Bank's loan portfolio remains well distributed between retail and corporate customers and approximately 91% of loans are secured with collateral, of which 70% are secured with collateral in real estate. Core operations developed positively in the quarter compared with Q1 2019, despite the challenging conditions. The Bank's net interest margin increased, core revenues were up 9% and operating expenses decreased by 10%. The Bank continues to focus on its core revenues, and the financial targets have not changed even though it may now take longer to achieve them.
In recent weeks and months we have done whatever we can to help our customers adapt to the unique circumstances created by the Covid-19 pandemic. Almost two thousand of our retail customers have taken advantage of the mortgage payment holiday offered by the Bank. There is currently a payment freeze on more than 11% of the Bank's loans to individuals. We have also been working closely with our corporate customers to analyze the current situation and outlook and many companies have requested a payment freeze on their loans. We have done our utmost to accommodate their requests and there is currently a payment freeze on approximately 9% of corporate loans. The Bank has therefore frozen approximately 10% of its loan portfolio.
Excellent results have been achieved in the battle against Covid-19 in Iceland and cases are on the decline. The economic consequences have yet to fully materialize but they will undoubtedly be some of the most severe witnessed in recent times. It seems likely that it will be some time before the tourist industry regains its former shape, with the positive impact it had on the Icelandic business sector and economy. Arion Bank will continue to strive to supports its customers. The Bank's issue of Additional Tier 1 capital and the Board's decision to cancel the share buy-back program and dividend mean that the Bank's capital and liquidity positions are unusually robust and the Bank's capital adequacy ratio is higher than ever at 27.5%. One third of the Bank's capital, or ISK 63 billion, is in excess of the regulatory minimum and the Bank is therefore well placed to tackle the conditions we currently face."
Investor webcast in English on 7 May at 10:30 CET (8:30 GMT)
Arion Bank will be hosting a webcast on Thursday 7 May 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 webcast will take place in English.
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.
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: +46 850 558 351
UK: +44 333 300 9030
Iceland: +354 800 7520
United States: +1 833 526 8396
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 31 March 2020 (https://ml-eu.globenewswire.com/Resource/Download/d83ee674-7a7a-4f81-98e1-b0b31536adf7)
- Arion Bank Investor Presentation Q1 2020 (https://ml-eu.globenewswire.com/Resource/Download/43762101-50a3-44fe-89ac-fd4b312a06a2)
- Arion Bank Press release Q1 2020 (https://ml-eu.globenewswire.com/Resource/Download/d2b4fe04-f74d-447d-b8a4-fd2b6143b702)
