Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Arion banki hf (FRA:AB7A, Financial) reported a strong return on equity of 16.1% for the third quarter.
- The insurance business delivered a standalone profit of ISK1.7 billion, marking the highest in its history.
- The bank successfully paid a dividend of ISK13 billion and conducted share buybacks worth ISK12.5 billion.
- Assets under management continue to grow, with enhancements in premier services merging private banking and asset management.
- The bank upgraded its financing framework to focus on sustainable projects, including affordable housing and healthcare.
Negative Points
- The bank remains overcapitalized despite efforts to normalize capital through dividends and buybacks.
- There is potential for more volatility in net interest income due to shifts in inflation and interest rate environments.
- Economic activity in Iceland has slowed, with GDP growth revised down to 0.5% for the year.
- The tourism industry faces challenges with visitors spending less and staying for shorter periods.
- The bank anticipates a cost of risk of 31 basis points, reflecting a cautious stance amid high interest rates.
Q & A Highlights
Q: Is there any new update on the legal case on variable rate mortgages? How confident are you about the positive outcome for the bank given that you don't expense anything in relation to the case in the accounts?
A: Benedikt Gislason, CEO: Our position to not expense or make any provisions against this claim is based on a thorough legal review. We believe our variable interest rate terms differ significantly from those cases brought to the court, and an independent opinion reaffirmed our view. We think this lawsuit lacks substantial merit.
Q: Can you provide any further guidance on the near-term net interest margin (NIM) outlook for the next two or three quarters?
A: Olafur Hrafn Hoskuldsson, CFO: Market expectations suggest very low inflation in the next couple of quarters, which is a headwind for our NIM. However, we have tailwinds from resets and reduced deposit rates. We are confident in maintaining around a 3% NIM over the medium term, though there might be short-term fluctuations.
Q: Do you intend to continue returning capital to shareholders through buybacks for the remainder of the year?
A: Benedikt Gislason, CEO: We are committed to delivering on our financial target and capital distribution will continue. We expect any requests for capital distribution to be taken favorably due to our strong capital position.
Q: Given the slowdown in the economy, what is the risk of the cost of risk increasing, especially with policy rates coming down?
A: Olafur Hrafn Hoskuldsson, CFO: While inflation and interest rates are expected to come down, unemployment is rising. We remain conservative, but there is potential upside if the economy manages through this favorably. Consumer finance has not shown growth, and our lending is mostly mortgage-related with low LTVs.
Q: How does the current economic environment affect your financial income and other income lines?
A: Benedikt Gislason, CEO: As inflation and interest rates come down, other income lines should trend favorably. We've faced headwinds in financial income, but expect tailwinds as rates and inflation decrease. Our diversified business, including strong insurance performance, supports our income statement.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
