Arion Banki SDB (ARION) Q3 2024 earnings summary

Executive summary

• Q3 2024 delivered a 16.1% return on equity, exceeding medium-term targets, with net earnings of ISK 7.9bn and record insurance results; all financial targets met except for capital, which remains above target.

• CET1 capital buffer stands at 355bps above requirements, with ongoing capital optimization through dividends, share buybacks, and a capital increase from exercised warrants.

• Paid ISK 13bn in dividends and conducted ISK 12.5bn in share buybacks YTD, with potential for higher distributions next year.

• Liquidity and funding remain solid, supported by a successful $125m AT1 issuance and Moody's A3 credit rating with a stable outlook.

• Continued rollout of digital solutions and growth in assets under management, with a focus on sustainable and green financing frameworks.

Financial highlights

• Q3 net profit reached ISK 7.9bn, up 29% year-over-year, with total operating income of ISK 17.5bn, up 17% YoY and 5% sequentially.

• Net interest income rose 9% YoY; commission income up 1%; insurance service results surged to ISK 1.5bn in Q3 and ISK 1.8bn for 9M 2024.

• Cost-to-core income ratio improved to 37.5% in Q3; operating expenses increased 12% YoY, mainly due to higher salaries, IT, and insurance investments.

• Net earnings for 9M 2024 were ISK 17.8bn, with basic EPS for 9M 2024 at ISK 12.45.

• Loans to customers grew 5.9% from year-end, deposits up 7.0%; CET1 ratio at 18.8%, capital adequacy ratio at 23.2%.

Outlook and guidance

• Medium-term net interest margin guidance remains around 3%, with short-term fluctuations possible due to inflation and rate dynamics.

• Cost of risk guided at 29 basis points for the next 12 months, with potential for improvement if economic conditions stabilize.

• The bank aims to maintain capital adequacy ratios 150-250bps above requirements and a 50% dividend payout ratio.

• Further rate cuts are anticipated, but a tight monetary stance is expected due to persistent demand pressures.

• Growth in private consumption is expected to remain subdued, with slow economic recovery and modest tourism sector outlook.