Avarda Bank (AVARDA) Q1 2020 earnings summary

Executive summary

• Loan portfolio grew 8% from year-end to SEK 6,990m and 37% YoY; operating income rose 21% YoY.

• Operating profit fell 34% YoY to SEK 43.2m including the SEK 30m provision; excluding it, operating profit rose 11% YoY to SEK 73m.

• New lending softened late in Q1 as the pandemic spread and risk appetite was lowered; management prioritized profitability and solvency amid uncertainty.

Financial highlights

• Operating income was SEK 213.3m, up 21% YoY; net interest income increased to SEK 193.9m from SEK 161.4m.

• Net profit was SEK 34.2m versus SEK 50.5m; EPS declined 34% YoY to SEK 1.51 from SEK 2.28.

• Net loan losses rose 106% YoY to SEK 89.7m, including the additional provision; operating expenses increased 20% to SEK 80.5m.

• New lending increased to SEK 1,753m from SEK 1,418m; deposits grew 6% from year-end to SEK 7,664m.

Outlook and guidance

• The 2020 EPS target of at least SEK 14.50 was abandoned on April 5 due to the uncertain macroeconomic outlook.

• The cost/income target remained below 35% for 2020; new financial targets were to be set once the macroeconomic outlook stabilized.

• New lending had declined in recent weeks, mostly in Consumer Lending; future credit losses remained difficult to predict amid changing conditions and government stimulus.

• Customer support measures addressed short-term payment difficulties as portfolio quality was expected to face pressure in coming quarters.