Aktia Bank Plc’s Half-year report January–June 2020

Strong recovery following a spring hit by the coronavirus

Aktia Bank Plc
Stock Exchange Release
August 4, 2020 at 8 a.m. 

Aktia Bank Plc’s Half-year report January–June 2020: Strong recovery following a spring hit by the coronavirus

In brief

• Continued organic growth in net interest income
• The market recovered after the steep decline in March, which contributed to positive value changes. Together with increased net subscriptions this led to a significant improvement in assets under management during the second quarter
• Increased use of digital banking services among customers
• Liquidity and capital adequacy remained strong

Outlook 2020 (updated)

Aktia Group’s results for 2020 is still very much dependent on how a possible new escalation of the COVID-19 pandemic will affect market values, customer behaviour and impairment levels during the end of the year. The visibility for 2020 is therefore very poor. Aktia is for the moment suspending its outlook for the operating profit 2020.

Despite the weak result due to the coronavirus during the first half of the year, the financial performance is expected to be stable during the second half of the year, provided market and social conditions are stable:

• Continued growth in net interest income. The recovery in commission income from especially fund and asset management is dependent on changes in market values.
• Net income from life insurance is still very much dependent on changes in market values.
• Provisions for potential credit losses are expected to continue on a moderate level during the second half of the year at the same time as Aktia’s liquidity and capital adequacy is still strong.

Mikko Ayub, CEO:

The first six months of 2020 were extremely exceptional for all of us. This was the case also for us at Aktia. During the corona crisis at times nearly 80% of Aktia’s extremely skilled professionals worked from home and sought new solutions to help our customers. I want to sincerely thank them all for this. The coronavirus hit many households hard. Aktia launched therefore a campaign allowing instalment-free periods free of charge. The campaign period extended to the end of May during which more than 11,000 private customers were allowed an instalment-free period. 

The main part of our customer meetings was also carried out remotely. The use of digital banking services grew enormously during the spring, and for example the number of digital signatures increased explosively. It was pleasant to see that even those customers who haven’t previously used digital banking services felt that the services were good and functional. During the second quarter we carried out a pilot for the automation of housing loan offers and a portfolio application for asset management aimed at Private Banking customers, and a new chatbot service for daily banking services was introduced. I am totally convinced that the exceptional spring increased the importance of digital banking services to a new level and opened up also many new opportunities for banking transactions for the future.

Strong result improvement from the first quarter

The coronavirus situation in Finland subsided substantially towards the summer. Restrictions have been lifted, which has enabled Aktia to return to more normal operations in everyday business. The market recovered relatively quickly after the steep drop in March, which also meant that Aktia’s results returned to or even exceeded the levels before the corona crisis. The comparable operating profit for the second quarter was EUR 16.5 million, an increase of 16% from the previous year.

The comparable total operating income for the second quarter amounted to EUR 54.8 million, an increase of slightly more than four million euro from last year. The positive development of net interest income continued due to a strong organic growth in the second quarter and amounted to EUR 20.1 million. Commission income amounted to EUR 22.9 million, which was somewhat lower than last year. Assets under management (AuM) recovered considerably after the first quarter of the year, due to very positive net subscriptions and value changes, and amounted to EUR 9.2 billion. However, the decrease in card payments and payment services reflected the reduced consumption, which was strained also by the considerable drop in travel.

Net income from life insurance recovered after the drop at the beginning of the year supported by the market and amounted to EUR 10.1 million. We notified on 1 June that the Finnish Financial Supervisory Authority had authorised Aktia’s acquisition of Liv-Alandia’s life insurance portfolio and 11,000 life insurance policies were subsequently transferred to Aktia. The transfer was in line with our strategy and a logical next step for us, taking into account that Aktia had handled the portfolio already before the acquisition.

Comparable total operating expenses amounted to EUR 36.1 million, an increase of slightly more than one million euro from last year. The increase in expenses pertained mainly to higher staff costs due to accruements, and to a result impact of EUR -0.5 million on account of the stability fee being set by the Financial Stability Board. The stability fee for 2020 increased to EUR 2.8 million.

In connection with the report for the first quarter we announced that we as a conservative lender have not identified significant individual risk sectors or risk concentrations in our loan book, which to a larger extent would be affected by the difficult situation. This is still the case. The allowance for model-based credit loss (ECL) increased by EUR 1.2 million in the second quarter as more information of the consequences of the pandemic is now available for the calculations. The increase in the allowance was, however, still moderate.

Fortunately, the coronavirus situation in Finland is stable at the moment, but nobody knows what the future will bring us. The economic recovery after an almost complete slowdown will in all probability take a long time and the economic uncertainty is reflected in a lower household consumption. However, I am optimistic about the future. Aktia is an agile organisation and very well prepared for a possible second wave of the coronavirus.  According to surveys the consumer confidence has already picked up significantly since the coronavirus spring.   

Key figures

(EUR million)	2Q2020	2Q2019	∆ %	Jan-Jun 2020	Jan-Jun 2019	∆ %	1Q2020	∆ %	2019
Net interest income	20.1	19.2	5%	39.8	38.7	3%	19.7	2%	77.6
Net commission income	22.9	24.8	-8%	48.1	47.9	0%	25.2	-9%	99.1
Net income from life insurance	10.1	6.6	53%	4.9	14.9	-67%	-5.2	-	30.0
Total operating income	54.8	60.6	-10%	94.7	113.3	-16%	39.9	37%	221.4
Operating expenses	-36.3	-35.0	4%	-71.9	-71.1	1%	-35.6	2%	-143.9
Impairment of credits and other commitments	-1.8	-1.4	24%	-3.2	-2.5	27%	-1.4	25%	-4.5
Operating profit	16.3	24.2	-32%	19.1	41.4	-54%	2.8	488%	74.8
Comparable operating income1	54.8	50.6	8%	94.7	103.2	-8%	39.9	37%	211.4
Comparable operating expenses1	-36.1	-34.9	3%	-71.7	-71.0	1%	-35.6	1%	-140.4
Comparable operating profit1	16.5	14.3	16%	19.3	31.4	-39%	2.8	495%	68.2
Cost-to-income ratio	0.66	0.58	14%	0.76	0.63	21%	0.89	-26%	0.65
Comparable cost-to-income ratio1	0.66	0.69	-4%	0.76	0.69	10%	0.89	-26%	0.66
Earnings per share (EPS), EUR	0.19	0.30	-37%	0.22	0.50	-57%	0.03	533%	0.90
Comparable earnings per share (EPS), EUR1	0.19	0.16	19%	0.22	0.36	-39%	0.03	533%	0.79
Return on equity (ROE), %	8.4	13.7	-39%	4.9	11.8	-59%	1.4	521%	10.3
Comparable return on equity (ROE), %1	8.5	7.2	19%	4.9	8.4	-42%	1.4	529%	9.1
Common Equity Tier 1 capital ratio (CET1), %2	15.7	16.5	-5%	15.7	16.5	-5%	15.9	-1%	14.7

1) Alternative performance measures excluding items affecting comparability
2) At the end of the period

Webcast from the results conference

A live webcast from the results event will take place on 4 August 2020 at 10 a.m. CEO Mikko Ayub and CFO Outi Henriksson will present the results. The event is held in English and can be seen live at https://aktia.videosync.fi/2020-q2-results. A recording of the webcast will be available at www.aktia.com after the event.

AKTIA BANK PLC

For more information:
Outi Henriksson, CFO, tel. [phone]
Lotta Borgström, Director, Investor Relations and Communications, tel. [phone], ir (at) aktia.fi

Distribution:
Nasdaq Helsinki Ltd
Central media
www.aktia.com

Aktia is a Finnish asset manager, bank and life insurer that has been creating wealth and wellbeing from one generation to the next for 200 years. We serve our customers in digital channels everywhere and face-to-face in our offices in the Helsinki, Turku, Tampere, Vaasa and Oulu regions. Our award-winning asset management business sells investment funds internationally. We employ approximately 750 people around Finland. Aktia's assets under management (AuM) on 31 December 2019 amounted to EUR 9.9 billion, and the balance sheet total was EUR 9.7 billion. Aktia's shares are listed on Nasdaq Helsinki Ltd (AKTIA). aktia.com.

Attachment

• Aktia Bank Plc_2Q 2020