Aktia Bank Plc’s Half-Year Report January–June 2022: Business in good shape despite the market decline

Aktia Bank PlcStock Exchange Release5 August 2022 at 8.00 a.m.

Aktia Bank Plc’s Half-Year Report January–June 2022: Business in good shape despite the market decline

The quarter in short

  • The interest income from lending increased strongly with the support of the corporate customer business, and the average margin for the entire loan book improved. The net interest income continued to develop well; the decrease from last year is explained by the accumulated interest on central bank financing (TLTRO III) which was booked during the reference period.
  • The asset management's net subscriptions for the quarter were positive, the assets under management decreased by 5 % to EUR 13.9 (14.7 31.3.2022) billion during the quarter as a result of the increased interest rates and stock market decline.
  • The sale of Aktia's international fund products expands to eight new markets through a new distribution contract.
  • Increased interest rates weighed down the life insurance business’s investment portfolio. The capital gains of a real estate investment increased the net income from life insurance by EUR 11.0 million.
  • Expenses were on the same level as last year.
  • Credit loss provisions are still at a moderate level.

Outlook 2022 (updated 15 July 2022)

Aktia's comparable operating profit in 2022 is expected to be approximately at the same level as in 2021. The key uncertainties related to the realisation of the outlook include the development of the interest rate and equity markets as well as the general economic situation.

  • The net interest income growth is expected to remain strong, especially in the corporate customer segment, due to the active pricing and expected volume growth. The positive impact of the increasing short-term reference rate on private customers’ net interest income will be gradually visible as a result of the annual interest rate adjustments on mortgage loans.
  • Financing costs are expected to increase slightly as interest rates rise, the positive impact of the negative interest rate on central bank financing will decrease.
  • Commission income is expected to increase. The growth is supported by the completion of the integration of Taaleri’s wealth management business.
  • The net income from life insurance depends on the changes in market values. In the first half of the year, rising interest rates and market uncertainty led to negative unrealised value changes in the life insurance business's investment portfolio. We expect the strength of the actuarially calculated result to increase compared to last year.
  • Considering the impact of inflation, the expenses are expected to be approximately at the level of the comparable operating expenses 2021.
  • Potential credit loss provisions are expected to remain at a moderate level while the liquidity and capital adequacy of Aktia remain stable.

Previous outlook for 2022: Aktia's comparable operating profit in 2022 is expected to be somewhat higher than in 2021 provided that the market development is favourable and the circumstances in society remain stable.

In 2021, Aktia's comparable operating profit was EUR 87.4 million.

Mikko Ayub, CEO:

The first half of the year was strongly marked by the ongoing market uncertainty: The war in Ukraine, global inflation and, as a result, the central banks’ tightening monetary policy shadowed the economic outlook and put pressure on the equity market. The rapid increase in interest rates, which started at the beginning of the year while the equity market declined, has been very exceptional.

The decline in the equity market and increasing interest rates led to a challenging market environment also for Aktia in the second quarter. Despite positive net subscriptions, assets under management declined in the second quarter due to negative value changes. The market value of the life insurance business's investment portfolio also decreased. The outlook for the rest of the year being very uncertain in this situation, we announced earlier that we had decided to lower the earnings guidance for 2022 and we now estimate that the comparable operating profit in 2022 will reach approximately the same level as in 2021 (previously somewhat higher than in 2021). Since last year was an excellent year in terms of the result, and our core business is still developing in line with the strategy, I have strong confidence in the future prospects of the company’s business. Nor do I see anything that would have changed our strategic assumptions.

The indirect effects of the war in Ukraine on Aktia are mainly reflected in uncertainty on the investment market and thus in the value of the funds. However, so far, the direct effects of the war on Aktia's business have been very moderate. For our own part, we are complying with all sanctions against Russia and in March, based on our own risk assessment, we decided to suspend all outgoing and incoming payments to Russia and Belarus for the time being. There are no significant direct risks in relation to the crisis area in Aktia's credit portfolio. Aktia's own funds do not contain any direct investments in Russia either, and Aktia has stopped the new sales of other actors' funds that mainly invest in Russia.

Business in good shape

Despite the challenging market situation, Aktia’s comparable operating profit of EUR 24.7 million remained at a good level and was only slightly lower than the reference period (26.0). The main explanatory factors for this were the good core business and the capital gains of a real estate investment in the life insurance business.

The net interest income for the second quarter of EUR 25.8 (27.7) million decreased slightly from last year, which is mainly due to the accumulated interest of EUR 5.3 million on central bank financing (TLTRO III) booked during the reference period. The interest income on lending was around 10% better than in the reference period, mainly due to the continued growth of the corporate customer business in the second quarter. The acquisition of Taaleri’s wealth management business with a new, broader customer base contributed to the growth.

The loan book of Aktia's private customers also increased moderately and the risk level remained stable. The average margin of Aktia's entire loan book improved. The positive impact of the increasing interest rates will reflect gradually on the net interest income as interest rates are adjusted. The launch of the new Finnair Visa credit card in cooperation with Finnair in early June reflected our investment in consumer financing. The demand for the card has been strong and we expect it to remain high.

The commission income for the quarter was around the level of the reference period at EUR 31.6 (31.7) million. The assets under management (AuM) decreased to EUR 13.9 (14.7 31.3.2022) million as a result of the increasing interest rates and market decline. However, despite the challenging market in the beginning of the year, the asset management's net subscriptions were positive, EUR 111 million, which I am particularly pleased to see. Net sales increased in both domestic and foreign institutions, as well as private banking customers. The integration of Taaleri's asset management activities advanced according to plan. Cooperation with Taaleri Plc continued and resulted in the successful launch of the Bioindustry I fund, among other things. Fund sales are not yet shown in net sales for the second quarter.

There is also excellent news related to the international distribution of Aktia's Emerging Market fixed income funds (EMD): The sale of Aktia's international fund products will expand to eight new markets through the distribution contract in July with British Harrington-Cooper: United Kingdom, Ireland, the Benelux countries, Denmark, Norway and the French-speaking parts of Switzerland. The relative success of the EMD funds was significant in the first half of the year, with the funds delivering significantly better return than their benchmark index.

In the second quarter of the year, the rapidly rising interest rates continued to weigh down the return on the life insurance business's investment portfolio. Net income from life insurance was EUR 12.7 (10.5) million, the majority of which derives from the capital gains of EUR 11.0 million from a real estate investment in the portfolio. Aktia provided information on the matter on 16 May 2022. The life insurance business itself continued to develop well: The new sales of risk life insurances and investment-linked insurances remained favourable. The actuarially calculated result also increased as a result of the insurance stock developing well.

Aktia’s comparable expenses for the quarter were 3% under the level of the reference period at EUR 44.7 (45.9) million. The staff costs slightly decreased in the second quarter, while the depreciation of intellectual property rights following the acquisition of Taaleri’s wealth management business increased the expenses. The credit loss provisions increased by EUR 2.4 million in the second quarter but remain at a moderate level.

Key figures

(EUR million) 2Q/2022 2Q/2021 ∆ % 1-6/2022 1-6/2021 ∆ % 1Q2022 ∆ % 2021
Net interest income 25.8 27.7 -7% 50.9 49.0 4 % 25.1 3% 96.2
Net commission income 31.6 31.7 0% 63.0 56.8 11% 31.3 1% 124.0
Net income from life insurance 12.7 10.5 21% 14.5 20.4 -29% 1.8 604% 37.7
Total operating income 71.6 73.3 -2% 130.6 131.2 0% 59.0 21% 263.8
Operating expenses -44.7 -48.8 -9% -90.6 -87.6 3% -45.9 -3% -174.4
Impairment of credits and other commitments -2.4 -1.4 69% -2.1 -3.6 -43% 0.3 - -4.5
Operating profit 24.7 23.0 7% 38.2 39.9 -4% 13.5 83% 84.6
Comparable operating income1 71.6 73.3 -2% 130.4 131.2 -1% 58.8 22% 263.2
Comparable operating expenses1 -44.7 -45.9 -3% -90.6 -84.6 7% -45.9 3% -171.1
Comparable operating profit1 24.7 26.0 -5% 38.0 42.9 -11% 13.3 85% 87.4
Cost-to-income ratio 0.62 0.67 -7% 0.69 0.67 4% 0.78 -20% 0.66
Comparable cost-to-income ratio1 0.62 0.63 -1% 0.69 0.64 8% 0.78 -20% 0.65
Earnings per share (EPS), EUR 0.28 0.24 13% 0.43 0.45 -4% 0.15 80% 0.95
Comparable earnings per share (EPS), EUR1 0.28 0.28 -1% 0.43 0.48 -11% 0.15 83% 0.98
Return on equity (ROE), % 12.3 10.5 17% 9.5 9.5 0% 6.5 89% 10.0
Comparable return on equity (ROE), %1 12.3 12.3 0% 9.4 10.2 -8% 6.5 91% 10.3
Common Equity Tier 1 capital ratio (CET1), %2 10.4 10.8 -4% 10.4 10.8 -4% 10.6 -2% 11.2

1) Alternative performance measures2) At the end of the period

Webcast from the results conference

A live webcast from the results event will take place on 5 August 2022 at 10.30 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/2022-halfyear-report. 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. +358 10 247 6236Lotta Borgström, Director, Investor Relations and Communications, tel. +358 10 247 6838, lotta.borgstrom (at) aktia.fi

Distribution:Nasdaq Helsinki LtdCentral mediawww.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 900 people around Finland. Aktia's assets under management (AuM) on 30 June 2022 amounted to EUR 13.9 billion, and the balance sheet total was EUR 11.9 billion. Aktia's shares are listed on Nasdaq Helsinki Ltd (AKTIA). aktia.com.

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