Aktia Bank Plc’s Interim Report January–September 2022: Rising interest rates increased interest income – difficult markets weighed down results
Aktia Bank Plc
Stock Exchange Release
4 November 2022 at 8.00 a.m.
Aktia Bank Plc’s Interim Report January–September 2022: Rising interest rates increased interest income – difficult markets weighed down results
The quarter in short
- Interest income from lending continued to grow strongly and the average margin for the entire loan book continued to improve.
- Increased funding and hedging costs weighed down net interest income.
- Net subscriptions in asset management were positive, the market decline decreased the market values of the funds.
- Sales of international fund products expanded to three new markets.
- Higher interest rates reduced the market value of the life insurance business's investment portfolio, solvency rose to record levels.
- Credit loss provisions remained at a moderate level.
Outlook 2022 (updated 27 October 2022)
Aktia's comparable operating profit in 2022 is expected to be lower than in 2021. A key uncertainty regarding the outlook is the development of the market value of different asset classes.
- The net interest income is expected to remain on the same level or be slightly higher than in the third quarter. 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 while financing costs are expected to increase.
- Commission income is expected to increase slightly during the last quarter of the year compared to the previous quarter.
- The net income from life insurance depends on the changes in market values. In the first three quarters of the year, rising interest rates and market uncertainty have led to negative unrealised value changes in the life insurance business's investment portfolio.
- 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 approximately at the same level as in 2021.
In 2021, Aktia's comparable operating profit was EUR 87.4 million.
Mikko Ayub, CEO:
The exceptional economic situation, which has marked the whole year 2022, continued during the third quarter. Concerns over accelerating inflation dramatically increased interest rates, and September was a difficult month in the investment markets. The global equity markets declined by around 8% in local currencies, and long-term interest rates on the fixed income market continued to rise sharply. Returns were negative across the board. The weak development was caused by both recession fears and a much tighter monetary policy than expected due to the high rate of inflation. It seems that the coming months will not provide a solution to the difficult situation.
The higher interest rates increased Aktia’s returns from lending significantly during the quarter, but the bank's hedging and financing costs increased even faster as central bank and market-based funding went up in price even more rapidly. As we said in connection with the publication of the results for the second quarter, the rise in interest rates will not yet bring significant benefits for the net interest income in 2022. However, the net impact of the rise in interest rates on interest income is expected to be considerably positive next year.
On the corporate customer side, activity levels remained very good in the third quarter, and especially asset-based financing continued to grow. Interest income from the corporate customer business increased due to active pricing and volume growth. The average margin for the entire loan book continued to rise. The entire private customer loan book increased moderately during the quarter. Consumers' views on the development of their personal finance in an exceptional environment were still cautious, and demand for mortgage loans slowed down during the third quarter. As of yet, we have not seen any significant increase in the demand for instalment-free periods. Credit loss provisions remained low. For us, a good-quality loan book is of paramount importance. In this way we are preparing for more difficult times as the economic environment is weakening.
The market decline weighed down fund market values and commission income over the past quarter. Despite the difficult market situation, net subscriptions in asset management remained positive. The development was positive for both domestic institutions and private banking customers. Aktia also introduced two new fund products during the third quarter: The UI-Aktia Sustainable Corporate Bond fund, a dark green fund in accordance with Article 9 in the EU Sustainable Finance Disclosure Regulation, and the non-UCITS fund Aktia Alternative Investments, which invests in alternative asset classes, were launched in September. The sale of Aktia's international fund products expanded to Spain, Italy and Portugal.
The life insurance business also continued to develop positively during the third quarter. In particular, the new sales of risk life insurances were strong. The life insurance solvency rose to record levels. However, the rapidly rising interest rates reduced the market value of the fixed income-oriented life insurance portfolio, weighing the net income from life insurance.
Wealth manager bank at the core of the strategy
We drove Aktia’s wealth manager bank strategy forward with determination also during the past quarter. The integration of Taaleri Wealth Management is now on the home stretch, and customer service processes will be harmonised by the end of the year. As the technical integration is coming to an end, we will pay even more attention to developing the customer experience. A profitable banking business is another important pillar of Aktia's strategy, especially in the current interest rate environment.
It is important for me to pay particular attention to the cost development and improving efficiency in the group in the future. This will also free up funds for business development. A good example of this is the strategic cooperation with the IT service company CGI that we launched in October, which I am very pleased about. The joint venture now being established between Aktia and CGI will provide Aktia with a significant part of the maintenance and development services for Aktia's banking business IT systems in the future, which will help shift the focus from administration to development of new and competitive products and services. Aktia estimates that it will achieve cost savings of several million euros over the contract period of at least five years. A part of this will be used to develop digital services. The third quarter costs fell slightly from the previous quarter, even though the operating expenses included a significant amount of consulting costs related to the strategic cooperation.
In September, Aktia decided as the first Finnish bank to announce that it had begun to pay interest on fixed-term deposits. The campaign exceeded our expectations and provoked an important discussion about interest rates on bank deposits and a great deal of interest among new customers. Deposits are an essential part of funding for banks, and as market financing becomes more expensive, the importance of deposits will also increase as a financial instrument for Aktia.
Although the market environment has been turbulent over the past year, our employees have helped Aktia's customers also through more difficult times with their strong professional skills. For this I would like to extend my sincere thanks to my competent colleagues. I would also like to thank our customers for their trust in Aktia. We work hard every day to be worthy of it.
Key figures
| (EUR million) | 3Q/2022 | 3Q/2021 | ∆ % | 1-9/2022 | 1-9/2021 | ∆ % | 2Q2022 | ∆ % | 1Q2022 | 2021 |
| Net interest income | 24.0 | 23.1 | 4 % | 75.0 | 72.2 | 4 % | 25.8 | -7 % | 25.1 | 96.2 |
| Net commission income | 29.9 | 33.5 | -11 % | 92.9 | 90.3 | 3 % | 31.6 | -6 % | 31.3 | 124.0 |
| Net income from life insurance | 3.4 | 9.7 | -65 % | 17.9 | 30.1 | -41 % | 12.7 | -73 % | 1.8 | 37.7 |
| Total operating income | 56.2 | 67.1 | -16 % | 186.8 | 198.3 | -6 % | 71.6 | -21 % | 59.0 | 263.8 |
| Operating expenses | -42.8 | -41.6 | 3 % | -133.4 | -129.2 | 3 % | -44.7 | -4 % | -45.9 | -174.4 |
| Impairment of credits and other commitments | -1.0 | -1.0 | 1 % | -3.1 | -4.6 | -33 % | -2.4 | -58 % | 0.3 | -4.5 |
| Operating profit | 12.3 | 24.4 | -49 % | 50.6 | 64.3 | -21 % | 24.7 | -50 % | 13.5 | 84.6 |
| Comparable operating income1 | 56.2 | 66.5 | -15 % | 186.6 | 197.7 | -6 % | 71.6 | -21 % | 58.8 | 263.2 |
| Comparable operating expenses1 | -42.8 | -41.6 | 3 % | -133.4 | -126.2 | 6 % | -44.7 | 4 % | -45.9 | -171.1 |
| Comparable operating profit1 | 12.3 | 23.8 | -48 % | 50.4 | 66.7 | -24 % | 24.7 | -50 % | 13.3 | 87.4 |
| Cost-to-income ratio | 0.76 | 0.62 | 23 % | 0.71 | 0.65 | 10 % | 0.62 | 22 % | 0.78 | 0.66 |
| Comparable cost-to-income ratio1 | 0.76 | 0.63 | 21 % | 0.71 | 0.64 | 12 % | 0.62 | 22 % | 0.78 | 0.65 |
| Earnings per share (EPS), EUR | 0.14 | 0.28 | -50 % | 0.57 | 0.72 | -21 % | 0.28 | -50 % | 0.15 | 0.95 |
| Comparable earnings per share (EPS), EUR1 | 0.14 | 0.27 | -49 % | 0.56 | 0.75 | -25 % | 0.28 | -50 % | 0.15 | 0.98 |
| Return on equity (ROE), % | 6.4 | 11.4 | -44 % | 8.3 | 10.0 | -17 % | 12.3 | -48 % | 6.5 | 10.0 |
| Comparable return on equity (ROE), %1 | 6.4 | 11.2 | -43 % | 8.3 | 10.4 | -20 % | 12.3 | -48 % | 6.5 | 10.3 |
| Common Equity Tier 1 capital ratio (CET1), %2 | 10.6 | 10.4 | 2 % | 10.6 | 10.4 | 2 % | 10.4 | 2 % | 10.6 | 11.2 |
1) Alternative performance measures
2) At the end of the period
Webcast from the results conference
A live webcast from the results event will take place on 4 November 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 . A recording of the webcast will be available at after the event.
AKTIA BANK PLC
For more information:
Outi Henriksson, CFO, tel. +358 10 247 6236
Lotta Borgström, Director, Investor Relations and Communications, tel. +358 10 247 6838, lotta.borgstrom (at) aktia.fi
Distribution:
Nasdaq Helsinki Ltd
Central media
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 September 2022 amounted to EUR 13.6 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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