Kvika banki hf.: First quarter 2020 results and revised earnings forecast

At a meeting of the Board of Directors on 14 May 2020, the board and CEO approved the interim financial statement of the Kvika Banki hf. group for the period from 1 January to 31 March 2020.

Highlights of the interim financial statement for Q1 2020

• Profit before taxes amounted to ISK 445 million
• Net earnings amounted to ISK 336 million
• Return on equity amounted to 8.8%
• Earnings per share amounted to ISK 0.17.
• Net operating income amounted to ISK 2,031 million
• Operating expenses amounted to ISK 1,314 million
• Total assets amounted to ISK 117.0 billion
• Cash and balances with the Central Bank of Iceland amounted to ISK 48.1 billion
• The Group’s equity amounted to ISK 16.0 billion
• The equity ratio was 23.7%
• The Liquidity Coverage Ratio (LCR) was 275%
• Total assets under management amounted to ISK 427 billion
• The number of full-time employees was 135
• The earnings forecast for 2020 expects profits this year to range between ISK 1,700 – 2,300 million before tax

A presentation for market participants and shareholders will be held at Kvika’s headquarters at Katrínartúni 2, 105 Reykjavík at 16:30 hrs on Thursday 14 May. Presentation for investors is attached.

Earnings ISK 445 million

Kvika Banki’s earnings before tax in the first three months of the year amounted to ISK 445 million, which was slightly above the forecast for the period. Net earnings amounted to ISK 336 million Return on equity of 8.8% during the period on an annualised basis.

Net interest income amounted to ISK 483 million and grew by 14% between years. Net interest income amounted to ISK 1,664 million and grew slightly between years. Investment income was negative by ISK 157 million. The net impairment of loans was negative by ISK 155 million.

Operating expenses amounted to ISK 1,314 million in the first three months of the year and were in accordance with estimates, but increased by 1% from the first three months of 2019.

Strong balance sheet and high liquidity position

Total assets at the end of March amounted to ISK 117.0 billion, compared to ISK 105.6 billion at the end of 2019. Loans to customers amounted to ISK 30.9 billion at the end of March and increased by ISK 0.8 billion during the period. The liquidity position of the bank is very strong, since cash and balances with the Central Bank of Iceland amounted to ISK 48.1 billion at the end of March. The liquidity ratio (LCR) was 275% at the end of March compared with 246% at the end of 2019 and far exceeded the supervisory authorities’ requirements of a minimum coverage of 100%.

Equity amounted to ISK 16 billion and the equity ratio was 23.7%, taking into account the 25% annual dividend policy, compared to 24.1% at the end of 2019 and was therefore well above the 20.6% equity ratio requirement of the supervisory authorities, which was last updated on 18 March 2020.

Revised earnings forecast

With the publication of its preliminary figures for the first quarter, the bank stated that the premises for the earnings forecast, which applied at that time, would be revised. In Kvika’s management estimation, the premises have changed with regard to the size of the credit portfolio, impairment requirements, market conditions and the size of the swap agreement portfolio. In addition to this, recent interest rate cuts have had a negative impact on the interest margin in the short term. In light of this, the earnings forecast has been revised and profits in 2020 are now expected to range between ISK 1,700 – 2,300 million before tax. At the beginning of the year the bank’s earnings forecast was ISK 2,300 – 2,700 million before tax.

Marinó Örn Tryggvason, CEO of Kvika:

“This was a very eventful quarter. The year started off very well before the COVID-19 pandemic manifested itself. The bank faced great challenges in adjusting its activities to the changed circumstances, which entailed, among other things, most of its staff having to work from home. I am extremely pleased with how our personnel managed to cope with the altered circumstances.

A great deal of uncertainty has accompanied the COVID-19 pandemic. In my opinion, it is important to have a clear strategy on the sensible way to respond. The bank’s responses can be divided into three elements: the first is focused on emergency responses, the second on striving to reduce uncertainty, and the third on placing an emphasis on the necessary resilience.

The bank's emergency responses were the first reactions to the changed position of the economy and revolve around guaranteeing value and ensuring trouble-free operations. This involves, among other things, close collaboration with customers to pull through these temporary difficulties.

Uncertainty caused by the virus has led to a reduction of activity in the economy and many have postponed decisions. This results in lost opportunities and means that the negative economic consequences will persist more than they would otherwise. It is therefore important to place an emphasis on reducing uncertainty.

The virus has varying impacts on businesses, depending on, among other things, their financial position as well as the economic sector in which they operate. It is important to boost economic activity and work with strong companies, which are necessary to provide resilience and, in so doing, generate employment and value. The bank is in a good position to continue working with companies and investors with the aim of minimising the negative economic consequences of the virus.

It is satisfying that the operations of the quarter performed well, despite difficult economic circumstances, and that the bank’s results were in line with estimates. According to the revised earnings forecast, the operations of the bank are expected to continue performing well. A clear policy, strong position and the bank’s business model should enable it to achieve ongoing results, despite these demanding circumstances.”

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