Aktia Pankki Oyj

A very good morning, everyone, and welcome to Aktia's Q3 result briefing. My name is Oskar Taimitarha, and I'm head of Aktia's investor relations. As we all know, the biggest piece of news this morning is, of course, Aktia's Q3 report that we published at 8 o'clock this morning. And it was indeed a solid result. As usual, Aktia's CEO, Aleksi Lehtonen, and our interim CFO, Kari Varis, will go through the results. And after the presentations, we're happy to answer your questions. If you're following us online, please feel free to write your questions in the comments field. So let's move on. Aleksi, please welcome.

Thank you, Oskar, and welcome on my behalf as well. I'm happy to go through this result presentation today together with our interim CFO, Karri Varis. And now let's have a look at the Q3 highlights. Our comparable operating profit amounted to 31.5 million euros, which is in fact well in line with the two previous quarters this year. The current level is also 2% higher than in the third quarter last year, which was actually performance-wise the best quarter last year. We also reported strong comparable return on equity and comparable cost-income ratios. The ROE was 15% and cost-to-income ratio at 0.56%. Our net commission income increased somewhat, and I am of course very pleased to report that our assets under management increased thanks to both positive net subscriptions and market movement for the third quarter. The performance of our life insurance business was excellent. There are many reasons for this, like continued strong demand for insurances itself, low claims ratio, and good investment performance. The net interest income was, however, lower than last year, but there are certain reasons for that, and we will comment on it a bit later in this presentation. So bear with me. We continued to develop and invest our IT, but still managed to maintain fairly strict cost control. Our credit loss provisions decreased somewhat compared to last year. And last but not least, during the year, we've seen the results of our employee satisfaction surveys moving in the right direction. And therefore, it is not surprising that we have also seen a significant improvement in customer satisfaction. The EPSI rating study published in the third quarter shows how Aktia has improved significantly in all the areas covered. Our overall result is now very close to the threshold of very satisfied. This year, Aktia was the actor in the Finnish financial sector that climbed the most in the ranking. As an asset manager and a bank, customer satisfaction is of the utmost importance in our journey to be the best partner for those who want to increase their wealth over time. In quarterly comparison, as you can see here in this graph, our performance has been quite stable this year, and the third quarter is not an exception. I repeat again what I said after the second quarter, we are well underway to beat the last year. And when showing this picture, I once again have to remind you that for 2022, We restated the numbers for our life insurance business according to the IFR 17 and therefore we show here two bars for 2022 in order to show both the reported and restated figures. Now let's move on and take a closer look at the three business areas and sustainability topics. As I said in the beginning of my presentation, we do notice a positive trend in our asset management, and we are happy to report that we had positive nest subscriptions in the whole third quarter. This was the case for both private banking clients and institutions, especially the net subscriptions among institutions were strong. And as you might have noticed in the Finnish fund report called Rahastoraportti in Finnish, the inflow into Aktia's own funds has been strong. And in September, Aktia Fund Management Company was among the best in Finland. And obviously, we continue to actively develop our product offering to meet the demand. And then our banking business, the sales of investment solutions to banking customers, in particular premium customers, remained strong also in the third quarter. In addition, they're also encouraging signs in the housing market. And we do note the growing trend in the loan applications, which started to pick up in the summer. And in the third quarter, we actually saw growth in the loan book among premium and private banking customers, although the total loan book decreased slightly as a result of the amortizations, which is also visible here in the graph. The net interest income was 7% lower than last year. And of course, we as all actors in the financial sector, we are also affected by the falling interest rates. However, this impact is still minor. The lower NII in the third quarter is mainly explained by the impact of the technical error concerning the interest terms of certain corporate accounts that we informed during the summer. Karri will go through this in more detail shortly. And let's take a look at our third business line, Actia Life. The performance of our life insurance business was strong. The demand for both risk life insurance policies and investment linked insurances remained strong, and the claims ratio was also low. So favorable market development had also a positive impact on the Unitlink portfolio and thus on the result from the investment contracts. And in addition, the performance of Actia Live's investment portfolio was very good in the quarter. So in many fronts, a strong quarter for Life. And taking a look at our ESG KPIs, we again can see that many of our 2025 targets have already been met. As a good example, Aktia's equity and fixed income portfolios are now on the right path in terms of emission reductions. The emission reduction at the end of Q3 was minus 43.5% compared to the baseline 2019. And as a result, we have already reached our 2025 milestone, which is minus 30%, and we are well on track towards our 2030 milestone, which is minus 50%. On the employee satisfaction side, in the middle here in the graph, our indices under the people headline have been developing in the right direction during the whole year. Of course, we have room to improve, but the movement and the direction is important to note. We are now again measuring the flame index and ENPS as part of our continuous monitoring. So to sum up, our performance in Q3 was in line with our long-term financial targets which extend to end 2025. And for the outlook, I would like to inform that we keep our outlook for 2024 unchanged. And now I will hand over to Karri to go through our financials in more detail. Karri, the stage is yours.

Thank you, Aleksi, and welcome on my behalf as well. Now, let us have a look at our financial numbers. To start with, I would like to highlight a few things on this summary page. First of all, more than half of our operating income came from capitalized sources, i.e. other than net interest income. This is a good sign that our strategy of being the leading wealth manager bank is progressing well. Furthermore, comparable return on equity was 15%, comparable cost to income ratio was 56%, and Z1 ratio was 11.9%, which are all in line with our long-term targets. Operating income continued its stable development and is 2% up from last year and roughly in line with the last quarter. Commission income showed positive development and was 3% higher compared to last year and also slightly up from last quarter. We will shortly look at commission income in more detail. Net income from life insurance was up 74% from last year, and this was a very exceptional quarter for Actia Life in many ways. The insurance service result was good due to low claims and positive result from loss-making contracts. Result from investment contracts grew 11% from last year, owing to good demand for our products and favorable market development. And furthermore, Aktia Life Insurance's own investment polio performed well. As Aleksi already said, net interest income came down 7% from last year. The decline is mostly explained by the technical error in corporate accounts, which was discussed already in the summer. And as we pointed out, the corrections were made during Q3. and accounts with non-standard interest rate terms were either terminated or renegotiated, and the new interest rate terms for said accounts are valid from October 1st. The growth in net commission income was 3% from the year... Before, first of all, the trend in mutual funds has been positive. This is supported by the fact that we have strong inflow into our own funds, especially our excellent fixed income and allocation funds received subscriptions in Q3. There was also a positive change in the card business during the quarter. Brokerage income was lower than last year, and it was mostly because income from certain product launches were scheduled differently. And although we monitor income very closely and different client and product groups have different income profiles, we naturally monitor the overall performance of the assets under management too. The positive trend in net subscriptions seen already in Q2 continued. The assets under management growth was 200 million, out of which 54 million came from net subscriptions and 146 million from market value growth. Net subscriptions were positive from both institutional and banking customers, which are our target groups. Then to the net interest income. Interest income from LendingBook came down due to falling rate, which was partly offset by the falling interest cost in senior borrowing and deposits. Interest cost in covered bonds is up compared to previous quarter due to the 500 million issue in Q2. We are still warehousing some of the liquidity and will use it to repay maturing debt over time. The high liquidity position has also kept the income from the liquidity portfolio on a good level. And then a note, it's worth bearing in mind that falling interest rates have so far only had limited impact on our net interest income, but at some point there will be an impact on interest margins for all banks. Comparable operating expenses are up 5% from last year, but 3% down from the last quarter. The primary reason for increased cost is IT, where Aktia has for some time been investing not only in customer experience, but also into better and more efficient processes inside the bank. Investment in IT is also reflected in slightly increased level of depreciations. Otherwise, we maintain cost control and our personal costs decreased during the quarter. Credit loss provisions during the quarter were 1.8 million, an improvement from last year's 2.3 million. And expressed in annualized terms, this was eight basis points of the loan book. We have seen a moderate increase in household loans defaults in Q3, which in this definition also includes customers marked as unlikely to pay. This is partly due to weakened repayment capacity of some customers, but the launch of the positive credit registry this year also played a part as now we discover financial distress at an earlier stage. Despite this, the provisions were at a low level due to the good collateral position of the bank. Aktia's Z1 capital ratio has been on a growing trend and was 11.9 in the end of the quarter. The improvement was partly due to the growth in the own funds, but also a reduction in the risk-weighted assets. The SET1 requirement came down slightly after the Finnish FSA reduced Aktia's PILA2 requirement to 1%, down from 1.25. What makes us very proud is that our PILA2 requirement is now among the lowest in Europe. The SET1 buffer to regulatory requirement now stands at 3.2%, which is above Aktia's minimum target of 1.5%. Over the summer month and towards the end of the Q3 period, the market has remained reasonably active, but particularly the covered bond market lost some of the investor interest and margins have widened. In September, Aktia successfully refinanced a 70 million euro callable tier two bond. The active investor work that we did helped us find 35 investors, predominantly from UK, Ireland, Nordics and France. The issue was 1.7 times oversubscribed at 265 basis points over the mid-swaps rate. Liquidity situation at Taktia remained very strong. LCR was 230% at the end of Q3. Therefore, we have not been active in the senior market and continued to pay back the redeeming notes and deposits. During Q4, we are monitoring the senior preferred private placement market to refinance redeeming debt, including the last tranche of the TLTRO in December. Thank you very much. We are next happy to answer your questions.

Thank you, Alexi and Karri. Welcome back on stage. Now, Kati Eriksson, EVP for Asset Management, has joined us as well. Kati, please welcome.

Thank you.

So, now we're happy to answer your questions, and it's time for questions and answers. Alexi, the first one goes to you. Can you please comment on Aktia's strategy process?

Yes, please. Indeed, we are underway of this work and it's continuing on the schedule and we will present and comment it on when that is ready. We will do a very thorough work and when that is finalized, then we are ready to publish it. Thank you.

And then Kati. Could you please comment on institutional sales in asset management?

Well, first of all, I would like to comment the overall net subscriptions that we are now happy to report as positive for this quarter. Institutional sales, obviously, in this quarter leading the way is a long-term work that we do with our clients. And I think we need to earn their trust every day. Every day we go there. It's about activity. It's about systematically approaching our clients. It's about retaining our existing clients, taking care of them, but also actively finding new solutions and new discussion points with those clients that don't yet work with us. And I think it's been interesting environment, our product offering supporting the dialogue. And I think here we are seeing the first, in a way, positive signs on that front. But obviously we will continue the work on that systematic way, client driven way of approaching the institutional client segment. Regarding the international institutions, we have analyzed our setup thoroughly. We have actually made a couple of changes in our distribution channels in France and in Latin America, namely. We have also recognized some of the bottlenecks that have been in our way of getting that growth that we want to see, and also in the international space, those we are now removing. And also, lastly, I would like to highlight that for EMD products that we offer for international clients, the macro environment hasn't been too supportive in the past years. But now, obviously, in this new interest rate environment, we are seeing also support on that fund.

Thank you, Kati. And then I know that this question will likely come, so I will bring up the topic, Karri. The topic of our interest rate sensitivity and our hedges. Would you like to comment on that?

Yes. Thank you for the question. I was also expecting it. I think the interesting bit here is the interest rate sensitivity and not the hedges by themselves that we may or may not have. And here I would like to refer to our Pillar 3 report that we publish annually. And from the situation of the end of the last year, it's said in that report that our net interest income reacts 12 million negative to an interest rate shock of 200 basis points.

And we keep publishing this number annually. Thank you very much. And then let's continue with NII. And this question is rather long. I will read it from here. It's from SEB Andreas Håkansson. Hi, two questions on the NII. One, you talk about a one-off. How big was it, and did the NII take a permanent step down, or was it a negative that will not be there in coming quarters? And question two, could you please provide any details about your hedge and what it will do to the NII in coming quarters? I believe you actually answered question number two, but then question number one about the one-offs, and... From OP, Antti Saari has asked almost exactly the same question about the precise number of one-offs and the impact on NII, and is it fair to expect that these one-offs won't appear in the NII in Q4? So could you please talk us through this?

Yeah, as we pointed out and wrote in the report, the decline in the net interest income was mostly due to this incident, and the said accounts have now been renegotiated, and the new terms stepped into action 1st of October. And when it comes to the future forecast, we stick to the outlook that we have given.

Thank you, Karik. And then back to the asset management and the funds from Jakob Heslevik at SEB. Good morning. In the quarter, we saw you had strong inflows on your funds, especially within retail banking, which was the highest in over a year. Could you give us any more granular details on the flows? Have you done any campaigns or have you changed the way your retail bank works towards its customers? Thanks.

If I start from the last part of the question, I think it has been actually many years already that we've done within our retail banking, educating our people and educating them about investment products. And I think we have very high quality of our staff who are able to deliver on this wealth manager bank vision in a way. And regarding the specific funds, we see... mostly the inflow is coming towards, the biggest inflow has been actually to our short-term fixed income fund, but nevertheless, there has been good, good inflow also to our credit funds, corporate bond, Nordic high yield, et cetera, and also our allocation funds, which actually combines everything that we do in the house, our own funds, our allocation process, our manager selection process, our open architecture and so forth. So I think it's a good sign that we have already seen in multiple fronts.

Thank you. And then a question from Jakko Tyrväinen, SEB, concerning life insurance, life insurance business. In life, what is your own analysis behind the low claims ratio development? Karri, could you please answer this?

This is a very good question. I think it fluctuates in a natural way, but particular details, I believe that we have to come back to that.

Thank you. And then here from the audience, I guess Kasper Mellas from Inderes. I suppose you have some questions. Please, Kasper.

I do. Thanks. Since all the big questions about the net interest income I've already asked, so I'm going to stick with a bit more technical stuff. Why was the average personal account so high in Q3?

Maybe to me. Q3 is always a little bit difficult to compare because of the large number of interns that are over the summer.

This explains why the average personal cost was also quite low compared to comparison period or beginning of the year.

At least it is part of the explanation and makes the comparison difficult. But there may be some differences in provisioning too.

Okay, thanks. What's the reason behind the 6% decline in deposits from year to date? How do you explain this? Are there some reasons you see, or what is this?

I think that is a very good question. And it has to do with kind of the macro terms that we're seeing. The term deficits obviously are way less attractive than they used to be due to the interest rate level. Secondly, the liquidity situation in the bank has been very good throughout, and then the kind of net subscriptions have been positive.

But is the decrease coming from various sources or from a couple of large clients?

To this question, I would answer both.

Okay, thanks. What was included in the non-comparable costs in Q3?

Are you referring to the asset management side?

No, group costs. There are some non-comparable costs reported, 300,000 or something like that.

There was at least an incident where we paid compensation, so that was a human error.

Okay. Well, I'm going to try this one more time. Your net interest income margin decrease quite heavily quarter to quarter. Is this something that could happen in Q4 as well?

We don't, well, how should I put my, we have guidance. So what we saw in Q3, we don't expect that to happen again.

Okay. Thank you very much. That was it from me.

Thank you, Kasper, very much. Actually, that seems to have been the last questions for today. Well, thank you. Many thanks to all of you, both those who have participated here on site and those who have followed us online. I wish you all a very nice day. Glad svenska dag again. Thank you and goodbye.