Aktia Pankki Oyj

A very good morning and welcome to Aktia's Q4 results briefing. My name is Oskar Taimitarha. I'm head of Aktia's investor relations, and I will be the host for this event today. Earlier this morning, we published our financial statement release. A stable quarter ended a strong full year. Aktia's CEO, Aleksi Lehtonen, and CFO, Sakari Järvedä, will talk us 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. Today, we'll focus on the fourth quarter of 2024. Of course, I know that you would like to hear more about our strategic considerations, and as we announced this morning, we will go through them on the 27th of February in an investor event. It is now my privilege to go through the fourth quarter and also a few words about the full year of 2024 together with our CFO Sakari Järvelä. So let us have a look at the Q4 highlights. First of all, I'm very pleased by noticing that Aktia's customer satisfaction increased the most in the independent EPSI survey among private investors. Aktia was assessed to have the most active dialogue with its customers in Finland. 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. The fourth quarter results ended a strong year for Aktia. Our comparable operating profit for the fourth quarter amounted to 28.3 million euros, which is 11% higher than in the fourth quarter last year. Hence, the 2024 full-year result is one of the best results in Aktia's history. Our net commission income increased 9% quarter on quarter, driven by good development in asset management, particularly within mutual funds. The net interest income remained stable, and the performance of Aktia life insurance business was once again solid. A key for this was the income from the investment-linked insurances reaching to a new all-time high. As we have already mentioned, we continue to develop and invest in our IT, and still we have maintained strict cost control. Our credit loss provisions increased mainly due to a provision in the corporate loan book based on the management's assessment. Given all this, comparable return on equity reached to 15%, and the comparable full-year cost-to-income ratio improved to 0.56, being better than our long-term target at 0.60. We reported non-recurring items compressing the result in the Fortiota 2024 this morning. However, the impairment of the IT-related intangible assets do not affect comparable results. In quarterly comparison, as you can see here in the graph, our performance has been solid throughout last year, and every quarter we have outperformed the corresponding period in 2023. The fourth quarter was not an exemption. And as mentioned, we delivered one of the best results in Aktia's history in 2024. 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 IFRS 17. And therefore, we show two bars for 2022 in order to show both the reported and restated figures. So let's have a look at how the full year result in 2024 compares to our long-term financial targets that are existing now. As I mentioned, 2024 was a strong for Aktia, and when we compared the results with our long-term financial targets set out for end 2025, i.e. this year, we are proud to tick all the boxes one year ahead. As said, the comparable operating profit of 124.5 million euros is one of the strongest in Aktias and its predecessors' history, and a comparable return on equity of 15% is indeed a good achievement. Also, the cost-income ratio at 0.56 came in at a better level than the target at 0.6. The stable development of our core Tier 1 ratio, Set 1, means that we also met our target there. Against this background, it's an appropriate time to look ahead and set new ambitious targets for the coming years. And as we announced today earlier, we will describe these to you in more detail on 27th of February in a meeting. This favorable comparable result has given our board of directors a reason to propose a higher dividend than last year. According to Actio's dividend policy, we tend to pay out a dividend of approximately 60% of the profit for the reporting period to our shareholders. Our goal ultimately is to provide a competitive dividend yield to our shareholders. And now Aktia's board of directors proposes that a dividend of 82 cent per share is to be paid for 2024. And this constitutes 60% of the comparable profit and corresponds to a dividend of approximately 60 million euros. The IT-related impairment we announced today do not affect our ability to pay dividend. The proposed dividend is higher than the last year's 70 cent per share, which amounted to approximately 51 million euros, reflecting good result last year. And before we take a closer look at our business areas, I would like to invite you to our investor event as set on 27th of February in Kulttuurikasarmi here in Helsinki. You are welcome to participate on site or online at your convenience. During the event, we'll provide updates on Aktia's strategy and long-term financial targets. But now, let's look at the performance of our three business areas. I'll start with our asset management business. First of all, I'm happy to know that our net commission income for the whole group was 9% higher than in Q4 last year. The increased NCI was driven by good development in mutual funds and securities brokerage. However, assets under management decreased slightly by the end of the year, mainly due to allocation changes among domestic institutional investors. During the fourth quarter, we also launched a new product family of discretionary management solutions, and these products combine Aktia's spearhead knowledge in fixed income and cost efficient ETFs through our top tier asset allocation processes. It has been very well received by investors already. And this is how we define a leading wealth manager. We build on our strengths and build partnerships with the leading global players. And through that, enabling us to be our client's best companion in creating wealth. Then our banking business. As I already mentioned in the beginning of my presentation, I'm happy to know that Aktia's customer satisfaction increased the most compared to last year, according to the independent EPSI survey among private investors. I'm particularly pleased that we are recognized as the most active advisor in town. In addition, our service quality and our product quality and availability were rated highly, which are already important for the future success. For both private and corporate customers, we noticed a clear pickup in new lending and the fourth quarter was by far the best in 2024. the loan book increased within our core segments, for instance, premium customers. In corporate banking, the trend with strong growth in higher purchase and leasing financing continued. Lastly, the demand for investment solutions remained strong, especially among private customers within banking segment. And finally, our third business area, life insurance. Life insurance is playing an increasingly important role in wealth management. We see this in the high use of insurance wrappers and investment linked policies. Risk insurance, on the other hand, plays an important role in providing security and stability in wealth planning. Our customers have really found these products and see the great benefit in them. We are delighted to see that the amount of investment-linked insurance has reached a new all-time high. This favorable development contributed greatly to the fact that the life insurance result was once again a solid one. I'm also pleased that Aktia's investment-linked insurance policies, and thus, Aktia's asset allocation expertise, are now also sold by pop banks as a result of a cooperation agreement that entered into force in the beginning of November. And then, let's move on to the sustainability topics. Looking at our ESG KPIs, I actually repeat what I said during the Q3 presentation. Many of our 2025 targets are already met. And now I'm pleased to add that the carbon footprint milestone for 2030, i.e. minus 50% change in relative carbon footprint of equity and credit portfolios was met already in 2024. And actually it is minus 60% as seen in the graph. On the employee satisfaction side, our indices under the people headline here in the middle section have been developing in the right direction during the whole year. In Q4, we measured the CIGNI Flame Index and the ENPS as part of our continuous monitoring. And once again, we took steps in the right direction, although I must say there's still room to improve. And now let me finish my part by going through the outlook for 2025. The changed interest rate environment has so far had only small impact on our net interest income. But during this year, the net interest income will be lower. This will, of course, affect our operating profit. No player in the banking business is totally immune of the falling rates. Regarding the other parts of our business, we expect more stable development. Our income mix supports us in changing market conditions, and we expect the net commission income to be somewhat higher than 2024. We will maintain strict cost control, but we expect a slight increase in operating expenses as we, for example, continue to develop our IT platforms and systems. Credit losses are expected to remain at the moderate level, but as we all know, there is uncertainty related to the Finnish real estate sector that may have an effect on the impairments. All in all, our comparable operating profit for 2025 is expected to be lower than the comparable operating profit for 2024, that was 124.5 million euros. And now I will hand over to Sakari to go through our financials in more detail. Sakari, the stage is yours.

Good morning, everyone, and welcome also from me. My name is Sakar Järvelä, and it's a great pleasure to be here representing Aktia for the first time since joining the bank in mid-January. I will present the financial result for the fourth quarter and full year 2024. So let's have a look at the numbers in a little bit more detail. As Aleksi already stated earlier, we're very happy to report a very strong fourth quarter and full year result with broad based top line growth, both for the quarter and for the full year. Before diving deeper into the individual line items, I just wish to highlight a few of key items that are important for us. First, the full year 2024, we recorded total operating income growth of 7%, with each of the main income lines contributing positively to the growth compared to full year 23. Also, we managed to keep costs tightly under control with total operating expense of 178.6 million euros for the full year 24, only 1% higher compared to last year. Given the growing top line and flat costs, our comparable operating profit increased to 124.5 million on 19% growth compared to the previous year. Notably, as Aleksi already mentioned, this is very close to being a record year ever for Aktia in comparable EBIT, and something we are naturally very, very proud to show. Comparable return on equity was 13.1% in the fourth quarter and 15% for the full year, and common equity tier one ratio ended also slightly up for the year at 12%. I am largely concentrating here on the comparable results, And this is due to the 26.4 million euro impairment charge we decided to make writing down some of our intangible assets related to IT systems and licenses. I will come back to explaining this topic in more detail later in the presentation. Looking at the income lines in more detail, we can highlight the very positive development of net commission income with 32.5 million euros income generated in the fourth quarter. That represents 9% growth compared to Q4 last year and 3% growth for the full year 24. Net interest income was stable in the quarter compared to previous year, and the net income from life insurance grew also a healthy 4% in the year. As mentioned earlier, it is worth noting that when we look at the whole year, the growth really was broad-based across all income lines, highlighting the strength and solidity of our earnings. Within the net commission income, the growth was driven largely by good performance in mutual funds and asset management and security brokerage. This positive trend shown in the black and green bars of the chart is especially notable as these are the income lines mainly related to wealth management and are showing healthy growth in line with our chosen strategy. Net commission income from wealth management activities is a key KPI for us and we pay particular attention to its growth. For the full year, total NCI grew by 4% and we want to see this growth accelerate going forward. The assets under management decreased by 300 million euros in the last quarter, leaving AUM flat compared to last year. This decline was mainly due to larger allocation changes by a small number of our larger tier one institutional clients. So while decline in AUM is in itself somewhat disappointing for us, we can still highlight that it is not a result of losing clients, and also the impact on the net commission income was limited in the quarter. The net interest income in the fourth quarter was flat compared to Q4 2023, but lower compared to the first half of this year. The income from lending was lower due to slightly declining lending book during the year and also falling interest rates and margins. The lower income was partly offset by the falling interest cost we pay for our funding, that is senior financing and deposits. It is worth bearing in mind, again, as Alexi already mentioned, that falling interest rates have so far only had a minor impact on our net interest income. But as for everyone in the industry, if lower rates persist, this will eventually impact the NII negatively also for us. I said we retained a very good cost control during the year with no increase in average headcount during 24 and personal costs practically flat compared to the year before. We increased our spending on IT development as we continued upgrading our core IT system. This is required to be able to meet increasing need for speeding up our front-end digitalization efforts and being able to further develop our data and AI capabilities. Increase in IT costs compared to last year was offset partly by no resolution fee payment being required in 24. Due to the really good collateral position of the bank, the credit losses remained at a moderate level. The 1.8 million increase compared to last year is mainly explained with a provision in the corporate loan book. This increased provision was based on management assessment outside of what our credit loss model would have required, highlighting our prudent approach to credit loss provisioning. We have seen a moderate increase also in household loan defaults in 24, but noting that in this definition of default, this also includes customers marked as unlikely to pay. And this increase results partly from weakened repayment capacity of some customers, but also importantly, the launch of the positive credit registry also played a significant part as we now discover financial distress at an earlier stage than before. Our CET1 ratio continued to increase steadily, reaching 12% at the end of the year, up 0.7 percentage points compared to a year ago. This increasing trend underlines our intention of continuing to run the bank based on a prudent balance sheet policy with strong capitalization rates. Then to the IT-related impairment charge, which was published as a separate stock exchange release this morning. The impairment was 26.4 million affecting the intangible assets on our balance sheet at the year end, consisting of 25 million of IT-related intangible assets and 1.4 million expensed IT licenses. On our income statement, it is reported as a non-recurring item affecting our operating profit, but not the comparable results. The impairment follows from a reassessment we made of accounting values and depreciation times of some of our IT assets, the large part of which relates to the core banking system. We are currently investing in some more sizable upgrades on our core banking system and will be launching this new upgraded version of the system sometime in the near future. Hence, as a normal course of business, we have re-evaluated the accounting values and depreciation times of some previously activated parts of the system, which led to this impairment charge. as mentioned the non-recurring items do not affect actia's comparable operating profit and very importantly the items have only a marginal impact on the core tier one equity calculation for capital adequacy as intangible assets are not part of this calculation Regarding funding activities, Q4 was relatively quiet, as we currently hold a very strong level of liquidity, shown in our liquidity coverage ratio of 214% at the end of the year. We obviously keep monitoring the market during Q1, especially for senior preferred private placements in euros, but we are very happy with the current liquidity level, so no large issues are expected right now. To finish my part, I would also like to highlight that we will be publishing our annual report and Pillar 3 report on 13th of March, which will provide further disclosure regarding our operations and our financials. So some of your questions will be answered there. And in the meantime, we will welcome you to our investor event on the 27th of February, where we'll be opening our new strategic areas a little bit more. With that, I would like to pass the word back to Oscar for the Q&A session. Thank you.

Thank you, Aleksi and Sakari. Welcome back on stage. And now Kati Eriksson, EVP for asset management, has also joined us. Welcome, Kati. So now we're happy to answer your questions. And Aleksi, Aktia announced that you will talk about the strategy on the 27th. What can you tell us about the process and what can we expect?

Yeah, thanks for the question, Oskar. Yes, indeed, we have worked last autumn and this winter very thoroughly on our strategic questions and we came up with the updated version, which we will now published on the 27th in the investor event. The process has been very well according to our plans and that's why now it's a proper time also to outline our longer-term new financial targets for the next upcoming strategy period. So I'm very pleased to invite all of you on that event.

Thank you. And Sakari, Acnia announced 26 million one-offs today. What were the assets written down?

Like I said, maybe as a background, we've made a decision to invest in upgrading our core banking system. And parts of the old system or the full old system is activated on our balance sheet as intangible assets. So while we make this investment decision, we also spend a little bit more time in going through line by line what is in the balance sheet and evaluating the accounting values and the depreciation times. And given that we now invest in some of the major, a little bit more major upgrades, they will obviously mean that the old items in the balance sheet, we considered that the depreciation times should be shorter. So it is the major part or majority of the impairment relates to the core banking system. And then in addition, some other line items and licenses.

Thank you. Kati, how did the wealth management business develop during Q4 in your view?

Thank you, Oskar. Well, asset and wealth management for Aktia is key in our value proposition, so I'm very pleased that we can deliver continuing growth in our net commission income, as reported by both Aleksi and Sakari, that the growth quarter on quarter was 9%. And that was mainly driven by Actia funds and also asset management and securities brokerage. All of these three areas developed very well regarding the net commission income. Towards the end of the year, as mentioned before, a couple of our very large institutional investors did some allocation changes in their portfolio, and that then ended up showing as net redemptions in our AUM figures. That was partly reflecting in our own Aktia Funds AUM numbers, but mostly in our third party manager selection offering, which is a lower margin offering. So that was kind of the big picture of those redemptions. We didn't lose any of these big clients, but we are definitely continuing our long-term relationship with them and supporting them in their own activities regarding their portfolio management.

Thank you. Do you have any questions here on site? So if we begin with Antti Saari from OP.

Hello and thanks for taking my question. Firstly, I would like to ask what's your outlook for the Finnish housing market and house loan at the moment?

Thank you, Antti. The housing market is, as we saw in Q4, our loan book grew both on the corporate side and on the housing side compared to other quarters last year. So we saw a pickup in new lending in the last quarter. However, I must say that we are still far away from the levels we saw in previous years. So it's a little bit modest, the housing market. We have to remind everyone that Aktia plays in the geographic area of growth cities, the capital area. Turku, Tampere, Vaasa, etc. Actually, the origin of the name of Actia is from Greece. Acti means coastal in the Greek language. So we are in the growth areas of Finland and And over two-thirds of our loan book in housing is actually in the capital area. So that's why also the collateral values are really centered in the growth areas of Finland.

Okay, thanks. And then another question regarding asset management. These quite significant negative subscriptions were mentioned to be from few very large clients that made allocation changes. Have you discussed with the clients why they chose another asset management? Because you also have quite wide range of products. So the thing that they changed the allocation doesn't mean that they need to take the money out from Akti, right?

Yeah, maybe I'll hand over that to Kati, who is in very details on this question, if okay.

Of course, we do have a very deep dialogue with the clients, and actually we have seen from these same particular clients also inflow. But on net terms, it ended up being a net redemption. There has been, how do I say, a more strategic shift in our pension companies regulation. And that will be also reflecting or has been reflecting the asset allocation decision towards the end of the last year. And probably we will see some going forward. Obviously, we do have, as you mentioned, a very good range of products. And definitely we are very in full focus on delivering in all of the asset classes areas that we can support our clients.

Okay, thanks. And then Kasper Mellas, Inderes.

Hi, and thanks for having my questions. Do you expect most of the decrease in net interest income to come through during this year? And should we also expect some minor headwind from NII margins in 2026?

Sakari, I think this one is for you.

Given my relatively short tenure, I will also refer Alex if you feel free to add, but obviously the lower rates will result in a lower NII as we have guided in 2025. Typically, I would say that also margins get affected when interest rates decline, but it doesn't mean that we are necessarily expecting specific margin pressure for this year. But Alex, feel free to add.

Thanks, nothing really major to add. We believe that for this year it will have an impact and then it's then the actual rate environment that plays out. And as we said in the presentation, actually this is a broad question for the whole banking sector and no one is totally immune of the rate environment.

Okay. How much do you expect your costs to increase during this year? And is the growth distributed evenly between costs items or do you expect some line to grow faster than the others, for example, IT costs?

Thank you. Yes, that is pretty much the case. We guided that operational expenses will grow somewhat, but at the same time stating that we will continue to be very strict on our costs. For last year, actually, our personal costs decreased few million euros while the IT investments grew a bit more, leaving us for a bit of operational expenses increase in the last year. So for the IT, we expect them to be somewhat higher, yes.

If I can continue here, we had a question from SAB Equity Research concerning the same topic. That's why I think that we could take it at this moment. The question from SAB is, given the larger IT investments mentioned, how large pickup will we see in IT spend during 2025?

I think we do not disclose it exactly. Of course, we have a thorough plan in place within our IT setup, and on the investor day, our CIO will go through in more detail our IT setup, but we expect in totality a slight increase on the operational cost side. But having said that, we still are considering costs in a very strict way.

Thank you. And I suppose, Kasper, that you had another question.

Yeah, I do. What was included in the non-recurring costs of 3.2 million euros, according to my calculations, in Q4?

I think we're going to have to come back to that number.

Okay. My last question is, was last year better than normal for risk policies? Did this result have some non-recurring items that boosted last year's figures that you don't expect to continue going forward?

Are you, Kasper, referring to life insurance?

Life insurance. Yeah.

Overall, as I said, our life insurance business was well on track. It was a solid good year for life insurance business. And as I said, the part of the business which is linked to investment-linked insurance policies, we got a new all-time high. high in that side. Also, the investment side was as expected. So, no big surprises in any front on our life insurance side.

Okay, thanks for the answers.

Thank you, and then let us continue with some more questions from the SEB team. We were talking about life insurances, so let's continue on that topic. Jaakko Tyrväinen from SEB asked a couple of questions on life insurance. First, the investment-linked insurance book continued well on its track. Could you elaborate what was the market move impact during Q4 and how much of the growth is thanks to new sales?

It's a detailed question. I think we'll take it separately with Jaakko on that note.

Yes, let's come back to that. And then Jaakko's second question was, your CSM was marginally up during the quarter. Was this mainly thanks to new business and could you remind us what should we assume for the CSM release run rate annually or quarterly? I suppose that's also a question indeed that we have to come back to.

Yeah, I think I would err on the side of caution here and give a detailed answer after the event rather than inaccurate now.

Yes, and we'll publish, of course, the answers on our website. And then continuing with the SAP questions. So could you help us understand the net interest income margin uptick in Q4? Is it driven from any timing effects or have you been able to expand the margins on mortgages?

Well, actually, when we look at the mortgage margins, we see a somewhat positive trend in there. So that is, of course, helping it. And I said, we saw also a volume increase on the last quarter.

And if I may add, I think on the net interest income side, it is so that our interest income is more tied to the 12-month URIBOR and deposits are largely shorter. So there's a timing effect that benefits us a little bit in the fourth quarter.

Thank you. And then, next question from SAB. How do you view deposit and loan growth for 2025? From an outside view, Finland's economy seems to be struggling, but are you seeing any improvements? Aleksi, would you like to answer that one?

For the housing market, the jury is out there. How would that develop? Certainly, one can expect, if the rates would come down further, that that would increase the demand somewhat. We do believe that the bigger trends will prevail, i.e. people are tending to move into bigger cities. where we are present, so that will most likely also help in relative terms. Then on the corporate side, as we saw, and as we said, we saw a healthy growth in our leasing and higher purchase financing, and we do expect that trend to continue.

And if I add on the deposit side, just a short comment, obviously the deposit demand or the sub-deposit volume is dependent on the absolute level of the interest rate. So when interest rates go down, customers will naturally shift their funds from deposits to other higher yielding.

investment so what we have seen we have seen a decline in term deposits during 24 as the rates have come down yes thank you and next question how do you view the uptick in credit impairments during the border 22 basis points is slightly higher than what we are used to. Is it broad-based or is it any specific geography or customer groups? Alexi.

Yeah, our ECL model, our expected credit loss model is actually pretty accurate. So the result from that was very well within our own expectations. For the geographic, we do not see any big differences. There is somewhat seeing, as we report also in our report, somewhat what we are seeing in the household businesses, a few difficulties in certain clients for the repayments. But the maturity of the uptick in Q4 was explained by the additional management judgment we did overall to our corporate loan book. And that explains the maturity of the increase.

Thank you. And then I think this one goes to you, Kati. Were there any one-offs in the negative net subscriptions within private banking? Were there any particular one-offs?

No one-offs, no. No, I think in private banking, also in institutional sales, but in private banking, we are in the middle of transitioning towards more systematic, active client service model. And also with that, we are shifting our focus in our investment solutions to be able to deliver to private banking clients a higher quality differentiated products, which are also scalable. So this is the shift that we are now working on. And at the same time, when we focus on adding value to our clients, we want to focus also on the profitability of our offering. And for example, the one mentioned in the presentation, our discretionary portfolio mandate also leaning in the ETF equity portion. is actually something that before we offered to our clients 100% ETF solution. And now that we add on our excellent asset allocation skills and also the active fixed income component, we can increase our margin in this product, for example, over 30%. So this is the work that we are doing underlying and obviously changes also reflect to the client front.

Okay, thank you. And then on this list of questions from SAB, the last one, I think our chief economist would be perhaps the right person to answer. But feel free to speculate. The question is, what do you expect the salary inflation to be during 2025? And considering the negotiation situation in Finland, that's highly speculative.

Yeah, maybe it's not for us to comment on let the parties be active in their dialogue. I think everybody expects to have a good result that also is a long term that supports the society and the economy at large. So I would leave that comment to the parties that negotiate these questions.

Thank you. And then one more question from the SEB team. After the ECB finishes cutting the rate, when do you expect NII to stabilize? Six months, months shorter or longer?

I think that is a difficult question to answer, given that it is also a little bit dynamic and based on actions we take. What I would say is that we will publish our Pillar 3 report and our annual report in a few weeks' time, and that will have more disclosure on the interest rate sensitivity. So I would wait until those numbers are out, and then we can answer in more detail.

Yes, thank you. They will be published on the 13th of March. And then we have a question about our announced event on the 27th of February. Is it streamed online? And yes, I can assure you it is streamed online. So you can, at your convenience, choose if you participate here in Helsinki or online. Do we have any more questions here on site? Well, then I think we go to the last question. Of course, you can still post questions, but this is one I really like. Aleksi, I think this is for you. Nickname Curious Investor asks, what steps have been made to keep the employees happy?

Yeah, many steps. If I start by saying that quite recently we created a new HR strategy for the bank, but ultimately this business lies on motivation to help our customers to prosper. being a household customer, investor, corporate institution. And this is what our Actions, as we call our people, are really good at. And that motivation is seemingly in place when we see these EPSI results. We are the most active player in town with our good quality service and products. And I'm so pleased that we have taken right steps in that front. So I'm looking very much forward for the upcoming strategy period to make that even fuller.

Thank you. Well, ladies and gentlemen, I think on this happy note, that seems to have been the last question for today. Many thanks to all of you, both you who have participated here on site and those who are following us online. And see you again on the 27th. I wish you all a very nice day. Thank you and goodbye.