Aktia Pankki Oyj

Good morning, everyone, and welcome to Aktia's Q3 results briefing. My name is Oskar Taimitarha. I'm the head of investor relations at Aktia, and I will be the moderator for this event today. As you all know, this morning, we published our Q3 report, once again showing stable results. Aktia's CEO, Anssi Huhta, and our CFO, Sakari Järvelä, will soon walk us through the results. And as always, after the presentations, we're happy to answer your questions. If you're following us online, please write your questions in the comments field. And now it is my privilege to present our newly appointed CEO, Anssi Huhta. Anssi, the stage is yours.

Thank you, Oskar, and welcome on my behalf as well. My name is Anssi Huhta, Aktia's CEO. It's my pleasure to present our third quarter result together with our CFO, Saakari Järvelä. Before we begin our review of the past quarter, I would like to briefly address the recent changes in Aktia's management and the considerable attention this has drawn. The situation has been challenging and the confidence in Aktia has been tested. First and foremost, I want to extend my sincere apologies to our customers, employees, and shareholders for the situation. At the same time, I want to emphasize that our focus remain firmly on our customers and on the business. We continue to execute our clear strategic plan. We're working every day to deliver on our goals, such as growth in asset management, net commission income, and return on equity. We have already taken concrete measures to stabilize the situation, including the appointment of strong and capable leaders from the group to key positions. As you are aware, we have recently appointed Pasi Vuorinen as head of asset management, Ville Niiranen as head of life insurance, and Eevaru Bruuman-Riimpi, our chief risk officer, as member of the executive committee. I'm extremely proud of the dedication and commitment our employees have shown, continuing to work for the benefit of our customers in all situations. I'm also glad that investors' interest in Aktia has remained strong and that we have gained an impressive number of new shareholders month after month. So with that said, let's move on to highlights of the third quarter. Once again, we delivered a stable quarter. Our comparable operating profit was slightly above the previous quarter, a steady and solid result in this market. Net commission income was a bit higher than last year, which is positive. As expected, net interest income decreased, reflecting the lower market rates we have seen throughout the market. And I'm very pleased to share that our asset under management grew to 16.3 billion euros during the quarter. The growth was supported by positive net inflows across all our key segments and favorable market developments. We also continue to gain new customers, especially in premium banking. We are strongly focused on stability, long-term value creation, and making our strategy work in practice. That means we invest in growth, check our plans, and make sure we reach our goals. Few examples. We are growing in leasing, factoring, and higher purchase. These areas give us good returns for the risk we take. We will double our life insurance sales team for companies. And we are looking for new ways to sell our asset management products abroad, for example, our EMD funds. Finally, I want to underline that Aktia has a clear plan, a sound strategy and concrete goals, all backed by solid facts. We know where we are going and we are moving forward with confidence. We stay true to our strategy, growing with our customers and creating value through Actia experience. Our direction is clear. Everything we do starts with our customer and it's built on the strengths that make Actia unique. Let me highlight three key points. First, customer first. We build on our strong customer base. Our people give excellent service and our asset management brings a real value to our new and existing customers. Secondly, grow through activity. We meet new and existing customers more often, stay close to them and look for new business in all key segments. This helps us grow even when the market is slower. And thirdly, the Aktia experience. We focus on both customers and employees. When people enjoy working with Aktia, our customers feel it too. This is how we build a long-lasting growth together with our customers and our people. When we compare this quarter with earlier ones, our comparable operating profit stayed stable and we are slightly higher than the previous quarter. Of course, we cannot expect every quarter to be this strong because this was indeed a strong quarter. Profit was lower than in the same period last year, mainly because of the lower interest rates. Uncertainty in real estate market also had some effect on credit losses. It's also good to remember that we have some real estate exposure in the life insurance company's portfolio. Now let's move on to our ESG. When we look at our ESG targets, we can see, as I said earlier in the summer, that we have almost reached our 2025 goals. This is a great result and something we can be proud of. Our ESG work has been steady and practical. It's part of our daily work in every part of the company. It shows that clear goals and consistent actions really make a difference. I'm very proud of work and I want to thank our ESG team for their great effort and commitment. They have done an excellent job bringing sustainability into our daily work. And we are also updating our sustainability program to take the next step and set new goals for the future. Let's now look at our three business areas. So let's start with the asset management and some important development during the third quarter. Our assets under management increased again, supported by positive net inflows and favorable market movements. The positive trend in net inflows continued in all key customer segments, which is excellent. It shows that our focus on key segments is working. I also want to highlight two notable achievements this quarter. First, The portfolio managers of Aktia Emerging Market Local Currency Bond Fund received CityWise AAA rating. Strong recognition of our quality of our investment expertise. Secondly, we have expanded our international reach. Olsonside Capital Partners will now represent Aktia's fund products in the Netherlands. This is an important step strengthening our international distribution network and supporting long-term growth. And we will also continue to strengthen our international presence as our international operating model will go through significant development over the coming year. Our banking business and lending. Total loan book margin remained at good level during the third quarter. This is, of course, important for maintaining profitability. As I mentioned before, in the corporate customer business, the strong growth we have seen in leasing, factoring and higher purchase continued. This product group with a solid average margin is an important profit driver in our lending portfolio and supports our long-term focus. We also continue to attract new customers during the quarter. And I'm pleased to note that customer satisfaction among our banking clients is particularly high. This is a clear sign that our service model and actions we have taken under Momentum program are delivering results. And I'm especially pleased with the development in premium banking, both in terms of new customers and demand for our solutions. Now let's turn to life insurance. Overall development of the life insurance business was solid. Net income for life insurance decreased slightly compared to the same quarter last year, which was, in fact, a strong comparison period. This was mainly due to lower net investment results, driven by the negative value changes in real estate and certain private equity investments. On the positive side, the insurance service result was strong. Risk insurance performed well and the loss ratio remained at a very good level. Sales of investment-linked insurance products stayed solid and the insurance book continued to grow steadily. This shows that customer demand for these solutions is strong. Life insurance is an important part of our business. It supports long-term profit and strong customer relationships. A further trend than this, the CEO of the life insurance company is now also part of the group management team. To sum up, once again, we delivered a stable result. Demand for investment services is showing positive signs. We continue to attract new customers and new investors. All our business areas are moving in the right direction, and we are fully focused to deliver our value creation plan. Now I will hand over to Sakari for the financial overview.

Good morning, everyone, and welcome also from me. My name is Sakari Järvelä, and I'm happy to present the financial result for the third quarter 2025. Let us have a look at the numbers. As Anssi already mentioned earlier, we're happy to report a strong financial result for the third quarter. Before diving deeper into the individual line items in the following slides, first a couple of key highlights I'd like to note. In terms of top line, our total operating income was 3% lower compared to last year in the third quarter and 4% lower year to date. We can be broadly happy with the result considering how interest rates have developed over the last 12 months and also given the somewhat subdued activity level in the Finnish economy and the housing market in particular. Comparable operating expenses in the third quarter were even slightly lower compared to a year ago. And year to date, we are tracking almost exactly at last year's level. As said, top line growth during the year has been challenging due to structurally weaker NII generation. So demonstrating strong cost control is very important for us. And we're delivering well on this front. Our return on equity on a comparable basis landed at 12.8% in the quarter, which we consider satisfactory at this point of the cycle. And we also reported a strong CET1 ratio of 13%. Our net commission income has been growing at the rate of around 1% throughout the year and was 31.2 million in Q3, almost 1 million above the previous quarter. The strongest growth in Q3 came from mutual funds reflecting the growth in assets under management, which we were of course very pleased to see. We also had an extremely successful structured products program during the quarter. While it is, of course, nice to report growth, we're fully aware that the NCI growth is not quite at the level where we would like to see it, and we're working very hard to put us on course in this important indicator. On the net interest income side, we're very happy to report something of a defensive victory. The NII continued to decline as expected, but the rate of change at minus 6% was slower in Q3 compared to the minus 10% in the first half of the year. In the quarter, there were a couple of positive one-off items that boosted the income side slightly. But to counter that, we were also a bit heavy on the funding side as we issued a new 500 million covered bond in early September. So when we look at our NII performance in the first three quarters of the year, in the context of the surrounding market conditions, we can be relatively pleased with the end result. As already mentioned on the first slide, we continue to report comparable operating costs unchanged compared to last year. Inside the headline cost number, we can see that personal costs have been very close to flat compared to last year, which can be considered somewhat of an achievement given the salary inflation affecting everyone in the market. IT expenses have been increasing, but being offset by lower depreciation charges. As we have guided before, our total IT spend has been elevated in 2025. We run at slightly higher IT OPEX level, but have simultaneously also increased our capital investments, which will obviously be reflected in larger annual depreciation charges in the coming years. As with the previous quarters this year, our expected credit loss change increased from last year. On our P&L, we have now made 9.9 million euros of ECL provisions during the first three quarters of the year, compared to 6.3 million in the same period last year. In the third quarter, we recognized 3.8 million ECL charge. In the graph, we show the development of the total ECL impairments affecting our balance sheet during the year. The reported P&L effect is visible from the three bars that have been circled, which are the net changes in our Stage 1, 2 and 3 ECLs related to our loan book. At the end of last year, in Q4 2024, we made a general unallocated Stage 2 credit loss provision to reflect the uncertainties we then saw in the overall Finnish real estate market. Now, during the third quarter, we have dissolved this general provision and have allocated that amount to a single larger individual case, which is in stage three. So in the graph, you can see this as an improvement in stage two credits, but a larger negative effect in stage three. It is again very important to note that we do not see any significant worsening in the broad credit quality of our loan book, but the higher ECL impairments have been primarily accrued from a small number of cases and one individual case in particular. To be more specific, this one individual case accounts for approximately 40% of the increase in the Stage 3 ECLs during the year. Outside of this one case, Stage 3 ECLs would be roughly at the same level as last year. Regarding risk-weighted assets, in our Q1 presentation we outlined that there will be two important methodological changes affecting the calculation of our RWAs during 2025. First, the new capital requirement regulation, CRR 3, came into force at the beginning of this year, leading to significantly lower risk-weighted assets from Q1 onwards. Secondly, now in Q3, we started calculating the risk weights for our corporate loan book based on the standardized model instead of the foundational IRB we used before, which we said would increase the risk-weighted assets, but not as much as to fully offset the CRR 3 impact. Now that we have fully implemented both changes, we can show that the end result materialized pretty much as we guided in Q1. So in Q3, our risk weighted assets grew from Q2 by almost 200, declined by almost 200 billion, but still remained 130 million lower compared to the start of the year. These effects are shown in the graph. Again, I just want to emphasize that the change to standardized model applies only to the corporate loan book, and we will still continue to apply the advanced IRB methodology to our retail loan book. Moving to CET1, we're happy to report a strong ratio of 13%, slightly up from Q2, and one percentage point above December last year. The increase in risk-weighted assets I just discussed would in isolation have reduced CET1 ratio by approximately 50 basis points or half a percentage point. But this was more than offset by increased core tier one capital in the quarter. In terms of our capital policy, we have set our target CET1 ratio range at two to 4% above the regulatory minimum level, which today is 8.65. and stated that in a typical year we would expect to operate at the top end of that range. At the current 13% level, we are now even slightly above the top end of the range, which is exactly where we want to be. We had rating actions from both of our rating agencies during the quarter, as both Moody's and S&P affirmed our current ratings, but both placed the ratings on negative outlook. The main reason given for the outlook change was the recent turbulence in management and the risk that the turbulence would impact our operational performance and strategy execution in the medium to long term. Both agencies gave positive indications, though, that they view our business model as stable and sound. And this is a very important key takeaway for us. We at Aktia are fully focused on implementing our operational plans and making sure we stay on track delivering on our key KPIs and are convinced that the agencies will in due course be able to change our outlook back to stable. In case of further pressure on our credit ratings, which we currently do not expect, it is still important to note that we have tools at our disposal to defend the ratings, should we consider it necessary. Our liquidity remained very strong with LCR ratio at 235% at the end of the quarter, clearly above our internal minimum threshold. We were also active on the long-term funding front as we successfully issued an additional benchmark-sized covered bond in early September. This was a very successful transaction with a total order book of approximately 1.3 billion euros for the 500 million euro transaction and it priced at mid-swaps plus 30 basis points. We are very, very pleased about how the transaction went and take this as a testament of the trust investors continue to place on Aktia as a solid and trustworthy issue. Then to our guidance and outlook for 2025. As we have indicated throughout this year, our outlook states that the comparable operating profit for 2025 is expected to be lower than 2024. We are reaffirming this guidance. As we approach the end of the year, we can see that some of the risks we assumed might affect the result have now materialized. We are therefore updating the wording of our stated assumptions to clarify this. First, for the life insurance operations, we note that the interest rate and property markets also impact the life insurance company and its investment portfolio, and we see a risk that earnings might be negatively affected. Second, as regards credit losses, we also note that individual credit losses have now occurred mainly due to one individual case discussed before, even though the portfolio is generally healthy. Finally, to give slightly more context and transparency, we expect that the comparable operating profit for Q4 will most likely be somewhat lower than the Q3 result we just reported. This completes our review for the third quarter. Thank you for listening, and we are very happy now to answer your questions. The Q&A session will be moderated by Oskar. Over to you.

Thank you, Anssi and Sakari. Welcome back on stage. So as we said, now we're happy to answer your questions. And let's start with the risk-weighted assets and CET1. Risk-weighted assets grew with the moving to the standardized model, but CET1 rose. So what else had an impact on the CET1?

Actually, in the CT1, there was a multitude of smaller impacts, which we're not opening here exactly, but some of them were expected and some of them were slightly unexpected to us and related to our own actions we managed to do in the quarter, countering some of the impacts from the regulatory change. And also, the regulatory change itself affected the calculation of the CT1.

slightly so uh so we're very very pleased with the with the result okay thank you and uh ansi uh you said that you're happy with the growth in premium banking But what's the plan concerning institutions?

Yes, definitely. I'm super happy with the premium banking growth and also the private banking growth that we have seen in a quarter and during the year. And in the institutions, we are going to, together with Pasi, raise our activity towards institutions here in the Finnish market and also to abroad, as I mentioned. And that's one of the key segments of what we have. And basically, raise the activity is the message to you and your audience.

Okay, thank you very much. And then I suppose we have some questions here live in the audience. Antti Saari, OP, please.

Thanks. First of all, regarding your capitalization, as mentioned, CEG1 is now stronger than at least I expected it to be at the end of Q3. And now you are at the top end of the spectrum where you plan to be. So should we expect something extra for shareholders, buybacks or maybe dividend that exceeds your policy?

I can start on so you can continue. I think a very important note, as we already said last quarter, we don't look at the dividend policy or the capital policy in the short term. So we evaluate longer term cycles. There are still some important things we wait from the regulatory front that might change. either the minimum requirement from the regulator or it might change things in our IRB model that we still, these are things that are ongoing and we will follow for sure before we make any decisions. And at the end of the day, this is something we evaluate then probably around the time of the AGM of what kind of actions we do or do not do.

That's the case, and obviously that gives us solid ground when we have a strong CTA1, so no sudden plans to do anything. So that gives us ground to grow, and as Takke said, we consider it quarterly.

We have a growth program, so we might actually use the capital also for growth if good opportunities arise.

Well, related to growth, what's your view on housing loan markets in Finland at the moment? Do you see any brightening or what's your view?

Yes, we see a slight brightening, but we are expecting the growth to start after summertime. So it's still relatively quiet, especially in the countryside, but also in growing cities. The real estate market is a slow one and we are expecting the growth to start like a next year's autumn after summer. So that's our current view about the situation. But let's see.

You never know. One more question from my side. When you published your current new strategy, You stated that there will be some restructuring expenses of around six million that will materialize throughout this year. Could you tell us how large proportion of this is now already behind?

Yeah, it is roughly going in a straight line basis throughout the year. They will have to review, but they're potentially a slightly larger in Q4, but more or less straight lined.

Okay, thanks. That's all from my side.

Thank you, Antti. So then I guess Kasper Mellas, Inder, that's your turn.

Hi. Could you elaborate a bit more? How are the 2.1 million one-time expenses divided in different cost lines in your income statement?

Yeah, I mean, as usual, we don't really open this up exactly, but I think it's important to point out to Antti's question. So if you straight line six million, you get a number for what we had restructuring costs related to the momentum program. There are also some personal change related one of costs that are booked there and some other minor elements.

Okay, was this one time personal change cost related to the CEO change? It was related to a CEO change, yes. Okay. Are you going to book the 0.9 million provision from data protection authorities penalty fee even though you do not agree with the decision?

Well, we have debated this. First of all, we do not agree with the decision. However, the decision has been made and to be prudent, we've decided to reserve approximately half a million or half a million euros on that just to be prepared. that does not reflect our view what the finance should be or shouldn't be, we fundamentally disagree. But in financial sense, we also want to be prudent and be prepared.

Was this booked in Q3 already or Q4? Q4. Q4, okay. And last question. This is a classic. When should we expect to see your NII margin to bottom, considering current rate expectations?

Well, it's a very good question, right? You know, we would say probably sometime towards the latter part of first half of next year. But based on our current expectation of how the rates would behave, time will tell.

Thank you very much. Thank you, Kasper. Do we have any further questions here in the audience? Otherwise, I think we'll turn to SVB. SVB Research is following us online. They have posted some questions. First, could you expand a bit on this individual case causing your rising credit impairments? Any trend in this in terms of a sector outlook, or is this completely to be seen as one-offs?

Antti, perhaps you would like to start? At the moment, it's seen like a one-off. And out of credit, a book is looking relatively good, considering the market situation. And this is a one-off at the moment, yeah.

Thank you. And then second, could you provide some more flavor on the main growth drivers in assets management ahead? We can see that the banking segment is driving the net sales in Q3. Are there any large individual inflows impacting the net inflow or which customer segments do you see are driving demand ahead? Any more representations in the pipeline similar to the one with Oceanside in the Netherlands?

The current, as mentioned, the growth is driven by the premium banking, private banking, and also corporate banking has been relatively good at this market situation. And obviously we are expecting more growth from institutions and especially abroad. And we are constantly looking for new ways to improve our international reach and international sales. And this Olsson site is one example from that. And we are putting a lot of effort with Buzz's lead to sell our excellent products to abroad. And that's one of the key segments where we want to grow in the near future.

Anything you would like to add? I think that's a very comprehensive answer. Great, thank you. And then the third question from SEB. Could you expand on the lending growth in the corporate customer segment? Where do you see the most potential ahead?

At the moment, as I mentioned in our presentation, we have the best potential at the moment in leasing, factoring, higher purchase. It's growing steadily at the moment, and margin levels are somewhat good in the Finnish market, and we are still expecting that the major part of the lending book growth is coming through these products and customers.

Anything to add?

No, not really. I think it's important also that when we look forward, medium term, long term, the key for us is to be quite clear of which parts of the loan book we want to grow and which we probably want to sort of rotate. So we have a strong focus, as Anssi said, on these elements.

Thank you. And then to the momentum acceleration program, the fourth question from SAB. So any news on the progress of the momentum acceleration program is the question. And actually, as we have announced, we will report on the momentum program progress twice a year, Q2 and Q4. But is there anything you would like to comment now?

I think from a financial perspective, as I said, we will... give more color in Q4. But the program is going well, right? We're working every day, finding run rate, finding new ways to make us more efficient or grow faster.

And especially the focus is at the moment in a growth. So that's highly important to us to grow. And our cost base is in a relatively good shape, especially in personal costs are in good shape compared to previous quarters and also past year. So the main focus is in growth in the momentum.

Perfect, thank you. And then a fifth question from SEB. The Finnish housing market is showing some signs of recovery. How have the new lending margins developed lately? Are you seeing some rivals turning more aggressive in their pricing?

In the Finnish housing market, margins have always been... There has been really tough competition and the margins are low. Through banker's glasses, it's really low margins, but no exceptional changes in the margin levels at the moment. The market is still, that's my opinion, it's a slow market.

Yeah. Thank you. And that was the last question we had online. Do we have any more questions here on site? We have time for some questions if you have any. Otherwise, I think that was the last question for today. Many thanks to all of you, both you who have participated here on site and you have followed us online. Thank you, Anssi. Thank you, Sakke. We wish you all a very nice day. Goodbye. See you again.