Arion Bank reported net earnings of ISK 10.4 billion for the first nine months of 2017, compared with ISK 17.3 billion for the same period of 2016. Return on equity was 6.3%, compared with 11.2% for the first nine months of 2016.
The Bank reported a net loss of ISK 0.1 billion during the third quarter of 2017, compared with a profit of ISK 7.5 billion for the same period of 2016. Return on equity during the quarter was negative by 0.2%, compared with a positive figure of 14.4% in 2016. The negative outcome in the third quarter is the result of the Bank’s assessment of loans, receivables and other assets relating to United Silicon, collectively amounting to ISK 3.7 billion in the quarter and ISK 4.8 billion during the first nine months of the year. Net earnings in Q3 would have been ISK 2.6 billion without this one-off effect.
Total assets amounted to ISK 1,144.9 billion at the end of September, compared with ISK 1,036.0 billion at the end of 2016. Shareholders’ equity totalled ISK 221.5 billion at the end of September 2017, compared with ISK 211.2 billion at the end of 2016. The Bank enjoys a strong financial position and the focus has been on maintaining good liquidity, both as the capital controls are lifted, and in preparation for the redemptions of public bonds in early 2018.
The Bank’s capital ratio at the end of September was 27.1%, unchanged from the end of 2016. Tier 1 Capital increased during the period to 26.6%, compared with 26.5% at the end of 2016.
Highlights of the income statement and key income related performance indicators:
Highlights of the balance sheet and key performance indicators:
For detailed information on the accounts please refer to Arion Bank’s Consolidated Interim Financial Statements for the period 1 January – 30 September 2017 on the Bank’s website, www.arionbanki.is.
Höskuldur H. Ólafsson, CEO of Arion Bank:
„The financial results for the first nine months of the year matched our expectations, although significant one-off items had both positive and negative impacts on earnings. Core operations are stable and interest income and commission income were close to what we anticipated. The Bank remains financially robust and the capital ratio is 27.1%. However, the financial results were negatively affected by the Bank’s loans to United Silicon and our shareholding in the company. The Bank has made impairments in respect of some of our loans to the company and our entire shareholding in the company. The United Silicon plant commenced operations about one year ago and a number of shortcomings soon came to light at the company. It has now emerged that the plant was not complete when it was opened and that the company was in general disarray. Arion Bank has therefore been increasingly required to intervene in the company and is now its largest shareholder. The loss relating to United Silicon during the period represents around 2% of the Bank's total equity and the loan impairment constitutes less than 0.4% of the loan portfolio. Outstanding liabilities in the Bank's accounts amounted to ISK 5.4 billion, which is approximately 0.5% of the balance sheet.
Taking risks is central to what financial institutions do. Fortunately, most of the projects we undertake are brought to successful completion. We have carefully examined the preparations for the Bank’s participation in the development of the United Silicon plant. We concluded that the research and analysis on which the decision to make a loan was based was, in all key areas, sound. We based our decision on the company's business plans, which had been prepared with the input of Icelandic and highly experienced international specialists. Opinions and reports created by third-party experts were also consulted. All necessary permits were obtained and agreements on constructing the plant, buying power, supplies and the sale of products were signed and in place. Nevertheless it’s obvious that lessons need to be learnt from how things turned out and we fully intend to do so. We are continuing our efforts to bring operations at the plant into order and in harmony with the local community.
Standard & Poor’s recently upgraded the Bank’s credit rating to BBB+. This is clear testimony to the fact that the Bank and the Icelandic economy have both been going from strength to strength. Arion Bank has been an active participant in the international credit markets, and the upgrading of the credit rating further increases the number of potential investors, which in turn helps reduce the Bank’s funding costs in the future.
Arion Bank recently opened a new branch at the Kringlan Mall in Reykjavík and it provides a clear insight into how we envisage meeting our customers’ needs for service in the future. The new branch showcases the digital solutions we have launched to great acclaim in the last couple of years. This year Arion Bank has brought out 10 new digital solutions and more are in the pipeline. Customers at the Kringlan branch can get help from our employees to use the new solutions and can talk to financial advisors by video conference calls. Another innovation is that the branch now has the same opening hours as other services and stores at Kringlan, making it the branch with the most flexible opening hours in Iceland.“
Arion Bank will be hosting a conference call in English on Wednesday 15 November at 1:00 pm GMT (2:00 pm CET), where Stefán Pétursson, Chief Financial Officer, will discuss the highlights of the Bank’s financial results. People interested in participating can contact firstname.lastname@example.org to obtain dial-in information.
Stefán Pétursson, CFO of Arion Bank, gives an overview of Arion Bank's 9M 2017 financial results.
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