12. May 2023

Financial Results for Q1 2023 and Earnings Outlook for the Next Four Quarters

At a board meeting on 11 May 2023, the Board of Directors and the CEO approved the interim financial statements of the Kvika banki hf. (“Kvika”) group for the period 1 January to 31 March 2023. 

Highlights of the Interim Financial Statements for the First Three Months of 2023

  • Pre-tax profit amounted to ISK 1,412 million
  • Pre-tax return on tangible equity was 13.1%
  • Earnings per share for the period were ISK 0.24 
  • Total assets amounted to ISK 313 billion
  • The group’s equity amounted to ISK 80 billion
  • Dividend payment of ISK 1.9 billion approved by AGM in March
  • The solvency ratio of the financial conglomerate was 1.34 and its capital adequacy ratio (CAR) for operations excluding insurance was 23.6%
  • Total liquidity coverage ratio (LCR) was 327%
  • Assets under management were ISK 466 billion

Earnings in line with Expectations

Kvika’s pre-tax profit amounted to ISK 1,412 million in Q1 2023, in line with expectations despite net investment income considerably under expectations. Return on tangible equity before taxes (RoTE) was 13.1% in the period.

Net interest income amounted to ISK 2,255 million, increasing by 44% compared to the same period the year before, mainly due to loan book growth and rising interest rates which increase the group’s interest income from fixed income securities. Net impairment was positive by ISK 41 million compared to impairment of ISK 38 million in Q1 2022. Net financial income amounted to ISK 218 million, compared to ISK 808 million in the first three months of 2022. Net fee and commission income amounted to ISK 1,588 million, a 3% decrease from Q1 2022. Operating expenses amount to ISK 3,841 million in Q1 2023, compared to ISK 3,165 million in Q1 2022. The increase is mainly attributable to inflationary effects and increased labor cost, on the one hand due to collective bargaining and retroactive wage increases and on the other hand due to an increase in full-time employees at the group, which has invested in the development of infrastructure to accommodate future growth.  

Strong Core Insurance Operations 
TM performed well in the period and had a combined ratio of 99.7% in Q1 2023, compared to 101.0% in the same period in 2022

Strong Balance Sheet and High Liquidity Position 

Total assets increased by 4% or ISK 13 billion in Q1 2023 and amounted to ISK 313 billion at the end of March. Loans to customers grew by almost ISK 3 billion in the period and amounted to ISK 110 billion at the end of March. Balances with banks and the Central Bank of Iceland, together with government-guaranteed securities, amounted to ISK 98 billion and total liquid assets were ISK 120 billion, increasing by ISK 3 billion in the period. The group’s total liquidity coverage ratio (LCR), excluding insurance operations, amounted to 327% at the end of Q1, well above the 100% minimum requirement.

The group’s total equity amounted to ISK 80 billion at the end of the period, compared to ISK 81 billion at the end of 2022, as total equity decreases from year-end mainly due to a dividend payment decision. The solvency ratio of the financial conglomerate was 1.34 at the end of Q1 and the group's risk-weighted capital adequacy ratio (CAR), excluding the effect of TM, amounted to 23.6%. Kvika’s capital requirement, including capital buffers, is 17.9%. These figures do not include the unreviewed profit for the quarter.

Earnings Outlook Unchanged

Kvika’s earnings outlook for the next four quarters assumes a pre-tax profit of ISK 9.4 billion which equates to 21.9% return on tangible equity. Further assumptions can be found in the attached investor presentation. 

Marinó Tryggvason, CEO of Kvika:

"Kvika’s operations returned solid results in the quarter despite challenging market conditions. The company’s results are in line with expectations and special emphasis has been made on further developing the group’s infrastructure 

Insurance operations delivered good results in a generally claims-heavy period, premium growth was in line with the economy and the combined ratio of TM amounted to 99.7% in the first quarter.
Net interest income increased by 44% from the first quarter of last year, mainly attributable to considerable loan growth and increased interest income from the company's fixed income securities. Net fee and commission income decreased slightly between periods due, among other things, to lower performance-related fees in asset management. Further, uncertainty in the financial markets continues to affect net investment income. 

The foundations of the company are strong. In the first quarter of the year, we continued to focus on developing a strong infrastructure to support future growth through our new and exciting product and service offerings. We are working on numerous projects that support our strategy of increasing competition, simplifying customers' finances and thus transforming financial services in Iceland.

Straumur, a new subsidiary of Kvika, recently carried out the first transactions for its customers, and the development of the Aur update, which will offer progressive innovations in banking and insurance services, is going well. The company's deposit base also increased by 6% from the beginning of the year, which can be attributed to the continued success of digital deposit platform Auður, which has maintained its leadership role and continues to offer customers good interest rates on deposit accounts.

Merger negotiations with Íslandsbanki are ongoing and progressing well. As we have previously reported, we believe that the merger can bring significant benefits. The project is extensive and there are many steps in this type of process, but as announced last week, the financial advisors will deliver their analysis in the second quarter, and following that, the companies will make decisions about the next steps in the process.”