24. February 2022

Financial results for the year 2021

At a board meeting on 24 February 2022, the Board of Directors and the CEO approved the annual financial statements of the Kvika banki hf. (“Kvika”) group for the year 2021.

  • Pre-tax profit amounted to ISK 10,487 million (ISK 12,004 million including the profit of TM hf. and Lykill fjármögnun hf. in Q1)
  • Pre-tax return on weighted tangible equity was 34.7% (35.2% after tax)
  • Earnings per share for the period were ISK 2.62
  • Total assets were ISK 246 billion
  • The group’s equity amounted to ISK 78 billion
  • The solvency ratio of the financial conglomerate was 1.57 and its capital adequacy ratio (CAR) was 33.8% at the end of the period
  • Overall group liquidity coverage ratio (LCR) was 290%
  • Total assets under management were ISK 528 billion
  • Kvika’s Sustainability Report for the year 2021 is published parallel to the publishing of the Annual Financial Statements

A meeting for shareholders and market participants will be held at 16:15 on Thursday, 24 February in the bank's headquarters on the 9th floor at Katrínartún 2, 105 Reykjavík where the financial results will be presented by Kvika’s management. The presentation will be conducted in Icelandic and a live stream can be accessed here. Additionally, a recording with English subtitles will be made available on Kvika’s website

Good Performance Across All Segments

The pre-tax profit of the Kvika group in the year 2021 amounted to ISK 10,487 million. As the merger of Kvika, TM hf. (“TM”) and Lykill fjármögnun hf. (“Lykill fjármögnun”) took place at the end of March, the operations of TM and Lykill fjármögnun are not included in the consolidated income statement for the first three months of the year. The pre-tax profit of TM and Lykill fjármögnun in the first quarter amounted to ISK 1,518 million, making the combined pre-tax profit of Kvika, TM and Lykill fjármögnun ISK 12,004 million for the year.
The return on weighted tangible equity before taxes was 34.7% for the year.
Net interest income of Kvika group amounted to ISK 4,646 million, increasing by 158% compared to the year before, with the increase in interest income primarily resulting from increased size of the loan book after the merger with Lykill fjármögnun, the altered composition of the loan portfolio and liquid assets, together with favourable trend of funding costs. Net impairment amounted to positive ISK 139 million during the year, compared with negative net impairment of ISK 317 million in 2020. Net financial income amounted to ISK 5,672 million, as returns were good in most of the asset markets where the group is active. Fees and commissions continued to grow, with net fee and commission income amounting to ISK 6,828 million, an increase of 15% from the year 2020. Amortization of intangible assets arising from purchase price allocation amounted to ISK 319 million during the year.

Low Combined Ratio of TM and Good Return on Financial Assets

The combined ratio of TM was 87.2% in Q4, compared with 94.9% for the same period in 2020. The insurance company's investment income amounted to ISK 1,291 million in Q4, making the return on the asset portfolio 3.7% during the period. The combined ratio of TM for the full year 2021 was 88.7% and investment income was 17.7%.

Balance Sheet Grows Due to Merger

The total assets of the Kvika group increased by 100% or ISK 123 billion during the year 2021 and amounted to ISK 246 billion. Customer loans grew by ISK 42 billion, with the increase largely due to the merger. The share of loans to individuals grew from 19% to 44% of all lending by the end of the period. Balances with banks and the Central Bank of Iceland, together with government-guaranteed securities, amounted to ISK 65 billion and total liquid assets were ISK 100 billion, increasing by ISK 724 billion over the year. The group's total liquidity coverage ratio (LCR), excluding insurance operations, amounted to 290% at the end of the year, which was well above the 100% minimum requirement.
The group’ equity increased with the merger of Kvika, TM and Lykill fjármögnun, amounting to ISK 78 billion at the end of the year, compared to ISK 19 billion at the end of 2020. The solvency ratio of the financial conglomerate (Kvika and subsidiaries, including TM tryggingar hf.) was 1.57 at the end of the year and the group's risk-weighted capital adequacy ratio (CAR), excluding the effect of TM tryggingar hf., amounted to 33.8%, while the capital requirement including capital buffers set by the regulators is 20.6%.

Acquisition of Ortus Secured Finance Completed

Kvika has completed the acquisition, through its UK subsidiary Kvika Securities Ltd. ("KSL"), of a majority shareholding in alternative lender Ortus Secured Finance Ltd. (“Ortus”) from Stoðir hf. and other minority shareholders, following the signing of Heads of Terms in late October 2021. Following the transaction, Kvika holds close to 80% of Ortus’ ordinary shares, having first acquired a minority share of 15% in 2018. The transaction will increase Kvika group’s total consolidated assets by over 7%. For 2022, Ortus is expected to generate profit before tax of ca. ISK 900 million equivalent. The acquisition has no impact on 2021 financial results. Details of the transaction can be found in a release dated 24 February 2022.

Change in the Executive Management of Kvika Group

The organizational chart of the group has been simplified and now consists of four main operating segments: Commercial Banking, Investment Banking, Asset Management and Insurance. Investment Banking consists of Capital Markets and Corporate Finance, which will however continue to be operated separately, in accordance with legal requirements. Bjarni Eyvinds Þrastarson will be the Managing Director of Investment Banking and Baldur Stefánsson will continue to run Corporate Finance.

Kvika Publishes Its First Sustainability Report

Parallel to the publication of the Annual Financial Statements, Kvika has published the company’s first Sustainability Report. Previously, ESG Reports have been published on an annual basis, but the information contained therein is now part of the Sustainability Report. The report provides a comprehensive picture of how the company works towards sustainability and social responsibility on a consolidated basis. The report is based on Nasdaq's ESG Reporting Guide 2.0 but also takes into account the GRI standards and the relevant indicators are answered. The Allocation and Impact Report for 2021 in connection with Kvika's Green Financial Framework is published as part of the Sustainability Report. Deloitte's opinion, provided on selected information with limited certainty, can be found on Kvika's website.

Earnings Estimate for 2022

The earnings forecast for the Kvika group for the year 2022 assumes a pre-tax profit of ISK 8.0 – 9.0 billion which equates to 18.3% - 20.6% return on weighted tangible equity of the group. The earnings estimate includes ISK 376 million in amortization of intangible assets due to purchase price allocation.

Marinó Örn Tryggvason, CEO of Kvika:

“The year 2021 was eventful for Kvika, as during the year, the bank merged with TM and Lykill fjármögnun. The merger has exceeded expectations and achieving financial goals has been gone better than originally expected.
The merged entity is financially robust, is built on solid foundations and has significant opportunities for growth. Kvika intends to be a leader in revolutionizing financial services in Iceland and increasing competition. With the acquisitions of the financial technology companies Aur and Netgíró last year, the number of customers increased significantly.
Sustainability also gained increased importance within the company and I am happy to see Kvika's first sustainability report come to light. The report provides a comprehensive picture of the group’s efforts and how Kvika approaches sustainability and social responsibility. Another milestone was reached last autumn when the bank published its first Green Financial Framework. Subsequently, the bank's first green bond was issued for which demand far exceeded our expectations."
Kvika is in a unique position as the company has a small market share in many of its key business areas, while possessing significant financial strength, a large number of customers and the infrastructure to increase its market share.
Last December, the company announced seven goals for the next three years, so the company's strategy is clear. The goals include increasing the number of fintech users across brands, increasing the market share in Insurance and Asset Management, increasing the importance of the UK operations, improving the bank's financing terms, being a responsible participant in society and delivering continued profitable operations.
In accordance with this strategy, the majority of British alternative lender Ortus Secured Finance's share capital has been acquired, which I believe could be one of the most interesting acquisitions that the Kvika group has made.”