Kvika banki hf.
Approval and declaration
by the Board of Directors and the CEO
These are the condensed consolidated interim financial statements of Kvika banki hf. (“Kvika” or the “Bank”) and its subsidiaries (together the “Group”) for the period from 1 January to September 30, 2022. The condensed interim consolidated financial statements have not been audited or reviewed by the Bank’s independent auditors.
Following the acquisition of Ortus Secured Finance ltd. (“Ortus”), the Group operates five business segments, Insurance, Asset Management, Commercial Banking, Investment Banking and UK operations. The Group offers companies, investors and individuals comprehensive investment banking, insurance and asset management services, as well as selected banking services. At the end of September 2022 the group had 460 billion ISK in assets under management, compared to 528 billion ISK at the end of 2021. The decrease is mainly due to fund divestments (38 billion ISK) and poor performance market during the period. The Bank is listed on the main list of Nasdaq OMX Iceland.
The Bank’s Annual General Meeting (“AGM”) has approved a motion from the Board of Directors (“Board”) allowing the Bank to purchase up to 10% of its own shares subject to regulatory approvals. This authorization applies until the next annual general meeting in 2023. In May, the board of directors authorized a repurchase program for the repurchase of a maximum of 418,730,531 shares, i.e. up to 3 billion euros. ‘ISK in full consideration. In September 2022, the Bank announced that the buyback program was over, since shares for 3 billion ISK had been purchased. The AGM also approved a motion from the Board of Directors to, subject to the approval of the Financial Supervisory Authority of the Central Bank of Iceland, reduce the Bank’s share capital by 117,256,300 shares by canceling the treasury shares held by the Bank. In April, the capital reduction was carried out.
Acquisition of Ortus Secured Finance Ltd.
In February 2022the Group completed the acquisition of Ortus. Ortus is a UK alternative credit provider specializing in property-backed loans to borrowers in the UK. Ortus’ the seat is at Londonwhere she shares an office with Kvika Securities Ltd. The company also operates offices in BelfastNorthern Ireland and Glasgow, Scotland. The transaction is a good strategic complement and allows a significant diversification of the Group’s loan portfolio, as well as opportunities to generate synergies in terms of improving financing costs.
Filing and issuer ratings assigned to Kvika
In May 2022 the international rating agency Moody’s Investors Service (“Moody’s”) has assigned Kvika a long-term rating of Baa2 and short-term Prime-2 in foreign and local currency for bank deposits and issuers for the first time. Long-term deposit and issuer ratings have a stable outlook. In June 2022 Moody’s raised the Bank’s long-term deposit rate from Baa1 to Baa2 and affirmed Kvika’s long-term issuer ratings of Baa2, counterparty risk ratings (CRR) of Baa1 long-term and P-2 short-term and Baa1(cr) in the long term and P‐2(cr) Rating of Counterparty Risk (CR) in the short term. The outlook for deposit and issuer ratings remains stable.
The ratings reflect Kvika’s strong capitalization coupled with strong profitability and liquidity, reflecting the group’s diversified revenue streams and the growing importance of capital-intensive banking operations as well as the profit contribution of its insurance operations. via TM tryggingar hf. Kvika initiated the rating process in early 2022, following the publication of the Group’s first EMTN program and inaugural foreign debt issuance, to support the Group’s bond issuance and other development efforts. funding.
Decision to enter the acquisition market in Iceland
In May 2022, it was announced that the Group has signed an asset purchase agreement stipulating that the Group will acquire part of the business arrangements of Valitor hf. (“Valitor”). The Group will benefit from approx. 25% market share and will be a powerful new competitor in the acquisition market in Iceland. The Group currently provides various services with payment solutions and this agreement will further strengthen the Group’s position in payment services in Iceland. According to the agreement, it is envisaged that the Group will become a Payment Facilitator and conclude, in the coming months, agreements with the merchants concerned in accordance with the provisions of the agreement, who will therefore become customers of the Group. The effects of the agreement on the Bank’s capital base are negligible and the effect on this year’s results of operations is minor. Refer to note 62 for more information.
Results of a prudential review and capital requirement assessment process of Kvika
In October 2022Kvika was briefed on the preliminary results of the Supervisory Review and Evaluation Process (SREP) conducted by the Financial Supervisory Authority of the Central Bank of Iceland on risk assessment in Kvika’s operations and capital requirements. Kvika did not dispute the results regarding the capital requirements and therefore considers them to be final. The main conclusions of the assessment are that Kvika’s total capital requirement, taking into account all capital buffers, will decrease from the current 22.6% to 17.7%, a decrease of 4.9% compared to compared to the last assessment of Kvika which was completed in 2019. The decrease is mainly caused by the fact that the minimum capital requirement (pillars 1 and 2) will amount to 11.5% of risk-weighted exposures at all times instead of 15.1%.
Operations in the first nine months of 2022
Profit before tax for the period was ISK 4,007m (9m 2021: ISK 7,857m), corresponding to annualized return weighted tangible equity of 12.3%, based on the position of tangible equity at the beginning of the year adjusted for changes in share capital and transactions in own shares during the period. The of the Russian Federation invasion into Ukraine had a significant global impact on stock prices and therefore affected a number of assets held by the Group. Group net operating income during the period was ISK 13,694 million (9m 2021: ISK 15,423 million). Net interest income amounted to ISK 5,764 million (9 months 2021: ISK 2,928 million). Net commission income amounted to ISK 4,905m (9m 2021: ISK 5,094m). Net premiums and claims amounted to ISK 3,026 million (9m 2021: ISK 2,922 million. Other operating expenses amounted to ISK 2 million (9m 2021: revenue of ISK 4,479 million). Administrative expenses during the period amounted to ISK 9,492 million (9m 2021: ISK 7,686 million) The consolidated income statement figures for the period do not include Ortus for January and February, the business combination having taken place at the end of February. In addition, the consolidated income statement figures for the comparison period in 2021 are not directly comparable due to the number of business combinations that have taken place during this period. Reference is made to the consolidated financial statements for 2021 for more information on these business combinations.
According to the consolidated statement of financial position, shareholders’ equity at the end of the period amounted to ISK 78,843 million (31.12.2021: ISK 78,368
million) and total assets amounted to ISK 297,571 million (31.12.2021: ISK 246,240 million).
The Group’s solvency ratio at 30.09.2022 was 1.34, (31.12.2021: 1.57) with a minimum regulatory requirement of 1.0.