Aktia Plc, Interim report 1.1-31.3.2010
Aktia plc's interim report January - March 2010
a clear resultimprovement during the first quarter Group operating profit for January-March 2010 improved to EUR 17.5(8.2) million. Earnings per share doubled to EUR 0.18 (0.09). Net interest income rose to EUR 38.9 (32.5) million. Net commission income advanced to EUR 13.4 (9.5) million. Net income for life insurance was EUR 4.5 (5.4) million. Net income for non-life insurance improved to EUR 4.4 (2.0) million. Write-downs on credit fell on the three previous quarters 2009 and were EUR 4.6 (1.6 ) million. Aktia Bank plc's credit rating from the international credit rating agency Moody's Investors Service remained at the classification P-1. The credit quality for long-term borrowing is A1 and that for financial strength is C. All ratings have a stable outlook. Aktia expects operating profit for 2010 to be at the same level as in 2009 (unchanged).
CEO's comments "Aktia had a good start to the year. The number of total customers increased notably, and stronger non-life insurance sales improved the Non-Life Insurance Company's operating profit. Our new voluntary long-term pension savings product Aktia PS was launched according to plan and assets under management rose. Aktia Capital was awarded as the best mutual fund in the category Finnish equity by Morningstar, and Lipper awarded Aktia Secura as the best Nordic mixed fund during the last five years in the category Mixed Asset EUR Aggressive." Jussi Laitinen
-------------------------------------------------------------------------------- | (EUR million) | 1-3/201 | 1-3/200 | Change | 10-12 | 1-12/20 | | | 0 | 9 | | 2009 | 09 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net interest income | 38.9 | 32.5 | 19.6 % | 39.8 | 152.2 | -------------------------------------------------------------------------------- | Total operating income | 61.0 | 47.8 | 27.6 % | 58.7 | 233.1 | -------------------------------------------------------------------------------- | Operating profit before | 22.1 | 9.8 | 125.1 % | 15.3 | 78.7 | | write down on credits | | | | | | -------------------------------------------------------------------------------- | Write-downs on credits and | -4.6 | -1.6 | 183.2 % | -5.5 | -31.7 | | other commitments | | | | | | -------------------------------------------------------------------------------- | Operating profit | 17.5 | 8.2 | 113.6 % | 9.8 | 47.0 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Cost-to-income ratio | 0.57 | 0.72 | -20.8 % | 0.57 | 0.57 | -------------------------------------------------------------------------------- | Earnings per share (EPS), | 0.18 | 0.09 | 100.0 % | 0.10 | 0.52 | | EUR | | | | | | -------------------------------------------------------------------------------- | Equity per share (NAV), | 6.86 | 4.83 | 42.0 % | - | 6.52 | | EUR | | | | | | -------------------------------------------------------------------------------- | Return on equity (ROE), % | 10.5 | 6.8 | 53.6 % | 5.9 | 8.7 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital adequacy ratio, % | 16.2 | 14.1 | 14.8 % | - | 15.9 | -------------------------------------------------------------------------------- | Tier 1 capital ratio, % | 9.6 | 9.0 | 6.8 % | - | 9.5 | -------------------------------------------------------------------------------- | Write down on credits / | 0.08 | 0.03 | 166.7 % | - | 0.51 | | total credit stock | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Dividend per share | | | | | 0.24 | --------------------------------------------------------------------------------
activity in January-March 2010
The general economic situation Interest rates remained at a low level throughout the beginning of 2010. The market's access to liquidity was supported by an injection of capital from public authorities and central banks to support the financial markets. Aktia's liquidity was supported by increasing deposits from the general public and bond issues by the Mortgage Bank. Competition for household deposits remained sharp during the start of 2010 but Aktia still maintained its market shares. During the first quarter of 2010, valuation levels for financial assets stabilised, though the Southern European economies especially caused worries. The stabilisation and a lower interest rate level reflected in favourable development of Aktia's financial assets. The amount of credit write-downs are expected to continue decreasing, and were lower than previous quarters. The financial crisis has resulted in many new initiatives for regulating banking and insurance businesses, which has brought about uncertainty concerning future capital requirements. -------------------------------------------------------------------------------- | Key figures | 2010E | 2009 | 2008 | -------------------------------------------------------------------------------- | GDP growth | | | | -------------------------------------------------------------------------------- | World | 3.8* | -1.3 | 3.0 | -------------------------------------------------------------------------------- | EU | 1.2* | -4.0 | 0.9 | -------------------------------------------------------------------------------- | Finland | 1.2* | -7.8 | 0.9 | -------------------------------------------------------------------------------- | Consumer price index | | | | -------------------------------------------------------------------------------- | EU | 1.3* | 0.3 | 3.3 | -------------------------------------------------------------------------------- | Finland | 1.1* | 0.1 | 4.0 | -------------------------------------------------------------------------------- | Other key ratios | | | | -------------------------------------------------------------------------------- | Development of real value of | 7.0* | -0.3 | -2.5 | | housing in Finland | | | | -------------------------------------------------------------------------------- | OMX Helsinki Cap | - | 28.3 | -49.5 | -------------------------------------------------------------------------------- | Interest rates 31.3.2010 | | | | -------------------------------------------------------------------------------- | ECB | 1.25* | 1.00 | 4.25 | -------------------------------------------------------------------------------- | Euribor 12 months | 2.25* | 1.30 | 1.10 | -------------------------------------------------------------------------------- | Euribor 3 months | 1.25* | 0.70 | 4.50 | -------------------------------------------------------------------------------- | Unemployment in Finland | 9.7* | 8.2* | 6.4 | -------------------------------------------------------------------------------- | * At the end of the year (Aktia's chief economist's prognosis) | --------------------------------------------------------------------------------
profit for period The Group's operating profit improved to EUR 17.5 (8.2) million. The profit for January-March 2010 increased by 121.9% to EUR 12.5 (5.6) million. Income The Group's total income increased by 27.6% between January and March to EUR 61.0 (47.8) million. Net interest income rose to EUR 38.9 (32.5) million. The positive impact of managing the interest rate risk and the continued decline of interest rates have made a significant contribution to net interest income. The derivatives used by Aktia Bank to limit its interest rate risk improved net interest income by EUR 13.7 (2.0) million. Aktia gained from its good liquidity position in the unstable situation in the financial markets. Net commission income increased by 40.7% to EUR 13.4 (9.5) million. Commission income from funds, asset management and brokering increased to EUR 8.9 (5.4) million. Card and payment services commissions improved somewhat to EUR 2.9 (2.8) million. The real estate agency business performed in line with last year and its income was EUR 1.8 (1.7) million. The lack of objects was a bottleneck limiting the growth of the real estate agency business. Net income from life insurance amounted to EUR 4.5 (5.4) million. Aktia Non-Life Insurance reported a net income of EUR 4.4 (2.0) million. Net income from the insurance businesses includes insurance premiums written, net income from investment activities, insurance claims paid and the change in technical provisions. Other operating income was EUR 1.3 (0.8) million. Expenses The Group's operating expenses in January-March amounted to EUR 38.9 (38.0) million. Staff costs increased marginally to EUR 20.7 (20.3) million. Other administration expenses increased by 6.6% to EUR 11.4 (10.7) million. Total depreciation and write-downs on tangible and intangible assets were EUR 1.8 (1.8) million. Other operating expenses fell somewhat to EUR 5.0 (5.4) million. The cost reduction measures made during 2009 will take full effect during the latter part of this year. Rating The international rating agency Moody's Investor Service updated its credit opinion of Aktia Bank plc's credit rating on 6 January 2010. Aktia Bank plc's credit quality remained at the best classification, P-1, for short-term borrowing. The credit rating for long-term borrowing is A1 and that for financial strength is C. All ratings have a stable outlook. See http://www.aktia.fi/aktia_bank/rating The covered bonds issued by the subsidiary Aktia Real Estate Mortgage Bank plc have a Moody's credit rating of Aa1.
Press and Analysts' Conference 7 may 2010 at 11 - 12 a.m. Aktia's CEO Jussi Laitinen and Deputy Managing Director, CFO Stefan Björkman will present the report and answer questions. The presentation will be available at www.aktia.fi. The conference will be held at Aktia's Head Office, Mannerheimintie 14 A, 7th floor. Balance sheet and off-balance sheet commitments The Group's balance sheet total increased by 6.0% from year-end and amounted to EUR 11,186 (31.12.2009; 10,556) million. The increase in the balance sheet total is largely due to the growth in mortgage stock and the financial assets within the banking business. Total deposits from the public, associations and credit institutions fell by 1.0% to EUR 4,707 (4,754) million, of which borrowing from the public and public sector entities rose by 5.0% from the year end, totalling EUR 3,180 (3,029) million. Other refinancing increased by 13.4% to EUR 4,589 (4,046) million. This growth is largely due to an increase in debt securities issued and repurchase agreements. Outstanding Aktia Bank certificates of deposit amounted to EUR 302 million at the end of the period and bonds issued by the Group to EUR 2,722 million, which represents an increase of EUR 270 million during 2010. Aktia Bank also issued new subordinated debts and index-linked loans with a total value of EUR 22 million. In March 2010, Aktia Real Estate Mortgage Bank plc issued a covered bond of EUR 500 million with a fixed interest rate and five-year maturity. The Group's total lending to the public amounted to EUR 6,177 (6,061) million at the end of March, representing an increase of EUR 116 million. Excluding the mortgages brokered by savings and local cooperative banks that the local banks are committed to capitalising the Group's lending increased by EUR 63 million (1.3%) from the beginning of the year. Loans to private households accounted for EUR 5,024 (4,924) million or 81.3%. The housing loan stock totalled EUR 4,697 (4,598) million. In all, housing loans increased by 2.1% from the beginning of the year. New corporate lending continued to be moderate and loans to companies were EUR 787 million compared to EUR 782 million at the year-end, and accounted for 12.7% of Aktia's loan stock. Loans granted to housing associations increased by 4.0% during the period to EUR 301 (289) million and stood for 4.9% of Aktia's total loan stock.
Interest-bearing financial assets available for sale increased by 6.1% to EUR 3,477 (3,277) million. Of interest-bearing financial assets, EUR 652 million relates to the insurance companies' investment portfolio and EUR 2,825 million to the banking business. These assets mainly consist of the banking business' liquidity reserve and can be used as collateral in repurchase agreements. Off-balance sheet commitments increased by EUR 23 million from the year-end and amounted to EUR 598 (575) million. This increase was largely due to unused credit facilities (loan promises and limits). Aktia Group's equity amounted to EUR 489 (466) million at the end of the period. The Group's fund at fair value amounted to EUR 70 (43) million and showed an improvement of EUR 27 million since the beginning of the year. Life insurance technical provisions amounted to EUR 827 (805) million, of which EUR 233 (210) million were unit-linked. At the end of March, total technical provisions of non-life insurance stood at EUR 134 (119) million, including EUR 9 (10) million for valuation of technical provisions at fair value on acquisition. Segment overview Aktia plc has five business segments; Banking Business, Asset Management, Life Insurance, Non-Life Insurance and Miscellaneous. Segments' operating profit before common costs -------------------------------------------------------------------------------- | (EUR million) | 1-3/2010 | 1-3/2009 | Change | -------------------------------------------------------------------------------- | Banking Business | 24.4 | 17.5 | 39.5% | -------------------------------------------------------------------------------- | Asset Management | 1.8 | 0.1 | - | -------------------------------------------------------------------------------- | Life Insurance | 3.4 | 2.5 | 37.5% | -------------------------------------------------------------------------------- | Non-life Insurance | 0.0 | -3.0 | - | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Miscellaneous | -2.0 | 2.2 | - | -------------------------------------------------------------------------------- | The Group's common costs | -8.8 | -8.7 | -1.4% | -------------------------------------------------------------------------------- | Eliminations | -1.4 | -2.3 | - | -------------------------------------------------------------------------------- | Total | 17.5 | 8.2 | 113.6% | --------------------------------------------------------------------------------
The segments' contribution to the Group's operating profit -------------------------------------------------------------------------------- | (EUR million) | 1-3/2010 | 1-3/2009 | Change | -------------------------------------------------------------------------------- | Banking Business | 17.4 | 10.0 | 73.7% | -------------------------------------------------------------------------------- | Asset Management | 0.9 | -0.4 | - | -------------------------------------------------------------------------------- | Life Insurance | 2.9 | 2.0 | 44.3% | -------------------------------------------------------------------------------- | Non-life Insurance | -0.5 | -3.4 | 85.1% | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Miscellaneous | -2.0 | 2.2 | - | -------------------------------------------------------------------------------- | Eliminations | -1.4 | -2.3 | - | -------------------------------------------------------------------------------- | Total | 17.5 | 8.2 | 113.6% | --------------------------------------------------------------------------------
Banking business The operating profit of the banking business before common costs increased during January-March to EUR 24.4 (17.5) million. The banking business' share of common costs was EUR 7.0 (7.5) million. The segment's contribution to the Group's operating profit amounted to EUR 17.4 (10.0) million. Operating income totalled EUR 47.0 (36.1) million. This improvement is mainly attributable to net interest income which increased by 23.5% to EUR 38.0 (30.8) million. Net commission income also increased and totalled EUR 9.9 (7.0) million. The improvement derives mainly from a higher level of net commission income from mutual funds and insurance. Operating expenses rose somewhat to EUR 25.1 (24.4) million, of which staff costs accounted for EUR 9.9 (8.8) million. The banking business' customer base increased by 3,354 private customers or 1.2% during the first three months of 2010. The number of Internet agreements was up 2.4% from the beginning of the year and amounted to 118,879. Sales activities are supported by the Aktia Dialogue concept whereby customers' needs are mapped out and Aktia's whole service portfolio is presented. During the first three months of 2010, more than 10,000 Dialogues were carried out, which is expected to increase sales in 2010. Total savings by households was EUR 3,264 (2,930) million. Of these, household deposits were EUR 2,443 (2,374) million and savings in mutual funds stood at EUR 821 (556) million. Aktia's lending to private households, including the mortgages brokered by Aktia, increased by 1.4% from the year-end to EUR 3,710 (3,658) million. Mortgage loans brokered by Aktia amounted to EUR 1,406 (1,346) million. In addition, the savings and local cooperative banks brokered mortgages amounting to EUR 1,343 (1,290) million. Aktia's market share in housing loans was unchanged at 4.3% year-on-year at the end of March. Corporate banking's net interest income was EUR 2.4 (2.0) million and was 18% higher year-on-year. Net commission income from corporate banking was up 13.2% to EUR 0.7 (0.6) million. The income of the real estate agency business remained at last year's level of EUR 1.7 (1.7) million. Asset Management The operating profit of Aktia's asset management business, before allocation of common costs, increased to EUR 1.8 (0.1) million. Asset management's share of common costs was EUR 0.9 (0.4) million. The segment's contribution to Group operating profit amounted to EUR 0.9 (-0.4) million. Managed assets continued to develop favourably during January-March 2010. Aktia provides a wide and competitive range of services in the capital market for both private individuals and institutions. The Asset Management segment continues to focus on private banking operations and institutional investors this year. Operating income, i.e. income after reversals to the Group's other units and business partners, was EUR 5.0 (2.9) million. Operating expenses increased by 23.1% to EUR 4.1 (3.3) million, of which staff costs made up EUR 2.3 (1.9) million. This is due to greater investment of resources in the private banking business. The volume of funds managed and brokered by Aktia was EUR 4,096 (3,786) million. Aktia's market share was 7.0% (31.3.2009: 6.0%) at the end of the period - this includes the share of brokered funds. The total market is based on information from the Finnish Association of Mutual Funds. In March 2010, Morningstar awarded the mutual fund Aktia Capital the title of best Finnish mutual equity fund. Lipper awarded Aktia Secura as the best Nordic mixed fund during the last five years in the category Mixed Asset EUR Aggressive. The assets managed by Aktia Asset Management and Aktia Invest increased, thanks to an upswing in the markets, and totalled EUR 6,382 (5,996) million. Assets managed by Aktia Invest amounted to EUR 2,303 (2,140) million. The customer assets of Private Banking totalled EUR 960 (926) million. Life Insurance The life insurance business' operating profit before common costs was EUR 3.4 (2.5) million. The life insurance business' share of the common costs amounted to EUR 0.4 (0.4) million. The segment's contribution to the Group's operating profit amounted to EUR 2.9 (2.0) million. Premiums written during January-March was EUR 26.0 (20.5) million. A strategic line has been drawn so that all new sales are directed against the unit link. Risk insurance premiums written were in line with last year whereas premiums written in pension insurance decreased as expected while customers were awaiting new PS (new legislation regarding long-term pension savings) savings forms. Of the premium volume for savings and investment-linked insurance and pension insurance, unit-linked insurance accounted for 80%. Operating costs, including common costs, totalled EUR 3.3 (3.7) million. The expense ratio stood at 104.4% compared to 115.4% for the year before. The return on the company's investments based on market value was 2.6% (-2.3%). Technical provisions totalled EUR 827 (805) million, of which provisions for unit-linked insurance policies represented EUR 233 (210) million and interest-linked provisions EUR 593 (595) million. The company's solvency ratio improved and amounted to 16.0% compared to 14.4% at the end of 2009. Non-Life Insurance The non-life insurance business' operating profit before common costs was EUR 0.0 (-3.0) million. The non-life insurance business' share of common costs amounted to EUR 0.5 (0.4) million. The contribution of the non-life insurance business to the Group's operating profit for January-March was EUR -0.5 (-3.4) million. Premiums written for Aktia Non-Life Insurance rose by approximately 3% on the corresponding period last year. This increase is above the average growth in the market and is mostly attributable to private customers. Premiums written before the reinsurers' share were EUR 29.6 (28.8) million. Premiums earned for the period after the reinsurers' share and change in provisions for unearned premiums amounted to EUR 14.8 (13.9) million. Claims incurred amounted to a total of EUR 11.8 (11.7) million. Operating costs decreased to EUR 4.6 (5.3) million. The combined ratio in January-March 2010 was 111.5% compared to 122.4% the previous year. The lower combined ratio is largely explained both by lower frequency of loss and lower staff costs. Net income from investments amounted to EUR 2.3 (-0.4) million. The return on the company's investments based on market value was 2.6%. Of the non-life insurance business' total technical provisions of EUR 125 (110) million, provisions for outstanding claims stood at EUR 91 (89) million. The market value of the company's investment portfolio was EUR 143 (135) million and the company's risk carrying capacity was 74.0% compared to 72.4% at the end of 2009. The integration of Aktia Non-Life Insurance's distribution channels into Aktia's branch office network has continued to increase customer activity particularly in the private customer sector. Miscellaneous In January-March 2010 the operating profit of the Miscellaneous segment was EUR -2.2 (2.2) million. common costs In accordance with the new Group structure and "One Aktia" strategy the Group support functions have been unified and integrated. The integration process is continuing throughout 2010 and the largest expenses consist of marketing and IT as well as general support and staff functions. Capital adequacy and solvency The Bank Group's capital adequacy amounted to 16.2% compared to 15.9% at the end of 2009. The Tier 1 capital ratio was 9.6 (9.5)%. Capital adequacy was strengthened by the profit for the period and by higher valuations of financial assets. The Bank Group's capital adequacy is at a good level, exceeding both the targets set internally and the regulatory minimum requirements for capital adequacy. The life insurance company's solvency margin amounted to EUR 97 (86) million, where the minimum requirement is EUR 34.2 (34.0) million. Solvency ratio amounted to 16.0 (14.4)%. The non-life insurance company's solvency margin amounted to EUR 20.7 (18.4) million, where the minimum requirement is EUR 13.1 (13.1) million. Solvency capital was EUR 45.2 (43.6) million and a risk carrying capacity of 74.0 (72.4)% was reported. Capital adequacy for the conglomerate amounted to 162.4 (157.4)%. The statutory minimum stipulated in the Act on the Supervision of Financial and Insurance Conglomerates is 100%. Valuation of financial assets Value changes reported via income statement For shares and participations, a value impairment is reported in the income statement where the value change has been announced as significant or long-term and, in the case of interest-bearing securities, where the issuer has announced an inability to pay. For interest-bearing securities, previous write-downs are reversed in the income statement and for shares and participations in the fund at fair value. Write-downs during January-March 2010 were marginal, whereas these totalled EUR 9.7 million during the same period in 2009. Write-downs on financial assets -------------------------------------------------------------------------------- | EUR million | 1-3/2010 | 1-3/2009 | -------------------------------------------------------------------------------- | Interest-bearing securities | | | -------------------------------------------------------------------------------- | Banking Business | - | 0.4 | -------------------------------------------------------------------------------- | Life Insurance business | -0.5 | 4.3 | -------------------------------------------------------------------------------- | Non-life insurance business | - | - | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Shares and participations | | | -------------------------------------------------------------------------------- | Banking Business | - | - | -------------------------------------------------------------------------------- | Life Insurance business | 0.3 | 4.9 | -------------------------------------------------------------------------------- | Non-life insurance business | - | - | -------------------------------------------------------------------------------- | Total | -0.2 | 9.7 | --------------------------------------------------------------------------------
Value changes reported via the fund at fair value A value impairment that is not reported in the income statement or an increase in the value of financial assets that has not been realised is reported via the fund at fair value. Taking cash flow hedging for the Group into consideration, the fund at fair value amounted to EUR 70.2 million after deferred tax compared to EUR 43.3 million as at 31 December 2009. Cash flow hedging which comprises the market value for interest rate derivative contracts which have been acquired for the purposes of hedging the banking business' net interest income amounted to EUR 30.6 (21.4) million. Specification of the fund at fair value -------------------------------------------------------------------------------- | EUR million | 31.3.2010 | 31.12.2009 | Change EURm | -------------------------------------------------------------------------------- | Shares and | | | | | participations | | | | -------------------------------------------------------------------------------- | Banking Business | 4.4 | 3.7 | 0.7 | -------------------------------------------------------------------------------- | Life insurance | -0.7 | 0.2 | -1.0 | | business | | | | -------------------------------------------------------------------------------- | Non-Life insurance | 0.1 | -0.2 | 0.3 | | business | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Direct | | | | | interest-bearing | | | | | securities | | | | -------------------------------------------------------------------------------- | Banking Business | 21.6 | 13.3 | 8.3 | -------------------------------------------------------------------------------- | Life insurance | 13.5 | 5.6 | 7.8 | | business | | | | -------------------------------------------------------------------------------- | Non-Life insurance | 0.6 | -0.8 | 1.5 | | business | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Cash flow hedging | 30.6 | 21.4 | 9.2 | -------------------------------------------------------------------------------- | Fund at fair value, | 70.2 | 43.3 | 26.8 | | total | | | | --------------------------------------------------------------------------------
Write-downs of loan and guarantee claims Write-downs based on individual examination amounted to EUR -4.8 (-1.7) million during January-March 2010. Recoveries and reversals of previous write-downs came to EUR 0.4 (0.1) million so that the cost effect on the profit for the period was EUR -4.4 (-1.6) million. During the period, the non-life insurance company made write-downs for outstanding premiums (credit losses) amounting to EUR 0.2 million. Most of the write-downs during the period are related to commitments whose credit rating had already decreased in 2009 and where restructuring efforts now are confirmed as without result. Of write-downs, EUR -4.5 million was accounted for by corporate loans, which corresponds to 0.6 (0.2)% of the total corporate lending. Write-downs of household loans amounted to EUR -0.3 (-0.1) million of which was accounted for by unsecured consumer loans. The review period's write-downs of household loans were marginal of total lending to households. Total write-downs amounted to 0.08 (0.03)% of total lending. In addition to individual write-downs, group write-downs were made for households and small companies, where there were objective reasons to believe there was uncertainty in relation to the repayment of claims in underlying credit portfolios. Group write-downs for households and small companies remained unchanged and amounted to EUR 7.4 (7.4) million at the end of the period. The Group's risk management Risk exposure The banking business includes Retail Banking and the financing companies, Corporate Banking, Treasury and Asset Management. Life insurance business is carried out by Aktia Life Insurance, and non-life insurance business by Aktia Non-Life Insurance. Lending-related risks within banking Credit stock maintained its good quality. Credit stock increased in January-March 2010 by EUR 116 million or 1.9%, totalling EUR 6,177 (6,061) million. As planned, this increase mainly occurred within household financing and households' share of total credit stock amounted to EUR 5,024 (4,924) million or 81.3% or 86.2% when combined with housing associations. Of these loans to households, 86.3 (86.2)% are secured against adequate real estate collateral in accordance with Basel 2. Housing credit stock totalled EUR 4,697 (4,598) million, of which mortgages granted by Aktia Real Estate Mortgage Bank plc made up EUR 2,602 (2,498) million. In all, housing loans increased by 2.1% against year-end 2009, and the growth derived mainly through Aktia Real Estate Mortgage Bank's lending where the average balance in relation to collateral market value fell somewhat to 56.7 (57.0)% compared to the corresponding period 2009. New lending to companies remained moderate and corporate loans totalled EUR 787 (782) million. The proportion of the total credit stock accounted for by corporate loans fell as planned to 12.7 (12.9)%. Lending to the public secured by collateral objects or unsecured within the framework of the financing companies Aktia Corporate Finance and Aktia Card & Finance totalled EUR 91.1 (84.8) million, representing 1.5% of total lending. Credit stock by sector -------------------------------------------------------------------------------- | EUR million | 31.3.2010 | 31.12.2009 | Change | Share, % | -------------------------------------------------------------------------------- | Corporate | 787 | 782 | 6 | 12.7 | -------------------------------------------------------------------------------- | Housing | 301 | 289 | 11 | 4.9 | | associations | | | | | -------------------------------------------------------------------------------- | Public sector | 10 | 10 | 0 | 0.2 | | entities | | | | | -------------------------------------------------------------------------------- | Non-profit | 55 | 55 | -1 | 0.9 | | organisations | | | | | -------------------------------------------------------------------------------- | Households | 5,024 | 4,924 | 100 | 81.3 | -------------------------------------------------------------------------------- | Total | 6,177 | 6,061 | 116 | 100.0 | --------------------------------------------------------------------------------
Loans with payments 1-30 days overdue fell during the year from 2.97% to 2.43% of credit stock, including off-balance sheet guarantee commitments. Loans with payments 31-89 days overdue increased from 0.76% to 0.99%, totalling EUR 62 million. Non-performing loans more than 90 days overdue, including claims on bankrupt companies and loans for collection, totalled EUR 35 million, corresponding to 0.57 (0.56)% of the entire credit stock plus bank guarantees. Undischarged debts by time overdue (EUR million) -------------------------------------------------------------------------------- | Days | 31.3.2010 | % of the | 31.12.2009 | % of the | | | | credit stock | | credit stock | -------------------------------------------------------------------------------- | 1-30 | 152 | 2.43 | 181 | 2.97 | -------------------------------------------------------------------------------- | of which | 108 | 1.73 | 114 | 1.86 | | households | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 31-89 | 62 | 0.99 | 46 | 0.76 | -------------------------------------------------------------------------------- | of which | 44 | 0.70 | 37 | 0.61 | | households | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 90- | 35 | 0.57 | 34 | 0.56 | -------------------------------------------------------------------------------- | of which | 19 | 0.30 | 18 | 0.30 | | households | | | | | --------------------------------------------------------------------------------
The Group's financing and liquidity risks
The financing and liquidity risks are dealt with at corporate legal level, and there are no financing commitments from the Bank Group (Aktia Bank plc and its subsidiaries) to the insurance companies. In the banking business, financing and liquidity risks are defined as the availability of refinancing plus the differences in maturity between assets and liabilities. The objective in the Bank Group is to be able to cover one year's refinancing requirements using existing liquidity. The Bank Group's liquidity status has been stable despite continued financial uncertainty. Following the Aktia Real Estate Mortgage Bank's issue in March 2010, the liquidity buffer is at a level that meets refinancing requirements for more than two years refinancing needs. Within the life insurance business, liquidity risks are defined as the availability of financing for paying out claims, savings sums and surrenders, and pensions. The need for liquidity is satisfied mainly through the inward flow of cash and a portfolio of investment certificates which has been adapted in line with varying needs. Any unforeseen significant need for liquidity is taken care of through the liquid portfolio (primarily bonds). Within the non-life insurance business, liquidity risks are defined as the availability of financing for paying out claims and depend on the number of claims and their scale. Liquidity risks are managed through the inward flow of cash plus an adapted portfolio of bank deposits, investment certificates and government bonds. Counterparty risks Counterparty risks within Group treasury The banking business' liquidity portfolio, which comprises interest-bearing securities and is managed by Group Treasury, stood at EUR 2,683 (2,615) million as at 31 March 2010. Individual investment decisions are made in accordance with an investment plan in place and are based on careful assessment of the counterparty. Counter party risks are limited by the requirement for a high external rating (a minimum rating of A3 by Moody's Investor Service or equivalent), and limits are set for maximum exposure per counterparty and asset category. Of the financial assets available for sale, 58 (51)% were investments in covered bonds, 25 (36)% were investments in banks, 10 (9)% were investments in state-guaranteed financial senior bonds and approximately 7 (4)% were investments in public sector entities and companies. Counterparty risks in derivatives trading are managed through demands on collateral (CSA) limiting the open positions. Rating distribution for banking business -------------------------------------------------------------------------------- | | 31.3.2010 | 31.12.2009 | -------------------------------------------------------------------------------- | EUR million | 2,683 | 2,615 | -------------------------------------------------------------------------------- | Aaa | 58.3% | 55.1 % | -------------------------------------------------------------------------------- | Aa1-Aa3 | 27.9% | 29.6 % | -------------------------------------------------------------------------------- | A1-A3 | 7.4% | 11.6 % | -------------------------------------------------------------------------------- | Baa1-Baa3 | 3.0% | 0.6 % | -------------------------------------------------------------------------------- | Ba1-Ba3 | 0.2% | 0.2 % | -------------------------------------------------------------------------------- | B1-B3 | 0.0% | 0.0 % | -------------------------------------------------------------------------------- | Caa1 or lower | 0.0% | 0.0 % | -------------------------------------------------------------------------------- | No rating | 3.2% | 2.9 %* | -------------------------------------------------------------------------------- | Total | 100.0 % | 100.0 % | --------------------------------------------------------------------------------
*) Of which 2.3% municipalities as at 31 March 2010.
Of these financial assets, 3.2 (1.1)% did not meet the internal rating
requirements. As a result of a reduced credit rating, three security assets with
a total market value of EUR 15 million were no longer eligible for refinancing
with the central bank. Other securities that are not eligible for refinancing
and are unrated totalled EUR 89 million.
During the period, no write-downs were realised as a result of the issuer
announcing its inability to pay whereas the write-downs during the same period
last year amounted to EUR -0.4 million.
Counterparty risks in the life
insurance business
The life insurance company's direct interest rate investment increased as a
result of continued reallocation with the aim of reducing the investment risks
and neutralising interest rate risks in the technical provisions. Fixed income
assets amounted to EUR 582 (570) million at the end of the quarter. Counterparty
risks arising in connection with the life insurance company's investments are
managed by the requirement for at least an "investment grade" external rating
(rating class Baa3 from Moody's Investors Service or equivalent) and by rules
concerning the maximal exposure for each counterparty and asset category.
At the end of March 2010, 46 (47)% of direct interest rate investments were
receivables from public sector entities, 20 (23)% were corporate bonds and 34
(30)% were receivables from banks and covered bonds.
1.5 (1.7)% of direct interest rate investments did not meet the internal rating
requirements at the end of the period.
The net change in value amongst interest-rate instruments earlier written down
and booked was EUR 0.5 million.
During the period, no write-downs were realised as a result of the issuer's
credit rating being lowered.
Rating distribution for life insurance business
--------------------------------------------------------------------------------
| | 31.3.2010 | 31.12.2009 |
--------------------------------------------------------------------------------
| EUR million | 582 | 570 |
--------------------------------------------------------------------------------
| Aaa | 54.1% | 52.5 % |
--------------------------------------------------------------------------------
| Aa1-Aa3 | 13.5% | 12.2 % |
--------------------------------------------------------------------------------
| A1-A3 | 15.6% | 18.3 % |
--------------------------------------------------------------------------------
| Baa1-Baa3 | 11.6% | 11.4 % |
--------------------------------------------------------------------------------
| Ba1-Ba3 | 0.9% | 1.4 % |
--------------------------------------------------------------------------------
| B1-B3 | 0.2% | 0.0 % |
--------------------------------------------------------------------------------
| Caa1 or lower | 0.4% | 0.3 % |
--------------------------------------------------------------------------------
| No rating | 3.7% | 3.9 % |
--------------------------------------------------------------------------------
| Total | 100.0 % | 100.0 % |
--------------------------------------------------------------------------------
Counterparty risks in the non-life insurance business A conservative investment policy is observed in the non-life insurance business. The non-life insurance company's direct interest rate investments increased as a result of continued reallocation with the aim of reducing investment risks and totalled EUR 113 (104) million at the end of March 2010. At the end of the quarter, 60 (64)% of the direct interest rate investments were receivables from public sector entities, 11 (10)% were corporate bonds and 29 (36)% were receivables from banks and covered bonds. During the period no write-downs were realised. Rating distribution for non-life insurance business -------------------------------------------------------------------------------- | | 31.3.2010 | 31.12.2009 | -------------------------------------------------------------------------------- | EUR million | 113 | 104 | -------------------------------------------------------------------------------- | Aaa | 59.7% | 58.4% | -------------------------------------------------------------------------------- | Aa1-Aa3 | 16.4% | 16.7% | -------------------------------------------------------------------------------- | A1-A3 | 12.8% | 12.5% | -------------------------------------------------------------------------------- | Baa1-Baa3 | 10.2% | 11.4% | -------------------------------------------------------------------------------- | Ba1-Ba3 | 0.5% | 0.5% | -------------------------------------------------------------------------------- | B1-B3 | 0.0% | 0.0% | -------------------------------------------------------------------------------- | Caa1 or lower | 0.0% | 0.0% | -------------------------------------------------------------------------------- | No rating | 0.4% | 0.4% | -------------------------------------------------------------------------------- | Total | 100.0% | 100.0% | --------------------------------------------------------------------------------
Market valuation of financial assets Aktia pursues no trading activities. Both the financial assets within the banking business and the investment assets within the life and non-life insurance businesses are invested in securities with access to market prices in an active market, and are valued in accordance with official quoted prices. Any significant or long-term impairment of market value compared to the acquisition price is shown in the income statement, while interest-rate fluctuations are reported under the fund at fair value after the deduction of deferred tax. Structural interest rate risk in the banking business Structural interest rate risk arises as a result of an imbalance between interest rate ties and the re-pricing of assets and liabilities, and affects net interest income. Hedging derivative instruments and investments within the liquidity portfolio are exploited to reduce the volatility in net interest income. According to the strategy for interest rate risk management, a parallel upward or downward shift in the interest rate curve of one percentage point shall not influence estimated net interest income of the banking business for the next 12 months by more than 7%, and 8% for the following year. At the end of the first quarter of 2010 the set targets were met. The growth in the deposit stock diminishes net interest income's sensitivity to an upward shift in the interest rate curve. Market value interest rate risk in the banking business Market value interest rate risk refers to changes in value of financial assets available for sale as a result of interest rate fluctuations or changes in credit, interest rate or spread risks. The size, maturity and risk level of the liquidity portfolio is restricted as a result of capital allocation limits and limits for entering into repurchase agreements. The net change in the fund at fair value relating to market value interest rate risk posted during the period and credit and spread risk was positive and totalled EUR 21.6 (13.3) million after the deduction of deferred tax. At the end of March 2010, the valuation difference in interest-bearing securities was positive at EUR 8.3 million. Other market risks in the banking business and parent company No equity trading or investments in real estate are carried out by the banking business or in the parent company. At the end of the period, remaining real estate assets totalled EUR 3.5 (3.4) million. Investments in shares which are necessary or strategic to the business totalled EUR 31.6 (30.6) million. At the end of the quarter, the fund at fair value related to the above strategic share investments amounted to EUR 4.4 (3.7) million after the deduction of deferred tax. Investment risks in the life insurance business The policyholder bears the investment risk of investments that provide cover for unit-linked insurance policies. These investments are valuated on an ongoing basis at fair value and any changes in value are posted to technical provisions for unit-linked insurance policies. The investment portfolio covering technical provisions is measured on an ongoing basis at market value. During the reporting period, write-downs affecting profit were posted which were attributable to shares and participations totalling EUR -0.3 (-4.9) million. The net change in the fund at fair value for shares after acquisition eliminations posted during the period totalled EUR -0.7 (0.2) million after the deduction of deferred tax. The change in value of the fund at fair value with regard to shares and participations is mainly related to indirect real estate investments. Allocation of holdings in the life insurance company's investment portfolio -------------------------------------------------------------------------------- | EUR million | 31.3.2010 | 31.12.2009 | -------------------------------------------------------------------------------- | Shares | 0.0 | 0.0% | 0.3 | 0.0% | -------------------------------------------------------------------------------- | Bonds | 638.6 | 91.2% | 609.7 | 88.0% | -------------------------------------------------------------------------------- | Money market | 7.8 | 1.1% | 24.0 | 3.5% | -------------------------------------------------------------------------------- | Real estate | 36.7 | 5.2% | 38.0 | 5.5% | -------------------------------------------------------------------------------- | Other | 17.0 | 2.4% | 20.7 | 3.0% | -------------------------------------------------------------------------------- | Total | 700.1 | 100.0% | 692.6 | 100.0% | --------------------------------------------------------------------------------
Underwriting risks in the life insurance business Underwriting risks occur where future claim payments become higher than expected. Taking into account the provision of reinsurance cover, the insurance business has been relatively stable. The provision of reinsurance cover for different insurance portfolios reduces the volatility of financial results and eliminates risks that could affect the company's future business opportunities. Investment risks in the non-life insurance business The investment portfolio covering total technical provisions is measured on an ongoing basis at market value. The investment plan is to synchronise the investments and cash flow of technical provisions, which means a strong focus on the allocation of high-quality interest-bearing securities with short maturity.
