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AKTIA BANK PLC DEBT INVESTOR PRESENTATION 31.12.2013 Executive Summary – Aktia Bank Plc Retail bank with focus on growth areas in Finland Provides services mainly to private customers, small-sized companies and institutional investors Business strongly supported by own branch network Households accounts for 88 % of the loan portfolio and 78 % of the deposit stock Continuously competitive and stable net interest income EUR 112.6 million in 2013 Prudent lending policy and low loan losses Write-downs EUR 2.7 million (0.04 %) in 2013, non performing loans 0.66 % Solid profitability over time Return on Equity (ROE) 8.1 % in 2013 Strong Capital Ratio Tier 1 Capital Ratio 12.3 %, expected to improve approx. 4 %-pts. by IRBA Credit ratings Moody's: S&P: A3 / P-2, neg A- / A-2, neg Covered Bonds: Aaa 2 Presentation outline 1 Overview – Aktia Group 2 Financial key figures – Aktia Bank plc 3 Credit ratings 4 The Finnish economy 5 Summary and Contacts 3 Banking, Asset Management and Insurance services to 300,000 customers • Focus on households, small-sized companies and institutional investors • Solid capital base, liquidity and funding position • Market cap EUR 540 million,~46,000 shareholders • The majority of shares held by committed long-term owners Aktia Bank Plc (2013) Operating income EUR 224.2 million Operating profit EUR 65.4 million Assets EUR 10,934 million Banking, Operating profit EUR 50.5 million • Market share in mortgages 4.1% and in deposits 3.7% Asset Management & Life Insurance, Operating profit EUR 23.9 million • Market share in mutual funds 6.4% • Market share in life insurances 2.4% Other services include; Non- life Insurance, Real Estate Services Sources: Bank of Finland and Federation of Finnish Financial Services 4 Group structure 1.2.2014 Aktia Bank plc (listed on NASDAQ OMX Helsinki) 100% Aktia Life Insurance Ltd 100% Aktia Fund Management Company Ltd 50.9%* Aktia Real Estate Mortgage Bank plc 75% Aktia Asset Management Ltd** 100% Aktia Corporate Finance Ltd 100% Aktia Real Estate Agency 100% Saaristosäästöpankki Ltd 49.1%* 100% POP Banks and savings banks Aktia Invest Ltd *of share capital Aktia Bank holds 70% of votes. **Minority shares used as incentives for key personnel 5 Aktia Bank Plc Focus on retail banking and institutional investors • Aktia Bank is the 4th largest bank in the Finnish retail market with focus on growth areas in Finland such as the Helsinki Metropolitan Area, the coastal area and selected inland growth centres. The majority of Finland's population lives in this area. • Business strongly supported by own branch network. Aktia has 57 branch offices. • Households accounts for 88 % of the loan portfolio and 78 % of the deposit stock. • Strategic partnership with Veritas Pension Insurance. 6 The Dialogue concept A successful tool for achieving cross-selling Wealth mgmt Financial "360" review Financial situation Health and well-being Housing Life insurance In depth one-on-one customer discussion Assets and transfer of wealth Studies, work and pension Close relations Hobbies, leisure and holidays Combining basic solution, identifying special service needs Non-life insurance Follow-up and review Real estate Family Other services Number of completed Dialogues Today in 2 years in 6 years in 10 years 2009: 22,620 2010: 41,000 2011: 50,000 2012: 54,000 2013: 56,200 7 Aktia Asset & Fund Management Assets under management on all time high Aktia has established a position as one of the leading asset & fund management companies in Finland: Morningstar Awards 2013, Finland Best Fund House: Fixed Income 2012&2013 EUR million 31.12.2013 31.12.2012 change % Assets under mgmt 6,341 5,877 8% Group financial assets 3,114 2,955 5% Total 9,456 8,832 7% 8 Aktia Life Insurance Producer of customer friendly life insurance services Key numbers • • Market share Technical provisions EUR 965 million (EUR 462m unit-linked and EUR 503m interest rate related) Solvency ratio healthy 17.5% 11% Nordea Life 2.4% Several co-operation partners in the finance trade Aktia Bank, Folksam Non-Life Insurance Company, POP Bank Group, Pohjantähti Mutual Insurance Company, Alandia Insurance, Veritas Pension Insurance Mandatum Life 8% 31% LocalTapiola Mutual Life Aktia Life Insurance 22% 25% Customers OP-Pohjola Group Others Approximately 108,000 customers of which 102,000 are private customers and 6,000 corporate customers Focusing sales on more profitable, less capital intensive products Premium income increased 27% to EUR 140 million y/y Life Insurances Loan Insurances Aktia Profile Policy 9 Action plan 2015 • Focus resources on core business • Utilise credit capacity to own customers Aktia terminates its services as central credit institution for local POP and Savings banks in 2015 • Simplified group structure and modern systems to allow for lower costs Aktia invest in new core banking system • Big one-off investment of approx. EUR 25 million • Reduces running IT costs from 2015 onwards by EUR 5 million p.a. and allows for similar savings in processes • Minimise costs from Basel III 10 Objectives for 2014–2015 Growth Increase the cross-selling index by 20% Increase commission income by 5% p.a. Profitability Expenses -5 % p.a. Capital adequacy Tier 1 capital ratio at least 13 % over an economic cycle (post IRBA) Dividend pay-out Dividend pay-out 40–60% of profit after taxes Best customer service in Finland Increased customer closeness and further improved customer service 11 Presentation outline 1 Overview – Aktia Group 2 Financial key figures – Aktia Bank plc 3 Credit ratings 4 The Finnish economy 5 Summary and Contacts 12 The Bank's capital adequacy • Basel III entered into force 1 January 2014 • Temporary exceptional permit concerning holdings in Aktia Life Insurance, risk weight 280% • Principles for Group internal capital allocation adjusted Total effect on Core Tier 1 ratio -0.5%-pts IRBA application was submitted in August 2011 and is reviewed by Financial Supervisory Authority. IRBA is expected to increase Tier 1 capital ratio by at least 4%-pts 15–16% IRBA at least 4%-pts 10.6 % 2011 11.8 % 2012 12.3 % 2013 31.12.2013 31.12.2012 Capital buffer 395.1 441.3 Minimum capital requirements 274.2 288.9 Capital adequacy ratio,% 19.3 20.2 Tier 1 capital ratio, % 12.3 11.8 2014E 13 Results 2013 EUR million 2013 2012 change % Net Interest Income 112.6 117.3 -4% 70.7 65.3 8% 224.2 217.9 3% -157.2 -154.2 2% Write-Downs -2.7 -8.2 -67% Operating Profit 65.4 56.0 17% Profit for the period 52.4 40.3 30% Banking Business, EUR million 2013 2012 2011 Cost-to-Income Ratio 0.72 0.74 0.73 8.1 8.5 7.1 Borrowing from the public 3,797 3,632 3,645 Lending to the public 6,802 7,202 7,063 Mortgage Loans 5,521 5,850 5,607 Capital Adequacy Ratio % 19.3 20.2 16.2 Tier 1 Capital Ratio % 12.3 11.8 10.6 3,464 3,611 3,694 Net Commission Income Total Operating Income Total Operating Expenses KEY FIGURES Return on Equity (ROE) % Risk-Weighted Commitments 14 Assets and liabilities Aktia Group 31.12.2013, EUR million ASSETS Other loans granted by Aktia Bank 1,167 AKTIA REMB loans distributed by Aktia Bank 1,233 AKTIA REMB loans distributed by Local Banks 1,649 Treasury and money markets Liquidity credits to Local Banks Current account at Bank of Finland Other 62% Demand deposits 3,215 29% Time deposits 582 5% Long-term issues to retail market Senior debt Subordinated debt 287 61 226 3% Long-term funding Covered bonds Senior debt Subordinated debt Local Banks, Transaction Acc. & Deposits Savings Banks POP Banks Short-term funding Repos + ECB CDs & wholesale MM deposits Received cash collateral 3,614 2,541 1,066 6 33% 665 361 305 6% 578 0 405 173 5% 722 0 405 317 7% 2,191 146 188 1,464 390 3 20% Investment portfolio in Life Insurance 650 6% Technical prov. for unit-linked insurances 965 9% Invest. for unit-linked provisions, Life Insurance 466 4% Other Liabilities 385 4% Other assets 103 1% Equity 642 6% Total assets 10,934 100% 10,934 100% Liquidity portfolio Government bonds / Municipal bonds Government guaranteed bonds / Supra Covered Bonds Senior bonds issued by banks Other bonds Total liabilities and equity 15 RETAIL Mortgage loans granted by Aktia Bank 6,802 2,753 WHOLESALE MARKET Loans to public LIABILITIES Structure of lending and deposits Business strongly supported by households through own retail network Lending 2013, EUR 6,802 million (2012, EUR 7,202 million) Deposits 2013, EUR 3,797 million (2012, EUR 3,631 million) 16 Prudent and low risk lending policy • Aktia Bank operates under strict origination criteria: • • • Identification of the customer mandatory Responsible lending: customer ability to pay stress tested Credit personnel internally educated and examined • Rating based credit risk valuation • Collateral only in Finland Non-performing loans over 90 days due 100 1.00 0.93 EUR 0.85 million 0.80 0.85 0.84 80 60 0.73 0.56 0.55 0.80 0.69 0.63 0.59 66.9 58.1 56.1 60.0 0.60 % 61.0 53.2 50.0 45.0 40 34.0 36.4 0.68 0.68 0.66 48.0 47.0 45.0 20 0 0.40 39.6 0.20 31.12.2009 31.12.2010 31.3.2011 30.6.2011 30.9.2011 31.12.2011 31.3.2012 30.6.2012 30.9.2012 31.12.2012 31.3.2013 30.6.2013 30.9.2013 31.12.2013 0.00 Non-performing loans more than 90 days overdue As a percentage of stock incl commitments 17 High quality liquidity portfolio Buffer covering at least 12 months liquidity need 0% 31.12.2013 31.12.2012 14% 16% (EUR million) 2,424 1,862 Aaa 52.9 % 64.5 % Aa1–Aa3 27.5 % 19.1 % A1–A3 15.2 % 8.9 % Baa1–Baa3 1.3 % 3.7 % Ba1–Ba3 0.0 % 1.5 % Gvmt and gvmt guar. bonds Finnish municip. (no rating) 3.0 % 2.2 % Covered bonds No rating 0.1 % 0.0 % 100.0 % 100.0 % 70% Financial sector excl CB Corporate bonds Total 18 Sound funding profile Deposits and Covered bonds dominate 2013, EUR 8,767 million (2012, EUR 8,911 million) Wholesale Funding, EUR million Current Outstanding Covered Bonds 2,541 EMTN Program 520 Domestic Program 294 Schuldschein 184 Other Funding * 362 * EIB, NIB etc. 19 Aktia Bank Plc, a mortgage bank • Aktia Bank operates under the current legislation as mortgage bank (Act on Mortgage Credit Bank Operations, MCBA 688/2010). • The Bank replaces the old co-owned Aktia Real Estate Mortgage Bank Plc as the active issuer on the EUR covered bond market . • The Aktia Bank mortgage loan portfolio is very high quality: • Only prime residential mortgage loans • Collateral located in Finland • The Bank issued successfully it’s inaugural covered bond in June 2013. • 500 million EUR • 5yr Maturity (2018) • The bonds were placed to 60 investors from several European and Nordic countries. Asian bid represented 3% of total. Banks and Funds dominated as investors. • The order book was nearly twice oversubscribed 20 Covered Bond funding 3500 3000 2500 2000 Aktia REMB CB 1500 Aktia Bank CB 1000 500 0 Mar-13 Apr-13 Jun-13 Nov-13 Jun-14 Jan-15 Mar-15 May-15 Jun-16 Apr-19 Jun-21 • Stable access to the covered bond market is in high priority • Aktia Bank will focus at EUR 500m public benchmark Covered Bond issues 21 Aktia Bank cover pool 4Q2013 Asset Pool Total EUR 1,066m (no substitute assets) No of loans / average loan balance 18,142 / EUR 58,800 Types of loans Non-performing loans (> 90 days in arrears) First ranking residential mortgages and pledges of shares in housing companies Finland only, well diversified with concentration on growth areas 0.0 WA LTV 57.83% WA indexed LTV Maximum LTV 56.75% Covered Bond refinancing max LTV limit: 70% Geography Loans exceeding LTV 70 haircut at LTV 70% WA seasoning 28.6 months Overcollateralisation (%) 113.2% 22 Aktia REMB • The co-owned Aktia Real Estate Mortgage Bank has ceased to provide new mortgage loans from the beginning of Q4 2012 onwards • Aktia REMB focuses on the maintenance and refinancing of the current loan portfolio • All owners (Aktia bank, POP and Savings banks) are fully committed to safeguard the high quality of the existing cover pool and make sure that Aktia MB meets the agreed capital and liquidity targets also in the future. • Aktia REBM has maintained the ability to issue covered bonds if necessary • Rating for existing covered bonds is Aa3 23 Aktia REMB Combined pools 4Q2013 Asset Pool Total Non-performing loans EUR 2,866m (EUR 2,856m mortgages + EUR 10m substitute assets) 38,943 / EUR 73,300 First ranking residential mortgages and pledges of shares in housing companies Finland only, well diversified with concentration on growth areas 0.0 (> 3 months in arrears) WA LTV 52.99% No of loans / average loan balance Types of loans Geography WA indexed LTV Maximum LTV 51,27% Covered Bond refinancing max LTV limit: 70%, Underwriting maximum LTV limits: 70% 1) WA seasoning 46.1 months Overcollateralisation (%) 26.9% * Pool 0 managed under the Finnish Act on Mortgage Credit Banks 1240/1999, Pool1 managed under the Finnish Act on Mortgage Credit Bank Operations 688/2010 1) Except where the exceeding loan amount is covered by a state guarantee 2) covered by a state guarantee 24 Presentation outline 1 Overview – Aktia Group 2 Financial key figures – Aktia Bank plc 3 Credit ratings 4 The Finnish economy 5 Summary and Contacts 25 Aktia Bank credit ratings Senior: Covered Bonds: A3 / P-2, Outlook Negative Aaa Senior: A- / A-2, Outlook Negative For full rating reports please see: http://www.aktia.fi/en/investors/investing-in-aktia/rating 26 Presentation outline 1 Overview – Aktia Group 2 Financial key figures – Aktia Bank plc 3 Credit ratings 4 The Finnish economy 5 Summary and Contacts 27 The Finnish economy Fiscally strong open economy National balance of supply and demand • • • Population: 5,4 million Area: 338,430 km2 GDP per capita EUR 35,928 (2012) • Finland is rated Aaa / AAA / AAA by Moody’s, S&P and Fitch, all with stable outlook Macroeconomic Indicators 2012 2013 GDP (%) YoY -0.8 CPI (%) YoY € billion % GDP 194.5 71.3 Imports 78.4 28.7 Total supply 272.9 100 € billion % Supply 2012 * Demand 2012 * Exports 77.3 28.4 Consumption expenditure 157.8 58.1 - private 109.5 40.3 - government 48.3 17.8 2014f 2015f -0.6 0.6 1.6 Gross fixed capital formation 37.8 13.9 3.2 2.2 1.9 1.8 - private 32.7 12.1 Unemployment Rate (%) 7.7 8.2 8.3 8.1 - government 5.0 1.8 Government Gross Debt (% GDP) 53.6 58.4 61.0 62.5 Changes in inventories, acquisition of valuables -1.2 -0.5 Current Account Balance (% GDP) -1.8 -1.2 -1.3 -1.1 271.6 100 Source: EU Economic Forecast, Autumn 2013 Total demand Statistical discrepancy 1.3 * preliminary data Source: Statistics Finland 1.3.2013 28 The Finnish economy Substantial part of exports outside the EU Exports by country (2012) Exports by product group (2012) Source: National Board of Customs, Statistics Finland 29 Some macroeconomic data Unemployment Rate Source: EU Economic Forecast, Autumn 2013 Gross debt-to-income ratio of households Source: Eurostat Housing Prices in various countries Source: Macrobond Annual GDP Y/Y Source: EU Economic Forecast, Autumn 2013 30 Presentation outline 1 Overview – Aktia Group 2 Financial key figures – Aktia Bank plc 3 Credit ratings 4 The Finnish economy 5 Summary and Contacts 31 Summary – Aktia Bank Plc Retail bank with focus on growth areas in Finland Provides services mainly to private customers, small-sized companies and institutional investors Business strongly supported by own branch network Households accounts for 88 % of the loan portfolio and 78 % of the deposit stock Continuously competitive and stable net interest income EUR 112.6 million in 2013 Prudent lending policy and low loan losses Write-downs EUR 2.7 million (0.04 %) in 2013, non performing loans 0.66 % Solid profitability over time Return on Equity (ROE) 8.1 % in 2013 Strong Capital Ratio Tier 1 Capital Ratio 12.3 %, expected to improve approx. 4 %-pts. by IRBA Credit ratings Moody's S&P: A3 / P-2, neg A- / A-2, neg Covered Bonds: Aaa 32 Contacts and additional information Contacts Timo Ruotsalainen Anna Gabrán Head of Treasury Managing Director, Aktia REMB Tel. +358 10 247 7211 [email protected] Head of IR Tel. +358 10 247 6501 [email protected] Additional Information http://www.aktia.fi/en/investors/investing-in-aktia http://www.aktia.fi/en/investors/debt-investors/aktia-bank 33