Aktia Q3'24 flash comment: Insurance and cost control led to significant forecast beat

Translation: Original published in Finnish on 11/6/2024 at 9:27 am EET.

This morning Aktia released its Q3 results, which were much stronger than we expected. Performance improved on both the income and expense sides, and credit losses remained moderate. The report was not all celebration, however, as the interest income, which is key to the bank's earnings, fell more than expected. As expected, Aktia did not touch its guidance for the current year, according to which the bank expects its comparable operating profit to be higher than in the previous year (2023: 104.8 MEUR).

Life insurance led the earnings beat

Aktia's operating income in the third quarter was higher than expected. This was explained by net income from life insurance, which far exceeded our expectations. Interest income, on the other hand, missed our forecast. There were no miracles in the development of the loan book, as the amount of outstanding loans remained at about the same level as in the previous quarter due to the continued sluggish demand for loans. The decline in interest income was driven by the interest margin, which was more affected than expected by changes in interest rates. As in the rest of the banking sector, interest income is already clearly on the downward trend.

Net commission income was in line with our forecast. The main component of net commission income, asset management fee income, was supported by increased AUM. Sales of mutual funds performed well in the third quarter, but net inflows across all products were only slightly positive at the end of the quarter. Thus, the growth in AUM was again mainly due to positive valuation changes.

Positive expense development

Aktia’s operating expenses in Q3 were somewhat lower than our expectations. This was mainly due to personnel expenses, which decreased significantly compared to the prior year. The first estimate explains this by the lower level of variable compensation as the number of employees started to grow again. Total operating expenses increased by 6% year-on-year due to investments in areas such as banking systems and information security.

Loan losses were lower than expected in the quarter at 1.8 MEUR (0.08% of the loan portfolio annualized). However, there was a slight deterioration in the quality of the credit portfolio, which may indicate a further increase in credit losses towards the end of the year. No material changes were seen in the bank’s solvency.

Aktia’s comparable EBIT was 31.5 MEUR in Q3, which exceeded our forecast by approximately 12%. Earnings per share were EUR 0.34 and return on equity was strong at 15%.