Good morning, everyone, and welcome to Aktia's Q1 2023 results webcast. My name is Juha Hammarén, and I'm the acting CEO of Aktia. I will first go through the headlines of our Q1, and after that, our CFO, Outi Henriksson, will walk you through our financials in more detail. The Q1 of 2023 was strong for Aktia. This pleases me especially after the challenging previous year. Net interest income grew by 27%, which is mainly explained by higher interest income due to the increase of interest rates. Provisions for potential credit losses were very moderate during the Q1, and the quality of Aktia's loan book remained good. Due to the general market uncertainty, the housing market remained rather silent. In corporate customer business, lending continued to increase. The average margin for the entire loan book continued to rise.
The net commission income development was stable during the beginning of the year and close to last year's level. Asset under management at EUR 13.8 million. There was a great interest in structured products in particular, and their sales reached record levels, which increased the net commission income. In cooperation with Taaleri, Aktia launched the Article 9 fund, SolarWind III, and at the year. This strongly supports the green transition in the energy economy. Sales have started well, and the fund is an important complement to our range of responsibility investment products. Our determined work to improve the customer experience also began to bear fruit. Customer satisfaction in private banking improved significantly. Our life insurance business remained stable, and the sales of the risk life insurances in particular continued to grow.
However, net income from life insurance was below the previous year's comparative figures. Adjusted according to the IFRS 17 accounting standard, which were exceptionally high due to the rise in interest rates at the beginning of 2022. This makes comparisons more difficult. The IFRS 17 reporting standard was introduced on January 1, 2023, which greatly affected the reporting and comparative figures of Aktia's life insurance business. It should also be noted that in order to increase transparency, Aktia now for the first time reports asset management and life insurance as separate independent segments, not as one combined entity. The cost development in the past quarter was moderate, but the high inflation was particularly reflected in the increased IT costs, which mainly consisted of services purchased.
Aktia's comparable operating profit in the Q1 amounted to EUR 23.6 million, which due to the new calculation of the net income from life insurance was notably lower compared to the reference period. However, the transaction to the IFRS 17 reporting standard makes the comparison significantly more difficult. The comparable operating profit during the reference period last year according to the accounting standard used at the time amounted to EUR 13.3 million. I'm very pleased with Aktia's strong Q1. All income categories developed in line with our expectations, which gives us a good premise for the year ahead. The quality of Aktia's loan book has also remained stable. However, the general economic uncertainty continues, and there is no immediate relief in sight. We want to help our customers think further in their finances also in economically more challenging time.
Now our business areas. First, our banking business. The net interest income of the loan book developed very positively in the Q1, and the quality of the loan book remained good. The average margin for the entire loan book continued to grow. When it comes to housing loans at general, market uncertainty and calm housing loans market continued to reduce their demand. In consumer financing, the quarter was strong, and sales of Finnair Visa credit card remained at a good level. The demand for deposits was strong among investors and depositors. Sales of our current structured investment product reached record levels. In our corporate customer business, lending continued to increase as planned, and the quarter was particularly strong in higher purchases and leasing. Let's move to our asset management business.
The market environment clearly improved during the beginning of the year. Despite continued market fluctuations, interest rates continued to rise, which put pressure on the market value of fixed income and housing funds. The problems in the international banking sector had not significant impact on the development of the value of funds managed by Aktia. Our net subscriptions continued to increase and amount to EUR 133 million during the Q1. The international sales of Aktia's funds also progressed when the first subscriptions in our two AI funds were made in Spain. At the end of February, Aktia launched the Article 9 fund, SolarWind III, in cooperation with Taaleri. The fund strongly supports the green transition in the energy economy. Customer satisfaction in private banking increased significantly. We were even more active towards our client than usually, which resulted in improved client satisfaction.
Our now new reporting business segment, life insurance. Sales of risk life insurance developed well during the Q1. Also, the sales of investment-linked insurance continued to develop positively. This was despite the challenging situation in the investment market, which drives investor segment. The result from the financing business mounted to EUR 2 million. Our solvency decreased from the year-end, but improved somewhat from the comparable period last year. A few words about sustainability at Aktia. Our vision is to be a leading wealth manager bank. In 2022, we update our sustainability program, which is now guiding our sustainability work. The high level ambition of the program is to enable sustainable prosperity, provide meaningful work for skilled employees, ensure reliable and transparent operations, and work towards carbon neutrality.
In Q1, we finalized our green and sustainability-linked loan framework and already granted our first sustainability-linked loan based on this framework. 96% of the Aktia funds are either ESG funds or sustainable funds classified as Article 8 or 9 according to the Sustainable Finance Disclosure Regulation. Aktia's ESG ratings from the largest rating providers are about industry average, and Aktia's net impact is positive according to the Upright Project assessment. We are also in the right path towards our carbon emissions reduction targets within our investment portfolios. Now, Outi, the floor is yours.
Thank you, Juha. Good morning, everyone. Good morning. Hyvää huomenta kaikille [Foreign language] . Welcome to Aktia's Q1 webcast. Before we go into the financial statements and the results, a few words about the changes that we have done in the segment reporting. Two major changes there. As Juha already mentioned, we took into use IFRS17 reporting standard in life insurance business in the beginning of the year, which means that we have also restated entire 2022 according to IFRS. Had a major change on the comparison figures, as you have probably noted already. We published the comparison figures this week on Monday.
What happened was we restated the entire balance sheet of the life insurance business in the end of 2021, beginning of 2022, also year-end. That was still at the time when the interest rates were very low. What happened after that, the interest rates started to raise sharply, which had a very positive impact to the results of the life insurance business through the fact that we discount our future cash flows to the present moment using now higher interest rates, and that goes through the P&L to the results. That changed the picture quite a bit.
Another change that happened together with that was that we moved part of the costs from operating expenses to adjust the net income from life insurance business according to the standard requirements. The structure of the P&L has changed also a bit. Another change which adds the transparency to our reporting is that we now, as you have pointed out also, we report our asset management segment split between the asset management itself and the life insurance business. It's now a little bit easier to follow the development of that segment going forward. Those comparison figures have we also published in the beginning of this week. Let's get into the results then. Here you can see the impact on the left-hand side of the picture.
We see a development of the operating profit from year 2019 to 2022 according to the standard as was still valid till the end of 2022. We reported EUR 65.2 million operating profit last year, Q1, under the reporting standard that we used, EUR 13.3 million. Compared to what we reported a year ago after the Q1, we now reported EUR 23.6 million. That is little bit over EUR 10 million, approximately EUR 10 million higher results than a year ago. However, after the restatement, having impact on our life insurance and that way also the group numbers is the comparison, sees now it actually looks totally different from what we reported last year.
Here's the financial summary in the P&L format. I would like to point out just few things here. The growth driving the profit improvement comes mainly from the net interest income, +27% from last year being EUR 31.8 million. This is something that we communicated also last year that you will see the turn. Now you see the turn. Positive impact to both income from lending as well as obviously had an impact on the market-based financing costs as well. I'll get back to that in a minute. Net commission income are relatively flat, though you need to bear in mind that when we started year 2022, the assets under management were clearly higher. We had a tough market last year. We saw major negative value changes in the assets under management.
We also saw quite a bit of volatility in the life insurance company results. Let's hope that this year becomes a little bit more stable. However, I'm pretty satisfied with the level of net commission income given that we are starting this year from much lower with much lower assets under management than last year. Net income from life insurance, solid performance in the Q1, really hard comparison as said due to the changes in the way we report now our numbers. Get back to the other parts of the P&L. As said, EUR 23.6 million, very pleased with the results. Outlook 2023, we fine-tuned our outlook a bit when we published the comparison figures, a small refinement, referring to what we have reported before.
We are expecting 2023 operating profit to be clearly higher than what we reported last year, that is EUR 65.2 million. Obviously the growth is mainly driven by the nice growth in net interest income. We expect that to be significantly higher than in 2022. Net commission income, we expect to see improvement there as well. Let's hope that the market gives a little bit of tailwind this year. However, even without that, I do expect to see improvement there as well. Same thing goes for the life insurance business. Operating expenses, we expect to be approximately at the same level as 2022. Tough call. You all know what the inflation is. Has an impact on our costs specifically.
IT side, other costs, there is a high pressure, we need to fight against that a bit. Let's see, but we do our best to keep the costs flat. Credit loss provisions are expected to be approximately as, at the same level as 2022. Market is what it is and some development we expect to see there towards the end of the year. However, looking at the Q1, very modest increase in the reservation of what we have done there. Here's then the waterfall picture of the development of the Q1 operating profit. There on the very left-hand side, you see what we reported last year, I said EUR 13.3 million, and then the restated a number.
The growth between the Q1 2022 and Q1 2023 is driven by the improvement in net interest income. Other blocks there, as you can see, relatively flat, major change in the coming from the impact of the life insurance adjustment. Strong growth in net interest income. This is the income side of the business. Comparable operating income was EUR 70.3 million. Positive impact from rising interest rates. However, we need to bear in mind that the margin development has been also very good. On the banking side, the household market is quite frozen right now.
Demand is there on the corporate lending side. We have seen a positive development both on household and corporate side when it comes to the margin development. Few words about before we look at the net interest income composition, a few words about the interest rate development. In this picture, I have the development of 12-month Euribor that is the basis for most of the housing loans that we have. We have the 6-month Euribor, 3-month Euribor in the picture as well. That is the cost for funding or cost of market-based funding. We swap our covered bonds to six-month Euribor, senior debt to three-month Euribor.
As you can see also here, the curves are getting closer to each other towards the end of Q1, being a little bit wider last year. In the picture, we also see the cost of central bank financing, the TLTRO, that is tied to the ECB steering rate. We were still on a minus side in the beginning of last year. However, gradually the ECB has raised the steering rate and the cost of central bank financing follows that, so that piece of financing has become also more expensive. Obviously, as a source of funding, we have also deposits as a very important component. Here's the picture. As you can see, it develops, it has changed quite a bit from last year.
I don't know if after a few quarters, there's enough space on the slide to see the both components, the income and cost side. On the top of the axis, we have lending, so income side, and then under the axis, we have the cost of borrowing, which is then deposits, covered bonds and senior debt. The TLTRO at C entral Bank financing has become a cost for us. It still had a positive impact on the numbers a year ago when we reported Q1 results. Here's the net commission income mix. Just to point out here that majority of net commission income comes from the asset management side, mutual funds, asset management, and to some extent, securities products.
A smaller part coming from other sources. There's a substantial part of the net commission income that comes from the banking business. Nice growth there, for example, in the card provisions. This picture is the quarterly development of the comparable operating profit. We see their improvement both in banking business and asset management business as well. Banking business obviously driven by the specifically driven by the higher NII. As I pointed out earlier, the quality of the credit portfolio remains solid and very modest development there. Actually, the reservations for the credit losses were slightly on plus in the Q1. Our loan-to-value, LTV, is at a very good, should I say low level, 43%, which is good.
The solid quality of Aktia's loan book helps with this one as well. Few words about the balance sheet. It totaled EUR 12.1 billion. No major changes on the lending side. Little bit of growth there, but as I pointed out earlier, the market has been quite frozen when it comes to the housing loans. As we are quite conservative in our lending, we haven't actually increased the risk of our credit losses by just taking in the volume or increasing market share.
It's been also a conscious decision to kind of have a kind of a solid, almost no growth, in the loan book. On the liability side, our deposits have decreased approximately EUR 350 million from year-end. That is something that we expected. We had. I need to point out that the deposit base has grown throughout the entire year, 2022, and at the year-end 2022, we had some fixed-term, larger deposits that we knew are not going to be there in the end of Q1. Maybe some money from the savings accounts have also moved to a fixed income product. That was something that we expected. Liabilities to central banks, they have decreased.
We have repaid EUR 250 million of central bank financing now in the Q1. Still have EUR 550 million left. A few words about the capital adequacy. Our CET1 ratio was 3.3% percentage points above the requirement. 11.1% means +0.2 percentage points from the year-end. Risk-weighted assets, relatively flat, increased only by EUR 2 million. The funded fair value increased also modestly by EUR 2 million, having positive impact. The life insurance company paid EUR 6 million of a dividend to the parent company, which improves then the banking business CET1 or bank group. Few words about funding activities.
The market sentiment has been quite negative, specifically in the end of the Q1. That has been obviously driven by the, what you have been able to read in the media as well, the nervousness coming from the Silicon Valley Bank and likes. We have anyway been quite active. We have completed 12 senior preferred private placement transactions. What we have on the table right now is also the EUR 500 million covered bond redeeming in May 2023. That is something we are working on right now. We still consider issuing some AT1. Market has been quite frozen and also very expensive when it comes to the additional tier one. Let's see if we go forward with that as well.
It depends on the market sentiment obviously. As mentioned, we paid back EUR 250 million of TLTRO. Liquidity, that's been in media a lot, and our liquidity has been at a very good level from the beginning of the year, and our LCR was 188% at the end of Q1 2023. We can be happy about that as well. I'm going to finish my part now just reminding about the our financial targets 2025. They are unchanged. I'm now with Juha happy to answer the questions that you may have.
Thank you, Outi. Thank you, Juha. Let's move on to the questions. I assume we might have some questions here inside.
Thanks. Antti Saari, OP Group. Firstly, as mentioned several times now in IFRS 17 you are forced to book unrealized losses and gains that actually doesn't affect your cash flow? Are you planning to change your dividend policy because of this?
There's no change, and there's no plans to change the dividend policy, not in the group, neither in the life insurance company itself that is paying us, as mentioned, a dividend to the parent as well.
Okay. Even though that, your reported earnings could fluctuate quite heavily because of this life insurance calculation.
Actually, true. There is volatility, but we have now also our hedged interest rates risk more hedged than we had last year. The impact that we saw in the comparison figures that we reported earlier this week, actually it was also driven by the fact not only the higher interest rate, by the fact that we had a more open interest rate risk position that we have now hedged. Actually that what we have done now that limits the impact that is coming from the movement of interest rates up or down, so that reduces the volatility.
Okay. Thanks. Second question regarding the mentioned Aurinkotuuli III fund, which is a new one, and it's mentioned that it started quite well. Could you give us any figures, how much AUM you have now collected and what kind of targets you have few quarters ahead?
Cannot comment on the, on the targets, but that will show in our Q2 or start to show our Q2 numbers.
Okay. Last question from my side. The deposits, as mentioned, they have declined quite visibly. Have you seen any flow from your accounts to another banks? Is this one explanation why your deposit is declining?
No, that we haven't seen. As said, there's some movement from accounts to, for example, fixed income products and then some fixed-term corporate deposits that we knew are going to kind of expire before the end of Q1. No reason at all to worry there. As said, the entire 2022 was positive, we saw the deposit base increasing. As said, liquidity and all of that is in very good shape.
Okay, thanks. That's all from my side.
Yes. Hi. Sauli Vilén from Inderes. About the market environment on the asset management side, I mean, you state that the market environment has clearly improved. That actually not what all the players in or all the competitors has been said kind of opposite actually. Can you open up more like how you see the asset management market environment at the moment?
Well, it's been quite nervous still in the Q1. I have to say that I'm quite pleased about the fact that we have had inflows, a little bit of positive market changes as well. I do think that there is again interest in the fixed income funds. Let's hope that the situation stabilizes, that we have a good feeling about the year, and the year has started well, so at least in those products that we are offering, like the alternatives and the fixed income.
About the fixed income, it's obviously that it makes sense that the fixed income interest investors at the moment since obviously it's attractive asset class once again. Is it mainly focused on the institution side who are interested, or is it also like also the retail side?
Both sides. Obviously, we have an interesting business in the private banking and private customer side as well. Obviously, the volumes comes from the and the major growth, major part of the growth comes from the institutional investor side. That's where the AUM growth comes from. However, obviously the kind of the structure of income from the private customer side is attractive in relation to the amount of AUM. Yeah, both sides are definitely in our asset management focus.
About the deposit, what kind of, let's say, price pressure do you see to hike up? D eposit yields, so to speak. Obviously some of the competitors has been raising- offering fairly lucrative deals. How you see the pressure?
We are following the development obviously very closely. We opened the game with the fixed term deposits last fall, and I still think that what we offer there is very, very competitive. We are looking at the savings accounts and current accounts as well, and we need to see when do we move ahead with the savings account. Obviously that is a cost of funding for us, so need to be conscious with that. Also think about the kind of products that we could offer there on the savings account side on top of what we have now already.
That is obviously under attention and very important source of funding for us as it is for all of the banks. Yeah, absolutely we are monitoring closely the situation and we'll make sure that we are competitive on that side as well.
That's all for me. Thank you very much.
Thanks.
Thank you, Sauli. Let's continue with Inderes. As we have Matias Arola online here. Could you give any comments about your current NII sensitivity? What would 50-100 basis points movement in interest rate level mean for Aktia's net interest income?
Yeah, this is a difficult and interesting question that everybody asks. I wouldn't like to give an estimate. It obviously is not just the interest rate levels, it is actually the relationship between the 12-month Euribor, 6-month Euribor, 3-month Euribor, central bank financing, plus the hedging activities that we have. Little bit less sensitivity now than before. We have hedged our position. We obviously have will see a positive impact coming from the higher interest rates. We need to bear in mind that we take a look at the kind of interest rate fixing for the housing loan book. There is quite a bit of housing loans that will be repriced now on the Q2.
We do expect to that to have a positive impact on the NII. Those housing loans are still tied to negative rate. It's, it's bit of a like timing of those and then versus the timing of the fixing of the market-based funding. I didn't answer your questions directly, and I'm not going to give any exact estimate, but those components we are looking at.
Matias Arola continues, could you remind how should we think about the life result on your cost level after the application of IFRS 17? If I look at your restated figures, your 2022 cost base decreased by EUR 10.9 million. Is it right that these costs are now included in life result and thus, would life result structurally be EUR 10 million lower in the future?
Very sharp question. That has exactly happened. According to the new standard, we move up, so to say, costs from operating expenses to the net income from life insurance. That's exactly right answer. The costs have reduced by approximately EUR 10 million just because of that, but we have moved them upwards. That is the impact, and will have impact on the kind of structure, obviously of the cost structure in the whole group, through our life insurance results. That is correct.
Yet one question from Matias Arola. You expect that your cost level will remain flat this year. This seems quite ambitious when we consider that your comparable cost increased by some 6% in the Q1. Could you elaborate this a little bit? How can you handle a general cost inflation?
Yeah. Good, good point. That is a tough call as I already mentioned. First of all, if you look at the Q1, the reservation for the stability fee that we had now in the Q1 of 2023, EUR 1 million higher than last year, that explains a bit. Obviously there's a little bit of volatility on the cost side, each quarter due to the reservations and so forth. Going to be difficult. As I already mentioned, IT costs, you see inflation pressure there everywhere. The other thing is that we will see collective, agreement-related salary increases also later this year.
On the other hand we need to kind of, we have started the process to go through the entire cost structure, and that is the main focus. It's not gonna be easy, but that is the target, anyways.
A question from Andreas Håkansson at Danske Bank. Let's move back to the deposit theme. The decline in deposits, could you give us a feeling of how much was moved to other banks, moved to money market funds? Was it also more amortization or mortgages? On the retail side, how much is transaction accounts?
I don't have the split, and we don't disclose that either. There is some movement, and that was a good point, actually. People are paying back their housing loans, so it is a combination of all of that that you mentioned, and not that much moving to other banks. Again, I don't have the number here, and we won't give the split. However, as said, those components that I mentioned before are behind that. Would again like to point out that behind have we also quite a nice growth last year. No, no reasons to worry about this one.
No more questions online. Thank you on my behalf.
If no more question, thank you for your attention, and I wish you all a very nice rest of the week.
Oh, thank you for my side too. Thank you.