Aktia Q4'24 preview: Decline in net interest income dictates earnings development

Translation: Original published in Finnish on 2/7/2025 at 7:25 am EET.

We expect Aktia’s result to have decreased slightly from the comparison period due to lower net interest income. In the earnings report, in addition to the figures, we will pay particular attention to the guidance for the current year, which we estimate to indicate declining earnings. Any comments on the strategy update would also be very welcome.

Interest income down, commission income up

Aktia will announce its Q4 results on Wednesday morning around 8.00 am EET. We expect the net interest income to continue to decline as lower interest rates weigh on the interest margin. We also expect credit demand to remain modest, although there was a slight pick-up in the market towards the end of the year. In turn, we expect net commission income to grow moderately from the comparison period. The growth in commission income is supported in particular by increased assets under management. New sales, on the other hand, appear to have been subdued in the quarter, as net redemptions were made from Aktia's investment funds during Q4, according to the Fund Report. Overall, we expect Aktia's EBIT to have settled slightly below the comparison period at 72.7 MEUR.

We expect a slightly declining result

We expect Aktia's comparable expenses to increase by approximately 4% year-on-year. In our forecasts, growth across the board will be driven mainly by general cost inflation. After a good year in terms of profitability, we also expect bonus provisions to slightly increase average personnel expenses. We expect credit losses to remain at the same level as in the first half of the year and the comparison period, at 2.1 MEUR (0.10% of the loan portfolio). The level is still very low in relation to the current weak economic situation.

As a result of these factors, we expect Aktia's comparable operating profit for Q4 to be 23.8 MEUR. Our Q4 earnings per share forecast is EUR 0.26.

We expect the company to propose a dividend of EUR 0.85 per share for the FY2024, which would correspond to a payout ratio of 65%. The bank's balance sheet could support a much higher payout, but we expect a possible update of the payout policy to coincide with the upcoming strategy update. No date has been set, so the announcement of the date of the strategy update may well coincide with the date of the results.

Profit growth looks challenging this year

In terms of guidance, Aktia will continue to provide guidance on the development of its comparable operating profit and the key drivers behind it. For commission income, we believe the company is expecting growth. However, there is clear downward pressure on net interest income, which, combined with cost inflation, makes earnings growth very challenging, and we expect the company to guide for a declining comparable result. It is not impossible to maintain a stable result, but it would require a stronger performance than we forecast on several fronts. At the same time, this means that the company will not reach its comparable EBIT target of over 120 MEUR for 2025. The company will likely revise this estimate downwards in the Q4 report. Otherwise, we expect the company to publish its new targets in its strategy update.

We expect the bank to raise the bar on its profitability targets

The most important of Aktia's financial targets is return on equity, which has historically been modest. The rise in interest rates provided a much-needed boost, but the falling yield curve and interest margins inevitably hit profitability. However, we expect the company to step up its ambition and target a return on equity above 13% in the medium term (above 12% by 2025). At the same time, this would require an update of the dividend policy, as the current dividend payout ratio of around 60% is leading to an ever-increasing overcapitalization of the balance sheet, which has a negative impact on return on equity. Our current forecasts expect ROE to remain slightly below 12% this year.

We believe that the key focus areas for the upcoming strategy update will be to translate growth in asset management into new revenues and to improve cost efficiency. Of course, these two go hand in hand, as an increase in asset management fees would also increase relative profitability. We see particular potential in the bank's Private Banking clients.