Translation: Original published in Finnish on 2/12/2025 at 9:26 am EET.

Aktia published a stronger-than-expected Q4 result this morning. The reported result was negatively impacted by non-cash write-downs on core banking systems, but adjusted for this, operational performance was quite strong. However, the clearly increased credit losses are a slight concern. In turn, the bank's earnings guidance for the current year points to an expected decline in comparable operating profit, driven by interest income.

Positive surprise on income development

Aktia's operating income in the fourth quarter was significantly higher than expected. Eyebrows were raised in particular by the year-end interest income, which surprisingly rose from the previous quarter. There were no miracles in the development of lending, as the loan book contracted by 0.2% quarter-on-quarter. In addition, net commission income was well above our expectations. There were no material surprises in the other income lines. Aktia's total income in Q4 was 78.7 MEUR, exceeding our forecast by more than 8%.

Expense growth, small credit loss concerns

Aktia’s operating expenses in Q4 were somewhat higher than our expectations. However, the company incurred one-time charges of more than 3 MEUR, and adjusted for these, operating expenses were in line with our expectations. However, the nature of the one-offs is not known at this point, so we will be listening critically to management's comments on cost developments on today's earnings call.

Credit losses in the quarter were significantly above our expectations at 4.3 MEUR (forecast: 2.1 MEUR), which naturally raises concerns about the impact of the economic situation on customers' solvency. In fact, the quality of the loan book has deteriorated slightly, which may indicate a continued high level of credit losses in the current year. In particular, payment delays increased compared to the previous quarter. Despite the strong growth, loan losses remained at a manageable level of 0.21% of the loan book.

Aktia's reported results were negatively impacted by an impairment charge of 25 MEUR on intangible assets related to the core banking system. However, this had no impact on Aktia's comparable operating income, which at 28.3 MEUR in Q4 was well above our forecast. Adjusted earnings per share were EUR 0.38, while reported EPS was zero.

Aktia proposed a dividend of EUR 0.82 per share for the year ended, which represents a payout ratio of approximately 80%, significantly higher than in previous years. Despite the lower earnings, the dividend was close to our expectations.

Earnings guidance points downwards as expected

The guidance for the current year includes an expected decline in comparable operating income (124.5 MEUR in 2024). The company expects its net interest income to decline in line with interest rates, while net commission income is expected to increase slightly. In addition, costs are rising due to IT investments and inflation. Therefore, there was nothing surprising about the assumptions underlying the guidance.

The declining result also means that Aktia is unlikely to reach its operating income target of above 120 MEUR in 2025. This morning, Aktia announced the date of its expected strategy update, which will include a review of its targets. The update will be served to investors in a few weeks on February 27. In addition to financial targets, Aktia will present its business and strategic focus in more detail.