Aktia Q3'24 preview: Falling interest rates are starting to show up in the numbers

Translation: Original published in Finnish on 11/4/2024 at 7:01 am EET.

We expect Aktia's result to have turned to a moderate decline in the third quarter, due to a lower interest income than in the comparison period and higher costs. In the earnings report, we focus not only on the numbers, but also on the development of the quality of the loan portfolio.

Steady development on the revenue side

Aktia will announce its Q3 results on Wednesday morning around 8.00 am EET. We also expect interest income to have declined on an annual basis, which would be the first time since the rise in interest rates in recent years. However, there is no drama here, as with market interest rates well below their peaks, it is only a matter of time. However, we expect the decline in Q3 to have been rather moderate and the interest income to have stabilized at 37.7 MEUR (Q3'23:  38.6 MEUR). Loan growth will remain modest as overall credit demand remains sluggish.

We expect net commission income to grow moderately from the comparison period. The increase in net commission income is supported by increased assets under management. Sales of investment funds in particular were quite brisk during Q3, according to the Fund Report. Overall, we expect Aktia's operating income of 74.8 MEUR to have been roughly in line with the comparison period.

Increased IT costs slightly lower profitability in our forecasts

We expect Aktia's operating expenses to increase by approximately 8% year-on-year. This will be driven in particular by rising IT costs. On the other hand, we expect personnel expenses to be roughly in line with the prior year. Although the bank's headcount has declined somewhat as a result of efficiency measures, general wage inflation has largely offset this effect.

We expect credit losses to increase slightly compared to the first half of the year and to be slightly higher than in the comparison period at 2.6 MEUR (0.12% of the loan portfolio).

As a result of these factors, we expect Aktia's comparable operating profit for Q3 to have been 28.2 MEUR. The comparable cost/income ratio would thus be around 59% (the company's target is below 60%). Our earnings per share forecast is EUR 0.31.

Aktia is likely to repeat its guidance on earnings growth

According to Aktia's current guidance, the company expects its comparable operating profit for the current year to be higher than last year's (104.8 MEUR). The company is unlikely to revisit this assessment in the Q3 report, as we do not see any negative factors materially impacting near-term developments.

In the earnings report, our attention is focused not only on the figures but also on the quality of the loan portfolio. We do not expect this to change significantly, although a moderate increase in non-performing loans and loan loss provisions would not come as a big surprise, as the general economic sentiment in Finland is still rather gloomy and unemployment figures have continued to rise.