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Edited Transcript of KOMPBK.OL earnings conference call or presentation 14-Aug-19 8:00am GMT

Q2 2019 Komplett Bank ASA Earnings Call

Aug 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Komplett Bank ASA earnings conference call or presentation Wednesday, August 14, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Henning Fagerbakke

Komplett Bank ASA - CFO

* Jan Olov Haglund

Komplett Bank ASA - CEO

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Conference Call Participants

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* Jan Erik Gjerland

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

* Odd Weidel

Sparebank 1 Markets AS, Research Division - Research Analyst

* Truls Langmo Roysland

SEB, Research Division - Analyst

* Vegard Toverud

Pareto Securities, Research Division - Analyst

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Presentation

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Jan Olov Haglund, Komplett Bank ASA - CEO [1]

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Welcome to this presentation of the second quarter results 2019 of Komplett Bank. With me here today, I have Henning Fagerbakke, the CFO of Komplett Bank, who will help me go through the numbers. I will begin by giving an introduction, then Henning will take over, and I will wrap up a little bit on the strategy and the outlook going forward.

Starting with the highlights of the quarter. We grew in the quarter by NOK 187 million, an improvement compared to the NOK 59 million that we saw in Q1. Growth was especially strong in Finland but also good in Sweden. We still have challenges in Norway due to regulation, but especially as we lack a competitive refinancing product. I will come back to that.

[Audio Gap]

NOK 283 million that we saw in Q1, profit after tax came in at NOK 61.4 million. We had significant nonrecurring effects. We have had an AML administrative fee of NOK 18 million as we communicated in July and NOK 11 million of nonrecurring costs. Adjusting for the AML fee, profit came in at NOK 79.4 million, which is NOK 3 million better than in Q1 where we were at NOK 76.4 million. Loan losses came in at 3.9%, a slight increase compared to the 3.7% that we saw in Q1.

Adjusting for the AML fee, return on equity came in at 20.5 -- sorry, return on equity came in at 18.6%, and adjusting for the nonrecurring costs, 20.5%. Return on assets came in at 3.1%.

We have a solid capital position. We continue to build the capital quarter-on-quarter. Currently, we have a CET1 ratio of 22%, an improvement by 0.2 percentage points compared to Q1.

Before going into the numbers, I thought I'd give you a regulatory update. Komplett Bank has grown from a startup to a midsized bank in a relatively short period of time. The organization has not kept pace. We could see that from the feedback that we received from the FSA from the site visit. As part of the actions to alleviate the shortcomings we had in the report as well as in part to build a more mature bank, we have made significant changes to the organization. In order to improve governance, we have clarified the roles and responsibilities of the management team. We have implemented a Board Risk and Audit Committee. We've implemented an internal audit function, and we have now set up a dedicated compliance and risk control function reporting directly to the CEO.

Those parts relating to AML, we have also done significant organizational changes, basically reviewing every part of the organization within this area. The newly appointed COO has been made responsible for AML, i.e. Hvitvaskingsansvarlig in Norwegian. We set up a separate team in operations reporting directly to her. We've strengthened this team with additional personnel, and we have employed an AML officer in the legal department supporting the COO as well as the AML team.

Moving on from the organization. We've also done significant changes to products and processes. This is just some examples of the changes that we've made. I split them into AML and other areas. Regarding AML, we have reviewed the overall risk assessment for the bank. AML -- the work to do in AML is risk-based. Everything you do is based on the risk assessment. We have reviewed the risk assessment, and based on this review, we have redone all processes and policies, including the onboarding and transaction monitoring processes, and ensured the implementation of these processes in the organization.

We currently are in process of implementing a new transaction monitoring system. Meanwhile, until that is in place, we are increasing our manual control. So we now have daily screening of all transactions of higher-risk customers. We've also implemented a targeted training program for all employees, and all employees have gone through this training program. And we've established a new reporting structure to management and the Board of Directors. That's examples of the actions we have taken.

Looking at the other areas. I communicated the last time that one of the effects of the new regulation is that we would implement a new annuity-based loan product in Norway compliant with the new regulation. That has been launched. It was launched the 14th of May. We've also redone the amortization schedule for our credit cards. We fully implemented the consumer lending regulation. We've implemented the debt register. We implemented a consent-based loan application process. And we have updated our planning and ICAAP processes to account for forward flow agreements.

We have -- or rather, the FSA has requested that Komplett Bank will report progress by the 1st of October 2019. We will have completed all actions requested by the FSA by that time. We are well progressed in our work.

Moving on to growth. As I said, we grew by NOK 187 million compared to the NOK 59 million we saw in Q1. The situation has been relatively stable for these 2 quarters across the product areas. We continue to decline in Norway as part due to the forward flow agreement but also the lack of a refinancing product. We are not competitive in the broker market.

That project I expect to deliver in Q4. There's been a slight delay given that we have had to prioritize the mandatory parts of the shortcomings found by the FSA. This is not a mandatory product, it's discretionary. And therefore, we pushed that in order to finalize all the mandatory parts. I expect it to be launched in Q4. That means that the volumes expected for Q3 are to be similar as you see in Q2, but I expect some improvement starting in Q4.

Finland and Sweden. Growth in Finland was very strong in the quarter, and it was good in Sweden as well. I expect -- there's been no major developments or changes, I would say, in those 2 markets from our perspective. I expect growth in the coming quarter to be similar to the one we have seen in the past 2 quarters for those 2 markets combined.

Credit cards, we declined by NOK 18 million. We see challenges in Norway in selling credit cards. It is more challenging with the new regulation given that we need to ask more questions. Everyone sits on a credit card already, and getting another one has become -- is becoming more cumbersome process to sell. We are doing a lot around the processes in order to improve that, but the new regulation is impeding those sales. However, sales in Sweden is picking up in line with expectations. Balances for credit cards, however, are slower to build than for loans. And I expect sales in Finland to pick up also in the second half of the year.

POS, stable situation, slight increase. I expect POS to continue around this pace also for Q3 and then to have an improvement in Q4. In order to significantly increase growth in POS, we need to implement the checkout at further merchants. Our focus this year has been on fixing the stuff found by the FSA, i.e., the shortcomings in the report. Therefore, we have not placed enough focus potentially on finding new partners for POS. We have discussions ongoing, but given the internal focus, they have been slower than I would have wished.

Overall, we came in on a growth of NOK 408 million when you're adjusting for forward flow sales and currency effects. It's an improvement compared to the NOK 364 million that we saw in the first quarter.

With that, I leave the word to Henning.

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Henning Fagerbakke, Komplett Bank ASA - CFO [2]

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Thank you. So year-on-year, we increased net loans balance by 19% in Q2. We see continued diversification in the loan portfolio by more loans to new markets and lower parts to the Norwegian market.

Norwegian loans ended at 51% in Q2 compared to 57% by the end of 2018. In the same period, Finland -- loans of Finland increased from 22% to 26%. Becoming more -- or sorry, less dependent on one market and one product, we underline our strategy by going into new markets. We want to build more legs to stand on, and you should expect that we will be more diversified going forward.

In regards to our total income, we grew year-on-year by 21% in the second quarter. The launches of loans in Finland and Sweden as well as POS are the main reason why you see those growth numbers in 2018 and 2019.

In April, we launched a term deposit in Germany. And now we got 3 products in the German deposit market that will contribute high volumes through lower interest rates. Deposit customers increased by 6,000 in the second quarter, and that is because of the German deposit market.

When it comes to operating expenses, total operating expenses was NOK 128 million in the second quarter compared to NOK 108 million in the first quarter. The main reason for the change is the AML administrative fee of NOK 18 million in the Q2.

In the Q2, we have approximately NOK 11 million in nonrecurring costs. That is slightly higher than the NOK 8 million you saw in the first quarter this year. The cost relates to engagement of external support in implementation work following the FSA report as well as investigating strategic opportunities. When it comes to nonrecurring costs, we expect that to decline in next quarters.

The cost-to-income ratios, excluding marketing expenses, was 29.3% in Q2 compared to 28.1% in the first quarter. Cost-to-income ratio, including marketing expenses, was 37.3% in Q2 and 28% in Q1.

We see a stable positive portfolio and coverage ratio the last 12 months. And as of Q2, we see that 13.5% of the total portfolio is positive compared to 14.1% in the first quarter. By the end of the Q2, we had slightly below 60% loss reservations for defaulted loans. On the right side, you can see there is a slightly increase in the loss ratio from Q1 and Q2, 3.8%, 3.7% and then 3.9% in the second quarter now.

When it comes to losses, losses in the quarter have increased from NOK 72 million in the first quarter to NOK 78 million in the second quarter. You've seen the waterfall on the left side before, and there is where we break down the losses in different stages. For Stage 1 and 2, the losses have increased -- excuse me, the losses are NOK 7 million in total, and that is mainly because of new sales in Finland and Sweden and more loss reservations for that. For Stage 3, losses have increased from NOK 15 million in Q1 to NOK 34 million in Q2. There is a corresponding decrease in Other in the same period because of our nonperforming credit card portfolio we sold back in the first quarter. In Q2, the Other column is in the majority occurred losses from the sold portfolio in the forward flow contract with Axactor.

We also have changes of estimates in the Q2 in the loss model. And the net effect of the parameter updates are approximately 7 -- NOK 6 million. There are 2 changes, main changes, and that relates to credit conversion factor and loss given default. Credit conversion factor is an estimate of how much of the unused credit limit that will be drawn in the future. We decreased the credit conversion factor in Q2 for current loans in Stage 1 as the credit conversion factor estimate was too prudent historically. The effect of this change is NOK 25 million positive.

The current forward flow contract with Axactor will expire by the end of 2019. We increased our loss given default estimates in the Norwegian portfolio to reflect our best estimates on forward flow contracts in Norway. This resulted in a negative effect of NOK 29 million. If we have no new contract on the forward flow by the end of 2019, we estimate approximately the same negative amount in second half of 2019.

Considering the AML administrative fee, we have improved the profit after tax by NOK 3 million compared to the first quarter from NOK 76 million to NOK 79 million. Return on equity is quite stable, about 18.6% compared to 18.8% in the first quarter. If we adjust for the nonrecurring costs as well, the return on equity was about 20%, which is our financial target.

We see stable yields for both credit cards and loans in the short term but have slightly decreased from very strong yields back in 2017 when we launched loans in Finland. Average yield in new markets are lower in -- lower than in Norway, and that will bring down the average level of yields. We are still satisfied with the current yields given the diversified portfolio.

Also more funding from the German deposit market in combination with less funding in the Norwegian deposit market, yield on deposits are now trending down. Interest rates in Germany are about half of Norway. We increased funding from the German deposit market by EUR 179 million. And we are planning to launch another deposit project in Sweden by the end of 2019. That will contribute to diversifying our funding base and also lower funding costs.

Capital. As you see, we have a strong CET1 ratio as of Q2 2019, increased from the previous quarter. And that is significantly above the current requirement from the FSA of minimum 18.2%. We have control over our capital ratios and can decide to decrease or increase based on the growth that it achieves. We will consider raising more capital to increase total -- more additional capital to increase the total capital ratio, if required, in accordance with the mandate that was given by the General Assembly in March.

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Jan Olov Haglund, Komplett Bank ASA - CEO [3]

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Okay. Strategy and outlook. Is the mic on? I will give you a little bit of a perspective on the strategy and outlook. Looking first at the product development that has taken place in this quarter. We launched an annuity-based loan product in Norway in May in order to be compliant with the new regulations. That will help us protect sales in the direct channel, especially to new customers. We have also launched Google Pay and Apple Pay in the quarter. Google Pay and Apple Pay enables all our cards for true contactless mobile payments across the Mastercard network.

And if you're looking at Q2 or rather the second half of the year, we are planning to launch a refinancing product, an annuity-based refinancing product to increase our competitiveness in Norway in especially the broker channel. We're also planning to launch deposits in Sweden to diversify our funding base as well as bring down our funding costs.

Looking more at the big picture. Ever since the inception of the bank, the target was to have loans, cards, POS and deposits across Sweden, Norway and Finland. With the launch of deposits in Sweden later this year, that road map is complete. Why did we have this road map? First of all, it enables us to be less dependent on one single product and one single market. As we can see in the current quarter, where we're declining in Norway, but we are able to compensate by growing in the other markets. The second reason is that it enables economies of scale. By serving all of these products and markets from one single location, it generates economies of scale. And those 2 combined will enable us to deliver sustainable returns to shareholders over time.

For the coming 12 months, we do not plan to go outside this road map. Our focus will be to improve the product we have within the markets we are present and to deepen the penetration within these markets. The reason for this is that we don't need more markets currently. We have significant room to grow within the markets we are at. The reason is that we have recently launched in a number of the markets and have low market shares and good opportunities for growth in this.

Financial targets. We communicated new financial targets in Q1. These remain unchanged. We said that we would have a capital CET1 ratio above 19.2%. We're currently at 22%, significantly above this target. We said that we would have an ROE over time above 20%. We've had a challenging year with the shortcomings found by the FSA in the report. We have had to invest significantly. We have other nonrecurring items such as the AML fee. However, underlying, we expect for the year when you exclude the nonrecurring items to deliver above 20% return on equity. That's the underlying business.

Lastly, we see no point in sitting on excess capital. If we have excess capital, we will distribute it to shareholders. I have no time line on that yet. I expect us to have a discussion in the beginning of next year depending on the growth prospects that we see at that time. So I cannot communicate anything regarding potential dividends in 2020 based on 2019 results. But I'm sure it's going to be a discussion depending on the situation at that time.

Thank you. Questions?

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Questions and Answers

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [1]

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Jan Erik Gjerland. Regarding your potential re-domicile thinking and how should we think about that going forward? Is it 20% ROE based on your Norwegian domicile so far? And should you -- could you manage on your own in Norway with your opportunities you see forward?

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Jan Olov Haglund, Komplett Bank ASA - CEO [2]

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Good question. As I'm sure you understand, our focus for this quarter has been to alleviate the shortcomings found by the FSA. We've had an internal focus fixing processes, organization product for the quarter. We are well progressed in this.

Regarding the bank's growth prospects and the 20%, yes, the 20% is based on a Norwegian domicile. If we would have a Swedish domicile, for example, our capital requirements would be significantly lower, and thus, our ROE significantly higher. But 20% return on equity is good. I see that we, with our current footprint, our current capital, our presence in the markets we are in, with the products we have, have good opportunities for organic growth. This is the main focus that we have. At the same time, we see that -- or believe that there is going to be consolidation within this sector, both on a Nordic basis as well as a Pan-European basis. Komplett Bank, as the largest or one of the largest independent consumer finance companies in this region, is a potential target or a participant in such consolidation. We are willing -- or we will seize those opportunities for such consolidation. We are open for them as long as they create value for our shareholders. Does that answer your question?

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Odd Weidel, Sparebank 1 Markets AS, Research Division - Research Analyst [3]

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Odd Weidel, Sparebank 1 Markets. Just to follow up Jan Erik Gjerland's question. How should we think about the cost line going forward? Should we expect continued nonrecurring items also in third quarter and fourth quarter or...

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Jan Olov Haglund, Komplett Bank ASA - CEO [4]

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Also a good question. We had nonrecurring costs of NOK 8 million in Q1, NOK 11 million in Q2. I expect this to decrease in Q3. There still will be nonrecurring costs in Q3 given that we are still fully working on alleviating the shortcomings in the report. We also had structural costs, especially in Q1 and Q2. But I expect the level to be lower in Q3, and I expect it to be very limited in Q4.

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Odd Weidel, Sparebank 1 Markets AS, Research Division - Research Analyst [5]

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Just to follow up on the competitive picture. You see both you guys and Bank Norwegian has declining volume in Norway, while the Swedish banks typically report very high volume growth. So how do you see the competitive picture here?

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Jan Olov Haglund, Komplett Bank ASA - CEO [6]

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Well, capital requirements are important for the growth that you can take on. Norwegian banks have significantly higher capital requirements than the Swedish banks. I think going forward, we have an ROE target of 20%. That basically also sets the amount of growth that we can take on. Of course, we can take additional Tier 1 and Tier 2 to boost this growth, but 20% on a long-term basis is the growth capacity. We have said that we are looking at dividends versus growth. That's a discussion we will have. I don't think that you should expect growth of exceeding 20% going forward given the ROE target, but we basically decide on the level of the growth that we want depending on the return we can get in the different markets. And it's going to balance that growth to also look at the perspective of dividends going forward.

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Odd Weidel, Sparebank 1 Markets AS, Research Division - Research Analyst [7]

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Just one last question. Will the change in systemic risk buffer also alter the competitive picture in the market as you see it?

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Jan Olov Haglund, Komplett Bank ASA - CEO [8]

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We are still doing our analysis on that one. I think it might. I don't think it's materially going to change our capital requirements, but if it's going to be, what you call it, reciprocative, it might be positive. It all depends, though, on what the other regulatory bodies do. So it's still a little bit uncertain.

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Truls Langmo Roysland, SEB, Research Division - Analyst [9]

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Truls Roysland, SEB. First, a few questions on growth. Can you quantify how much you are losing in terms of net lending growth with not having a viable refinancing product?

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Jan Olov Haglund, Komplett Bank ASA - CEO [10]

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I don't have an exact number of that. I would say that we have around -- net of forward flow, we have around NOK 4 million growth in Norway. I expect Norway to come back to growth going forward. But if that is a positive contribution of NOK 50 million or NOK 100 million or NOK 150 million, I don't know, but it's not going to be NOK 500 million. And we don't have the capacity ROE-wise or capital-wise to grow by NOK 500 million as we did a year ago. I'm talking NOK 50 million to NOK 100 million, NOK 50 million to NOK 150 million.

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Truls Langmo Roysland, SEB, Research Division - Analyst [11]

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Okay. So positive growth in Norway in Q4 is kind of your guiding.

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Jan Olov Haglund, Komplett Bank ASA - CEO [12]

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Depends on what happens to the forward flow, depends on when in Q4 we launch the product. I think if we continue with the forward flow product, I expect growth to be -- for '20 more balanced in Norway. As to the effects in Q4, I cannot say, too many uncertain factors in terms of the launch timing.

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Truls Langmo Roysland, SEB, Research Division - Analyst [13]

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And on that topic, you've had the debt registered now in over a month. What's your findings? And does that kind of change your view on the future growth prospects in Norway versus what your base case was before it was launched?

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Jan Olov Haglund, Komplett Bank ASA - CEO [14]

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Regarding the debt register, there is one -- first of all, I should say, we fully support the implementation of a debt registry. We work with debt registers both in Sweden and Finland. We have good experiences of debt registers. I believe it will be positive over time. Short-term implementation effects, though, in Norway is that the register currently only covers consumer finance loans. It does not cover housing loans, car loans, boat loans or student loans. With the new regulation, we manually need to collect this information from the customer. This has made the sales process slower because we need to collect more data points in order to fulfill the regulation. That makes the process of sales slower. So that's a negative effect. However, I think with the refinancing product, we will target a segment where people are motivated to go through that process, and that it will contribute positively that way.

So I don't think materially it's going to change. But what the debt register does, it is excluding a certain part of the customer portfolio for all Norwegian banks who no longer can get every loan. That means that if you're looking at the effects of the debt register, I think it will have a decrease on churn given that customers can no longer refinance a loan that they had. We should then remember that they're actually serving the loan they currently have, otherwise they would not be able to refinance. But there will be a short-term impact in that some of these customers can no longer refinance their loans. So short term, yes, you will have a duration improvement, but you might also have an increase in losses. But long term, it's only going to be positive on the loss side because it provides more information, and nobody gains anything by providing money to people who cannot repay. So it's good for society, it's good for the bank and it's good for the individual.

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Truls Langmo Roysland, SEB, Research Division - Analyst [15]

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With regards to you said you manually have to collect a lot of information, is that like firm? Every player in the industry have to do the same? Or are you kind of interpreting things very conservatively given your relatively harsh reports from the FSA? Can that change?

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Jan Olov Haglund, Komplett Bank ASA - CEO [16]

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We are not in a position to challenge the FSA on that point. Our understanding of the regulation, we might have taken a prudent understanding that. I know others have not been as prudent. But based on our interpretation and based on the history we've had with the FSA for the past year, we've taken a conservative standpoint.

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Vegard Toverud, Pareto Securities, Research Division - Analyst [17]

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Vegard Toverud from Pareto. I would like to discuss the FF or the forward flow agreement. Wasn't it so, or am I messing up the details there, but didn't you have an opportunity to prolong the agreements? Or has that already been used? Or how should we think about that?

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Jan Olov Haglund, Komplett Bank ASA - CEO [18]

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We have been in discussions with Axactor. I should first of all say, to my understanding, both we and Axactor are very satisfied with the current agreement we have. We have had a discussion with Axactor where they have said that they -- the option was on their side. The forward flow agreement expires in November, so the last batch we'll send will be in December. They have said that they do not want to prolong at the current terms, but they are interested in a prolongation. But we need to review both the structure and potentially the price.

There has been changes also for collection companies in terms of the capital requirements. It might be that structurally we will structure an agreement differently than we currently do when we sell at 90 days. It might be that we will sell at 12 months or 18 months and have a debt recovery guarantee agreement. Still having a positive effect for us as well as our partner. So that's in discussions. We're currently also contacting other parties. So we are in contact with multiple parties regarding an agreement, Axactor is one of them. Of course, we would like to continue with them, but we are also open to have others or multiple suppliers.

And that's one of the reasons why we changed the LGD for the quarter that we went through. With the IFRS 9 standard, you should make a forward-looking projection in terms of losses. As you also might recall, we had positive one-off effects on losses in Q1 and Q2 in 2018 given when we entered the forward flow agreement. Those amounted to approximately NOK 60 million. Now when we're exiting the forward flow agreement or signing a new one, we need to reflect that there is an uncertainty regarding the terms, and therefore, we've chosen to proactively do an adjustment in this quarter based on our best estimate. And we've also highlighted, okay, what happens if there is no contract, but that's just for information purposes. I believe that there will be a new contract, but we are still early in discussions.

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Vegard Toverud, Pareto Securities, Research Division - Analyst [19]

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What was the LGD then changed from and to?

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Jan Olov Haglund, Komplett Bank ASA - CEO [20]

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We do not communicate LGDs on individual portfolio levels, but we have taken approximately half the change as we reported NOK 29 million and expect approximately the similar for the next quarter.

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Vegard Toverud, Pareto Securities, Research Division - Analyst [21]

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So -- but if the counterparty for the forward flow agreement can be other than Axactor and the pricing are up for discussion, what was then the content of this option?

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Jan Olov Haglund, Komplett Bank ASA - CEO [22]

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The content of the option was to continue at the current terms for another 6 months.

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Vegard Toverud, Pareto Securities, Research Division - Analyst [23]

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Okay. But they turned that down.

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Jan Olov Haglund, Komplett Bank ASA - CEO [24]

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Yes.

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Unidentified Analyst, [25]

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(inaudible)?

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Jan Olov Haglund, Komplett Bank ASA - CEO [26]

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We have no -- basically no currency risk because we have a facility ensuring that we don't take currency exposure. We are now more or less balanced in terms of euro, in terms of deposits and lending. In Sweden, we are not balanced as we don't have a deposit product. So we're funding the Swedish loans with Norwegian deposits, which is costing us money. The Norwegian deposit rates effectively is approximately -- or just over double what you can expect in Sweden and in Germany. And that's one of the reasons why we're launching SEK deposits later this year.

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Unidentified Analyst, [27]

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(inaudible)?

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Jan Olov Haglund, Komplett Bank ASA - CEO [28]

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We have no currency risk. We have a multicurrency cash flow, which is being offset regularly.

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Unidentified Analyst, [29]

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(inaudible) When you now have implemented the debt register, have you been able to go through your current loan book and see if they have exposure to other consumer financing institutions that are not like provided when they applied for the loans?

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Jan Olov Haglund, Komplett Bank ASA - CEO [30]

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No, we haven't yet. We're looking into that possibility to see if it is possible.

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Unidentified Analyst, [31]

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Just one follow-up. So that you expect the credit growth from credit cards in Sweden and Finland in your report, I just wanted to understand how you could expect that to happen. Is it something you're doing with your credit card? Or is it just that you're expecting to actually utilize them a little bit more?

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Jan Olov Haglund, Komplett Bank ASA - CEO [32]

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Well, we recently launched the product in Sweden and Finland, so we basically have no balances currently. And when we start selling, we're expecting balances to build up. As I said, we have had good strong growth in Sweden -- or we've had good growth in Sweden in line with expectations in terms of new cards. The utilization of limits for credit cards is slower than for loans, so the balance buildup is slower.

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Unidentified Analyst, [33]

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And finally, for point of sales. You said that you have not been able to sort of work so hard to get new ones on board. How will that work or process going into the second half and into next year? What is your competitive edge, so to speak, when it comes to getting people on board?

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Jan Olov Haglund, Komplett Bank ASA - CEO [34]

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We are in strategic discussions with several partners. And it is a competitive market also for POS. As I said, the pace of those discussions has been slow. We have had an internal focus. I believe that we will continue to have an internal focus for the coming quarter, but that we need to increase our efforts within this area going forward.

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Truls Langmo Roysland, SEB, Research Division - Analyst [35]

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Just a follow-up on the point of sales. How big share of your cost base kind of is due to the point of sales?

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Jan Olov Haglund, Komplett Bank ASA - CEO [36]

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I actually don't have that information. We have a lot of shared functions. So I don't have the cost breakdown on point of sales.

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Truls Langmo Roysland, SEB, Research Division - Analyst [37]

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But it's not profitable yet? Or are you -- like is it profitable as is now?

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Jan Olov Haglund, Komplett Bank ASA - CEO [38]

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We are generating -- I mean we have a business case for point of sales. We are delivering high margins, I would say, on that. And given that it is relatively large share of shared costs in point of sales, I can't tell you the margins. But yes, we are profitable in terms of the numbers that I have.

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Truls Langmo Roysland, SEB, Research Division - Analyst [39]

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Okay. And lastly, for me. Net commission income has been extremely variable up and down. Can you kind of give us a sense of what is the underlying figure and what we should expect from here? It was...

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Jan Olov Haglund, Komplett Bank ASA - CEO [40]

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I don't think -- for this quarter, we -- I mean net commission income, yes, it goes a little bit up and down. It depends on the sales in each quarter. Some of the commissions are dependent on sales. I don't think we have any one-offs in this quarter for net commission income that I know of.

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Henning Fagerbakke, Komplett Bank ASA - CFO [41]

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No. But it's come down from the first quarter about NOK 3 million or NOK 4 million, if I remember correctly. And we had -- in first quarter, we had a couple millions one-off income effect. So that's probably more or less the reason for the decrease from the first quarter.

But I will also add that if you compare it to last year, you will see that is a big change after implementing POS. And there is a lot of provision expenses, income and some expenses as well going into POS and also, of course, insurance products in Finland and Sweden.

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Jan Olov Haglund, Komplett Bank ASA - CEO [42]

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Any more questions? Do we have anything from the webcast?

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Unidentified Company Representative, [43]

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There are a couple of questions from my line. Firstly, regarding forward flow agreements. There's a question, will a new deal like we have lower -- result in lower margins for Komplett Bank?

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Jan Olov Haglund, Komplett Bank ASA - CEO [44]

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I think we went through the forward flow agreement and the short-term effect. And I think the indirect answer -- I mean the indirect question there is what will happen to loan losses going forward. All else equal, yes, forward flow contracts in Norway have an impact on loan losses depending on the terms. I should, however, also say that the volumes going into loan losses have an effect. We did significant credit tightening after Q3 last year. We have the debt register, which I also expect to improve quality. We have the opportunity to provide -- to also enter into forward flow contracts in other markets, and I also expect credit quality to increase over time. So making a prediction on loan losses is not something that we provide. We don't provide guidance, but I can give you a little bit on the items affecting loan losses by saying what I did.

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Unidentified Company Representative, [45]

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And there's another question. It says -- it's regarding loan losses actually and says, why does some platforms have higher loan loss provisions than Bank Norwegian? Loan loss provisions for Komplett Bank is just 1% -- I guess 1 percentage point higher of total loans compared to Bank Norwegian.

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Jan Olov Haglund, Komplett Bank ASA - CEO [46]

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Well, we have our IFRS 9 model and they have their IFRS 9 model. I have no insight into their model. We have done the best estimate based on our model, and that results in the loan losses that we have. I cannot comment on the comparison.

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Unidentified Company Representative, [47]

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Two more questions. First, regarding the strategic growth opportunities you mentioned, how many candidates are you talking to? And when do you expect to conclude?

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Jan Olov Haglund, Komplett Bank ASA - CEO [48]

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I've already talked about the focus that we had for this quarter regarding the report from the site visit. Yes, we have had discussions. Those discussions are continuously ongoing. There is always -- as I said, I believe there will be consolidation within the sector going forward. When or who will be involved, I don't know. I cannot comment really on any concrete discussions that we have had or have.

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Unidentified Company Representative, [49]

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And then finally, there's a question, is the sky bright or cloudy for Komplett Bank going forward?

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Jan Olov Haglund, Komplett Bank ASA - CEO [50]

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I would say that it's bright. I mean we have a solid capital position. We generate solid returns of approximately 20% ROE. We have a road -- a footprint, both geographically and product-wise, that will enable us to balance growth and dividends going forward. So from my perspective, it is bright.

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Unidentified Company Representative, [51]

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No more questions.

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Jan Olov Haglund, Komplett Bank ASA - CEO [52]

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Thank you.