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Edited Transcript of NOFI.OL earnings conference call or presentation 20-Feb-20 7:30am GMT

Q4 2019 Norwegian Finans Holding ASA Earnings Call

LYSAKER Mar 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Norwegian Finans Holding ASA earnings conference call or presentation Thursday, February 20, 2020 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Pål Svenkerud

Bank Norwegian AS - CFO

* Tine Gottlob Kirstan Wollebekk

Norwegian Finans Holding ASA - CEO

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Conference Call Participants

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* Håkon Astrup

DNB Markets, Research Division - Analyst

* Jan Erik Gjerland

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

* Johan Ström

Carnegie Investment Bank AB, Research Division - Analyst of Financials

* Truls Langmo Roysland

SEB, Research Division - Analyst

* Ulrik Årdal Zürcher

Danske Bank Markets Equity Research - Analyst

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Presentation

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [1]

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So good morning, and welcome to the Norwegian Finans Holding fourth quarter presentation today. I think we will go straight into the numbers and highlights. I guess some of you took a break in the winter holidays to come in, so thank you for that. We'll get you back soon in the slopes, hopefully.

So we are happy to report a strong result in the fourth quarter of NOK 504 million after-tax profits and NOK 1.981 billion for 2019. We continue to have a strong profitability basically due to our stable margins and credit quality and our continued cost efficiency.

We -- our balance sheet, I think, is more resilient than ever. We had a nice loan growth in the fourth quarter, NOK 973 million. There was some moderate FX effect of NOK 100 million compared to NOK 307 million positive effect in the third quarter.

The growth is combined equally between credit card and loans. We did issue MREL-qualifying bonds in fourth quarter, NOK 2 billion and SEK 1.6 billion. We did a buyback on Swedish krona as well but just under 3 billion in MREL-qualifying. So we're very pleased with that. We've got the requirements quite late in the fourth quarter.

A strong CET1 of 19.7%, and then we have some changes in accounting for loans in debt collection, and we also have some changes in the IAS 12 on income tax, and I'll get back to that in a little bit more detail.

For other events, we proposed a dividend of -- a cash dividend of NOK 3.18, and we also proposed a buyback program of up to NOK 150 million. We did also receive our revised SREP in January of 18.5%, which is 40 basis points below the previous requirement. And then on the EU expansion and EU domicile, we continue to progress in our plans, and we do not see any red flags or issues so far, but it does take some time to get through.

Customer growth, 33,000 new customers in the quarter, very good customer inflow in Finland, Sweden and Denmark. In Norway, we still see some attrition, especially cardholders who consolidate their card portfolio. As you know, in Norway, your unused credit limits are added to your unsecured debt. So it is not everyone that want so many cards that they used to have.

We see the opposite effect of that, is that we also have a lot of our active customers who use the card even more. So I think the effect for us when we talk about the profitability is that it's no big change in that sense. Otherwise, we have very active customers, more than 7 million logins, and we now have over 600,000 customers connected to the app and using the app, which I find is very positive for a digital bank.

Then a bit about the accounting changes in the fourth quarter, first of all, the change of method for accounting loans in debt collection. So we, in Bank Norwegian, we have been using a method where we stop calculating interest when the loan is -- when the loan go into debt collection. We only account -- we have used to only account for interest actually paid. The new method, we will calculate interest on all loans in debt collection. So you can say we go from a net to a gross principle on this.

This one had some effects. The main thing is that there's no significant effect on earnings and on capital. But I think it's important to stress that the under -- the gross numbers are changing from what you used to see, and we have to take these method changes into our provisioning as well. Because if you think about it, we used to have a total charge-off of all interest on loans in collection, which we find is a very conservative way of looking at it, and then we only take in the actual paid interest. Whereas now, we are calculating this, which is in accordance with IFRS 9, and then we are doing the charge-off or provisioning for that.

So we have done comparable figures, and we stated in the report, in Note 15, and we will also work with you. We also have the fact book where we have put in all the data.

So the effect of this is that we have a slightly positive effect on income, pretax of NOK 23 million for 2019. We have 4 basis points on the capital. Then the gross measures, as I mentioned, are impacted, the increased loan yields, increased interest margins, increased provisions and NPLs and loan loss allowance. We will see that as we go through the report. We also see, of course, a decrease in cost income ratio. What is important to see is that there's no change in the underlying asset quality, and these are just change of method for accounting.

The other thing we are just commenting on here is the change of the income tax where we have tax on dividends, on recognizing profit and loss and not directly in equity. That's a very technical standard change. The only reason I mention it here is because on a consolidated level, it's not a big thing. It's about NOK 11 million for the year, a positive effect. But on the unconsolidated and country level, this makes a big difference because the tax in the bank is significantly lower, and you will see that in the country level. So I found that it was worthwhile just mentioning it here in the introduction. And then we will go into the country level, and I'll show you right away when you look at the Norwegian numbers, you will see quite a nice development in earnings after tax of NOK 360 million, which is, to a large extent, explained by the tax, which is now taking on the holding level. And also, to some extent, we have a positive effect in Norway of the change of accounting method.

So when you look at these effects in isolation, we have earnings in the fourth quarter for Norway which are slightly better than the third quarter.

We have -- the installment loan growth is negative in the quarter, not as much as I stated here of the NOK 318 million because since we have changed method, we also have used the recognition of charge-off in Norway. So you have to take that into account. So all in all, you can say that the deduction is not NOK 199 million, but less than NOK 100 million.

So we're quite pleased with the Norwegian market. We get loan applications at the same level as we used to. We have a slightly higher -- or lower approval rate. We are still continuing to increase our market share in Norway, it's now at [17.6%]. So all in all, we're very pleased with the Norwegian market.

When you look at the loan loss allowances, as you see, they are going down, which is a combination of the fact that we do the final charge-off, and we do them to bridge the previous and the new method. And we also had a management override, as you remember, for model adjustments, and that management override was a little bit exaggerated. So the actual adjustments were -- we had a bit overprovisioning there.

Otherwise, for the Norwegian market, I would say that we are adapting very well to the conditions in Norway, and we find that it's a very good market to work in.

The Swedish market, here, we also see a positive impact by the accounting method change and the provisioning. Here, comparable, the Q4 is slightly below the Q3. We have a good development in Sweden this quarter. We are conservative, as you know, to the Swedish market when it comes to installment loans. But this quarter, we've had a good progress, and the card business in Sweden is going very well.

So I think for the Swedish market, you will see an increase in the loan loss allowance, especially connected to the model change that we've done in order to capture the change in the way we account for the interest. Strong credit card growth continue in Sweden.

The Danish market, as you see, a big jump. This is due to the change in the tax, and the comparable number is that it's quite flat development in Denmark. Very positive development overall in Denmark, with a good increase in the loan, and the credit card is more or less of a cut-off effect for the quarter.

Here, you also -- we have the derecognition of the charge-off, and just remember, this charge-off that we are not normally practicing because the ECL model will capture the impairment of the loan. The reason we do this charge-off in the bridge between old and new method is that, as I mentioned in the beginning, we used to do, in a way, a final charge-off of all interest on loans in debt collection.

What I also think is nice to highlight in Denmark is the stable deposits. As you remember or may remember, we decreased the deposit rate from 0.70 to 0.30. We are still having a very attractive rate, but the 0.70 was outstanding. However, we have not seen a big change in deposit for that reason, and of course, it is helping the bank's funding cost.

The Finnish market, the change in accounting method and the tax is actually here outweighing each other. So there's no big difference in that. We have strong interest development still in Finland. As you see, we are progressing very well on the growth, and what is especially positive is that it has a very good quality and then we've taken down the risk substantially in Finland.

Here, you see the changes and modifications on models, which is also taking into account the new principles. I think otherwise, yes, for the Finnish market, it's going well because we implemented the interest rate ceiling in September. And we do not see any major effects on that either. I think for us, this was -- we were just -- I mean, this was an interest rate ceiling of 20% and also a cap on fees of EUR 150, including on cards. But I think that goes very well into our business model.

Yes, so that was an introduction on the country level. And now Pål will go into the results, where you'll see also some of the numbers have changed, so might well we try to explain that as we can.

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Pål Svenkerud, Bank Norwegian AS - CFO [2]

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Yes, we report another strong performance in the fourth quarter with a earnings number of NOK 504 million. The increase in net interest income is largely driven by customer and loan growth as margins are largely stable. We record higher net fee income mainly due to lower issuing services costs. We also have additional issuing income, which is outweighing the positive effect -- the positive seasonal effect that we had in Q3.

There's also a NOK 16 million negative change in FX and gains loss on securities. There's a NOK 27 million gain on currency in the quarter, partly offset by a NOK 20 million negative change in value on the securities portfolio.

Operating expenses are up mainly due to higher digital marketing expenses. The provision level is stable in the quarter, and the profitability remains high, with an ROE of 23.5% and a strong ROA of 3.6%.

For the full year, we're delivering earnings close to NOK 2 billion, up NOK 174 million from the previous year, and the earnings growth is mainly driven by increased customers and loan volumes. ROA (sic) [ROE] records a strong 25.2% and ROA is at 3.8%.

The balance sheet, we had a loan growth totaling NOK 1 billion compared to NOK 1.8 billion in Q3. Currency adjusted, the loan growth was NOK 0.9 billion compared to NOK 1.4 billion in the third quarter. There was a NOK 400 million increase in installment loans and, yes, NOK 474 million in credit cards.

Sales of installment loans were stable at NOK 2.2 billion. Well, we had a slightly higher runoff. And if you look at the metrics behind the installment loans, we see that there's a fairly stable number of applications. But there's a lower acceptance rate, lower payout rate, and we also have lower loan size.

And on the credit cards, there's a reduction in the net number of new cards issued, and that is related to people in Norway closing their unused card accounts, but we get a better performance on the remaining active customers, and the portfolio continues to exhibit very strong performance metrics.

On the liabilities side, we had a strong deposit growth. In addition to that, we had an issuance of NOK 2 billion and SEK 1.6 billion in order to satisfy coming MREL requirements. And we are now in a good position in terms of fulfilling those requirement already satisfying the earliest requirement midyear 2020. And the issuance contributes to extend the maturity of our portfolio and also adds to the further diversification of our portfolio. And we have a deposit-to-loans ratio of 0.9, which is slightly down.

The yields and margins are -- they are stable. The margins are impacted by lower asset utilization due to the issuance of the senior debt related to the MREL requirement and resulting increase in liquid assets, and we see that the increased cost of wholesale funding is outweighed by more favorable pricing on our deposits. We observe very stable loan yield, although at a higher level due to the accounting change. But note that the risk-adjusted loan yield is unaffected as increased gross yields are offset by increased provisions, and you can see the effect on the next slide.

The NPL and provision levels and trends are impacted by the restatement, but there is no change in the underlying NPL development. And also, if you look back to Q4 '18, keep in mind that we had a sale of portfolio in Finland in that quarter. And the allowance levels are increasing from previously reported levels. And we're also taking lower risk on new loans' proprietary scorecards, and continuous model improvements are yielding improved credit quality in recent vintages.

Yes, we continue to report a very high operating efficiency. We had higher digital spending -- marketing spending in Norway and Denmark in addition to a volume-based increase in reward expenses. And we also had higher costs related to external services, partly offset by lower IT costs, and the cost income ratio is very low at 0.24.

On the capital side, we report a strong buildup in capital in the quarter. We report a consolidated CET1 ratio of 19.7%, adjusted for the proposed dividend. And as previously mentioned, we have received recently a revised SREP with a 5.8% Pillar 2 requirement, plus a 1% management buffer, totaling 18.5% requirement as of March -- end of March.

We also have -- we have a very strong capital position with high internal capital generation and ample capital for both growth and dividends going forward.

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [3]

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So just to round off, I just wanted in the outlook to talk a few minutes about regulatory trends for the financial sector. And the reason I bring it up is because there is quite a lot of focus in, especially Norwegian media, on regulations as something negative for the industry. And I think I want to emphasize that consumer lending is in focus across all of Europe. And that goes together with AML and KYC, or Know Your Customer and Anti-Money Laundering regulations.

And so I think Norway is very well in line and following the trends of Europe. And I think for us, we welcome very much a playing level field and transparent conditions. So I think it's worthwhile just to put that in perspective, that I think the reason we have this focus in Norway is that we might not have had such a regulated market in the past. And I think what we're seeing now is really more getting Norway into the same path as most other markets, and I'll put up -- we put up just an update. We'll not go through all the details, but they are the same topics that are on top of everyone's mind, both in the Nordics and in Europe.

About debt register, this is all about how much solid information can we provide to banks, and we have introduced that in Norway in '19. It's been for a long time in Sweden, works very well, and it also exists in a number of other countries. Denmark and Finland have it voluntarily.

Other topics like debt ceiling is also very much on the agenda in Europe, and we have it in Norway. We -- they are looking at it in Finland, and they do not have the same agenda at the moment in Sweden and Denmark.

Interest rate ceiling, it's being debated in Norway. It is a concept that is introduced in the other markets we operate, and it's very normal across Europe as well. So I think it's something that is not -- it's giving a parameter for the industry, but it's not something that is damaging in the industry. It's just the way that we have to design loans and what kind of offers the customer can actually access. This is especially something that has been a problem for providers of very small loans, for example.

Other regulations, typically focusing in Europe and also in Nordic, about how we do credit vetting, the quality of that and what information we put into that.

Marketing as well, something that we also support that there is a focus on the regulations of that.

So all in all, I think, for us as a bank and the concept we are working on, this works well for us when you are a long-term player.

Then about the dividends and the repurchase of shares, we are very pleased to announce our first cash dividend, as mentioned, at NOK 3.18, and the buyback program. And then the Board has also updated the dividend policy, stimulate -- stipulates a payout between 30% and 60% in cash dividend. In addition, repurchase of shares will be used to allocate capital when appropriate.

Then just a summary, what I think is a very promising outlook for the bank. Start with the Nordic market, we have very favorable market conditions that support our continued growth and profitability. We do have a very strong distribution capability, I think, in difference to many others in the industry. And we also have a very deep customer know-how, which I think helps us in our analytics and how we position ourselves in the market and with a very attractive and diverse customer base.

When you look at the numbers that Pål presented, I think, especially when you look at the KPIs, we do see a short term -- when we adjust it, we see a hike up. I think that will go down again because that was an adjustment to the levels that we -- at the new levels, but they will be going down in the -- going forward.

For the European expansion, we are in the final stage of the exploratory phase with the Central Bank of Ireland, and we're also preparing now to extend our systems platforms and operating platforms across new markets. But we have not come as far as so we can announce any news this quarter.

Then just I think on the industry landscape, it's important to observe that profitability in the financial sector is still very much about the balance sheet and the underwriting capabilities. I would not -- I mean, maybe it's a bit harsh to say, the honeymoon is over for the tech companies. But I think it's important to see the dynamics of the sector, both in the Nordic and across, and how the trends have been projected. And I find that our bank is very well positioned in this space of being very digital, having very digital, agile customers and at the same time, having a very resilient balance sheet and underwriting capabilities.

I think for the PSD2, that we have not seen so much of that effect in the Nordic yet. But for us, when we look at the new markets, we find that PSD2 might be a very good lever for us to access different -- especially on savings, so that might be very interesting.

So I think all in all, there's been a lot of numbers today, but at the heart of all of this, I think, Bank Norwegian is a very outstanding performer because we have a very good team, an outstanding team and working spirit. So it's been a pleasure to present these numbers.

Thank you so much.

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Questions and Answers

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [1]

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Questions?

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Unidentified Company Representative, [2]

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Yes, questions. We'll start with (inaudible) 2 questions per person (inaudible).

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [3]

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We're tough.

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Håkon Astrup, DNB Markets, Research Division - Analyst [4]

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Håkon Astrup from DNB Markets. Two questions from me. The first one on -- you see that the leverage ratio drops quite a bit this quarter. I guess that is due to the restatement. The Norwegian FSA, they have -- they like to focus on the leverage ratio. So my question is, therefore, in the SREP process, was the FSA aware that you're going to do this restatement?

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Pål Svenkerud, Bank Norwegian AS - CFO [5]

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I think they have been informed ahead of the publication of the SREP.

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Håkon Astrup, DNB Markets, Research Division - Analyst [6]

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Okay. And then also a question on the growth because when Tine talked about the growth in Norway, you saw that was impacted -- the negative growth there was impacted by the restatement. So my question there is when you report the gross growth of roughly NOK 973 million this quarter, was that growth impacted by the restatement? So would it actually be higher if it has not been for a restatement?

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [7]

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Yes, so about NOK 230 million.

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Håkon Astrup, DNB Markets, Research Division - Analyst [8]

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About NOK 230 million in the quarter? Okay.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [9]

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Jan Gjerland from ABG Sundal Collier. Two questions from my side as well. When you look at your loss given default and how the loss given default has been evolved in the other banks on the competitors, how are you treating your LGD differently than the other banks? Are you using your own parameters for all countries? Or how are you really doing it? So we can get some insight to that.

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [10]

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Yes, I think it's a question with quite a long answer, but I'll try to answer briefly. So we, in Bank Norwegian, we do a combination of own data or -- I mean, everything we do is own data, but this combination of historic performance on the book, so we can see the cash flow of the accounts, which goes into the LGD. And then because we have a number of open accounts at any time, we also use the sales prices that we historically have got into the LGD model. So it's a combination of these parameters.

In Denmark, we are using also expert model link since we do not have any sales, and we did not at the moment -- at the time when we did it have any long history.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [11]

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Okay. On your Irish or European expansion, you mentioned that you are sort of preparing for it. How much cost should we expect in a number of new employees for your European expansion? And how should we think about costs going into 2020 and '21 when it comes to IT costs and other costs when it comes to sort of the growth expectation? Marketing is, of course, something else, but just the running cost of it.

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [12]

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Yes. So we do not have, I mean, exact numbers for this, but we do see that we -- in a European context of EU license, we will increase staff maybe by 20 people or 25 people, something like that? Yes. So it's -- then it will be gradually. But of course, there will be -- but this is a bit early to talk about specifics on how this will be constructed. I think on the new country -- adding new countries, I think we should look at the model we've had for the other markets where we've added just a few headcounts, and I think what we, as I've said here, we are now developing or extending our systems platform and operating platform. And I think we have proven so far that we have a very high scalability.

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Ulrik Årdal Zürcher, Danske Bank Markets Equity Research - Analyst [13]

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Ulrik Zürcher, Danske Bank. Why are you changing accounting method now?

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [14]

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Well, I think we've been quite transparent about the way that we have been accounting for before. But I think also, it's been -- our comparables to other banks, it's not been so easy. So I think this method will make us more comparable with others. At the same time, of course, we have to remember, we are not using the forward flow so -- for those banks did not. But that, I think, is -- we were very happy with the way we do this because it's, in our mind, more transparent, but I guess that for comparable, this would be easier.

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Ulrik Årdal Zürcher, Danske Bank Markets Equity Research - Analyst [15]

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Okay. Yes, that's what I had thought. And the next one on Stage 3 loans, because you had -- if you look at the nominal change quarter-on-quarter on Stage 3, it's been very flat. But now I'm confused because you change it up, and it goes from I think it's been around, let's say, between NOK 700 million and NOK 800 million is like -- through the year. And now suddenly, everything has changed, and it increases NOK 1 billion Q-on-Q.

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [16]

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Exactly. And that is the change. And of course, we have to -- I mean, you have to bear with us in that. But those -- that change is the accrual of interest. And we -- as I said, the big change is that before we did the final write-off, in a way, upfront. And now we are calculating the interest into the interest income. And that is added to the Stage 3. Then again, we also see the higher provision. So this quarter's -- or this restatement that we have done for 2019 is absorbing all of that change of method. So going forward, we will see the same speed as we used to have. And that's also why I say that the provision levels, for example, are also impacted by the way that we've kind of overloaded this in the restatement we've done.

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Ulrik Årdal Zürcher, Danske Bank Markets Equity Research - Analyst [17]

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Yes, I understand that, but it's very difficult for us to see, because it's like, if your Stage 3 development has continued to be flat, it's like your book is doing great. I guess that's what we want to see. So now like I know you don't comment too much on this, but now it roughly will be NOK 1 billion per year -- not per year, sorry, per quarter. We really could drop to like NOK 700 million...

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [18]

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No. I think it will drop back. It will probably be slightly higher because there will be also accrued interest on the loans in debt collection, but it will not be the same way of restatement we've done now. So it will drop, but it will be slightly higher than what we've seen before. But then, of course, also, the margins will be more stable. And I think -- I mean we've been very transparent about our methods, and I think this actually is interesting because we've had questions before about the loan margin, why it's dropping is because of competition award. And every time I've answered that, the main reason is actually because when you increase the loans in collection with 1%, we drop 15 basis points on the margin, which has obviously been an effect of this. So now you see straight margins, and you see that they are not dropping. So it goes hand in hand. So these are the effects. So we will see a slight increase in the Stage 3, but not to the same extent as we've seen in this restatement

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Ulrik Årdal Zürcher, Danske Bank Markets Equity Research - Analyst [19]

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Basically, you're saying underlying credit quality is okay?

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [20]

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The underlying credit quality is the same. Yes.

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Ulrik Årdal Zürcher, Danske Bank Markets Equity Research - Analyst [21]

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Actually, your new accounting kind of makes more sense. It's just a bit annoying because it makes comparison a bit more difficult.

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [22]

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I know, I know. I think we -- yes, I know. You are [sporty], so you'll figure it out.

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Ulrik Årdal Zürcher, Danske Bank Markets Equity Research - Analyst [23]

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Yes, I know. I have to.

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Johan Ström, Carnegie Investment Bank AB, Research Division - Analyst of Financials [24]

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Johan Ström, Carnegie. First off, just to clarify, the new accounting principles basically only impact your Stage 3 loans, right? Not Stage 1 and 2?

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [25]

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It's the method that we've introduced is for all loans and collections, so there are some loans in Stage 2 in collection.

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Johan Ström, Carnegie Investment Bank AB, Research Division - Analyst of Financials [26]

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Okay. Do you think that could have an impact on your ability to sell or the pricing of NPL portfolios?

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [27]

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No. That is -- because in all these transactions, of course, at the collection agency, the loans are -- the value of the loan is what the customer is owing us.

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Johan Ström, Carnegie Investment Bank AB, Research Division - Analyst of Financials [28]

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Sure. Yes. And the capital effect on -- from the new accounting principles, can you just repeat that? Sorry, I missed the...

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Pål Svenkerud, Bank Norwegian AS - CFO [29]

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It's -- we're talking isolated 4 basis points.

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Johan Ström, Carnegie Investment Bank AB, Research Division - Analyst of Financials [30]

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4? Okay. So given the strong CET1 ratio by year-end '19, can you just give some more comments on the reason for the lower acceptance rate, the lower payout rates and lower ticket sizes in Norway given that you still have a fairly high number of applications?

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [31]

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Well, on the acceptance rate, it's about liquidity models, the liquidity of the customer, the budget models, where there's -- that gives a lower approval rate.

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Pål Svenkerud, Bank Norwegian AS - CFO [32]

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And also the 5-year term makes it more unaffordable, driving down loan size.

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Johan Ström, Carnegie Investment Bank AB, Research Division - Analyst of Financials [33]

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Okay. But are you sitting on some cash for the potential European expansion? Or what is the reason that you sit on capital above the new requirement? Requirement, I think, is 18.5% by end of March.

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [34]

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I think what -- I mean, we want to start at a level where we can -- where we hopefully can increase so that we can be predictable in what we pay out. Yes.

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

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Truls Roysland, SEB. The debt ceiling suggestion in Finland of 4.5, how far have we come there? And do you have any estimate of the impact on your growth in Finland from that if it goes through?

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [36]

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Well, they are debating it now. So we don't have any final dates on that, and we find that we are probably -- it's probably within our existing parameters. It might have a small impact. We don't know yet.

Yes, I mean, you can't -- today, the debt register is voluntary so that we don't have a full debt register. So they have to put these things in place simultaneously, and they are discussing that as well.

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

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Okay. And on the marketing cost, was it so that the fee to not [had] increased? Or what's the driver there? How should we think of it forward?

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Pål Svenkerud, Bank Norwegian AS - CFO [38]

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The reward, the cost is going as predicted based on a higher volume.

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

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So that's just the share of interest income they get from the credit card?

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Pål Svenkerud, Bank Norwegian AS - CFO [40]

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Yes, yes.

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Truls Langmo Roysland, SEB, Research Division - Analyst [41]

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Sorry, was your marketing, that kind of growth?

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Pål Svenkerud, Bank Norwegian AS - CFO [42]

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Yes, our spending.

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Truls Langmo Roysland, SEB, Research Division - Analyst [43]

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Okay. And how should we think about kind of growth coming down, marketing cost up?

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [44]

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No, I think you -- in the bigger picture, I think the growth is quite nice anyway, and the marketing costs are fluctuating quarter-to-quarter, depending on the intensity and competition, things like that.

We had quite a favorable quarter. The third quarter was very favorable. I think I did mention that here in the presentation. But we did see quite a slow market in the third quarter, so we saved money. And in the fourth quarter, we see an increase in competition, especially from established banks actually and agents. So that goes a bit up and down, and I think that's some of the flexibility we have as well, that we can take it down if we think. But now we wanted to push a little bit extra.

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Truls Langmo Roysland, SEB, Research Division - Analyst [45]

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Can I sneak in a third?

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Unidentified Company Representative, [46]

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A quick third.

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [47]

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Then everybody else will have that.

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Truls Langmo Roysland, SEB, Research Division - Analyst [48]

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A lot of your peers have kind of mentioned the debt register and that they've seen increased default rate in Q4, several, but you don't see that...

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [49]

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The thing is, I don't really understand the connection because the customers we have on book, they perform in the same way that they would do anyway, and we know those customers very well. As long as they perform, it's not a big difference how much debt they have if they perform. But what I think is great about the debt register is that it's a great tool for us to get exact information and at least part of the loans that the customers have. I think they should include, of course, mortgages and everything else, car loans and all of that. But I think it's, first and foremost, it's a very good tool for us, and it's also prohibiting some of these cases that come up from time to time, which we all want to avoid. So I can only say, I think it's good to have the debt register. Yes, and people don't default more or less because they look in the register and see how much debt they have. They -- either they can afford their loans or they can't.

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Unidentified Company Representative, [50]

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Anyone else? One last for the day. Jan?

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [51]

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Just one follow-up then. On the credit risk, as Truls mentioned, the lower risk gives really lower yields, is my thinking. Is that what we should think about going forward, since you're now entering a lower risk loans and credit card loans? Or is it just no connection there?

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [52]

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I don't think you see that in the numbers. So I wouldn't...

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [53]

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You mentioned it.

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [54]

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Yes, that we have better quality?

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [55]

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Yes.

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [56]

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Yes, that's true. But you've seen that over time as well. If you look at the Finnish market, we've had that for a while, and you see that in -- already in the performance. So this is not a new thing that we are -- that we get better quality loans on the book. This is something we have practiced for quite a while.

So what I would try to explain before in why the margins are not going down on this is that we are still booking loans in all categories of our interest rate span and all risk classes, and in the combination there gives us that stability.

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Pål Svenkerud, Bank Norwegian AS - CFO [57]

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Yes. And it takes time to filter through when you issue new loans.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [58]

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You said the big banks were back on competition again, that's why you had more high marketing spend. Is it so that DNB is now having a granular model on the risk rate? Or it's just taking all everything about 12% still?

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Tine Gottlob Kirstan Wollebekk, Norwegian Finans Holding ASA - CEO [59]

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Well, I can't really comment on any specific competitor, but I think most established banks would use a flat rate, yes.

Yes? Thank you so much.