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Edited Transcript of RESURS.ST earnings conference call or presentation 28-Apr-20 7:00am GMT

Q1 2020 Resurs Holding AB (publ) Earnings Call

HELSINGBORG May 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Resurs Holding AB (publ) earnings conference call or presentation Tuesday, April 28, 2020 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christina Kassberg;Interim Chief Financial Officer

* Kenneth Nilsson

Resurs Holding AB (publ) - President & CEO

* Stefan Noderen

Resurs Holding AB (publ) - Head of Credit & NPL

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Conference Call Participants

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* Jens Hallén

Carnegie Investment Bank AB, Research Division - Research Analyst

* Patrik Brattelius

ABG Sundal Collier Holding ASA, Research Division - Analyst

* Peter Kessiakoff

SEB, Research Division - Research Analyst

* Robin Rane

Kepler Cheuvreux, Research Division - Equity Research Analyst

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Presentation

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Operator [1]

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Good morning and welcome to Resurs Holding Q1 Report Event. We have CEO, Kenneth Nilsson, with us today; interim CFO, Christina Kassberg; and Head of Credit, Stefan Noderen. (Operator Instructions)

Kenneth Nilsson has the floor. Please go ahead.

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [2]

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Thank you very much, and good morning, everyone, to this Q1 2020 presentation. We're going to get straight into the first slide, performance of the quarter. And during Q1, Resurs grew total lending by 7% compared to Q1 2019. This is lower than expected, but given the current situation, we're satisfied. We lost some revenue during March, not least because traveling came to a halt and foreign transactions on Supreme Card disappeared momentarily and some of our revenue. We had a slowdown in retail finance and consumer loans, which also meant that we missed out on some expected revenue. But all in all, we grew revenue by 4% compared to last year.

We also have some extraordinary events, such as the fact that our portfolio on the record date of 31st of March was impacted negatively, which meant a temporary visible drop in value to the tune of SEK 51 million. To a very great extent, this will be something we'll recover in a rising market.

In terms of accounting, you will have seen that we've also made a provision to the tune of SEK 75 million for expected credit losses, and we will hear more about that in a few moments.

Our underlying cost of risk was noted at 2.4%, which is a little bit higher than the corresponding quarter last year. But as I've mentioned during previous quarters, a movement up and down of between 10 and 20 points is not uncommon. And if we include the extra provisions for the quarter, we're at 3.4% of credit losses. And here, I'd like to underline very clearly that this, in no way, should be considered as the cost in this quarter for credit losses. It's related to the IFRS 9-related adjustments entirely. And for these provisions and where they are concerned, our Head of Credit, Stefan Noderen, will tell you a little bit more, but I'd like to make a few points herein now.

First of all, we see absolutely no impact in the payments from our customers. But to be transparent and forward-looking, we have not noted anything in April so far along those lines, which is of concern to us. But IFRS 9 is very clear in the requirement to be forward-looking. And because we lack internal data for an indication of what might be ahead, we've looked to the world around us. We've looked at the scenarios of the IMF, Swedbank and the Institute of Business Development's (inaudible) Institute and their scenario for unemployment in Nordic countries. This leads us to a very conservative provision. We wanted to be strong enough and extensive enough to deal with the most negative scenario for all our 4 Nordic countries. So we've made provisions of SEK 75 million. This is not the provisions for the year. This is to be prepared to deal with the situation in its entirety. It is not related to Q1 as such. I'd like to underline that. It's a forward-looking provision to take into account the full picture.

Let's move on to the strength of our business model, the next slide. I would like to say a few words about the business of Resurs. Q1 is the most extraordinary quarter I've ever experienced, and I have seen a few. We had business as usual up until the first few days of March, and then the world, as we know it, changed. I would not have been able to imagine a shutdown of societies and the extensive drop in industry and trade. But different Nordic countries have taken different actions. Sweden chose not to go into lockdown, others by varying degrees. We see this in our sales numbers, but you've heard me over the years underline the strength of our business model. And now more than ever, we feel that it is carrying us through a difficult situation like this one. When COVID-19 hit, most things grind to a halt momentarily. For example, we saw that Supreme Card had a loss of over 50%, which thankfully has recovered to a great extent since, but we do notice, of course, that the transactions abroad have disappeared.

Retail, in general terms, took an initial hurt. Travel, tourism -- and tourism industry, very hardly hit, and we can see that in our numbers. But then we saw very quickly that there were other areas that weren't hit as hard: home electronics and DIY, for example, but cars, spare parts and bicycles see good increases compared to last year. And we're quite a large player in those areas. So it's helping us greatly.

Over the last few weeks in April, retail finance is around 0. Sweden and Finland are doing best. And with an increase compared to last year, Norway remains a challenge and Denmark has some way left to go.

In Consumer Loans, however, we see that they have managed well, and we have not seen the same level of challenges. Sweden, Denmark and Finland are at so-called low levels of normality; however, Norway is down compared to last year. As I've already mentioned, for our business area, insurance, in Solid, in the smallest business area, travels, we see the biggest impact. However, we see good increases in other areas such as home electronics and bicycle sales, where we are selling more bicycle insurance. And in motor, we also see fairly good performance. We do know from previous crisis that the propensity to sign on for insurance goes up during such times with consumers, and so that gives solid good resilience.

The strength of our business model has always been important to us. And it's a very important part of our success. It's even more important now. We have 4 countries where the preconditions are very different from one country to the other, and we're making the most of those differences. We have challenges from before in Norway, and this is mainly due to 2 factors. On the one hand, it's a challenging market with strict provisions and rules to comply with and the players in the market are still very much adapting to it. And then depending on the basic approach, we always give priority to credit quality, capital coverage and liquidity above and beyond volume and the loan book. And because we do this, we've chosen to be very strict in our credits in Norway because, as you know, we've been around for 40 years and we know that after rain, there will be sunshine, the sun tends to dry up most of the rain, but it's never a bad idea to use some rain gear when it's pouring down. We've 3 segments: Payment Solutions has been the worst hit, Supreme Card, in particular. Retail Finance with its diversified partner base has coped quite well. And we have good hopes of ensuring that we can gradually get back to a situation where we can, generally speaking, and on a lasting durable way, grow above and beyond what we performed last year. Consumer Loans did best. Once again, Norway is down, but now you know a little bit about why our other 3 markets are performing in a positive way. And given the current situation, we have every reason to believe that we can continue along those lines. And I'd like to underline that our sales, of course, was impacted in a negative way by the fact that we've made adjustments in March to our credit models to reduce the risk of new lending, primarily in consumer loan activities.

Well, our business model in itself is a strength, but it is also a strength that we have 98% of our business towards consumers in the Nordic countries, where there are social protections and where the different governments have made additional strengthening measures. The 2% we have in the corporate sector is mainly factoring with invoices maturing after 30 days. And when the crisis hit, we immediately closed down all business working with new customers. We only deal with known customers, and we use invoices with a 30-day maturity.

And finally, before I hand the floor over to Christina, I'd like to say a few words about how we manage our day-to-day operations. When COVID-19 hit at the beginning of March, the senior management team met, and we made a first assessment of whether we could run normally in our operations, if we, for example, had a 30% absence rate in illness, and we clear -- quickly came to the realization that we couldn't. So we decided to activate the company continuity plan. We transferred different functions to different zones so that one function could be located in 3 physically different locations, and we have 30% to 40% of all our employees working from home. We're currently in an operational situation where we can continue sustainably over a long time ahead. And even if we possibly lose a little bit in efficiency, we have a good focus. We've managed in the financial crisis in a good way, and I'm convinced that we will get through the COVID-19 crisis in a good way. Those were my introductory words.

And now, I'd like to give the floor to Christina.

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Christina Kassberg;Interim Chief Financial Officer, [3]

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Thank you, Kenneth. Well, I am then going to go through the numbers in some more detail what we have in the report. And our total lending during the quarter is 7%; adjusted for FX effects, 9%. And I can mention that we have a weak Norwegian kroner, which is the main impact. And considering the situation we have in the market, well, this is a lower growth rate than we have seen before. But Kenneth has already said that volume in the short term comes in second. Strong capital, good liquidity and the strong credit quality is always something that comes first.

Payment Solutions. We have lending growth at 4%, which reflects the weaker demand with our partners, mainly during the month of March. Our Consumer Loans grew with 8%; and adjusted for currencies, 12%. There was a decline in Norway, but we saw healthy growth in the other countries.

And then if we look at Slide 7, where we have operating income. Operating income was SEK 897 million. Adjusted for net expense from financial transactions, we see an increase of operating income with 6%. And I would like to explain what has happened here with this item. Here, we have our bond and equity portfolios that are revalued at market value at a balance sheet date, and that was done 31st of March during the stock market decline, which means that we had a reduction of value on this item with SEK 51 million. After the balance sheet date, the value has recovered somewhat. And our bonds, here, we will also have a recovery, if nothing else, because we will keep them till maturity. The total value decline of SEK 51 million, when SEK 40 million of those were for the business segment, Insurance. And as always, with insurance companies, we have different asset classes in accordance with the rules and regulations, and this is also monitored by the government agencies. The investment portfolio for insurance is a total of SEK 500 million and bonds make up only some SEK 70 million.

Also about income, our interest and commission income was up 5%. And in this quarter as well, we have had selective price adjustments. We have adjusted interest on our new lending, and we've seen good effect. In Norway, however, we see continued weak growth margin, and we also have a customer mix there with partners with lower margins growing more rapidly. Insurance income then, well, we had a positive development and that had a positive impact on the quarter.

Operating income. Well, here, we have mainly comprising lending operations and other income.

And then to talk also, finally, about the NBI margin before the adjustments. It's continued at 11.3%, the same level as in Q4, and that means that we have no measurable effect on margins of COVID-19 in this quarter.

And then if we continue with Slide 8, where we have our costs. Here, I would like to say that the positive side of our result has to do with our operating expenses. In this quarter, they amounted to SEK 365 million, and that is an increase with less than 0.4%. The CI ratio, the costs in relation to the income, continues to improve over time. Today, they are at 38.5%, and this is a significant improvement with 1.6 points. And this is the outcome of the scalability of our business model. We work with digitization, and we have an ability to adapt to the world around us. Our ambition is to continue to work with different types of efficiencies, and successively, also digitize more of our business.

And then if we continue with Slide 9, where we have cost of risk. And if we look at our credit losses for the quarter, the underlying credit losses were SEK 188 million, and that means that COR underlying is 2.4%. And here, we see an increase in absolute numbers and also as a share of the loan book. And Stefan Noderen, who is the Head of Credit and NPL will talk some more about this in more detail.

And then Slide 10, where we have operating profit. Here, let me summarize by saying that operating profit ended up at SEK 269 million for the quarter, which is a somewhat lower level than before. But here, we adjust for 2 specific items. One being this forward-looking provision, credit provision that Kenneth has already talked about, SEK 75 million, and also the net expenses from financial transactions, SEK 51 million. If we exclude that as well, then operating profit is up with 5%.

And then Slide 11, where we have Payment Solutions. Here, you see a loan growth, 4%. In absolute numbers, this is an increase with SEK 0.4 billion. And the development for Payment Solutions for first 2 months of the year was characterized by good growth in all markets except Norway. And then in March, we noticed that the effects of COVID-19, bigger part of March was characterized by a decline in retail in all our markets. And if we look at where we have our sales volumes on- and off-line, we see that we were at 35% online. And the strength in our business model means that we have good opportunities to make use of interactions. We're going to focus on those sectors where we see an increase. For example, construction industry, home electronics and also e-commerce, more generally speaking. And we can adjust there and have a counterweight towards the travel sector and other sectors that have been more impacted. And this, of course, is an exceptional situation where we prioritize supporting our partners. And we are going to continue our work with developing innovative solutions, driving sales and customer loyalty, not least when it comes to Payment Solutions for stores, online and omni trade.

And I can also say that we have some 20 new collaborative agreements that we have signed this quarter. The NBI margin ended up at 13.4%. The lower margin is driven by the customer mix, where we have partners with lower margins growing faster. COR ended up at 2.7%, which is an increase with 0.9 points.

And then Slide 12, where we have the segment, Consumer Loans. Here, we see a loan book increase of 8%. In absolute numbers, an increase with SEK 1.5 billion, and adjusted for FX, 12%. The segment shows a good loan book growth in all countries, Norway being the exception. Finland was growing rapidly in absolute numbers and percentages, and Sweden as well in absolute numbers. And in Denmark, we saw a good development in percentages. And here, certain activities can be mentioned. For example, that we continued to work with the -- a credit engine as a support for credit decisions. And we have an enhanced collaboration with Ellen's -- Ellos offering consumer loans in Sweden. We've also launched an automated employer control in the Swedish market, which means loan applications become more efficient, and we have good credit controls. And we have also upgraded the My Pages in all our countries. The NBI margin ended up at 10.1%, an improvement with 0.2 points compared to Q4. And here, we see the positive effects of the price adjustment on new lending in Sweden. COR, for the quarter, 3.7%, an increase with 1.3 percentage points.

And then Slide 13, where we have Insurance. And this is where we have our Nordic Insurance business under the brand name, Solid Insurance. Premiums earned up 6% for the quarter, and the technical result improved by 30%. And this is an outcome of the growth that we've seen within motor and security and improved profitability within motor. The combined ratio was improved by not less than 2.4 percentage points. And among activities here, I can mention 3 new collaborative agreements in the Swedish market, and we are now preparing that launch. And we also have a new acquisition concerning customer registers for bicycle registrations, and that is to strengthen that position. And this is an integration that is now underway.

Operating income was down, and we've already talked about this. And it has to do with the market valuation of bonds and equity portfolios, and this effect is mainly linked to the equity portfolio. And since the balance sheet day, the value has come up somewhat.

And then 14, capital position. We have a strong capital base. The total capital ratio and CET1 are both above regulatory requirements and also our own targets. And this is because of the strategy we have been working with, with different activities. In absolute numbers, the capital base was SEK 5 billion, and we see an increase with SEK 0.4 billion. And the total capital ratio Q1 was 16.2%, and the regulatory requirement today is at 11.7%. The Financial Supervisory Authority has decided on a reduction of the regulatory minimum capital requirement in the countercyclical buffer, and that means that we have a reduction of 1.7 percentage points to 0.3%. And we also have liquidity coverage ratio that is above the requirements. And if you noticed what we communicated yesterday, you already know that our dividend policy stands firm and that we plan to have an extraordinary Annual General Meeting this fall. And the expected dividend for the second part of the year '19 and for Q1 that has been taken into consideration in the capital base, that has already been deducted. We intend to and we will continue to do the same. We're going to stick to our objectives for responsible growth, the capital generation and dividend.

Then if we move to Slide 15, where we have our funding structure. Our strategy is to actively work with different types of sources to have a well-diversified funding. Liquidity continues to be good, and LCR measurement was 263%. Regulatory requirement is 100%. We have a good spread between different sources, some 75% has to do with deposits from general public, and we have deposits in Swedish krona, Norwegian kroner and in Euro. We have different channels, which means that we have a good currency mix and also a balanced funded cost. This quarter, we have also issued in the MTN program on one occasion, and in total, some SEK 700 million, and this with a 3-year maturity and STIBOR 1.28%. And it was pleasing to see that this was oversubscribed.

And then if you look at the slide, you see that we have a certain fluctuation between quarters, and that has to do with the differences in time between issuance and maturity. And in Q1, we also allowed repurchases of, in total, some SEK 300 million. This quarter, we have also had an update from the credit rating company, NCR, and that confirmed our credit rating BBB-.

And then Slide 16, where we have our financial targets. Let me just summarize by saying that we, in Q1, lived up to the targets that we have. And we have an improved CI ratio, and we see a successive improvement. And we also had a good capital ratio compared to our targets and regulatory requirements alike.

And that concludes that part of the presentation, and I would like to hand over to Stefan Noderen.

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Stefan Noderen, Resurs Holding AB (publ) - Head of Credit & NPL [4]

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Thank you, Christina. Stefan Noderen is my name. I'm Head of Credit and NPL at Resurs Bank. It's a pleasure to be here to talk to you about the credit risk development in the bank. However, some of the circumstances in the world around us are clearly challenging to say the least, currently.

If we look at the slide, cost of risk ratio now, I refer you to the slide, and we'll start with some in-depth information. For Payment Solutions, the cost of risk ratio was up by 0.9 percentage points compared to the same quarter last year, 2.7%. The increase is mainly due to the communicated extra provision that we've made based on an assessment of future impact to COVID-19, but we also have a mechanical increase as a result of a somewhat slower growth in lending.

During the quarter, we've seen continued stable payment pattern from our customers. We've not seen an increase in delays in payments, and it's a positive factor indeed that this pattern has continued throughout the month of April. Furthermore, we see that the impact of the Finnish postal strike, which we outlined in connection with our Q4 report, has been resolved and is now going along normal patterns.

If we look at Consumer Loans, we see here as well that we have an increased COR ratio, 1.3 percentage points, up to 3.7% compared to 2.4% last year same quarter. The increase in its entirety is driven by the extra provision on the basis of the assessed future impact of COVID-19. But here as well, we see during the quarter, continued stable payment patterns from our customers, and it continues into the month of April, which is positive against the backdrop of the current situation.

During the quarter, we've carefully monitored the development in Norway in relation to the extra provision which was made in Q4 as a result of the assessment of the impact of the debt register, Gjeldsregisteret. What we've seen during the quarter shows that the impact was not quite as significant as we assessed, and that's an important trend, which indicates somewhat a more rapid wind down, which is positive, and the provisions for these impacts appears to be well within required margins. And all in all, we find that if we take out the extra provision of SEK 75 million, we have an underlying credit quality and credit loss level which remains stable.

Moving on to the slide entitled extra credit provision, the next one. Both Kenneth and Christina mentioned in their presentations that during Q1, we've made an extra credit provision of SEK 75 million, and the backdrop against this is the growing uncertainty on the financial development as a result of the COVID-19 pandemic. It will have a negative impact. There's no question about that, but the extent of it and the duration of it is still something which remains highly unclear.

As we've already stated, up to today, we see no negative impact in our flows or the payment capabilities of our customers. But in the longer term, we believe that an increase in unemployment will lead to higher credit losses to some extent. And according to the current IFRS 9 provisions, we need to perform the best possible forward-focused assessment we can on how our credit losses will be impacted, and we need to make provisions accordingly. Provided the uncertainty currently, there are different forecasts pointing in different directions, even if they do point in a negative direction, generally speaking. But true to form, we have a conservative approach when it comes to credit risk and credit loss provisions. We've chosen to use the more negative forecasts on how unemployment will develop. Using that as the basis, we've looked at our lending volume, our exposure in the respective markets, and we've calculated the frequency of the danger of our customers failing to pay, whether it will increase, to what extent, and we've made an estimate as to future credit losses linked to COVID-19 as per our ability to make those assessments today. This is the best assessment we can achieve. And based on those estimates, we've chosen, I'd like to underline, the more negative elements in the forecasts in our ambition to have a provision which is sustainable in the longer term.

Moving on to the next slide, entitled stages and provisioning, and have a look at how our different stages develop. We see that we have a mechanical effect as a result of lower growth in our lending and our loan book. So it means that we have a stable ratio of Stage 2 in spite of the fact that it's reducing in absolute numbers and the ratio of Stage 3 is also up somewhat as a result of how the lending development has developed. I'd also like to mention that the forward-flow agreements we announced that we signed at the end of February in the Norwegian market only had a marginal impact on our NPL volumes during the first quarter, but are expected to take full effect as of the month of April.

As for -- these are provisions we see that they've been impacted by the extra provision of SEK 75 million. This is, of course, Stage 1 and 2 impacted here because we've strengthened the provisions under these stages. If we disregard that component, the levels are stable even if we have a marginal underlying change, but this is entirely driven by considerable currency fluctuations we've seen in the market, and the explanations for that is, of course, that the levels of provisions varies in the different countries because the risk levels are different in different countries.

Looking at the next slide then, let's gaze into the future a little bit, and what COVID-19 might bring with it in the future, and then what actions we've taken. We're living currently in a situation with great uncertainty across the globe, both when it comes to which impact and how long term the impact of COVID-19 will be for society, for the financial markets, for companies and, not least, for households, of course. What we can say for certain is that the development will impact us as a bank. And to some extent, it will lead to increased credit losses. Our assessment, however, is that our focus on consumer credits will benefit us in the current situation from a credit loss perspective, not least, since governments in all the countries where we have operations have taken action in several ways to assist the households through this crisis to facilitate and improve their financial preconditions. But we do take actions to face up to the situation and we monitor the development closely to be able to take further actions quickly where necessary.

Since the second half of March, we've made restrictions to our credit models to reduce risk levels in new lending. We've mainly done this in consumer loans on the one hand because generally, we have a somewhat higher appetite for risk here. But in particular, because it is important in Payment Solutions that we can continue to support our retail finance partners in a good way to get everyone through these challenging times. Furthermore, we've always worked to help customers through temporary financial difficulties. And this is an area, and this is work which we will now strengthen further to assess customers who are affected by loss of income as a result of the effects of COVID-19. Even if we have yet to see any great demand from our customers, we do assess that the need will grow as unemployment is expected to go up. And it's important for us to be able to help these customers through the situation, for example, by allowing them to not pay off on their loans on a temporary basis.

We've also mentioned that we've strengthened our credit loss provision by SEK 75 million for the assessed future COVID-19-related effects. And even if we are yet to see any negative change in the payment ability of our customers, it's important to be very close to the ground to catch negative signals in payment patterns very quickly should the quality of our loan portfolio be changed. We work on a daily follow-up basis with this area, and we use models to catch payment patterns which deviate from historical patterns, and we believe that we can work proactively with our customers and take actions in due time.

And finally, by way of conclusion, we live in challenging times indeed, and we have not yet been able to get a clear picture of where this is bringing us. But we feel secure that our business model will serve us well during this time, where we operate in the Nordic markets, countries with a uniquely strong protective system for their citizens. We have a lending portfolio which to 98% consists of consumer credit and only 2% which is corporate lending, primarily factoring with 30-day invoicing. And even if it's going to be challenging ahead, we've come to the conclusion that we will remain strong throughout these challenging times.

And with those words, I'm going to hand back to you, Kenneth.

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [5]

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Thank you, Stefan. And then that concludes our presentation, and we open up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Peter Kessiakoff from SEB.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [2]

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I have a few questions to start with on the income side and the loan book. To start with, if we look at Payment Solutions, and then my question is, can you say something about the exposure towards sectors that can be, well, more significantly impacted by the situation today? You've mentioned travel, Ticket, for example. Could you say something more about sectors and the mix where we see dangers?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [3]

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Well, this is Kenneth, and I cannot say too much about different sectors. What I can say, however, is that the big bulk of Payment Solutions is from our biggest partners. And here, we have, for example, Bauhaus, NetOnNet, Mio, Ellos, and you can tell that none of these have any type of problems today.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [4]

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Okay. I do understand. And then let me also ask a follow-up question on Finland and the interest rate ceiling that they intend to implement. Can you say something about that? And what impact that will have with, well, interest rate levels? Could you say something about that?

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Stefan Noderen, Resurs Holding AB (publ) - Head of Credit & NPL [5]

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Well, Peter, this is Stefan. We feel that, of course, this will have some impact on the rest of the year. And I believe, if I have the correct information, that the decision hasn't been made yet, and it will also apply for, well, no longer than the rest of the year. And that does not mean that interest on new credits will remain fixed throughout that entire time. We can have a risk-based interest rate, and it will have a ceiling of 10% for this year, and that will have a certain impact, of course, but we feel that, that will be relatively marginal.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [6]

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Okay. I do understand what you're saying that there are ways to manage that, and there are fees that you can avail yourselves of. But looking at trends today, well, you don't think that this will have a major impact on the loan book for Finland or the group. Is that correct?

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Stefan Noderen, Resurs Holding AB (publ) - Head of Credit & NPL [7]

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Yes, no significant impact.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [8]

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Okay. And then a follow-up question. New sales and what you see within Payment Solutions. Well, you talked about an improvement in April, that Norway is difficult for consumer credits, but we still have expectations on the loan book for 2020.

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [9]

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Well, we hope that the trends and the improvement that we've seen in April, that, that will continue with an upwards trend. And then we will also be able to see a normalization or a decent loan book for the year, but we do not know where things are headed. So we have to be a bit cautious.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [10]

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I do understand fully. I would also like to ask a -- questions about credit quality, and maybe this is for Stefan. To see or understand when customers start to have difficulties in paying, I guess, it's too soon now. But when do you think that you'll be able to start to see that effect? Are we talking about Q2, towards the end of Q2 or Q3 before we see those possible effects?

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Stefan Noderen, Resurs Holding AB (publ) - Head of Credit & NPL [11]

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Well, let me start by just mentioning that I do believe that we'll see effects of different points in time in different countries because that has to do with laws, having to do with redundancies, notices, et cetera. But if we look back to the financial crisis and what things looked like then in the Swedish market, it took on average 6 months before those notices actually led to unemployment, de facto unemployment. And we also saw then that only 30% of those notices actually led to actual unemployment. And we believe that in the Swedish market, we're not going to see any major impact until, well, Q3, Q4. If we look at the other markets, the time line from that notice until de facto unemployment, it's somewhat shorter, which means that in the other markets possibly we'll see something already towards the end of Q2, beginning of Q3.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [12]

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Okay. And then just another question. Looking at government initiatives in the different countries, what type of impact will that have on the estimates you have made on provisions? Have you looked at that in any detail?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [13]

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Well, of course, we have looked at that, and that has also been part of the calculations that we've made. But let me also say that we want to be conservative. And we haven't at all tried to be overly positive in any way.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [14]

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I do have a number of questions, but let me just ask one more question. The forward-flow agreement in Norway that you've mentioned and that will have an impact starting Q2 or April, and what can we expect to see in April, in Q2?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [15]

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Well, we have debt collections, those transfers that we'll start to see from April where we have those agreements. And that will disappear from the balance sheet. And the result of that, well, it will be marginally positive.

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Operator [16]

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Patrik Brattelius of ABG has the next question.

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Patrik Brattelius, ABG Sundal Collier Holding ASA, Research Division - Analyst [17]

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First of all, you mentioned the adjustments on the net interest income. Could you tell us a little bit more about the details of what you've done during Q1 in the different countries?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [18]

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Just to sum it up briefly then, it's an adjustment in the Swedish market for Consumer Loans, which I summed up and told you a little bit about earlier, and it's entered into force as of March. So we'll see the impact -- we do see it in the final month of this quarter.

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Patrik Brattelius, ABG Sundal Collier Holding ASA, Research Division - Analyst [19]

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Okay. And you can tell us the extent of this?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [20]

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Well, a few million, let's say, SEK 4 million in this quarter.

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Patrik Brattelius, ABG Sundal Collier Holding ASA, Research Division - Analyst [21]

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Okay. And then if you look at trading, it was down during Q1 in terms of the accounting. But now that the market has bounced back a little bit and recovered to some extent, do you have any calculations on how that would have looked like, if you'd made the same calculation today?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [22]

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We do not announce that number in detail specifically. We'll have to get back to you when we do our next summary for the next quarter, later in the year. But mainly, the impact is on the equity portfolio. And the volatility, of course, that we have all in all that we've seen since the 31st of March.

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Patrik Brattelius, ABG Sundal Collier Holding ASA, Research Division - Analyst [23]

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Okay. And then if you look at the commission net SEK 40 million, but -- quite stable every quarter, but a little bit weaker this quarter, in fact. Could you tell us a little bit about that?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [24]

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That's correct. You may have noted that this is indeed not what has driven our improvement during the quarter. Rather, it's at a slightly lower pace, not least when it comes to our own expectations, and it's reflected by the fact that we are in a competitive, a highly competitive market, of course. So some of the other fees, discount charges, for example, may not have been fully pushed through in this situation. It's not something we've emphasized. But it's also an impact of the fact that in the month of March, we had a situation, which wasn't entirely along the lines of what you would normally expect.

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Operator [25]

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The next question is Robin Ramen (sic) [Robin Rane].

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Robin Rane, Kepler Cheuvreux, Research Division - Equity Research Analyst [26]

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The extraordinary provision, I think, it's about 0.2% of gross lending. Well, it sounds looking at what you've said about the portfolio as well that you're kind of optimistic and what would lead to a more concern -- to make you feel more concerned than you are today?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [27]

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Well, the situation, if it were to change dramatically, that would change things for us as well. We see Denmark and Norway now starting to, well, open up cautiously. But if that would lead to, well, a worsening situation with more people becoming ill or dying, that could have a negative impact. And the same thing could happen in Sweden, of course, that we do not see things panning out according to the plan. Well, that could have an impact.

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Robin Rane, Kepler Cheuvreux, Research Division - Equity Research Analyst [28]

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Okay. And you have talked about the impact on Consumer Loans. And do you have something to say also about Payment Solutions or you see no problems there with demand considering the changes that are being made?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [29]

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Well, we haven't made any adjustments for the credit models for Payment Solutions. We feel that it's important to try to support our partners and ensure that the sales that they can bring in, that they actually can bring it in, and we see another type of credit behaviors there with short credits and other types of risk. So we do not feel that much of a concern there, any possible problems.

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Robin Rane, Kepler Cheuvreux, Research Division - Equity Research Analyst [30]

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Well, if you have credit models that have been made before, and considering the situation today, could you expect higher credit losses also within Payment Solutions?

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Stefan Noderen, Resurs Holding AB (publ) - Head of Credit & NPL [31]

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[Answer from Stefan]. Well, we are not making that evaluation today that there is anything to be expected above the provision that has already been made. And we have an estimate for credit loss provisions, and that has been modeled by what we see in the market, and we feel that this is where we have the risk.

And then Payment Solutions, the maturities there are completely different. And so even if we see an increase in unemployment in the future, we feel that, that will only have a marginal impact. And we feel that it is important that we're there for our partners. We can make it -- we cannot make it even more difficult for them.

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Robin Rane, Kepler Cheuvreux, Research Division - Equity Research Analyst [32]

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Okay. One final question. If you were to see an increase in defaults, could that have an impact on risk-weighted assets and the capital ratio?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [33]

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Well, perhaps I cannot give you a complete answer, but I'll start and then Christina might have to help out. But of course, if we see more Stage 3 volumes, we'll also see an increase in risk-weighted assets because there we have a higher risk weight. But at the same time, we have made, well, higher provisions there and the risk weight is also based on what we have in that book. So I do think that, that will have more of an impact on our performance compared to the capital base, and Christina agrees.

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Operator [34]

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Jens Hallén of Carnegie has the next question.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [35]

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A few follow-up questions from me. Starting with volume growth, just so I've understood you correctly, your 10% volume target for the full year, is that now irrelevant for 2020, the way things stand currently?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [36]

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Well, it's fairly challenging to put it that way that we would be able to reach that target for 2020. I think we'll have to perhaps consider that, that could be difficult.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [37]

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So do you mean the target or what's realistic would you like to have numbers in black, but far from your long-term target, would you say?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [38]

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Well, I hope if the trends we're seeing currently remain in place, we'll have a positive growth in 2020. Now the extent to which it will be positive, what matters is what happens to Norway and Denmark and Finland. When they open up, if we see the same speed of growth there as we have here, we have a new country manager in Norway as well, we very much believe in his ability to act wisely and speed up growth in Norway during the year, but the extent of that rapid development is not something we want to speculate. And there are a number of factors potentially which could drive a decent lending development. But I don't want to hear now state that we will get to 10%.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [39]

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Okay. That sounds reasonable. Question number two, credit costs. They were 2.4% adjusted for the extra provision in the quarter. And interesting to compare to 2019. Is it only the lower lending volume that has driven this or are there other factors involved here?

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Stefan Noderen, Resurs Holding AB (publ) - Head of Credit & NPL [40]

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Stefan. The lower growth in the loan book in our lending, it gives a mechanical effect on the cost of risk ratio. But as Kenneth noted in his introduction, we do see some impact. And historically, we do see volatility of 10 to 20 points or so. There's absolutely no drama involved or cause for urgency here.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [41]

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Very good. And then a follow-up question on what you talked about the number of months from redundancies to actual impact. You mentioned financial crisis, the impact in Sweden and other countries. If you gaze into the future to Q3 and Q4 and losses and provisions for future credit losses, it's quite likely, surely, that we will have a transfer from Stage 1 to Stage 2, possibly also Stage 3 towards the latter part of the year. Shouldn't that also drive continued high levels of credit losses when that happens? Or is all that part of your assumptions and part of the SEK 75 million provision that you've already made?

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Stefan Noderen, Resurs Holding AB (publ) - Head of Credit & NPL [42]

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[Answer from Stefan]. Interesting question, but it's important to bear in mind the following. The SEK 75 million that we've made as a provision is to meet precisely what you've outlined in your question based on our assessments of what the future holds. But a few points, nevertheless. One thing is the fact that we've made our assessment using the current forecasts that this should cover the problem over time. And then, of course, we do not know if forecasts are revised and changed later on. And because we're working with consumer credit, as I mentioned, it's the labor market development and unemployment numbers that will drive this and have an impact in many ways. Let me also clearly underline that an unemployment number in itself will not automatically lead to customer ceasing to pay their debts.

If we also consider what the governments in the different countries do, let's call it, COVID-19 unemployment say, and against the backdrop of what the governments are doing, it may impact a little bit less than it would otherwise. And we have other factors that are drivers, regular credit losses where customers default on their payments. There are many other factors in addition to unemployment, other major life-changing events in people's lives that will send them into financial difficulty, long-term sick leave, separations, divorces, individual businesses that default, et cetera. Unemployment is not the only factor, that's important to underline, and we cannot just draw a line between unemployment and credit losses automatically.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [43]

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Okay. I understand. And one final question on costs. You're holding on to your wallet very tightly. That's nice to see in the quarter. Is it possible to be so strict for the rest of 2020, that you continue to stay at such a low rate of increase for costs?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [44]

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Well, that's a difficult question to answer. Christina, here's your chance to say.

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Christina Kassberg;Interim Chief Financial Officer, [45]

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Yes, of course, we will cope because we won't be around, you and I, for the full year. But it's in the DNA of Resurs, let me put it that way, to have a cost awareness. And in particular, in a situation like this, we have great respect for the situation created by this pandemic, and we will not make any investments that are unnecessary. And then of course, we will, at the same time, continue to run the business, develop the company. Our assumption is, our starting point is that this will pass within a foreseeable future, and we want to be one of the ones who are best in shape to meet the new spring because I think that's what we have ahead.

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Operator [46]

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(Operator Instructions) The next question is (inaudible).

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Unidentified Analyst, [47]

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I have a question having to do with credits to start with. Kenneth mentioned that we have a negative outlook on the macroeconomic side. Has that been included in the negative scenario? And can you say something about that weighting?

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Stefan Noderen, Resurs Holding AB (publ) - Head of Credit & NPL [48]

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Well, this is Stefan. The exact details, as to how we've made our calculations, well, we cannot go into any detail, but what we can say is that we have used the negative scenarios when it comes to forecasts of unemployment. And based on that, we have calculated the frequency of defaults and how that would increase among our customers given such a scenario and what that would lead to when it comes to provisions. And we have just not -- we haven't just looked at Swedbank and the others I mentioned before, we have also looked at the different countries, specifically. To be more precise, I do understand Norwegian fairly well. And I suspect that you're asking about the macro modeling under IFRS 9, and this is something that we've done in addition to that.

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Unidentified Analyst, [49]

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Is it possible to say how you have weighted your negative, positive and more normal macro scenario in your IFRS 9 model? And how that's changed in the last quarter?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [50]

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If I may, I'll answer in Swedish. I just hope that I understood the question. Well, it is like this. We have a normal scenario where we have a macro model, and then we have made an addition to that, and that is a separate calculation that has been made, and that is because this is such an extraordinary situation that we're in.

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Unidentified Analyst, [51]

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Okay. And then comparing to what has been done, well, what adjustments have been made?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [52]

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Well, we have taken into consideration both the CET and LPT changes.

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Unidentified Analyst, [53]

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And what changes do you see doing that?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [54]

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Well, primarily Stage 3 and Stage 2. I mentioned that already. That is mainly where we have strengthened our provisions.

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Unidentified Analyst, [55]

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And then there was a comment made about Finland and what most likely will be a temporary measure, 10%. Does that mean what you said that you'll continue in the same way as you've been doing in Finland with the 10%? And how should I interpret what you said?

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [56]

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Well, it might have an impact on what we do. If we cannot charge more than 10%, well, then we will have to say no to some of the credits that we would have accepted otherwise, but we are going to go for the sales that we can get. And as has already been said, this is something that is -- they have said will be a temporary measure.

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Operator [57]

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We have no further questions registered here currently. So I'm going to give the floor back to the speakers for a concluding remark. Go ahead, please.

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Kenneth Nilsson, Resurs Holding AB (publ) - President & CEO [58]

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Well, all that remains to be said is thank you for your participation and excellent questions. Thank you very much.

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Operator [59]

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And this concludes today's conference. Thank you to all participants.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]