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Edited Transcript of SKBN.OL earnings conference call or presentation 15-May-20 6:30am GMT

Q1 2020 Sbanken ASA Earnings Call

FYLLINGSDALEN May 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Sbanken ASA earnings conference call or presentation Friday, May 15, 2020 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Henning Nordgulen

Sbanken ASA - CFO & Deputy CEO

* Jesper M. Hatletveit

Sbanken ASA - Head of IR

* Øyvind Thomassen

Sbanken 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

* Joakim Svingen

Arctic Securities AS, Research Division - Analyst

* Johan Ström

Carnegie Investment Bank AB, Research Division - Analyst of Financials

* Ulrik Årdal Zürcher

Danske Bank A/S, Research Division - Analyst

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Presentation

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Jesper M. Hatletveit, Sbanken ASA - Head of IR [1]

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Good morning, and welcome to the first quarter presentation for Sbanken. My name is Jesper Hatletveit, and I am responsible for Investor Relations. Normally, we present our quarterly results in Oslo in front of a larger audience. But today, we are confined to a meeting room at the bank's headquarters in Bergen. We have ample distance between us.

Today's presentation will be held in English by CEO, Øyvind Thomassen; and CFO, Henning Nordgulen. We will start with giving you the status of the business and the financials before we open up for Q&A. All reports and presentations can be found on our IR pages.

I now give the word to our CEO, Øyvind.

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Øyvind Thomassen, Sbanken ASA - CEO [2]

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Thank you, Jesper, and a very good morning to all of you listening in. Since last addressing you in mid-February, everyday life has really abruptly changed. The outbreak of coronavirus affects us all both in our professional lives but also privately. Before sharing more details on both how we are dealing with the outbreak, and also the financial highlights of the quarter, I'd just like to give you a quick background to the Sbanken story.

Today, we have the strongest brand in the industry, and yesterday, I'm very happy to say that Norsk (inaudible) announced that Sbanken for the 19th consecutive year is the Norwegian bank with the most loyal and satisfied customers and we are top 5 in all industries. A solely digital business model, where 80% of customer interactions happen on the mobile which means 50 million per year. And very dedicated people who really deserve great credit for their efforts in a challenging period.

So let's have a look at what happened in the first quarter. The outbreak has taken us all by surprise and has impacted both the bank's operations and the financials we present to you this quarter. We early set up a crisis management team and throughout the outbreak our top priorities have been to assist our customers to take care of our staff and ensure business continuity throughout the value chain.

Since the Norwegian government on 12th of March announced extensive measures to combat the spread of virus, close to all of the bank staff have been working from home. And the bank's fully digital model has enabled all staff to work effectively. One example is the migration of our customer call center to home offices. They have performed impressingly in assisting those of our customers who are currently facing increased uncertainty.

We're all aware of our mission and responsibilities in the time of a crisis. So on the 23rd of March, the bank was the first to deliver the same mortgage rate cut with immediate effect to all our customers. We also helped many customers through forbearance measures.

So the results of the first quarter are characterized by a strong top line and interest rate margin with the full effects from the previous interest rate increases. Robust lending growth, where we are taking market shares in mortgages. The bank has a relatively strong footing in the refinancing market, which has been relatively less affected by lower transaction volumes in the housing market.

Solid capital position with a CET1 capital ratio of 16.1%, engaged an updated minimum requirement of 12.5%. To account for anticipated adverse effects from the coronavirus outbreak. We have taken a 19.5 million discretionary loss provision, bringing this quarter's loss ratio up from an underlying level of 15 to 25 basis points. And Henning will comment more on the details in a few moments.

The bank's balance sheet is among the most conservative in the industry, and I think that is widely recognized within the Norwegian analyst community. Our lending exposure is solely towards the Norwegian retail market and there is no whatsoever direct exposure to corporates. As such, we are not directly affected by the downturn in cyclical industries affected by the large drop in oil price.

Home loans account for more than 94% of total gross lending. Average LTV at quarter end was 53.4%, a sign of one of the best collateralized portfolios in the industry. The majority of our home loans are centered in urban areas around Norway's largest cities.

The remainder of our portfolio consists of car loans with satisfying collateral position, other credit products which is comprised of credit cards, account credit and securities finance, and unsecured consumer loans. And indeed, it is in this part of this portfolio we see the largest risk of adverse developments ascribing to the virus outbreak. 93% of the bank's loans are in stage 1 and performing well. Of exposures in stage 2 and 3, three quarters of these are within secured loans where the bank has strong collateral position.

The conservative balance sheet, together with a strong digital operational platform and solid capital position ensures that Sbanken is not only well-equipped to navigate through the COVID-19 pandemic, but also able to capture profitable opportunities in the current environment.

With that, Henning, I give you the word.

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Henning Nordgulen, Sbanken ASA - CFO & Deputy CEO [3]

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Thank you, Øyvind. Financially, this was a robust quarter with positive developments in several areas. Operating income grew by NOK 68 million or 17% year-on-year. This was primarily driven by NIM expansion with the last repricing in 2019 coming into full effect this quarter, but also supported by increased lending growth within home loans. Adjusting for discretionary loan loss provisions and severance pay, the return on equity in the quarter was 12.5% and a cost income ratio 37%.

The swift response following the Central Bank's key policy rate cuts that Øyvind commented on, gave a positive customer sentiment and strong growth momentum in home loans. This will support our long-term trend going forward. Within our secure products, we have tight underwriting criteria over the last quarters, and together with reduced demand with the onset of the pandemic, this has resulted in slightly negative growth in unsecured credit products in this quarter.

Revenue increase in the quarter is driven by net interest income, which grew by 75 million or 21% from Q1 '19. Again, this was primarily due to an increase in the net interest margin from 1.57% to 1.85% in Q1 this year. Net fee and commission income increased by 2.3% from the first quarter of 2019 to NOK 48.4 million. Fee and commission income is down slightly from Q4 '19, due to reduced card and payment transactions.

Widening credit spreads had a negative effect on the liquidity portfolio, which is recorded over OCI, but this was partly offset by valuation on the cross-currency swap related to a Eurobond issue. The fact that mortgage rates were changed with short or immediate back book effect, while deposit rates has an 8-week notice period will have a negative NII effect on deposits of about NOK 40 million in Q2.

Turning to operating costs. In connection with Q4, we guided on an increasing OpEx trend for 2020. We also announced the introduction of a cost efficiency program and a target OpEx run rate in Q4 this year of 175 million. As we also announced, we have provided for severance packages connected with the program in this quarter of NOK 8.6 million and this means that the underlying OpEx in the first quarter was at NOK 175.2 million.

For those who study our balance sheet, you can also notice that our intangibles have also decreased. This means that we have capitalized less project costs than the average seen in the previous quarters, which in turn means that our cash cost is down. The coronavirus have had some positive impact on costs due to less traveling and so forth. But still, we are quite satisfied with the first phase of our cost initiative.

The cost income trend over the last 12-month basis has also developed positively from Q4 '19 and over the last quarters. As part of the cost efficiency program, we also announced a decision to reduce total capacity, including consultants, temps and hires by 50 FTEs during 2020. As you can see in the key figures in our quarterly report, FTEs on payroll came down from 370 in Q4 to 346 in Q1. We have also reduced the number of consultants and temps. We are confident that we can reach our FTE objective by year end.

As you can see to the left-hand side, provisions for the secured loan portfolio remained very low with a loss of only 3 basis points for home loans in Q1. The equivalent rate for consumer loans was 331 basis points and this brought the overall model loss level to 15 basis points in the quarter. And Øyvind explained initially, we have decided to include a NOK 19.5 million provision to account for anticipated adverse effects from the outbreak of COVID-19.

The actual distribution of the loss estimate cannot be ascertained at this moment, but a significant share is expected to relate to unsecured exposures. Accounting-wise, the loss estimate is, therefore, presented in stage 3 for unsecured loan products. Notwithstanding this provision, we maintain our loss guidance of around 20 basis points for 2020.

Going to the right-hand side, both front and back book loan-to-value remained quite stable. We would favor growth in the higher LTV products and from that perspective would actually like to see some increase in the average loan-to-value back book. In addition so far there has been no material changes in housing prices that would affect LTV.

Deposits grew by 4.5% from last year-end and 9.9% year-on-year. The deposit ratio remained stable in the quarter, despite the increased loan growth. The liquidity position at quarter end was strong with LCR at 245%.

Turning to capital, our minimum CET requirement after the recent reduction in the countercyclical buffer is 12.5%. The actual ratio at quarter end was 16.1% calculated with 0 dividend for 2019 as this was postponed following recommendation from the Board to the AGM. For Q1, we have calculated pursuant to our maximum 30% payout ratio.

In the coming quarters, the bank's capital position will be very strong, and we aim to employ surplus capital towards profitable growth opportunities. We expect our losses to be moderate and operating costs will be under control. The dividend question may also be revisited later in the year subject to market conditions.

And I'll then hand the word back to Øyvind.

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Øyvind Thomassen, Sbanken ASA - CEO [4]

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Thank you, Henning. If we look at the savings segment for the quarter, funds under management fell by 1.9 billion. This was predominantly a result of reduced market value of investments, following the stock market turmoil in February and March. But customers were also net sellers of mutual funds with net client cash flow ending at negative 194 million. Customers have, to a large extent, kept the funds with the bank and in their investment accounts, a factor that has contributed positively to the strong inflow of deposits as Henning just explained.

We continue to have a large focus on customers' fixed savings agreement, which has seen a positive development in this quarter. Average monthly inflow from savings agreements was 97 million against 2019 average of 79 million. And we had about 100 million, both in February and March. Our market share in retail fund savings increased to 6.9%, but the increase was affected by a market classification change by the Norwegian Securities Dealers Association.

Within the SME segment, we're continuing to the product rollout and are on-boarding new customers every day. At quarter end, we reached important milestone of NOK 1 billion in SME deposits. Our SME customers are naturally affected by the virus outbreak and many have been forced to draw on the liquidity they have placed with us. This increases the uncertainty of us reaching our medium-term 1 -- sorry, 5 billion deposit target by year-end. But we will continue our good momentum both within product rollouts and customer acquisitions. We are now opened up for funds and stock trading for SMEs. Going forward, this will be an important contributor to capital-light fee income. And additionally, as we mentioned in the first quarter, we will shortly be integrating 3 additional ERP providers to our platform.

Our financial targets were confirmed last quarter with an emphasis of delivering 14% return on equity within 2022. The outbreak of coronavirus does impact our financials, but Sbanken is uniquely placed to navigate through rough waters and capture growth opportunities where they appear. Our focus is on operational excellency and to capitalize on the strong portfolio of Norway's most satisfied customers through cross-sell, and also capitalize on the investments made in SME and long term savings.

To achieve this, we will ensure that the whole organization pulls together in 1 direction as 1 bank, 1 team, common goals.

With that, I'd like to thank you for listening in and open up for questions from those who have called in.

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Jesper M. Hatletveit, Sbanken ASA - Head of IR [5]

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And we then open up for questions from the conference call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question is from the line of Ulrik Zurcher.

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Ulrik Årdal Zürcher, Danske Bank A/S, Research Division - Analyst [2]

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Changes in Q1 target to 13%. But is this realistic? How are you going to go down to 13%? And also, if you could comment a bit on the growth outlook for mortgages?

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Øyvind Thomassen, Sbanken ASA - CEO [3]

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Thank you. In terms of the capital ratio target, it's just a logic change due to the reduction of the countercyclical buffer. So our management buffer remains as it was before the reduction. So it's a parallel shift in the capital target ratio. So that's the, say, the position for the current year.

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Henning Nordgulen, Sbanken ASA - CFO & Deputy CEO [4]

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Do you want to comment on the growth? I can do that. I think as you saw on the -- in the figures, we had a good growth momentum in the first quarter. And I think it's fair to say that we have a good momentum in the second quarter as well. So looking at full year, I would say that growing around 8% would be absolutely achievable.

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Ulrik Årdal Zürcher, Danske Bank A/S, Research Division - Analyst [5]

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Just to clear out, you're not actually going to aim to go down to 13% CET1 ratio with a combination of dividends and growth for the next 3 years?

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Øyvind Thomassen, Sbanken ASA - CEO [6]

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No, that -- it's -- a capital ratio target here is a floor. We have typically been quite well above our -- both our target, including the management buffer. So no, we will reduce capital wisely for profitable growth. But we -- it's not our aim to reduce to the 13%. And of course, longer term, we have to factor in that the countercyclical buffer would, at some point, increase again as it has been announced likely in 2 years' time. And of course, we are aware of the systemic risk of change that is -- that will -- that still will have to be expected to occur. But, of course, it gives us a much stronger opportunity for growing with a larger buffer than before.

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Operator [7]

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And the next question is from the line of Joakim Svingen.

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Joakim Svingen, Arctic Securities AS, Research Division - Analyst [8]

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I have 3 questions, if I may. The first one is regarding the dividend. You said that could be addressed at a later point, when will that be addressed?

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Øyvind Thomassen, Sbanken ASA - CEO [9]

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As we announced when we changed the proposal with our stock exchange notification, we have said that it may be revisited by the Board and in an extraordinary GM in -- during 2019. So it could be revisited at some point during the year, but unlikely in the short run.

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Joakim Svingen, Arctic Securities AS, Research Division - Analyst [10]

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Okay. And then I was wondering about the rest of the staff reduction. If you have taken about half of what you aim for, is that -- is that towards the end of the year or is it rather a Q2 matter?

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Øyvind Thomassen, Sbanken ASA - CEO [11]

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Actually, we have taken more of the total FTE reduction that -- than it's apparent in the figure that we now state in the quarterly report in the key figures. That's the staff on payroll. So it's a reduction in FTEs on payroll. And as I commented, we we've also reduced our consultants and temporaries and hires. The figure that we gave in connection with Q4 was that we had 425 FTEs all-inclusive at year-end last year and we aim to come down to 375 all-inclusive by Q4. So it will not be backloaded. I would say, almost to the contrary. So we are -- we have a good start in terms of the cost program.

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Joakim Svingen, Arctic Securities AS, Research Division - Analyst [12]

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Okay. And then the final one was just the latest repricing rounds. If you could say how that will impact NIM in the Q2 and Q3 that would be very helpful?

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Øyvind Thomassen, Sbanken ASA - CEO [13]

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Well, of course, we cannot give a prediction in terms of, say, future NIM development. And I made a comment that for Q2, we have, say, a different in the timing on the back book. We moved swiftly with the mortgage rate cuts as you have seen here in Norway, while you have the statutory 8-week notice for deposit which is the background for the comment that this will have an impact on NII calculated on the deposits at about NOK 40 million. And of course, that will be visible in Q2. The most recent price change in itself, it's more of a neutral nature. It depends, of course, also on the development and fixing points for wholesale financing, which is based on 3 month NIBOR. But the main effect here is actually the timing effect, which is more an effect in Q2 and part of Q3.

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Operator [14]

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And the next question is from the line of Johan Strom.

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Johan Ström, Carnegie Investment Bank AB, Research Division - Analyst of Financials [15]

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First of all, just on the consumer lending side, can you just give us the number on the underlying loan loss ratio in Q4 and Q1? I think that has improved actually quarter-by-quarter, if you adjust for the sale of the portfolio in Q4. But do you have that number?

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Øyvind Thomassen, Sbanken ASA - CEO [16]

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Yes, that is a figure I gave you in the -- my review, says, 338 points -- sorry, 331 points in the quarter.

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Johan Ström, Carnegie Investment Bank AB, Research Division - Analyst of Financials [17]

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In Q1. And was that the same number in Q4 adjusting for the sale of the portfolio?

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Øyvind Thomassen, Sbanken ASA - CEO [18]

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That I don't have available here.

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Operator [19]

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And the next question is from the line of Jan Erik.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [20]

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Jan Erik Gjerland from ABG. On the mortgage side, did you say that the mortgage growth was 8% or could be 8% for the whole year of 2020? Was that your intention?

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Henning Nordgulen, Sbanken ASA - CFO & Deputy CEO [21]

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Yes, that's right. I wouldn't say in terms of -- what I said was that I think it's absolutely reachable to reach 8%. That doesn't mean that it will be exactly 8%. It could be a little bit less, it could be definitely a little bit more as well.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [22]

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Okay. Pretty Good. And have you had any clarity with your discussion with the FSA or the Ministry of Finance, regarding the potential longer-term impact on your CET1? And the standard models versus the IRB models? Is there any clarification on those kind of levels?

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Øyvind Thomassen, Sbanken ASA - CEO [23]

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No, no clarification since the last quarter, and it seems to have been more busy with short-term measures and dividend questions.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [24]

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Your IT cost seems to be a little bit higher this quarter. Is that because you have capitalized less or is -- how should we read it?

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Øyvind Thomassen, Sbanken ASA - CEO [25]

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That's the primary reason, yes.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [26]

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Your noninterest income is sort of still creeping up a little bit almost down, but down with the card side. How should we think about your impact on your other sales going forward? What is the next in line maybe and when you think about your sales going forward, not being lending?

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Henning Nordgulen, Sbanken ASA - CFO & Deputy CEO [27]

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I mean, the 2 most important areas that we really want to grow is, of course, the SME, both deposits, but also as we say, the integration with the ERP players. And there we will charge a monthly fee. And there we also look at, actually lending and launching credits, but that will be probably early next year. And the other area is, of course, savings. That is a long-term marathon, but we are really chasing firm. And I think that the momentum is actually quite good. So that's a very, very important area for us.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [28]

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Finally, then on deposits. You have a big inflow, probably coming from the funds you just mentioned. How could you keep deposits sticky as the interest rates are now down to a low level, 0 for the Central Bank and some 27 basis points for NIBOR? Is it possible for you to make a margin on your deposits from here?

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Øyvind Thomassen, Sbanken ASA - CEO [29]

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Of course, in a sharpy tightening interest rate environment, there's normally will be a pressure on margins. And that, of course, has to do with deposit margins and the fact that we have never seen negative rates in Norway. And we as management here in Sbanken, don't think that we will see negative rates either. Of course, we could be wrong, but that's how we see it so far. Deposits are actually very sticky. We were down keep in mind to 50 points key policy rate a year ago. We had relatively low deposit rates and they were still quite sticky. So the answer is as long as we have median price levels there, there's no big fluctuations in deposits. There have been maybe a bit surprisingly strong coming into this year. And we expect that we see a slight change in the consumer behavior also with increasing saving rates with more uncertainty. So everything indicates that our deposit development should be strong. And of course, when we have tighter pricing of deposits. We also monitor the positive development more -- even more carefully than normal. But we have no indications after the repricing's either that there has been a change of flow in deposits.

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Henning Nordgulen, Sbanken ASA - CFO & Deputy CEO [30]

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And also just to add on that, I mean, I've been running a bank in Sweden or banks in Sweden, actually with negative interest or negative interest rate levels. And my experience is that deposits are still very sticky at very low rates. But I think what could happen over time, but not in this very big uncertain time, but over time, customers might look for other opportunities to -- for money that they have for long term savings. So that could also be positive to going forward, I think.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [31]

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What will be your best mortgage rate? And best deposit rate after all this interest rates have changed recently?

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Henning Nordgulen, Sbanken ASA - CFO & Deputy CEO [32]

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The best mortgage rate for floating rate will be 1 59 and the best fixed rate will be 1 44. And then on the deposit side, it will be in the retail deposits, 15 basis points. And for SME, we have 50 basis points.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [33]

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55 0.

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Henning Nordgulen, Sbanken ASA - CFO & Deputy CEO [34]

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0.50. Points five zero In SME.

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Operator [35]

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(Operator Instructions) Our next person is from the line of Hakon Astrup.

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Håkon Astrup, DNB Markets, Research Division - Analyst [36]

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Three questions from me as well. The first one, on the SME side, the SME deposits. I guess that value proposition here have changed quite a bit following for the drop in the Norwegian interest rates. So what is your average cost here or your average deposit cost on the SME side? And can you compare that to your average or your marginal cost of cover bonds at the moment?

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Henning Nordgulen, Sbanken ASA - CFO & Deputy CEO [37]

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Of course, there has been several price changes over very short period of time here. Before the first big cut and the key policy rates, deposit rates for SMEs and retail were identical. And we haven't disclosed the, say, the composition of the SME deposits, but we have commented that the average spread would be more or less the same. So that's a picture we had until quite recently. So that would still be valid. As Øyvind said, we now have a higher higher price on the SME deposits than the retail. Of course, it has very limited back book effect with still -- with 1 billion in SME deposits. And an area where we aim to grow. COVID now would be, of course, a bit fluctuating market, but 5 years in NIBOR plus 50, so you're looking at, say, give or take, 80 points then. So there is still a positive definitely with a mixed deposit rates for SME. Mind you, after the pricing change, it will still be attractive to -- quite attractive compared to senior financing, but also towards covered bonds. Of course, we have made some use of the so-called F-loans from the Norwegian central banks, which are quite attractively priced, now 12-month financing at 30 points with an offering that will be in place until August. We have made limited use of it, but of course, it is -- it's attractive at the moment.

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Håkon Astrup, DNB Markets, Research Division - Analyst [38]

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And also just following up on Joakim's question. So if we assume that NIBOR stays at this current level and with this regard, it's much not through than the mix match impact of NOK 40 million, what will be the impact on your NII and NIM, following the changes that you have made to your customer rates?

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Øyvind Thomassen, Sbanken ASA - CEO [39]

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That we can't go into such specific details of. As we said, the -- as I think here, our comments will be in line with other Norwegian banks. And we gave you the figure with an angle of the deposits, and I think to calculate it from there.

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Håkon Astrup, DNB Markets, Research Division - Analyst [40]

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Because I see that some of the Norwegian banks with a lower deposit to loans ratio, then we are saying that this will be rather neutral. But then I'm looking at your deposit lending ratio, which is a bit higher than expect that you will be -- you will see some more headwind than them. So if you have a...

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Øyvind Thomassen, Sbanken ASA - CEO [41]

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Generally, well, from that perspective, you are correct. There will be differences between banks, given the balance sheet and given how NIBOR and wholesale financing will develop with both the, say, the rate and the spread, obviously.

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Håkon Astrup, DNB Markets, Research Division - Analyst [42]

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Okay. And just lastly on, if you look at your -- on the lending side, on your high-margin products being consumer loans and other credit products, you've seen that the volumes come down -- came down now in Q1. And do you expect that this deleveraging will continue into the second quarter as well?

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Øyvind Thomassen, Sbanken ASA - CEO [43]

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Yes, there, I think we have to look a bit at the longer-term trends, and we saw a shift in that market with introduction of the national debt register with effect from, say, early second half of '19. We have commented on, and you followed us quite tightly on the, say, the risk development in unsecure, which is primarily about the consumer loans, not so much about credit costs and account credits. And as I said earlier in the call that we have also, in addition to the debt register, made some changes and tightening of our underwriting criteria. You would find us a bit less visible in the marketplace also in terms of marketing for the moment. So of course, depending on how demand would develop now with the pandemic, whether the society returns at some point to a more normal life. Of course, you can see a stable or maybe slightly contracting development also, say, going into Q2 at least.

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Operator [44]

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And we have a follow-up question from the line of Jan Erik.

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Håkon Astrup, DNB Markets, Research Division - Analyst [45]

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Just a follow-up on the last one, [Håkon] here. On the unsecured side. So you tightened your underwriting. So you're more down to your sort of A and B class customers then. Are you still taking on customers or is it so that you just are letting them go? Or are you active in the refinancing class, therefore your best client A and B?

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Øyvind Thomassen, Sbanken ASA - CEO [46]

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Not sure what you mean by A and B, we have 8 risk classes with 8 different price levels. And I can say that our tightening is more towards the higher, 3 highest risk classes, where we've also seen the highest cost of risk becoming visible over the last quarter. We are definitely taking business, both from existing and nonexisting customers. We are more active in refinancing. We're absolutely not closed for business, but we have -- as we said, we are a bit tighter, and we are a bit less visible in the marketplace. And this is a product, particularly the consumer loans, which is very marketing-driven. And we found also with less underlying market growth, we found a return on marketing investment not so attractive as it has been in 2019. So I guess, that's the main description there.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [47]

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And then just finally on the SME side, you said that you might start lending maybe in 2021, if the plan, everything goes as the plan. What kind of, type of lending would you do? Would you do sort of consumer lending for SMEs with a high margin? Would you take some collateral in value in assets, et cetera. So you have a lower lending margin. How should we read you when you are entering the SME lending space going forward?

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Øyvind Thomassen, Sbanken ASA - CEO [48]

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Well, it's in line with what we have communicated before. So it will be smaller credit lines for the small self-employed or limited liabilities companies that we are targeting. So there will typically be small credit lines with personal guarantees. We could also look at other collateral going forward, but we'll start simple and small with the personal guarantees. So in that respect, you could compare it to consumer lending for SMEs.

Of course, you have the cash flow and debt serviceability of the company, so to speak. But in addition, the guarantee from the individual owner or guarantor.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [49]

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Okay, so the margin might actually be a little bit higher than what we normally see from SME in other traditional banks. Is that the case?

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Øyvind Thomassen, Sbanken ASA - CEO [50]

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Difficult to say. Of course, banks you know we have said that banks, our competitors overcharged a bit in this market. So we'll find the right price level with a healthy and decent margin. Of course, we have to factor in that the owner or management actually guarantees for their commitment. But still attractive rates. They might not be higher than what you've seen in the -- with competitors. Some of these small companies pay quite a bit, as you know. That's our business strategy going into the segment.

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Operator [51]

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There are no further questions at this time. So I will hand it back to the speakers. .

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Jesper M. Hatletveit, Sbanken ASA - Head of IR [52]

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And that concludes the session. Thank you.