Resurs Holding AB (publ)

STO:RESURS

Earnings Call Transcript

[Nils Helge George Carlsson, executive]

Welcome, and good morning from me to this Resurs Holding Q2 presentation, moving directly to Page 2. My name is Nils Carlsson, I'm the CEO of Resurs Bank. And together with our CFO, Sofie Tarring Lindell, we're going to present our development for the second quarter today. And moving swiftly along to Page 3, we have a summary of Q2 2023. Here is a brief summary, as you can see, of the numbers for the quarter compared to the same quarter previous year. And if we look at the second quarter, we saw good growth, driven by both segments and lending growth to the tune of 15% to SEK 39.6 billion in constant currencies, growth at 12%. When we look at the NBI margin, it was stable at 9%, and it is rewarding to note. We feel that during the course of the past year, we've managed to stabilize the negative marginal development that the bank has seen over the past few years.

At the same time, we continue our work, of course, with price adjustments to compensate for the increased funding costs and in order to further strengthen the NBI margin moving forward. If we look at the C/I ratio, it was improved to the tune of 0.2 percentage points compared to previous year. And this means, of course, that the earnings level before credit losses was up by 13%. The cost of risk ratio amounted to 2.8%, an increase compared to last year. However, compared to the previous quarter, the cost of ratio did improve as volumes in delayed payments went down. Our financial position and capital position remains strong and stable. Total capital ratio amounted to 16.3%, which corresponds to 2 percentage points above the regulatory requirement. The Board of Directors also intends to convene an extraordinary meeting of shareholders during the autumn 2023 with the intention of paying out a dividend of SEK 0.91 per share, corresponding to 50% of the reported net profit and therefore, in line with our dividend policy and the ambition of the Board remains to continue to pay out half year dividends.

Another important event during the course of this quarter is that we've opened up for the first deposit accounts in our new banking system. And during the course of the autumn, we will continue to open up the system, this new system to new customers, mainly in Norway and in parallel, lay the basis for a rollout in the other Nordic countries. That was the summary for Q2 2023. Moving on to Page 4. And we'll have a look at the loan book trend over time. All in all, we see a strong lending growth during the quarter if we look at the growth divided into geographical markets. We see that we're growing very significantly in the Swedish market by 19% compared to previous year as a result of good growth in both of our segments. If we look at the Norwegian market, we are up by 1% compared to previous year, where mainly Payment Solutions has seen an increase. Well, we have intentionally chosen to reduce, to some extent, the unsecured loans within consumer loans.

As we've actively opted to reduce our appetite for risk and be selective in our growth, we want to focus on increasing our profitability. Moving on then to have a look at the Danish market. We have a growth of 5% compared to last year. We are continuously taking further steps to improve and improve the automation of the customer journey. This comes as a natural impact of the amended requirements for credit assessment introduced by the National -- Financial Supervisory Authority, and we're pleased to see that it's paying off. If we move on to the Finnish market, we have a continued good growth, 6% compared to last year, and this is driven by good growth within mainly Payment Solutions, but of course, also in consumer loans.

So we see good growth numbers in all of our markets. Moving on then to Page 5. And we'll have a look at Payment Solutions. The growth was strong during the quarter, up by 18% in absolute numbers, 15% in constant currencies and growth was driven by our retail finance business in all markets together with increased volumes, for example, from the Komplett business within B2B, and we also saw growth in our card business, in fact. Within the segment, work is ongoing, of course, to adjust the price levels to compensate for the higher funding costs we are experiencing. This is not something that happens automatically. And it has taken somewhat longer than expected in light of the very high interest rate increase in -- pace in the market. So we've seen some negative timing effects during the quarter. We continue to work to increase the income per transaction and per partner, and we intend to continue doing so in the next upcoming quarters.

We can also mention under this section that we have had long-standing cooperation with NetOnNet, and it has now been extended during the quarter. We've seen many successful years together with NetOnNet and now we've laid the basis for a continued excellent journey together by way of a new agreement. If we look at the Swedish electronics chain, Euronics, with a nationwide network of 75 home electronic stores throughout all of Sweden, they've now opted to work with Resurs for installment options to provide this to their customers, and we're very pleased with that development. During the quarter, we also signed an agreement with Evify, where we work together to reduce the threshold to install, for example, EV charging points and such solutions. And growth is continuing. I mentioned this for Resurs cards with a good inflow of new customers in the second quarter, mainly through our own channels, and it shows that our customers truly do appreciate the products of the bank and what we offer.

Moving on to Page 6. Looking at the other segment, consumer loans, we are up by 13% in the loan book and in constant currencies, up by 10%. And during the second quarter, we saw a situation which was characterized by continued price adjustments, both for existing and new customers and to ensure continued high credit quality, a number of adjustments in our credit risk models have also been implemented. In Sweden and Finland, we saw the strongest growth, but it was also positive and worth noting that the long-term focus to further develop the entire application process and include automation as part of the credit risk model to create better and more efficient customer journeys is something which is beginning to give a clear impact to our business in Denmark and the positive development from the first quarter is still with us, and we're very pleased to note that, that is the fact.

In the Swedish market, we have a continued good demand in our own and external channels and in Norway with a portfolio for loans with collateral in homes, Balanselånet, that is we call it. We've reached an important milestone during the quarter because it now exceeds NOK 100 million. In Finland, we've experienced a stable demand for consumer loans and competition is stabilizing. Looking forward, in this business area, our focus is to grow selectively in the markets with the strongest margins and to retain our market share in the markets with stable margins and the work of using our own customer database and lend money through our own channels is something which is going to be an important factor for success for us for -- in the future. And now I'm going to hand the floor over to Sofie who is going to present the figures more in detail.

[Sofie Lindell, executive]

Thank you, Nils. And we move straight to the loan book. As Nils has already said, loan book was up 15% year-on-year and now amounts to SEK 39.6 billion. And this is partly due to the weakening of the kroner. And the constant currency growth was 12%. We see a good demand for our products and services within both our segments and growth compared to last quarter was strong as well. We have continued to carry out price increases and adjustments to our risk assessment, and that is why we expect a lower growth rate and also improved profitability and improved credit quality.

If we look at income, income was up 12% year-on-year, and that is a consequence of the loan book growth we have had. In total, we had operating income of SEK 866 million. We had a stable NBI margin compared to last year, 9%. And if we look at the underlying driving forces, we see that funding costs during this last year has gone up 2.2 percentage points due to exceptional increases in market rates that we've seen in the last year. And that we managed to have a stable NBI margin is a proof that we have been successful in transferring financing costs, funding costs to our customers and partners and it differs a bit between segments, and I will get back to that when we look at the segments.

But let us start with credit losses. In the quarter, credit losses was lower compared to last quarter. And this is part of the positive trend that we saw last -- end of last quarter where we see improvements in volumes and delayed payments and uncertainties, of course, continue to impact our macro model in IFRS 9, and that means that macro reserves were increased and that is what we see in the reported numbers. The macroeconomic situation means that credit losses are higher than last year, and our expectation with the uncertainties in the world around us is that we'll have a higher levels for some time ahead. If we then look at the segments. Payment Solutions, we see that the loan book is up 18% compared to last year, 15% in constant currencies, as Nils has already said, and we see good growth in all markets and all subsegments.

Operating income was up 11% due to volume growth and NBI margin is down with 0.3 percentage points. To the left, you see the net interest development. And as you can see, it's down over the last 2 quarters and that is due to funding costs having gone up within segments. As Nils said, we're working with adjusting prices and compensating for higher funding costs. And this is not done automatically. It's also taken somewhat longer than expected. But what you have to remember is that when we compensate for higher funding costs, we can do that in 2 ways, either with increases towards partners or increases towards the end customers and increases towards partners is not on the net interest margin, but the net fee and commission income, which means that the middle picture is more interesting.

And we continue this work with transferring the increase to funding costs. Then looking at consumer loans, we see that the loan book was up 13%, 10% in constant currencies. And we see growth mainly in Sweden and Denmark in percentage terms and in absolute numbers. So like operating income was up 12%, and the NBI margin is 0.2 percentage points higher, thanks to price adjustments that have been carried out. And NIM, as you see, is stable. Cost of Risk is up compared to last years and down compared to Q1, and the higher level has had to do with the higher macro reservations and also the interest rate situation that we've seen and inflation that has had an impact on payment capabilities within certain segments. And we see, compared to last quarter, that the Cost of Risk ratio has improved 0.4 percentage points.

And we continue to work with price adjustments in order to strengthen the margin and continue to grow selectively in markets where we have the strongest NBI margins. And we expect, therefore, that the loan book growth will be somewhat lower within this segment. And then if we continue with the expenses, you see that the C/I ratio was improved with 0.2 percentage points compared to last year and expenses up in total 11%. And this is partly volume-driven, but we also have higher staffing costs because we're working with improving our service level, customer satisfaction and also working within IT, replacing consultants with employees.

Looking at expenses, for the last 3 quarters, level is relatively stable. And as has been said, we have an ambition to increase efficiencies.

And then all in all, looking at the earnings before credit losses is up 13% year-on-year due to strong income increase and operating profit in total is down due to higher credit losses. But for Q1, we see a growth of 12%.

Then looking at our capital position, it's strong. It's stable. We have a total capital ratio of 16.3% and CET1 ratio of 14%, which is well above regulatory requirements and the objectives set by the Board. And the Board also intends to propose a half year dividend of SEK 0.91 per share this fall. And it is also positive that we have received information from the supervisory authority that we do not need to have any additional capital according to the Pillar 2 guidance, and we see this as a proof that will evidence that we have a healthy bank with higher profitability. And in Sweden, we see that we have new buffer requirements, and we have contracyclical buffer requirements, and we have reservations amounting to 1.7%. We see no signals that there will be any changes from the authorities.

We have the Norwegian requirements of system risk buffer of 4.5% for institutes with risk weight assets over SEK 5 billion. And since we do not have an internal risk classification method, that would mean that capital requirements would increase as of 31st of December and to optimize our profitability and our return on equity, our plan is to limit growth so that we go low that limit of SEK 5 billion in Norway. And this is something that we will be working with this year. But it shouldn't impact underlying activities.

And then to conclude funding is increasing this quarter, more than 95% of what we have in deposits recovered by the governmental deposit guarantee. Liquidity is strong, and we see that, for example, in LCR being 245%.

And with that being said, I hand back over to you, Nils.

[Nils Helge George Carlsson, executive]

Thank you, Sofie, for the presentation. We'll move on to have a look at the upcoming period to conclude this presentation.

Yet again, our focus is to deliver profitable growth where profitability has priority of growth. We also continue, of course, to monitor the macroeconomic development to ensure that we maintain a very high quality of the credits in our lending. In addition, we have a number of interesting dialogues ongoing for new partnerships and deals in retail finance during Q3. I would expect some of them to be concluded. We also continue the implementation of a new banking system where we have now gone live with parts of it. And during the autumn, we'll continue to open up the system to new customers, mainly in Norway. And in parallel, we continue the planning to open up to the other Nordic countries.

And once again, I'd like to underline that we have a very strong and stable financial position. And the Board of Directors, as you heard, will convene to traditional extraordinary general meeting to resolve on a dividend for the autumn 2023.

And thereby, we have now concluded our presentation, and we're going to open up for questions.

[Nils Helge George Carlsson, executive]

[Operator Instructions] Jacob Hesslevik is the next person to ask a question.

[Jacob Hesslevik, analyst]

My first question deals with Payment Solutions. Interest income more or less unchanged from the previous quarter. Is it only a timing factor here? Is it also because you've increased some fees? Could you tell us a little bit?

[Nils Helge George Carlsson, executive]

Well, it's mainly a matter of the timing effect. Amongst other things, as you can see, it takes a little bit longer to transfer increased funding costs to Payment Solutions as a segment and our traders because we are tied by a number of agreements. So that's part of it. And I think that for the future, you need to be prepared for both the net fees and commission income increase and interest rate increase. One will be charged to partners and one to final customers. And it's customers that we've seen the adaptations during the quarter.

[Jacob Hesslevik, analyst]

Okay. Thank you. That's clear. But can we expect this timing effect that you will catch up already during Q3? Or is it only when there's a pause from the central banks on interest rate hikes that you can expect to achieve this balance?

[Nils Helge George Carlsson, executive]

I think it's the latter rather than the former as you say. We're not going to be able to catch up fully already during Q3. It will hopefully be improved, but we won't be able to catch up in one single quarter.

[Jacob Hesslevik, analyst]

Okay. Excellent. That was very clear. Moving on to the credit losses. They reduced a little bit in consumer loans in spite of the excellent growth. And I was wondering if you've dropped any level of buffer or if you had just generally low credit losses?

[Nils Helge George Carlsson, executive]

It's mainly the underlying good and improving pattern when it comes to credit losses, which is the reason.

[Jacob Hesslevik, analyst]

Okay. Thank you. Great. And if we have a look at capital, you're well capitalized and you had your assessment by the Swedish FSA. Recently, you'll probably have the current setup for a while. But you did mention Norway and I had missed that I have to admit. I don't think I caught the order of magnitude of the addition, if you are over SEK 5 billion by the end of the year?

[Nils Helge George Carlsson, executive]

4.5% in addition -- an additional 4.5% on the Norwegian activities. But our ambition is that we won't be covered by this because we're going to reduce the growth in our lending in Norway to make sure we're below that.

[Jacob Hesslevik, analyst]

Okay. But if I look at your report, you have SEK 6.5 billion, nearly SEK 6.6 billion in lending in Norway. Can you take action organically to get down below SEK 5 billion during the second part of the year?

[Nils Helge George Carlsson, executive]

It's risk-weighted exposure amount of SEK 5 billion, and it's 75% risk weighting for loans without collateral.

[Jacob Hesslevik, analyst]

So it's not the total, which should be SEK 5 billion? Okay. Thank you. But then you don't have to sell off in your portfolio. If you had to sell off or divest some of the portfolio to get below SEK 5 billion?

[Nils Helge George Carlsson, executive]

No, no.

[Jacob Hesslevik, analyst]

Okay. If so, you are very overcapitalized, would it not be better to start a buyback program? And do you have a mandate from the shareholders for this?

[Nils Helge George Carlsson, executive]

We do have an authorization from the AGM. The Board is continually assessing how to best maximize the value for shareholders. Currently, we are -- where we are, and we'll get back to you further, but this is a matter that the Board looks at regularly.

[Jacob Hesslevik, analyst]

Okay. Thank you very much. And thank you, Nils, for your period. Best of luck for the future and enjoy your holidays, both of you.

[Operator]

Next question is from Jens Hallén, Carnegie.

[Jens Hallén, analyst]

Thank you, and good morning. I would like to start with growth. It's amazing what we see in volumes in Q2. I think we have to go back to 2018 to see something similar. And could you talk perhaps a bit about drivers where we have the 6%, something in particular, that just happened, new customers or something. If you too could give us a bit of background as to the numbers that we see for Q2?

[Nils Helge George Carlsson, executive]

Well, we've been working for a long time with gaining market share. And we have a number of different activities, what we've been doing in the last 10 months or so. And that is perhaps what is, well, resulting in what we see now, perhaps a bit of a catch-up effect. But we have, during the quarter, looked at where we can gain market share, have growth in the different segments, and that is what we have prioritized. And I think that Sofie mentioned this, we do not really have an ambition to grow at this pace. And well, of course, it costs, and we will prioritize, I believe to work with margins and profitability. And that, I think, is the thinking.

[Jens Hallén, analyst]

It does sound as if -- well, if you wanted to grow, you could, looking at the potential, it wouldn't really impact the risk curve, if I've understood it correctly.

[Nils Helge George Carlsson, executive]

Well, yes, absolutely. And you also have to understand, we talked about that last time that since last fall, we have looked at the credit side, and we're much more stringent in our models. And that also means that we grow.

[Jens Hallén, analyst]

But do things look good?

[Nils Helge George Carlsson, executive]

Yes. Absolutely.

[Jens Hallén, analyst]

And you also touched upon this with margins in Payment Solutions. And of course, I do understand that, well, we have to see stop when it comes to interest increases before you can get back to old margins. But I expect you to work to get a balance, and do you feel that you're getting closer to having a balance, looking at the NBI margin? I think that is the case. And well, if there's a new increase next quarter, you have already started to work with adjusting your pricing?

[Nils Helge George Carlsson, executive]

Yes, that is correct. And we will get closer to a balance. And you see that looking at the NBI margin that has been going down for a number of years, as a matter of fact, but we've stabilized it, and the ambition is to not only have it stable but also to increase the margins. And we see a bit more of this when it comes to retail. But yes, I agree with what you say.

[Jens Hallén, analyst]

Okay. Thank you. And then capital and the capitalization of the IT project, of course, is a big part of what we see quarter-on-quarter. And could you give us a bit of information about what we see as of June last?

[Nils Helge George Carlsson, executive]

I do not have the number now, but I'll send it to you during the day.

[Jens Hallén, analyst]

And then last thing. You talked about Norway and the SEK 5 billion. And looking at Norway, you're trying to get below that threshold and I do understand that reasoning and that it will not really impact your business in Norway. But nevertheless, you have a ceiling when it comes to growth, not just for the fall, but for the future. And is this some sort of signal telling us that in Norway, you just want to hold on to the portfolio and well, keep profitability, but that you will focus on other markets for 2024, 2025?

[Nils Helge George Carlsson, executive]

Well, it is sort of what you say. But at the same time, Norway is an important market. We have partners across the Nordics. And the regulatory requirements in no way will mean that we will abandon the Norwegian market. We will not. We will try to optimize and be more clever when it comes to how we grow in Norway perhaps. And if we, in the future, are to get above the regulatory requirements, well, we'll have to look at that then.

[Jens Hallén, analyst]

And the last question about capital and that structure. Do you have a lot of CET1 capital? But if we look at the total, it's within the benchmark. And could you say something about the structure? And are you thinking about doing something about ATS, for example, during the spring looking at the capital buffer?

[Nils Helge George Carlsson, executive]

Well, of course, this is something that we're looking at all the time. And we have an ambition to optimize, of course. I'm speaking for you perhaps, but I feel that you need to do that before you start to look at the buyback programs.

[Jens Hallén, analyst]

Thank you. And for me as well. Thank you to you, Nils. And this was a nice report for you to conclude with.

[Nils Helge George Carlsson, executive]

Yes. And I'm sure we'll see each other again in the future.

[Operator]

Next question from Patrik Brattelius.

[Patrik Brattelius, analyst]

Yes, I have some questions. I thought I'd begin by asking about the net fees and commission income. It was very strong in this quarter. It exceeded my expectations at least. But what in particular I had missed in fact was the net fees and commission costs, they're a little bit unstable. Sometimes it's -- some quarters, it's up a lot. Now there's a clear drop. Could you tell us a little bit about the dynamics, which is making it so volatile between quarters?

[Nils Helge George Carlsson, executive]

It's because we have different costs in the use of credit costs, how we print new cards, et cetera. So it can vary. It could definitely vary and differ between the quarters, but you need to look at the net fees and commission income in total, and we expect that this will be a little bit just above the loan book growth, if I am to give any sort of forecast.

[Patrik Brattelius, analyst]

Okay. So you expect it to grow?

[Nils Helge George Carlsson, executive]

If the loan book grows, the lending grows, this will grow, but not quite as then, probably no, it still grow a little bit more rapidly, a little bit above the lending.

[Patrik Brattelius, analyst]

Okay. I'm with you on that one. Could you tell us a little bit about what you think of the dynamics and the competitive environment in the Swedish or the other Nordic markets in terms of deposits? And whether or not this is on the increase or if the situation is stabilizing, some have been quite -- so players have been quite aggressive in raising deposits. It's [ BAB ], for example, have introduced increases in advance. I have started up a new type of deposit or savings account.

Have you found that competition is becoming fiercer and that you're forced to tag along? Or do you stand to gain from the competitive environment over the past few months?

[Nils Helge George Carlsson, executive]

We do see more competition in deposits. In particular, in the Nordics, this competition is clearly there. There are a lot of good options also in the German market where there's been a growth. When the bonds market becomes less attractive, deposits are an interesting choice. But the situation with the interest rate might mean that some of the large bank customers who are passive today to a greater extent, they may shop around for more attractive savings options, and that could mean that the market for deposits grows in the Nordics.

[Patrik Brattelius, analyst]

And there's no fear that the large -- the major banks will get more active and the competition will become even fiercer?

[Nils Helge George Carlsson, executive]

Well, that's clearly a risk scenario, but we believe it would be more positive if we were to find ourselves in a situation where customers of large banks start to move.

[Patrik Brattelius, analyst]

But do you think we have the major movements behind us now? Or in the short term, are things getting more intense?

[Nils Helge George Carlsson, executive]

We believe that as long as the central banks continue to implement increases, we will have a rising interest rate trend in -- for the next while. And we believe we'll be able to compensate for this on lending. But this is what we believe. We expect to see increased funding costs over the second part of the year as well.

[Patrik Brattelius, analyst]

And a question on the credit losses. If I understood the presentation and the slide on credit losses right, can we expect a similar level in short term compared to what we've seen in Q2? Or have we seen that the way credit losses develop, if you look at it on a monthly basis that it has gradually improved during the second quarter or that it has been more stable?

[Nils Helge George Carlsson, executive]

It has been more stable. So you should expect -- well, you shouldn't expect in the short term that we see a continued improvement. It's very difficult to summarize any guesses on the future, of course. But we believe that we will be at a higher level given the fact that interest rates and inflation continue to go up, both of them. We don't believe that it will continue to improve in the near future.

[Patrik Brattelius, analyst]

Excellent. And one final question before I let you off for some summer holidays. Currently, are you operating with 2 parallel platforms? Did I get that point right? And how much does this weigh down on the cost base right now? And for how long a period can you expect to be using 2 parallel platforms? And when will we see the first release of a setup where you can drop some of the old features and platforms and get rid of some of the costs and to notice this on the cost base?

[Nils Helge George Carlsson, executive]

Well, you've understood it correctly. We are operating on double platforms, and that's obviously something which is creating costs. So the cost base is a little bit too high. It's non-optimized still, but we will be able to get synergies from our new banking system sometime early next year, not sooner than that. I think that's what you can expect.

[Patrik Brattelius, analyst]

So beginning of next year. Thank you. And the ballpark for the annual run rate, where are you? What does this cost to you?

[Nils Helge George Carlsson, executive]

I can't really disclose that because these are agreements we have between us and our suppliers. But it is a considerable number of million.

[Operator]

There are no further questions from the telephone conference. So I'm going to give the floor back to Nils and Sofie.

[Nils Helge George Carlsson, executive]

Thank you. Thank you for all questions, and thank you for your interest. And if you think of more questions, then just get in touch with me or Sofie, and I wish you a nice continued summer. Thank you.

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