Good morning. Welcome to INDEXO Investor Webinar. We will start with the company's presentation, followed by a live Q&A session. Throughout the call, we are looking forward to receiving your questions. Please submit them in writing through the Q&A window. For your convenience, we are recording this session, and replay will be available shortly after the call. That being said, I'm handing the call over to our hosts, the management team of the company.
Hello. Thank you very much for joining our annual results webinar. We are here presenting the results of INDEXO Pension Business and Bank, and I'm joined by Ivita Asare, who is the CFO of our group, Valdis Siksnis, who is the Chairman of the bank, and myself, who is the Chairman of the pension business. Let's get into this because it has been a transformational year for INDEXO. All the hard work we have put into launching the bank has paid off. In 2024, in May, we received the banking license. At the end of August, we launched the banking services. This actually also coincides with amazing growth in our pension revenues, which grew like 42% year on year. Actually, we have also grown our assets under management, client results, client numbers. Our financial results have turned profitable in the pension business.
Our clients can be happy because our equity plans are best performing in the Latvian market. The third pillar almost doubled its annual revenue last year. As I said, the bank was launched. We have an excellent uptick in the number of clients. Deposits are coming in, and we are well on a path to disrupt the Latvian banking market. We will go into detail of all of this. We'll have the financial presentation by Ivita, the operational presentation about the bank results by Valdis. Myself, I'll cover the pension results. Prior to that, I just want to make a little note that our annual report, signed and properly documented, will be published by Friday. It's a couple of days later than this presentation. You can rely on these numbers. They are correct and will not be altered in that document.
Let's go down to discussing the pension business. Basically, what we wanted to say is that, as I said, our assets under management grew significantly from EUR 900 million to EUR 1.34 billion. Our client number grew to 140,000. We're really sorry. We actually have a technical glitch where the presentation disappeared from a TV screen. Anyway, we can continue. We also continue to build market share in the pension business, taking it to 14%. We are the third largest pension fund manager of defined contribution funds in Latvia after two large Scandinavian banks. Finally, after all these years of investing into the pension business, and for years, we have also had operational profit, which we decided always to invest into growth. Actually, in 2024, also the business turned into net profit.
Because of the fast growth, obviously, the more important figure than backwards looking figure is the running annual profit that we expect from current operations. That actually is already at the level of EUR 2 million. Having said that, last year's profit for us was around EUR 800,000. Yeah, we are very happy with that result. Going further, we can talk about the waterfall chart, which we normally use to describe the pension business overall. Here we can put together basically how our pension business grows. We get in regular contributions from second pillar customers. That was last year, it was EUR 160 million. We had inflows from new clients.
In the amount of EUR 200 million, we have unfortunately churn where, although we have the best performing, one of the best performing equity-related funds in the market, some customers choose for whatever reasons to leave our funds. That basically cost us like EUR 120 million-EUR 128 million in assets under management last year. The market returns delivered EUR 215 million of grown assets. All in all, we had a second pillar result of EUR 1.3 million. The important part to know here, I want to state this, is that in 2024, a law was adopted whereby the contribution rate was decreased from 6% to 5%. The monthly contributions have plateaued a little bit because of that. Due to the increasing number of customers and increasing salaries, we hope that they resume growth quite soon.
Talking about the results for our customers, we have an extremely great customer base. They have made a good choice joining INDEXO. Our investment strategy has paid off for them quite nicely. Our customers have the highest amount of savings in the market. That gap to the competitors is increasing. We go to the revenue side. As you can see, our revenue grew from EUR 3.1 million to EUR 4.4 million last year. As I said before, we turned out net profit on the pension business of EUR 813,000. If we normalize it and take away some of the one-off costs that were related to some capital raising and also the option program, which also takes into account the whole group employees, actually our profit would have been about EUR 1.3 million. Just a quick recap of our fund performances. Last year was phenomenal.
25% return on the 100% equity funds. Yeah, it's a great result for our customers. As we know, obviously, the compounding effect will work miracles in the long term. Having your saving base increased by 25% means that, of course, the future looks very good for our savers. We wanted to put our returns into perspective with the CPI of Latvia and also the competition in the same category of 100% equity funds. We see that our funds have beaten the market average in 100% equity. Also, despite the fact that inflation in Latvia and in the European Union was quite high a couple of years back, even in the long term, we can show that our strategy is delivering real returns to our customers.
Their savings are bringing actually them closer to that financial well-being in the pension age which they are looking for. The third pillar is a very important part of our business. Last year, due to the launch of the bank, we have now a new channel through which we can sell the third pillar products or offer the third pillar products. That has led to, first of all, significant reduction in cost of client acquisition and also has led to a better performing customer base. Our customers are more committed to making regular payments. Those payments have increased. I'll come to that quite shortly. I think if we look at the result overall, last year we had growth of EUR 16 million in our business, which was predominantly driven by actually contributions and clients joining.
Not that much by the returns in the market because our base is quite low. If we look at the annual contributions during the last year, it was EUR 9.3 million with a significant uptick in the last quarter when bank channels started working for distributing our third pillar products. Currently, we can say that already now our annual recurring contribution rate is somewhere around EUR 15 million. We will increase that because every day new customers are joining our third pillar funds. Our customer contributions are also going up on a year-on-year basis. They have actually been growing almost close to 30%. Also our clients who are making contributions are growing. We are really looking forward to building a third pillar into a solid business. We have a detailed roadmap how to reach EUR 100 million assets under management.
Talking about the sort of pension business overall and looking forward and back a little bit on what we expect to do this year, what impacts us this year, there is going to be a new fee change or fee legislation that will be implemented. I mean, the regulation itself has been out there already for quite a while. We have actually also communicated about that. That will have an impact on our revenues. The exact date of implementation is still open. Our focus this year is churn management. We're still not happy with the fact that a lot of customers choose to leave regardless of our excellent results. We are going to be paying more attention on the quality of our, let's say, product distribution and third pillar rather than second pillar. Contribution dropped by chalk. Second pillar, very important.
We are the first ones in the market to actually show second pillar savings in the mobile app. The first bank to do this. It does not matter whether you are our customer or not. You can download our app and actually see your second pillar savings very conveniently in the app where you can also see how much you have contributed and how much you have actually earned from your pension savings. As I said, our focus this year definitely will be growth in third pillar. We have detailed roadmap on how to increase the monthly customer numbers and contributions. With that, I would like to hand over the microphone to Valdis, please.
Thank you, Henrik. Bank is out there. Bank is almost six months old. We are still a pretty new credit institution.
As for any new business, when you open the doors, the first task is to attract the customers, to get the customers in with whatever service you can do that. We have been quite successful doing that. At the end of yesterday, we had already over 28,000 customers, which means that on average, since launch, we have been adding 4,600 customers every month. That is quite an impressive result. I remember that, for instance, when you launch a pension business, the first 10,000 customers took more than a year. I do not think that there are many retail businesses at all in Latvia which can show similar or comparable customer growth. We are very proud about our mobile application in general, which is our main product distribution or service channel.
Particularly, we are proud that new account opening or registration, in our case, on average takes less than five minutes, which is something unheard of in the Latvian banking sector, but probably not only. I think it is a very good global standard already. Henrik mentioned also about the feature of checking second pillar in our mobile app. Of course, for a bank, the deposits is the first most important product because that is what the banking license gives you the opportunity to do, to attract customer funding. That is a precondition for everything else you do, for payments, for lending, etc., etc. We have been rather good also with that. At the end of yesterday, we have attracted over EUR 42 million customer deposits. On average per month, that means we are running at EUR 7 million per month rate.
Consumer loans have been available from day one. Unfortunately, in the first months, despite all the convenience and that you can apply in a fully digital way, get your consumer loan in less than five minutes, has not been that popular during the first months of our operations. We have reverted that change. We are growing our consumer loan portfolio in recent months very successfully. This slide is already about the history. As I mentioned, the customer growth and deposit growth, and we are continuing plus minus with the same pace. When it comes to consumer loan growth, if at the end of the year we had just over EUR 1 million issued consumer loans, this year in two months almost, we have added already EUR 2.6 million, almost more than tripled our portfolio.
We are currently running at, I would say, EUR 2 million a month rate issuing the new consumer loans. Sorry. About our existing product offering, which already differentiates ourselves from the market. I already mentioned mobile app, which is raising standards in the Latvian banking sector. We are a good payer. We reward very well our customers for the money they are keeping with us. We are paying for current account balances, good rates for term deposits, for saving vaults, for everything we offer. We have a good card product which combines the best of credit card and debit card in one card. You do not need, like in most of the cases in the Latvian banking sector, two cards to receive the same benefits. In our case, one card is enough. I will touch it later.
Very soon, this nice card product you will be able to add to your digital wallets, both Apple and Google. Consumer loans, I touched upon already. It is a fully digitalized, very easy-to-use product. During February, we launched this feature that you can check your second pillar savings in our mobile app. Currently in Latvia, there are two ways. Either you can go to portal.latvia.lv, which is not very user-friendly. There are a lot of services. It is very difficult to navigate. It is very difficult to find a place where to check your second pillar saving. Or you can do it on our app in 5-10 seconds. You can see your saving very easy. If you are our customer, if you are not our customer yet, it takes you five minutes to download our app to register, and then five seconds to see your second pillar saving.
There are currently in Latvia two ways, either Latvia.lv or Indexo mobile app. There is no third way how to check your second pillar saving. It is probably very natural for a bank in an early development stage. We are increasing the customer base. Customers are in an early stage of their journey of building a relationship with our bank. Our share of wallet per one bank relationship is still much lower than it is in the market. That means we have a lot of potential from within our already existing customer base. To utilize, unleash that potential, we very well recognize that we need to continue to deliver on our product development and particularly different daily banking products, mobile bank improvements, and new lending products, which I touch upon more in detail in the following slides.
The feedback from our customers, which are either just opened account or are very passive users of our service, the main obstacle number one for them to become more active is lack of digital cards, lack of opportunity to add the card to either Apple Wallet or use the Google Pay service. We have worked on that since we opened the doors. I'm proud to say that we have completed all the Visa tests. Already this week on Friday, we are aiming to make the first Google and Apple Pay transactions in live environment, but in a pilot regime. After successfully completing pilot tests, we will launch one service after another in coming weeks. Most likely, we will start with Google Pay followed by Apple Pay a couple of weeks or one month later.
Just to add that this is the Apple and Google Pay. It's not anything that we forgot about while we were launching a bank. It was just that you are not allowed to launch these services until you actually have operating cards. It's a normal natural process that first we had to deliver the cards, and only then we could connect to the Apple and Google Pay.
Yeah, thank you, Henrik, for that. Yeah, there was no way how we could have had that implemented on day one. We still are the best players for the money you entrust us, for the money you keep with INDEXO Bank. There is no other place, at least among the leading banks, where you can get a better rate. Our customer base is also quite young. 80% of our customers are below 50.
That means that the majority of them have also young children. There, the family account or children account is extremely important. That is also among our top priorities after launching Google Pay and Apple Pay for our daily banking services development. We have had already seven new Apple versions since launch. More visible features we have added is already mentioned. Second pillar saving information, interest rate accrued on a daily basis, regular payments, formal account statements. Of course, we have fixed a lot of bank bugs and made some smaller performance and stability improvements. We have to deliver also on our promise to disrupt, to change the Latvian lending market. We have accumulated already some deposit base which we can use for lending. With consumer loans, we are delivering already from January and in February. Our consumer loan portfolio is growing.
You can check our offer and receive our offer in minutes in our mobile app. It is a fully digitalized, completely online process. Mortgage loan is, of course, a cornerstone retail banking product. We are making good progress with that as well. We have started live tests. The first two mortgage loans are being right now refinanced from other banks. There is still some work to be done with some customer engagement interfaces and some process automatizations at our end. On top of those two pilot customers, we probably will need to add a few more. By end of March, April, we believe we will be ready to launch the refinancing service first. Very soon, we will add the equity release product. Also, new mortgage issuance solutions will follow.
We will be, let's say, fully functional retail bank with the mortgage loans in two to three months' time. Custody is another interesting service. That is another indication that there are some problems with competition in the Latvian banking sector because we are paying very high fees for our pension managers paying very high fees for custody service of those pension savings. We will be ready technically by the end of June to provide that service. It is very likely that our first customer will be INDEXO as a pension manager. By launching this service, we will not only enable INDEXO pension manager to save costs and pass some of those benefits also to their customers. We as a bank, by lowering those costs to our pension manager, will also be able to earn about EUR 1 million from day one annual run rate on annual profit.
Indexo is likely to be our first custody customer, pension manager Indexo. There are other pension managers, other institutional customers who would be interested to use our custody services as well. We are sure Indexo will not be the only one. I pass over to Ivita to talk more about our financial figures. Yeah,
thank you, Valdis. We have successfully built the bank. We are building the strong base so that we can expand further. Of course, the bank has been operating only for four months during the reporting period, which obviously means that we are not yet generating significant revenue. The total income during the operating period was only around EUR 41,000. I would like also to stress out here that 50% of our interest expense was due to our initial higher payments to deposit guarantee fund.
Obviously, also during the startup, IT investments and also building organizational capabilities are the largest parts of the expenses, which meant that during the reporting period, the bank incurred losses of around EUR 6.16 million. In total, during the reporting period, we have made IT infrastructure investments, which we capitalized of around EUR 3 million. As you can see in our P&L, we also expensed slightly more than EUR 2 million of our IT expenses. I would like also to point out that the largest part of these investments we are doing is to customer engagement systems. Out of the total amount, EUR 3.4 million of IT investments went to those systems. In terms of our balance sheet, as I already mentioned, we are continuing to make significant IT investments, which you can see on the asset side under intangible assets.
We also are building and securing the customer deposit base to be able to expand our loan growth targets. As we can see, and also as already mentioned by Valdis, our competitive interest rates have been appreciated very much. We have been able to build a solid starting deposit base. Especially, we see that customers are enjoying flexibility and the competitive rate of our vault because 50% of the total customer deposits are in our vault product. On the asset side, as we are continuing still to build our own portfolio, at the moment, our largest liquidity lies in the Central Bank Account. As I mentioned, the second biggest position is our IT investments, which is EUR 4.5 million, which are now sitting in our balance sheet.
I would like also to point out that during the beginning of all the period, we have been building the bank. The bank has already invested almost EUR 8 million to be able to build the bank with its IT infrastructure and the product development that we have now. At the end of the reporting period, the bank is compliant with all the regulatory requirements in terms of capital adequacy and liquidity. In the balance sheet, we had at the end of the year capital of around EUR 8.5 million. For the capital adequacy calculation, our capital was EUR 7.3 million, which is all compliant consisting of tier one capital. Of course, our initial risk exposures are very low. As you can see from the slide, they have been increasing. At the end of the year, they have been already almost EUR 13 million.
It is still very low because, of course, our loan portfolio was just EUR 1 million at the end of the year. The majority of these risk exposures are coming from other assets. INDEXO Bank capital adequacy ratio was more than 50%, very comfortably exceeding the regulatory requirement of 20% that we have now. Our liquidity coverage ratio was more than 1,000%, exceeding significantly the regulatory minimum of 100%. As for any startup, as you can imagine, a very important milestone is to reach the break-even point. On the INDEXO group level, we are aiming to reach that point in Q4 this year. Of course, to be able to do that, that requires that we successfully implement all the product launches that Valdis mentioned earlier in the presentation and that we have been able to build the loan portfolio according to our plans.
In terms of the specific volumes, that means that we have to have our loan portfolio of at least EUR 40 million. Our total deposits should be around EUR 140 million. Also by that time, we should have at least 55,000 customers. On top of these volumes, we will have to add the monthly volumes. We would need to have a monthly new mortgage lending volume of around EUR 1.5 million, new monthly deposit volumes of around EUR 10 million. Our consumer lending monthly volume should reach already EUR 3 million per month, as Valdis indicated earlier. At the moment, we are having approximately EUR 2 million per month in consumer loans. There is one more step to do to make that bigger.
A substantial contribution to be able to generate this break-even will come on the group level from the pension business, where we do expect a monthly result of around EUR 160,000. The launch of the custody business, which Valdis mentioned, with the annual run rate income of around EUR 1 million, is also important. This milestone is very important because, of course, that indicates that the business is generating enough income to cover its operating costs. That, of course, is very essential for long-term sustainability. This would also then demonstrate to investors that we are a financially viable group. It will boost the investor confidence. It will provide for us a solid foundation for our future growth and expansion. During the reporting period, the group has been raising capital and the bank's capital has been increased by EUR 12 million.
However, as you know, the bank's launch was slightly delayed last year. In order to mitigate the impact of this delay and also to be able to build the aggressive loan targets that we have, INDEXO Bank will need to raise additional capital, which, of course, is required also to build all the product launches that Valdis mentioned. We need this additional capital to be able to deliver on these long-term targets. In the Management Group, we are currently in the process of updating our financial plans. The last time, we were presenting them at the end of 2023. We are working on our specific business growth ambitions and also specific capital targets. We will communicate those to our investors and our depositors in the coming months.
We already have demonstrated through the last year that we are successful and we have the ability to attract the necessary capital for the development of the bank. This additional inflow of the capital will enable us to deliver on all the products that you saw today. Of course, that will strengthen our operational and financial capacity. We really hope then to be able to deliver our innovative solutions to the whole group customers. Now, Valdis, please back to you.
Yeah, thank you, Ivita. The big picture actually is unchanged. We still see a huge opportunity in the Latvian banking sector. It is very concentrated, very profitable. We see a big lending opportunity, which we have started to utilize already with our consumer loans. The mortgages are coming in following weeks.
Eight banks are not paying for the money people are keeping with their keeping with the banks. Private individuals are keeping EUR 8 billion almost in current accounts where they are paid nothing or very little. We have proved that our brand, our IT platform, our existing customer base is a good platform to launch and build the new bank and to be a disruptor in this market situation. We are very well positioned to benefit from that, to take advantage of that. We are, of course, a fully digital mobile bank. The mobile app is currently the only and main way we have to use our services. In February, we opened also our first and only physical branch. Actually, we are currently located in that branch. We are conducting this webinar from our branch.
That is the place where the people can come to resolve some non-standard situations. Also, later, when we will add mortgages or other more sophisticated products, and if the customer preference will be to have a face-to-face meeting, this place will provide opportunity to conduct that meeting. It is also a differentiator from other international fintech competitors, which are a bit faceless. We are here with our branch. All customers in Latvia will know where to find us, so to say. As I mentioned already, there are EUR 8 billion in current account balances of private individuals. If all those customers would put their money to INDEXO Bank, Latvian society would have more than EUR 100 million per year more to invest, to spend, to use for whatever purposes. Save for pensions. Save for pensions.
There are 28,000 wise customers who have chosen to claim their share of those EUR 123 million. I am just encouraging everybody to join them. That is it, what we wanted to tell you. Now we are open for questions and answers.
Yes, thank you. We are now opening the floor for questions. Participants, please submit them in writing through the Q&A window. I will remind that questions can be submitted either anonymously or with your name. You already covered the Apple Pay and Google Pay topic during the presentation, but since it is one of the most popular questions, I will address it once again. When will Apple and Google Pay be available?
Yes. First of all, there was no chance to launch them at day one. Of course, we recognize from the beginning the importance of that feature.
Unfortunately, you first have to issue the physical cards, and then you can add the service. We went through all that process. We have completed Visa tests. This week, this Friday, we believe in a pilot environment, the first both Google and Apple Pay transactions will be made with a limited number of our cards. The piloting tests will continue for a week or so. If everything goes according to the plan, we believe that mid-March could be the launch of Google service first, later followed by Apple. All the technical implementations are completed or will be completed within a week, and all the testing will be done within a week.
Thank you. Does the INDEXO card work in Russia and Belarus?
We have a Visa card, and to my knowledge, they do not work in those countries and probably will not work as long as Russian aggression in Ukraine will continue.
Thank you. Our second question is about the mortgage lending. Can you please remind it once again? When do you start?
In a way, we can say we have started. The first two loans are being refinanced right now. There probably will be more pilot customers. To complete the piloting, fine-tune our processes, it will take another month or two. By the end of, towards the end of March, or more likely in April, we will be able to offer to the general public first refinancing and equity release products, and then later also new mortgages.
Continuing on the same topic, what is the strategy for building the mortgage portfolio and attracting clients with existing loans in other banks?
We will start exactly with the refinancing product. That is actually EUR 5 billion-EUR 6 billion large market. Of course, there are many cases where people have received their loans five, ten years ago at much higher margins on higher loan-to-value ratios. Basically, we can make a difference there. We can make also a difference by extending the mortgage repayment period and also adding on top of that some additional amounts. We aim to be competitive and then the so-called equity release product, which to our knowledge is not really available at the mass scale in the market. We will add also that. The new mortgages will follow after the refinancing and equity release product launch.
Thank you. Will there be an option to cash out refinance from positive equity?
Yes. Yes. We see a big opportunity there. As I said, we do not think that any of the larger competitors are addressing that need very well. We think we will be able to do it better, more convenient, and we will make a difference there.
Can you tell us more about the 2025 plus roadmap?
It is very difficult to say exactly. We are working in a sort of short-term sprint when it comes to using our IT and product development resources. We are now fully booked with Google Pay, Apple Pay, launching mortgage, junior account, and launching custody services. That is all we can do by the mid-year during the first half of this year. What we will do after, it is likely we will start to work on building services for SMEs.
We have other retail product ideas, but it would be very speculative for me now to give some dates and timetables, etc., because we do not know it very well ourselves yet. The first half of the year is very well planned. A week here or a couple of weeks here or there, we are rather very convinced about our launch dates. Further than that, that would be a bit speculative right now.
I think I would add there also that we have now 20,000 customers already, and that is growing every day by hundreds of customers. We also will be able to listen to our customer needs. We will have interaction, and then we can see what are the services that they need.
I think one important thing definitely is to understand that even within a sort of a certain funnel, like a mortgage or whatever, the job does not end once you sort of launch the first product version because there are other iterations that the same product will have to have. We will launch mortgages for refinancing. The next step is the new mortgages. These are different flows. The fun never stops.
Has INDEXO Bank's strategy for 2025 changed in response to competition in the banking sector?
No. I think we have received a very good kind of response from our customers. We are adding, as I mentioned, on average, more than 4,000 customers per month. We are growing our deposit base. We start to grow our deposit volumes. We are about to launch our mortgage product. We see a lot of opportunities.
As I mentioned, the big picture is unchanged. We are well positioned to make positive change in the market. Yeah, short answer is no.
Let's talk about the corporate clients. When do you plan to start offering services to them?
I know we've been giving some guidance, which has been changing, and now trying to be more responsible. I actually cannot give the exact date because I don't know it myself. Our IT services, as I said, is fully booked with developing those retail products. We will start to work on a more specific timetable and implementation schedules towards May, June. Likely it is that it will not be earlier than the end of this year or somewhere in the beginning of next year. Again, take it with a grain of salt. We don't have a specific launch date ourselves yet. It's a guesstimate.
I would add here that just from a very purely rational point of view, we have the clients who are already with us. While they showed also before the wallet share that we are getting actually from our current customer base. If you think from a point of view that we have already invested onboarding those customers, and then we have a possibility to offer them better services. They bank with us more on an everyday basis. That is our kind of first choice, to really help our customers feel that we could be their number one partner. The focus is to really launch that part of the product offering first.
Thank you. There is an interest to invest in stocks and ETFs through INDEXO app. When could that be possible?
I think, obviously, our history grows from investments, investment management in the pension funds. We are constantly thinking about it. We understand that there is a need in the world of lots of choices and the complicated and different financial products. We want to provide that service to our customers that they would be able to, through us, maybe buy a preselected or curated well-thought-through services and products. So far, until we launch custody services, it is impossible to basically put it on a roadmap because it takes first our own ability to hold securities accounts. Once we launch the corporate securities accounts, which means that the bank will start handling pension fund securities, that will give us then a chance to use the same IT platform also to look into when is a good time to roll out the retail accounts.
Thank you. When do you plan to start offering travel insurance similar to Citadele X cards?
I think actually travel insurance to card product is not very tricky. It's easy. It's doable almost within a week and doesn't require much from the bank. Actually, we consciously choose not to offer a travel insurance to our must-card product because that is probably one of the most kind of mis-sold products to retail customers who actually don't need it. Of course, there are people who travel often, and for them, it's probably a good choice. There is somebody who goes abroad once or twice a year and pays for the travel insurance the whole year. That's a very unwise product to buy. That is the reason why we choose not to add the travel insurance to our must product.
One of the products we're going to develop in Q3, Q4 is the premium card product, and that will be with a travel insurance. That will be a bit more expensive product, and that will be tuned towards people with higher requirements and, among other things, to the ones who travel often.
Thank you. Valdis said that the INDEXO card combines the whole suite of a debit and credit card, but it still lacks a credit limit. Are there any plans to address that?
Yeah. Okay. The previous question was also answered. That would be more premium, this revolving credit card. Right now, of course, you can use our consumer lending product and spend it through the card as well. Or spend your money as you wish.
Otherwise, card indeed, you can use it to withdraw from any ATM in the world three times per month, free cash. You can use to book a hotel room, rent a car, whatever. In that sense, it has full debit and credit card features.
Thank you. How is INDEXO performing compared to its business plan?
Yeah. As I mentioned, the last business plan that we communicated was at the end of 2023. If we compare to that, then yes, we have been quite nicely delivering on the number of customers and also on the deposits. We have to take into account that there was a delay in the bank's launch as compared to the business plan. Obviously, that impacted some of the differences that we have now.
We already have been mentioning that the consumer loan portfolio growth was slightly slower than we initially were hoping for. Also, as I mentioned, we are right now actually working on updating our growth ambitions and also our financial plans. We will be coming out in a couple of months with the new update on our numbers. We will be presenting our plans there.
Thank you. Let's look at what's happening on the stock market, on the stock exchange. Can you comment on the recent sharp decline in INDEXO share price?
I can take this. No, we actually don't know why people are less excited about our project because I think we're delivering actually a pretty solid growth story. I think the volumes are extremely small. I think it's something that happens with startups quite often.
I mean, we have been putting a lot of money into launching our product. Obviously, there are always hopes that some sort of green shoots from that investment start coming up earlier. We clearly see those green shoots. We see the path of how we get to the break-even point and beyond that into profitability. I suppose some of the investors have just been tired and hoped that these situations would come faster. As I said, we run our company from a point of view of delivering long-term shareholder value growth. Even though there have been delays, our view on the long-term potential of our company has absolutely not changed. We believe, as Valdis showed on the slide, that the market is big. We are able to get customers into open bank accounts to deliver us the deposits which we need for lending.
That gives us basically a platform to do that. Especially in the last couple of months, the bank has been able to really tap into the consumer demand for credits. That is growing. I think the mortgage is around the corner. It's a very important product to overall sell for the same customer different financial services. I believe that we are on a good path. Hopefully the shareholders will soon realize that. Part of that, of course, will be that in a couple of months, as Ivita also said, we will be releasing our longer-term forecast so people can actually put us where we are now to the path of where we want to be, let's say, in three years' time. I'd say one to two months, we are working on it.
We have now a much better confidence in the figures because we are actually operating as a bank already and see the results on a daily basis and have actually also the possibility to influence them.
Of course, adding as a manager of the company and as a significant shareholder, as Henrik, of course, we are not ignoring that issue. That is some sort of a feedback. That means we need to run even faster, jump higher, and we'll try to do that.
Thank you. Are there any management KPIs tied to the increase of the share price?
Absolutely. From the time when we actually launched the company in the market, there was a long-term incentive program which ties management long-term performance paid to share price. I think that the options will be in the money when the share price reaches EUR 16 and it goes from there.
You will be able to find details of that option program in our annual reports. We have been disclosing that information for the last couple of years.
Thank you. With the current shareholder benefit package coming to an end, are there any plans to introduce new offers?
No, actually. First of all, we are very grateful to our shareholders and everybody who invested big amounts or smaller amounts, whatever, in our project. Actually, without our almost 6,000 shareholders, we would not be here, and we would not have managed to launch the bank, and we would not have been able to start offering all the good products and services we are developing. Thank you. We highly appreciate that. No, we do not have a specific plan to develop a new shareholder loyalty program or benefit program.
The best benefit or the best shareholder loyalty would be we need to deliver on a share price. If the share price goes up, that's, I think, at least me as a shareholder, that I would regard as the best benefit program Indexo as a group can deliver me.
Thank you. Soon shareholders will have to start paying around EUR 3 per month for their gold plan. Wouldn't it make sense to first evaluate the size of each shareholder before applying this fee? There's a big difference between a shareholder who has purchased 50 shares and one who owns 1,000. Wouldn't it be worth considering this?
Yeah. First of all, I think we have an extremely good value.
That is, even if you have just a couple of thousand average balance somewhere in our current account or savings vault, we reward you actually more than this EUR 3 per month fee. Actually, for anybody who keeps money in other banks, it just should be a motivator to bring more to us and get to be rewarded even more than this EUR 3 or so. Plus, within those EUR 3, you get the two cards, which essentially would be two cards in any other bank. For a credit card, you would likely again, I do not have a price list of all the banks in front of me right now, but you likely would pay EUR 5 or more per month. Plus, you would pay something for a debit card. Plus, you likely would pay something if you exceed a certain threshold for the payments. With us, it is very simple.
299, excellent card product which combines benefits of credit card, debit card, free ATM withdrawals, whatever. Good rate for interest. Basically, there is nothing in a banking sector beats this offer. That's excellent. Of course, also on that card, which you usually get only with rather expensive credit cards, you get purchase insurance, which is very valuable for your bigger purchases or, I don't know, you break your new iPhone, which you bought with our card. That's insured. That's insured. That costs only EUR 2.99 per month. You can't get anywhere else. The more money you keep with us, the less significant it becomes.
Thank you. In your 25-slide presentation, you discussed the need for raising additional capital. Could you provide more details on your preferred strategy? Are you considering an additional IPO, private placement, strategic partnerships, or other financing methods? Also about the timeline. What timeline do you envision for the process, and how do you assess investor interest in the current market and conditions?
I can take this. I think we will follow up on this point with a separate announcement in the coming days. We do not really want to go into detail, but we, of course, have been working hard on all different alternatives. We are in a process of announcing to the market what we will plan to do and how. We are confident that we will raise the capital.
Investors are also interested in how much capital is planned to be raised and how existing shareholders will be affected by it.
Again, I will reiterate saying that we will follow with further announcements on the capital raise.
In case of shareholders, obviously, the thing is that everybody, when a company sells new shares, there is a dilution. If the shareholder is able to participate per rota to the new issue, then their shareholding will remain the same. Otherwise, of course, it always is dilutive. Again, we will get back to this topic in a separate announcement. I think it will also come hand in hand with our view of the future because obviously all our shareholders want to know where we are going to be in two and three years' time.
How to explain very slow consumer loan start and growth, especially in the light of INDEXO's much lower capital costs compared to non-bank consumer loan providers?
No, I think first of all, it's not anymore the case.
We are on a run rate of EUR 2 million plus per month and adding and running faster probably every day, every week. That means we can grow a very sizable consumer loan portfolio in the next 6-12 months. How to explain the slow beginning? First of all, in the beginning, we also wanted to be rather cautious just to see that everything works and also not to make mistakes, not to be victim of fraudsters or also very, let's say, low quality, very low credit risk customers. We intentionally started faster, but in November and December, we started cautiously to correct that trend. We saw the first results in January. One thing also is that existing 140,000 customer base we have, and we have a substantially higher on average pension saving per customer, are savers or borrowers.
We see we are more perceived also in the beginning as the bank as a place where to keep the money, not as the bank where to borrow. We have to build this awareness, and it takes some time. I would say it's corrected. We are running, we're growing. Here, I'd like to also say that with the consumer loans, there is still advertisement restrictions. It's more difficult to build awareness. It takes time. It takes more time than in a situation where we would be allowed to run that campaign. We understand that there are some changes in law coming, and that will enable us to probably grow even faster.
I think it's also quite fair to say that you mentioned adverse selection in terms of the customers who come in the first days to check out your product offer.
I guess most likely they haven't really also had a chance to take somewhere else. The thing is also that to build a specific credit model where you can actually price the risk correctly, you need a little bit of time because you start off with, let's say, an assessment of what you think the market is going to be like. Obviously with every day you get more credit applications and you extend loans, you see what works, what not, and then you start getting, basically you start fine-tuning that pricing and credit model. I think indeed there was a slow start, but at this moment we are actually running quite well on a daily basis. Every day, tens and tens of thousands of credits are being drawn.
To some extent, this was also a conscious choice because, of course, we wanted first to build a deposit portfolio because, of course, to be able also to finance the loan growth. Yeah, maybe we would have hoped to be slightly faster in the beginning, but still it was very fine how the development turned out.
We are happy with the margins. I mean, I think we are rating risk at the right price, and that's important.
Thank you. How big is the portfolio of bad loans which have missed the loan payment due date?
I don't have the specific percentages in mind, but at the moment, the customers who are late with their payments is really low. We really see that with our conservative and cautious approach that we actually have been able to build a really solid and qualitative loan portfolio.
Thank you. Next, we have two remarks and then a follow-up question. I'll read the first remark. You do realize that giving customers the opportunity to get consumer credits so easily leads to bigger problems in the future. All banks have gotten away from this. Protecting the customers from rash landing is far more important. Here it's more like pumping up the statistics. The second remark on the same topic. I see many ads and even incentives for the consumers to take out consumer loans while in essence it is usually not wise to take a loan for consumer goods. Here comes the question. What are the plans to educate consumers and even further raise financial literacy?
No, I don't think it's accurate. I have accounts in many banks, and I'm constantly attacked by consumer lending offers.
I don't think it's wrong because the consumer lending is just a part of the market economy, and it's what keeps retail sales, etc., growing. Of course, yeah, everybody can have in their life the situation when they need this product. I would disagree that we are pumping our statistics, etc., by doing that. There is also opportunity, for instance, if we would have a possibility to advertise our loans, we would offer consumer loan refinancing. There are people who have maybe borrowed in different places, have taken very expensive consumer loans, and they can improve their standing by refinancing to lower cost provider. This is a balancing act. It's not a black and white, but I disagree with the argument that consumer loan is evil per se. There are different ways to do it, different ways to offer that.
Thank you. What is your target net interest margin?
I think that we would like to be somewhere closer to 3-4%. Of course, the more details will be coming out with our updated forecast and financial plan.
Yeah, the net interest margin depends, of course, on the products and the product mix. That is the most important thing that affects us. Initially, we will have more consumer loans because we are in the market with them. Launching mortgages will change that. At the end of the day, our pricing is built on the return on equity we are expecting and the capital consumption of different products. Also, the engagement that the customer will have with us apart from the loans. That is, I think, the way of how we look at it.
What is your strategy for increasing the bank's customer base?
Keep running. Keep delivering.
I think if we keep running at this 3,000-4,000 net, new customer increase per month, the longer we can keep it, the better. I think it's impressive. Of course, how to accelerate just to implement new products, deliver on the product development, add new features, Apple Pay, Google Pay, junior accounts, mortgages, etc.
Thank you. How safe is it to invest in a third pension pillar considering the political, economical, and military situation near our borders?
I think we need to really live in a day that situation is fluid in the world, that you never know where you are in 10 or 20 years' time. Of course, the war has been extremely horrible for Ukraine and for the people and has also had an impact, I think, on the capital markets in the Baltics. That's clear.
On the other hand, I mean, we are going to retire, all of us, at some point of time. Third pillar, when we talk about the investment strategy that we are providing to our customers, it is a global investment. It means that you are invested in all the best companies in the world, the most valuable companies in the world. It is a self-selecting process because of index investing. Those companies change. What becomes more valuable becomes part of your portfolio. The adage really is that you should just save regularly, and you will have this big piggy bank at the end of the day when you have to retire. Nothing beats compounding interest, the political, economical, or military situations. I think that is the best way to look at it.
Thank you. Is there a plan to improve the third pillar pension plan chart or overview in the app to make it easier to track contributions and portfolio returns? Currently, only the current portfolio value is displayed.
Absolutely. It's in the works. It's just amongst other things, it was not as fast implemented as we wanted because we really wanted to also give our savers an opportunity to see second pillar. As we said, we do have limited resources. Definitely it's in the pipeline. Actually, the screens have been already drawn, so it will come soon.
Thank you. Do we know why in pension segment the churn part is as big as new customer contributions? Why are people leaving? Or does it include as well retirees?
No, the retirement is not maybe the biggest part of that process.
I mean, I would look at it from a point of view that the people leaving are smaller than the people joining. Maybe leave contribution away from that equation. Really, I think we came to market with a really aggressive approach of getting market share because we understand that people have been, let's say, not very open to changing their pension plans because that's why still a lot of customers are in some of the largest banks, which not always provide the best product in our understanding if you look at the long-term returns that their portfolio is generating. That also means that some of those customers who come to us have maybe not fully internalized why they are actually our customers.
Whenever they see some competitors, salespeople somewhere who tell them that, "Hey, look, in the last week, our fund outperformed yours or your current index account," they are going, "Oh, okay, that's nice news. Why don't I join them then?" That is why we really see that this year we are going to focus much more on the sort of quality of our distribution and quality of our messaging. That most probably means a little tapering on the second pillar side, but much more focus on actually promoting our third pillar product, which is very valuable now. We have a three-year track record, and we understand that these customers are great. They do contributions with regularity, and those contributions are increasing. That is really an important part of our, let's say, view on the pension market going forward.
As we're running over the shadowed webinar time, we'll take two more questions, which will be the last ones. SEB Bank is offering to switch to them by offering lower fees and better results for a comparable index plan. It seems that INDEXO's appetite has grown and lower fees are no longer a compelling argument.
Generally, I absolutely correct assessment of the situation in the market is like this, that we have two plans that have over long term shown the best results in the market. That does not, of course, mean that they will show the best results in the future. Them being index plans, it is quite probable that they will track the world markets very well. In that realm, those two funds only account to, I think, maybe 80%, or sorry, 17% or 18% of the total Latvian pension market.
If a person has made a choice to join SEB, that is fine. I think it's a sort of a smart decision as well as a smart decision to be with INDEXO. You get a slightly different strategy. You get decent results. If you put the fee difference into the day-to-day equation, then the fee difference is most probably less important than actually the strategy and the returns. Really, the moral question for us is how we can make more people to switch into that, let's say, good strategy that we are providing. When it comes to our competitors, really, what I'm really proud of is that we have one strategy.
We do not offer people a choice that, "Do you want an expensive product or do you want the cheap product?" You come to us, you get value for money, and we'll take good care of you. You can definitely see that in the slides where we compare our performance to the rest of the market index plans and also to the CPI.
Also, I'd like to add that this SEB index plan would never come to existence without INDEXO. This is, to some extent, copying us. That's the best proof of concept. I remember when we launched, when we entered the market, we were criticized or at moments even lost by large competitors. Now almost everybody, either in a second or third pillar, have some sort of index product, which probably not always is comparable to ours. I think it's very welcome.
We said indexing low costs, that's the way to go. I think we are among, we have the best products.
Just because we feel really, truly passionate about this, I just add that we constantly decrease costs. Not only the fees that we are taking from our customers, which are going down, but we are also reducing the, so to say, ongoing cost figure. We renegotiate the products with our product parties. If you take the long-term trend and look where we started from and where we are today, you will see that we really work for our customers. Unfortunately, many of our competitors do not actually show the ongoing cost figure. We are the only ones who really always talk about the ongoing cost figure for our customers and also talk about the reductions that we're trying to do.
One thing that we did mention is that together with the launch of custody services, we will pass some of that savings on also to our customers.
Thank you. The last question of the call, are there any plans to make computer version of the banking services?
Yes, there will be a desktop version as well. That will be developed together by introducing the services, SMEs or corporate customers, legal entities. This is a must. Once it will be done, it will be made available also to retail customers. We are using for our app development so-called React Native platform or technology, which enables us to develop both Apple and Google versions. Adding a web version is, okay, nothing is easy in the IT world, but it is relatively easy to reuse the investments we have done already for our mobile app.
Participants, thank you for your active engagement today. If you have a question that has not been answered during the webinar, you're welcome to approach the company individually by sending an email to info@indexo.lv. Before we're closing the call, let me hand back to the management for the final remarks.
Yeah, thank you, everybody who has participated in this webinar. I'm really pleased that we had so many questions. I think it's good that you are interested in our story. We are always open to discuss everything. Transparency is very important in our organizational principles. I mean, that comes to our pension customers and our investors. I mean, of course, always there are certain things that we cannot comment ahead of time. I think what we want to say is that, yes, at the end of the week, we will have the signed annual reports available.
Soon enough, a month or so, we will be publishing a long-term forecast for our business development so that everybody has a sort of vision to share with us where we are headed. Thank you.
Thank you.