Good day and thank you for standing by. Welcome to Avanza Bank Full Year Report 2022 Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you will need to press star one and one on your telephone keypad. You will hear an automatic message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Rikard Josefson. Please go ahead.
Okay. Thank you very much. Good morning, everybody. Thank you for listening in. I'm gonna start with the business update around the quarter, and then Anna will take the financials. Looking at 2022 as a full year, of course, it was a very difficult year given the macro circumstances that we encountered during the year. The net inflows amounted to SEK 24 billion. In the fourth quarter, we had some one-offs from a negative perspective. We sold the pension portfolio, which we are not actively in. Also we saw that some larger clients took cash and deposited at other places where they could get more interest.
Speaking to those clients, we are quite comfortable that they will put the money back on the platform when they will feel that it's time to invest them again in equities or in mutual funds. We also saw that the monthly savings is still at a good level of SEK 1.5 billion. It's slightly down from SEK 1.6 billion, but at the same time, I'm surprised that it's holding up so good given that the people have to allocate their money to other things than savings at the moment, given the energy prices, the high inflation, the mortgage rates going up, and so forth. The good news, of course, is that the churn is stable around 1.5%.
We have not seen an increase in that, which is, of course good for us that our customers are happy and staying on the platform. Looking at this picture, it's also interesting to note that we have been talking the last couple of years that we. The growth that we had in the company in 2020, 20 to 2021, when we doubled the size of Avanza, has also made us perform at a better level in tough times. I would say that 2022 was a test of this, where we had the worst market for decades. We had the stock market down over 20%. If you compare that with 2019, where the stock market was up 35%, we were still performing on a much, much higher level when it comes to turnover in brokerage-generating securities.
As you can see from the slide, if you compare 2022 to 2019. This is for me a sure thing that we are performing much better in a tougher environment, and of course we are helped by a stronger NII during the year. This picture is We always look at it, and it's about that we have around 17.6% market share of transactions and 8.3% when it comes to turnover. During the fourth quarter, the institutional sales, which we are not active in, was a slightly bigger part of the market, which made us go down a little bit, but we are comfortable keeping the number one position. During the quarter we had some launches.
The most important one is of course that we got awarded for the most satisfied client for 13th year in a row, which was of course, very comforting given that the customers had a very difficult year. We also launched a pension change, which was named Transfer Service of the Year. We also during the quarter launched our Placera Forum, which is a forum where people can discuss these different equities, which was very popular, and we closed it in December of 2021, and it took a little bit too long before we could reopen it because we did a total rebuild of the forum. We.
I was a bit nervous when we were launching it that the customer had forgotten about it, but now we have over 19,000 registered customers who are discussing equities on the forum, and it's truly come back in a much stronger way than I thought it would do and in a much quicker way, which is of course very much appreciated by our clients. Given the results, we reached the target when it comes to return on equity, where we have our goal to have 35%. We are at 36%. Given the dividends we are proposing, we are a bit over 70%, which is part of the target. One of the targets we have is of course 10% market share at the end of 2025.
This will be a challenging target for us to reach if we don't get some positive years given the savings market and the stock market. We need some tailwind from the macro environment to reach that goal. But I'm optimistic that the next couple of years will not be as bad as 2022. A focus area for us at Avanza is of course to get more women and female customers to save more. This is a problem in society that we have not a fair allocation when it comes to savings capital between men and women. On our platform, 25% of the AUM is held by women, 75% by men. At the same time, 13% of our clients are female and 42% are men.
A slightly good news is that looking at the over 116,000 new clients during the year 2022, 42% of those clients are women. This is an area where we from an ESG perspective, want to be very active, integrate a more fair society when it comes to saving between women and men. Of course, we're gonna have challenging times in 2023. I'm not that optimistic on the first half of 2023. I think we need to get the interest rate stabilized, and we need to get inflation down. We need to get the confidence back in the households for savings. You have to be very humble that a lot of people have not the ability to save as much as they did before.
If you look at this chart, you can see the long-term trend for the savings quote is still in a positive development. Looking at society, when you have more responsibility to the households than the state, people need to save more going forward. I'm sure the savings quote will come back when times turn around, and we will be a little bit better. It's important to note that given the Looking at 2023, we have more clients now than a year ago owning equities, and we have more clients now, invested in mutual funds. The underlying interest for saving is of course still there.
Given the 2022 performance in the market and the cost inflation that has affected the household quite a bit, it's also time to reflect that now you really have seen that if you have saved money during the good years, you have the buffer that you can sustain the bad years that we had last year and maybe will have this year. The proof of importance of savings is very evident in 2022, that the people have not spent all their money in the good years and saved some will endure the bad times ahead of us in a much better way. I'm a bit more optimistic of the second half of 2023 from a personal perspective. Our focus for 2023 is of course still growing the company.
We did grow in 2022, not at the pace we've seen during the pandemic, but still we have growth. We have also a strong employee engagement with the eNPS engagement score is 58, which is above our goal of 50. This year, we are not increasing number of staff, and I believe that's a very good thing for two reasons. One is of course the cost aspect of it, but also that we have increased number of people in Avanza during the pandemic, and we need to consolidate work on our efficiency, but I'm also confident that we have enough resources for innovation and doing great things for our clients. We'll also modernize and update our tech stack like we do every day. 75% of all our IT systems are cloud ready.
We run our data platform in Google Cloud, we will move more to the cloud as it makes sense from both cost issues and maintenance issues and so forth. We are quite optimistic on the long-term perspective. Just a note on the impact we have on social media. We have 85,000 followers on Instagram, 60,000 on Twitter, and our Savings Economist Nicklas has actually over 80,000 followers on Twitter, which is by far the number one person on Twitter. I'm a bit jealous because I only have 5,500 followers. I have to do a better job during the year to catch up with him. Also the back office transformation that we did in 2022 is finalized with good results.
We also can see that for the next couple of years or the foreseeable future, we don't have any large infrastructure IT projects or more just improving every day like we always do. Given that, I would like to turn over to Anna, our CFO, to guide us through the financials.
Okay. Thank you, Rikard, and good morning everyone. Market conditions were very much in line with Q3. Volatility was still on a high level, and stock market was up 11% during the quarter. However, we saw index on an all-time low for 2022 in October. Despite the market conditions, we report the second strongest results ever, both on a quarterly basis and an annual basis. Operating income increased compared to last quarter, explained by the increased NII. Operating expenses also increased, although we came in lower than expected for the full year due to lower personnel and IT costs in Q4 than anticipated and of course also due to monitoring our costs carefully.
Previously given cost guidance was SEK 1,050 million-SEK 1,070 million, and we came in at SEK 1,031 million, which is 1.8% lower than the lower part of this range. Net profit for the quarter was 14% higher than in Q3. 19% lower than record year 2021. The operating margin for the full year was continually strong at 65%, and return on equity ended up at 36%. We're building our target of at least 35%. Altogether, this gives us an EPS of 10.69 for the full year. Market conditions continue to affect customer activity and the all-time low index mark in the quarter affected average fund volumes and the fund commission. This was however well compensated by the strong NII.
Brokerage was burdened by lower activity, a few less trading days, and private banking and pro customers who pay lower fees standing for a larger share of the turnover in the quarter. Lower customer activity also affected currency related income, where we see, the turnover in foreign securities only stood for 11% of the brokerage- generating trades in the quarter to be compared with 15% in Q3. That said, average fund capital was lower in Q4, and this combined with the lower income per fund krona, put pressure on the fund commission. Net inflow to funds on the platform was just over SEK 1 billion, giving Avanza a market share of 7% of the net inflows to the funds. We still see customers holding a higher share of index funds than before.
The policy rate hike of 100 basis points in the end of September had, of course, positive effects on NII, increasing 66% compared to Q3. This mainly showed in the surplus liquidity portfolio, but also in the lending portfolio, mainly within mortgage lending as margin lending volumes decreased. Other income was more or less unchanged. Income from Avanza Markets, the largest income line within other income decreased slightly due to somewhat lower customer activity, whereas income from stock lending continued to increase. The stock lending limit was raised to SEK 10 billion in Q3, and the number of stocks included in the program was also expanded, which led to the income from stock lending reaching SEK 21 million this quarter versus SEK 12 in Q3. This increase also benefited our customers who get a refund connected to the stock lending.
Looking at full year, operating income decreased by 10%, mainly due to lower customer activity. Nevertheless, activity in this negative market environment was still almost twice as high as before the pandemic, with the positive market sentiment we had at that time. The lower activity in 2022 was, however, to a large extent compensated by almost 1.5 x higher NII due to higher market rates, increasing the NII from surplus liquidity and lending. This shows our resilience even though market conditions have been bad. The main contributor to the NII was surplus liquidity, where Avanza is funded through customer deposits and where we, until the end of September, haven't paid any interest to customers. As from early October, we have paid 0.9% on savings accounts, and this was raised to 1.5% in November.
However, only a very small part of the deposits is within these accounts. As previously communicated, we started to pay interest also in other accounts on the first of January this year. These rates vary between 25 and 194 basis points depending on customer segment. We also decided to underwrite the margin lending with an average 35 basis points at the latest rate hike of 75 basis points. Additionally, we postponed the hike for the internally financed mortgage to the first of February. The last interest rate hike of 75 basis points will have a much smaller effect on the NII than previous policy rate hikes, and the sensitivity going forward will be much harder to predict. The higher the policy rate gets, the harder it will be to forecast customer and competitor behavior, and future changes will be a management decision on each occasion.
In the report, we have given the sensitivity in a worst and best case scenario based on the volumes and interest rates given at year-end. That said, exactly how we will act is hard to say. Most likely, we will continue to share the next hike with our customers, but we will get back with that. Lower fund commissions were a result of both lower fund capital and lower income per SEK of fund capital, which decreased from 35 to 30 basis points. Other income increased mainly due to higher income from stock lending, which was introduced in Q3 2020, as well as higher income from Avanza Markets due to higher compensation and higher customer activity. Other commission costs decreased as a result of lower customer activity. Operating expenses increased by 15%, and as you all know, personnel costs are seasonally low in the third quarter.
Other expenses were higher due to higher costs for external services and IT. As already mentioned, full year costs came in lower than anticipated. For the full year 2023, we have set a cost cap. Our philosophy is still the same. We believe in investing in our customer offering in both good times and bad times, as we are convinced that companies that have the muscle to invest in bad times will come out stronger when the market turns. Therefore, we are not proposing a cost-cutting program, but as always, we need to monitor our costs wisely and make sure we use all our resources in a good and cost-efficient way. In light of the last year's strong growth, we are consolidating our operations.
This also means we will not increase the number of employees in 2023, which we already communicated in Q3. We will stick to our people plan for 2022. The cost ceiling for 2023 is total cost at SEK 1,160 million. The cost increase includes salary increases of 4% from January and the full year effect of employees who started working in 2022, as well as ongoing recruitment according to our plan who have not yet started here. IT expenses are also expected to increase, partly due to higher licensing costs. The full year effect of the amortization of the new back office system, which was taken into operation in mid-April, is also contributing to higher costs. In addition to this, the weak Swedish krona and inflation also account for part of the increase.
High cost efficiency is a high priority for us and important to be able to give our customers a competitive offering. Due to declining stock markets, savings capital has decreased by 18% or almost SEK 146 billion compared to year-end 2021. This has, of course, affected the cost to savings capital ratio, which was 15% for 2022. Our target is a cost to savings capital ratio of maximum 12 bps, and this target should be seen over time. As Rikard said, we would need a couple of strong years until 2025 to be able to reach the target. Income to savings capital ratio was 42 bps for 2022, down from 47 bps last year. Our capitalization is strong, with the leverage ratio increased to 5.5%, mainly due to lower deposit volumes.
I would say we are overcapitalized given our low-risk business model. Given the sensitivity to increased deposit volumes and the challenging market environment, the board will propose a dividend of SEK 7.50 per share to the AGM, which gives a dividend of 70%, which is aligned with our policy. As you can see in the illustration to the right, deposit can increase by around SEK 25 billion without falling short to the 3.9 requirement and without taking any other measures into account. We have not communicated a specific management buffer. We are very confident with the margin we have and also had in Q3. At the moment, we see no need to issue additional Tier 1 capital. To conclude, as stated before, Avanza is very well positioned for the future.
Our low-risk balance sheet plays us well in this macro environment, and we have seen no actual credit losses or weakening repayment capacity among our customers, neither in margin lending nor in mortgages. The strong result together with the low-risk profile gives us an ROE at 36%. Our cost cautiousness and our ability to present these results even in very challenging markets show the resilience in our business model. That was all for me, and now we can open up for questions.
Absolutely.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone keypad and wait for a name to be announced. Please stand by while we compile the Q&A roster. This will take a few moments. Now we're going to take our first question. The question comes to line of Nicolas McBeath from DNB. Your line is open. Please ask your question.
Thanks, good morning. First, a question on growth. Avanza has for many years insisted that investing in further growth within Sweden generates better returns than outside and also that you still see ample growth opportunities within the Swedish savings market. I was wondering, given the slowdown in your growth trends, in particular in the second half of 2022, are you still as confident in the Swedish growth outlook, or is international expansion starting to look more interesting to you?
I would say that I'm still very confident that we have a great growth potential within Sweden since we have 6.3% market share, and we think we have a great offering. Of course, that has been affected especially the second half of 2022 given the market conditions. As I said previously, we are opportunistic when it comes to international expansion, and my personal opinion is that that would be probably acquisition more than greenfield. If that would happen, who knows? But we are open for that to taking that route, but it's not something we're actively working on. Let's put it like this, Nicolas. If opportunity came across, we would seriously look into it to acquire something that could be outside Sweden, but it's not part of our core strategy.
Okay, thanks. That's clear. A question on the NII. Given the planned, and announced changes to your deposit and lending rates, and your current, balance sheet, should we still expect positive NII growth in Q1 versus Q4, or will the raised deposit rates reverse some of the NII tailwinds you enjoyed in Q4?
I mean, with the delay in the.
Mortgage lending portfolio
Yeah, and the bond portfolio, I would say that there would still be some effects left.
And also p ositive.
Yeah.
Also the margin lending which was raised almost in mid.
Yeah, beginning, yeah, seventh of December.
Okay. You to be clear, you expect the positive effects from the increased lending rates and the liquidity portfolio to more than offset the headwinds you will get from the higher deposit rates?
Yes.
Yes, I would say that that is what is gonna happen because if you look at the deposit rates that we are paying, we are not paying 1.94% to all customers, different segments. That means that the overall, if you put it all together, will be slightly positive during Q1.
Okay, thanks. A question on costs for 2023. You mentioned now below SEK 1.16 billion. If you could comment, how large is the range? What is the kind of the lower level you can say where costs could end up? What are the key drivers that you think determines where you will end up in that range on cost for 2023?
Well, we have communicated that we have a cost ceiling. I think it's too early days to predict where we will end up or where the range is. We might do that going forward for the next quarter or so. Of course, we have some margin in our cost base for unexpected item. I would say we run a tight ship, so we are basically, yeah, saying that we will end up cost at maximum, SEK 1.16 billion. I think that's the guidance that we can give. Given what happens during the year, this is a lot affected also by the turnover in staff, when we get new people in and so forth and so forth. I cannot give you a better answer than that right now.
Okay, that's fair. My final question, please. On other income, stock lending revenues grew quite nicely in the quarter, as you expanded the offering in Q3. Could you comment on what kind of potential do you see for continued growth in stock lending revenues? Should we expect continued program expansion over the next, let's say, 18 months? Where do you think those volumes or revenues could be?
At the moment, I think one thing that we did from first of January is that we also included this year stock lending from occupational pension accounts. Around 30% of the volumes in occupational pension are equities, 17%. There would be a positive effect on that. Then of course, going, looking ahead, we could also, which we have not taken a decision on, but there is an opportunity for us to lend foreign equities, which we don't do today. We will communicate if we do that and when we do that later on. Then of course it's very market related how much people want to go short on stocks, so to speak.
That has been during the year events like if you take for example, in summer it was a lot of activity in lending as FAANG stocks and so forth. It's, it's volatile, but absolutely it's an opportunity for us going forward, and we could expand the program both in volumes and in lending in foreign equities.
Okay, thanks. Just to clarify, how much positive impact or volume expansion did you make on the occupational pension accounts that you mentioned? What kind of impact should we see?
Difficult to say. I think the volumes in occupational pension is about SEK 60 billion.
No, I think it's more about 40.
Yeah, 40.
Yeah.
Excuse me.
About 30% is stocks.
30% of that is stocks.
Okay. Should we expect all of those volumes to be included or how much do you see potential for there eventually?
All equities are included in which are held in occupational pension accounts. The, the 30% of the SEK 40 billion will be actually.
They're already being lent out or?
Yes, because we started that the first of January.
Okay, perfect. Thank you.
That's of course the question of demand.
Yeah. Yes, absolutely. You.
Thank you. Now we're going to take our next question. The next question comes to line of Jakob Henriksson from SEB. Your line is open. Please ask your question.
Yeah. Hi, good morning, everyone. If we continue on NII, I mean, it was impressively strong in Q4. Rikard, in your comment you say that you will share the policy rate above 1.75 with customers. Could you give any clarification what you mean by sharing? Is it 50/50 going forward or are you gonna be more generous to customers or what's your view here?
I think on the last interest rate hike we were generous to our customers, we raised. They got more than we got basically. Going forward, I think it's like Anna said, when we get the next interest rate hike, it's a matter of which customer groups, where is the demand, how will our competitor act? That's a management decision that it's a bit early to comment on that. We take those decisions basically well-prepared the day we get how much the interest rate hike is. I don't guide or predict how we will act. We will see that when I think it's the 6th of February, whatever it is, when we get the next interest rate hike.
All right. Can you give any comment maybe on how your view of the landscape is? Have competition for tougher deposit rate increased since your last hike?
I think that it increased at the end of the quarter, and it's still a fierce competition on the deposits. I would say that it's, My prediction would be that competition will be quite tough when it comes to interest rates.
All right.
Offsetting that, which we don't know, is that we have seen tendencies or more interest in money market funds or cheaper interest rate funds. That could also be a customer behavior that you start moving away from deposit accounts if you get decent returns and don't have to worry about moving money around. That could be the comeback of the money market funds during the first half of 2023. That is also something that could happen, and I wouldn't be surprised if you would see that kind of behavior among the client base also.
Okay, thank you. If we move over to cost, I mean, the new ceiling is over 12% growth year-over-year. We do know about your seasonality, should the cost growth be evenly distributed over the quarters, or should we expect, I don't know, maybe Q1 to have higher cost growth due to you paying any full year fees for this quarter?
I would say that as you said, it's more or less evenly distributed among the year, except from Q3, where we see a little bit lower, personnel costs.
Okay, perfect. If we go into net outflows. I mean, we saw net outflows during Q4. My first question is the inflows from automatic savings still around 1.6 billion SEK, as you mentioned during Q3, or have more customers paused their automatic savings?
As I mentioned on the business update, we're down from 1.6 to 1.5.
All right. Okay. Thank you.
A slight decrease. Actually, I like to underline the fact that that decrease is surprisingly low actually, given the challenges that the household has with energy prices and so forth.
Your, your peer is offering the ability to pause, you know, savings for, I don't know, two or three months for a customer. Is that what they're doing or are they actually canceling the automatic transfers?
I would say most customers pause their automatic savings. That's.
We have done a lot of development during the year to make it as easy as possible to handle your monthly savings, pausing or skipping just one month or whatever.
Of course.
The current economy.
I n that downturn, which I don't have the data on, but I know that People also used to save SEK 3,000 might still save SEK 1,000 or SEK 500. That's something we encourage because the habit amongst the savings is very important to keep it up even in tougher times, even if you lower your amount. It's both pausing, quitting and lowering the amount that has the effect.
Okay. Thank you. One last question from me. I mean, in the report we can see the private banking customers withdrew SEK 8.6 billion in the quarter. Do you know why they are withdrawing? Is it to save elsewhere? Is it going to the big banks again, or is it more to pay their bills?
I think in that number is a one-off of about over SEK 1 billion, which was somebody who. One of our partners moved assets which were not very income generating for us, so it doesn't have an effect on the P&L. I would say that the rest of the money being taken out from the private banking has basically been, and we talked to our clients about this, people wanting to get a bit better interest rates on other places than we can offer. As I said, when we talk to these clients, they basically said, "I have a negative sentiment. I will park my money where I get the highest interest rates.
Rikard, you can be assured that when I want to go into the investments again, we will put the money back on the platform." We're not seeing that we are losing money that are going to be managed on other places than Avanza. It's more that people are finding parking spots in other places than us at the moment.
Normally in Q4, we also see some outflows Well, from private banking customers due to tax reasons. That's also part of it.
Okay. Follow up on this then. Why do you believe your depositor then less sticky than your peer? I mean, they had net inflows during Q4 according to statistics. Is it just due to you having more private banking customers?
I would say that
Do you believe it's less competition in other countries to your knowledge?
Our customers are more actively, they are more well aware of their personal finances. They are more looking after themselves than I would say the normal customers that other banks are doing. In a digital world, to move 1 million SEK to get 25 more basis points and then move it back, it's so easy to do it, and we encourage our customers to be actively with their funds. I'm not worried about that.
All right. Thank you for your answers.
Thank you. Now we're going to take our next question. The next question comes the line of Patrik Brattelius from ABGSC. Your line is open. Please ask your question.
Thank you. Just two small questions from me as we have covered some of the more relevant topics already. The customer inflow here in Q4 was the lowest that we have seen since 2014. How much do you believe that is connected to increased competitions from new entrants and other competitors here in Sweden? How are you working on increasing customer inflow going into 2023 in this challenging environment?
I would say that my firm belief is that the low inflow of new customers during Q4 is more related to market conditions. People are not logging in, not taking care of their investment. They're worrying about new gen mortgage rates. Energy prices, inflation, and all the costs, it's not that savings are in fashion during Q4. I would say that that's absolutely recent for it. Of course, that getting the net inflows of new customers, of course, we do more marketing. We do our posts and our blogs and so forth. It's about marketing and getting people to talk about savings again and understand the importance of it, that we could get absolutely more, more flows of new customers in. I wouldn't say it's much due to the competitive landscape at this point.
Okay, because if we compare to one of your peers, it seems like they had much higher customer inflow. You believe that is driven from outside Sweden then, those type of market would have the same fundamentals as Sweden I would guess, with increased interest rates and electricity prices coming up as well. Is that just lower competition in those markets that would help them, you believe?
I don't comment on competition in that way. I mean, you have to ask them. We believe that gaining 116,000 clients in the worst year ever when it comes to savings is not a bad number. Of course we would like to increase it. My firm belief once again is that the market conditions also affected the interest when it comes to moving your savings around or opening an account at Avanza. We will see how this year will pay out. I'm a firm believer that when the market conditions are going better, people will start saving more again, and then we will be relevant for a lot of customers who are at other places. That's my comment on that.
Thank you. The last question was regarding issuing AT1. You talked a little bit about that in the presentation here, but you show a very strong capital surplus and a strong leverage ratio. Can you share with us a little bit more in detail your updated view on issue AT1 capital in order, and then perhaps raise your capital repatriation policy instead, which would boost your profitability?
I mean, I think yes, we were planning on issuing AT1 capital during 2020. As you all know, the market conditions and the spreads were terrible during the year. Since we were not needed to do that, we took the decision not to issue it, the AT1. If the spreads will come down, the market condition, that's absolute an opportunity that we have, and we will come back to that. Given. I would say that if the spreads go down, the prices will be attractive. That's absolutely something that we will explore during the year. Just for the reasons yourself are mentioning.
Perfect. Thank you. That was all for me now.
Thank you. Now we're going to take our next question. The next question comes through line of Maths Liljedahl from SEB. Your line is open. Please ask your question.
Yes, thank you, and good morning to you all. Just one follow-up. Since you introduced the interest rate on the accounts, how has the behavior changed this year, from clients? Has there even been, I mean, inflow of clients or clients returning their capital, et cetera? What has the, sort of the wording been, among clients? Thank you.
I would say that we got very positive feedback from the clients about the 1.94. I. Too early days to say the effects of it. I would predict that one effect probably is that some money would stay on the platform that otherwise would have gone to make interest on other places. From a defensively point of view, I would say that it has a positive effect, but it would be too early days to see any trends in that since we communicated it in December. I don't have the date on that.
Okay. Thank you. Yeah, that was the only one I had left, so thank you.
Thank you. Now we're going to take our next question. The next question comes line of Ermin Keric from Carnegie. Your line is open. Please ask your question.
Good morning. Thanks for taking the question. Maybe starting as a follow-up on the M&A topic we discussed previously. You said that if anything came across, you would look at it seriously. Could you give us any color to if you've looked at anything seriously during 2022?
No. I would not comment on that. I can only comment on it that being Avanza, we are a large player in Sweden. Of course, investment banks from time to time give me a call. That's the only comment I have.
Got it. Thanks. On the fund margin, it came down to 29 bps in Q4. We've seen during the year the clients have increased the proportion of saving towards more index or passive funds. Do you expect that to change if markets recover and we get more stable markets?
Yes. I would say you're looking from historical figures. In bad markets, people tend to go to passive index product. When the stock market goes up, you always get these rock stars of asset management that are attracting a lot of capital. We saw that especially in 2021 in the peak, where we heard some asset manager who managed to get a lot of capital in quite expensive funds, and they performed well, especially a lot of tech sectors. Small cap funds had a difficult 2022, and that money has gone over to passives. If we get a very strong stock market, my firm belief is that you will see people turning back to actively managed funds.
Thank you. almost a little bit on the same topic, but we saw the commission rates on the brokerage coming down in Q4, and you mentioned that was due to more pro traders and private banking clients.
Yeah.
Have you seen anything now when equity markets have started more positive in 2023 that it's more broad-based activity, or is it still the same trend in Q4?
Well, it's only been a few weeks in 2023. Of course the stock market positively development during 2023 has a positive effect on more people are being active. Too early days to say. What I could say is that we can see. Normally, when we see a high level of trading, it's quite stable day for day. Now we can see a Monday being very good and a Tuesday being very bad. It's a volatility in the trading patterns that From my take on that is that you see still a lot of nervousness. At the beginning of the year, I would say positive nervous customers are trading in the market.
Of course, the trend during January has been positively when it comes to turnover of the stock exchange, and that of course has a positive effect on us.
Got it. Last question was just if we just assume all volumes constant and rates constant from here, how much would you expect to pay in absolute amounts for deposits in 2023?
That's nothing we comment on.
We don't comment on that. It's as I said, it depends on what happens in the world, and it happens with competitors, them on how people will. I think it feel very. We have a positive interest rate for the first time since 2015 or 2014 or whatever it was. That means that a lot of clients are still trying to figure out where they constant allocation of the capital. I would say that's my personal prediction, that we will see. This is not an Avanza comment. It's more a comment general on the market. I would expect a lot of customer who has a lot of money will also start amortizing their mortgage loans as being an allocation to interest rates by lowering your monthly payments.
That's also investment type that has come back into fashion that we have not seen for seven years or something like that.
Got it. Thank you very much for taking the questions.
Thank you. Now we're going to take our next question. The next question comes line of Alex Medhurst from Barclays. Your line is open. Please ask your question.
Yeah. Morning, all. Alex Medhurst from Barclays here. Thanks for taking my questions. Most of my sort of shorter term ones have been answered. Maybe a quick question on sort of a longer term picture. Clearly, your penetration rates of the Swedish population are quite high and have risen dramatically over the last few years. Are you seeing any difference in the types of cohorts you're attracting in terms of the average savings capital a new customer brings or the activity level a new customer brings over time? Do you have any thoughts on how that might trend going forward? Thank you.
I think it's a very good question. We look into this quite a bit with our analytical team. The answer is that we still get more young clients, and they look the same as they have done for several years. What they do and what they're looking for and how they act is still the same as has been for several years. The new clients look like the old clients.
Maybe just a quick follow-up on that question then. Is there a sort of percentage of the population you can address before In your eyes, before that sort of quality of new customer starts to deteriorate?
I think that we have almost 1.8 million clients. I think we can absolutely attract 3 million clients in Sweden. We don't see a good challenge with that we are running out of clients to attract. We think that we could absolutely expand our customer base with quite high numbers for the next couple of years. I'm very confident in that. Also, something you people sometimes miss out a little bit is that we get a lot of young clients. The people who are 50 now will five years down the road be 20, and then they will become clients of us. We have an incremental growth in the population just due to the distribution of the population from an age perspective.
Great. Very clear. Thank you very much.
Thank you. Now we are going to take our next question. The next question comes line of Andreas Håkansson from Danske Bank. Your line is open. Please ask your question.
Thank you. Good morning. Follow-up questions really. Just on the back of the NII. Rikard, you mentioned that you start to see the, I think you said potential effect that people would move from deposits to money market funds. Could you tell us what's the margin on a money market fund? I mean, it can't be more than 10 basis points or something, or is that correct? Is that potential trend included in your guidance for the -270 to +580? That's the first question.
No. No. What I say, Andreas, is that I can see tendencies of that. As I said, I think it's my personal prediction is that Clients will start finding back to money market fund. We get, as you know, 50% of the management fee, and of course, the money market fund are priced less. It could be 30 basis points, then we get 15 basis points. I think the money market fund at 20 basis points, we get 10 basis points, and so forth. On your note, it's absolutely correct that if a lot of assets will move to money market fund, that would have a negative effect over the NII. I don't think it would be like 50% of deposit base will go into money market fund.
Still, a lot of the money people hold on our platform in cash is money waiting to be invested. If you have it in a money market fund, it still takes two days to get the money out. It has to be a more long-term view on saving in cash, so to speak. It's very interesting to see how the customer will behave since, as I said, it could be the year of the comeback of the money market funds, but it's very hard to predict, Andreas.
Yeah. Thanks. Second question, just on your cost guidance. When you say that you cap it at SEK 1,160, what type of revenue assumptions, do you do then? Would there be an impact on that number if revenues would all of a sudden be much stronger or if they continue to be quite weak?
If it continue to be quite weak, I would not change the cost cap, because we still believe, as Anna said, that if we want to be able to improve our offering, we want to run the platform, take care of our clients in bad times, we think that will pay off in good times. Of course, there is if we saw a recession that would go on for years, that would be a new ballgame. Absolutely, if something happened in the market that, you know, had extremely positive effects, and we would see opportunities to capitalize on that, we would come back and say that maybe we want to spend money and the reason why we want to do it. I don't believe that 2023 will play out that way.
When it comes to income, we rarely make an income budget because we are very volatile when it comes to income from, especially from the trading activities since it's affected by the macro environment. We just try to manage our cost wisely and carefully, and then we take care of our clients, and then what happens, so to speak.
Yeah. That's fine. Thanks very much. That's it.
Thank you. Now we're going to take our next question. The next question comes the line of Maria Semikhatova from Citi. Your line is open. Please ask your question.
Yes. Hello. Thank you for taking my questions. First of all, on an NII outlook, I understand that there are a lot of factors to take into consideration. Based on the announced rate changes from 1st of January and the composition of your deposits at the end of the year, what is the blended cost of deposit currently?
We haven't disclosed that.
Okay.
If you look at the deposit base, most of the deposits are within accounts that we are paying interest on. If you look at the distribution of the deposits, I would say the majority sits within the standard segment.
Where we pay SEK 25.
Yeah. Quite a small part within the pro segment. That's what we can say.
Okay. Well, then because you are offering 25 basis points for the base customer segment, and I believe Handelsbanken introduced 50 basis points on the ISK account, which is twice as good. Do you think that even without the rate increases, you would need to adjust for the majority of your customers what you're offering based on the current competitive situation?
Not here and now, I would say, because most people, I mean, they're still not very smart to have cash on an ISK because the tax is 88 basis points. If you get 25, you're still losing money. The accounts are not intended for cash savings. That has a negative effect. I believe that most clients understand that. I think it's more about savings accounts and keeping cash on longer periods there where you can see the competitive landscape is.
You keep cash on ISK, for example, with the intention to invest.
You sell an equity, then you have cash for two weeks before you buy the next one or a few days. The interest rates on ISK accounts are not that, I would say differentiating or that high on the agenda for the customers. Where it has an impact, where we pay 0.9194%, is on day traders and pro segment because they usually never hold positions overnight. They trade during the day, and they have cash until the stock market opens the next morning. There is a valid reason for them to consider it, but not for normal clients who are monthly saving on an ISK.
Understood. That's actually quite clear than maybe on the last part of your clients on private banking, and that's what where you see the outflows. You're offering 1%. Just kind of try to understand your thinking behind it. Clearly there is higher interest rates offered by the other markets. You don't think you need to pay up, you're just willing to wait for the improved sentiment and this client coming back to Avanza? Are you kind of ready to compete for the private banking?
Yeah. I would say the clients are not coming back because they're still on Avanza platform. I think they take not all their money out to put it on other platform. They take part of the cash out to get higher interests. That usually by companies that can offer a lot better interest rates on deposits are usually consumer lending companies that has a different business model than we do, and we don't do any lending that is unsecured, so we cannot charge 8%, 10% and fund it at 3% on a deposit rate. I'm not that concerned with that. We have never. We have one AP on our partner accounts with Savings Account +. The outflows that we have seen has not been massive in that sense. It's more some private banking clients.
Most private banking clients have not withdrawn any cash. They are still on the platform. They use the savings account now. They get 1% from the ISK accounts with. It is the same for the private banking clients as the normal client. Still, 1% is not the reason enough to have a lot of cash in an ISK account.
Understood. Thank you. Just maybe on since we discussed fully the competition on deposits, maybe competition on the brokerage, given the launch of Free trade. I don't know if you see any increased competition on pricing near term, or let's say more broadly, without the entrance of new players, but just the positive interest rate environment. Does it change your thinking about charging brokerage commissions?
We have not seen any effects of new entrants into the market when it comes to brokerage. Of course, we follow it carefully. As I said for several years, I believe that price is extremely important, but the competition today is more about user experience, data, order depth, online trading in 11 markets that you can do on our platform and so forth. I would say that price is one factor when the customer decides who wants to trade with. If you look at pricing, generally speaking, our pro clients and our private banking clients, in my opinion, have very competitive pricing from Avanza. We follow it. We have not seen anything about the new entrants, but the future will tell if we need to adjust our prices, but it's nothing that we're discussing at the moment.
Okay. Thank you. That's all my questions.
Thank you. Now we're going to take our next question. The next question comes to line of Enrico Bolzoni from JPMorgan. Your line is open. Please ask your question.
Hi, good morning. Thanks for taking my questions. First question leads to one of the recent answers. Are you not concerned that because you're still remunerating relatively little for the basic type of accounts of 25 bps, you're gonna see a substantial decline in the new books or in any new money coming in from existing clients, rather than necessarily just losing those on the back books? This is my first question. My second question relates to a couple of data points from your spreadsheets. One, I noticed that your internal deposits fell about 9% quarter-on-quarter, but they were flat for the external deposits volumes. Also the internal mortgages were basically growing.
They were flat, while the one provided, the one with the external provided for the end were up. I was curious to get some color maybe on why you think your internal products have been growing less. The final question is on cost growth. How should we think about it in terms of growth in the company? One of your competitors in another geography historically linked cost growth to customer growth. You said it should be roughly similar. Shall we think it the same way? If you think that customer growth will slow down, the cost growth also will slow down? Is it more associated to the activity of the existing client base just to try to see, and read through, you know, what do you imply from your, from your cost growth guidance? Thank you.
Well, if you start with the cost growth, I would say that all our costs are basically fixed. so that's not variable to number of growing number of clients. that would be my answer to that. I think that our cost growth is, as we said, it's a lot to do about the wage inflation, licensing costs, and so forth, since we keep the number of employees at the same level in 2023 as we did in 2022. When it comes to mortgages, as I said before, I think that we see. This is my prediction. We see amortization. We see that the rich clients are making asset allocation. One asset allocation you can do is to amortize your mortgage loans to get rid of that cost, so to speak, in your personal finances.
I predict that this could be the first year ever, almost, that the mortgage market in Sweden will not grow or could actually be at zero growth or very, very small growth due to the housing markets going down, turnover of people are not moving as much. At the same time, once again, amortization comes in fashion. That has a local effect when it comes to the mortgages. On your first question, if I remember it correctly, is that the 0.25, is that a competitive thing when it comes to attracting new clients? I would say no, because you don't become a client of Avanza to use us for deposits. You become to Avanza because we have a fantastic offer when it comes to investment opportunities, and that's a driving factor for choosing us. I hope that answered all your questions.
Thanks. That's it. If I may, just to follow up. I mean, considering that the outflows were driven mainly by the private banking segment in the last quarter, have you seen actually a decline in new flows from the non-private banking customers? Actually, shall we expect that because if the current environment is more difficult and rates are higher, actually, we might see a bit more of a decline in flows from standard type of customers?
No, I would say that this has to do to the sentimental investment. We have seen always that when the markets conditions are good, we get more inflows from existing clients. When the markets are bad, inflow is more from new clients. That means that the private banking clients usually have more assets than they have with us, and they put those assets in cash on the platform when they're going to invest. We have not had the sentiment, especially in Q4, where people are increasing their portfolios. Most people are stable, sitting on their hands, and then they have cash, they want to get the interest on that, and they will move it back to the platform.
It's nothing that has a great concern for me because I talk to the clients that have withdrawn money, and they basically say, "We will put it back in when I want to invest." Who knows when that is given the market conditions.
Thank you.
Thank you. Now we're going to take our next question. The next question comes to line of [Jakob Cruze] from Autonomous. Your line is open. Please ask your question.
Thank you. Just, I guess, two quick questions. Firstly, when you talk to your clients, when you talk to the standard offer clients who get 25 basis points, and given the big outflows you've seen in deposits, what kind of deposit rates do you think you would have need to pay to keep them? Do people have a problem with this idea that they're getting a negative rate after tax on liquidity in the account, given the 88 basis points ISK tax? Just secondly, do you comment at all on your market share in Swedish retail trading on the stock exchange? Thank you.
I would say that the 25 basis points, we still pay that. I don't think it's a big thing actually, because you don't want to keep cash on an ISK. It's I think the companies or the banks that are offering our interest rates on ISK is actually more marketing tool or getting away from negative publicity. It's more something we do. Look, at the same time, it has its negative aspects of it. If you would say that it was the interest that you need to pay to keep the money, I would say then you have to look at the consumer lending companies that I think pay 2.25% or something like that. That would probably be my guess on that.
Yeah.
What was the other question? Could you take that again, Jakob?
Yes. You give your market share of trading on the stock exchange, in Sweden. Do you have an idea or some kind of estimate of your market share over retail trading, so excluding all the institutional trading?
No. We, we don't have that because we don't get that data from Nasdaq, so it's very difficult to predict. Of course, it's much higher than the 70%, especially if you look at some of the smaller stocks. I think we, for some popular small stocks, I would say that we have very high market shares.
Okay. Are we talking 60%, 70% or in those instances?
I mean, I think it's hard to say because we don't get the data from the others. If you look at for example, I think we are at about 50%.
Yeah. I think at NGM, we are over 50%.
Okay. Thank you very much.
Thank you. Now we're going to take our last question. The last question comes to line of Nicolas McBeath from DNB. Your line is open. Please ask your question.
Hello? Can you hear me?
Yeah.
Okay. Thanks. Just a couple of quick follow-up questions. First, on net inflows. Normally January is a seasonally good month for net savings. Given the changes you've made to your deposit rates, could you please comment if you've seen net inflows so far in January, or if the outflow trend has continued?
I think you have to wait until we publish the monthly statistics.
A detailed question on your accrued income booked in your balance sheet. There's been some talks in the market recently about your accrued income, which I think is revenues you've booked for distributing external volumes to the Spark onto+ and mutual fund partners, but where you haven't received the cash flow yet. This line in the balance sheet has continued to grow and it went up also a bit more now in Q4. Could you please just educate the market and possibly also alleviate any concerns regarding this trend, explain the increase behind the accrued income and the motivation behind why you have this accounting practice as opposed to, I guess, book these revenues when cash is received, which would, I think, be maybe considered more conservative. Is it because of IFRS policies that you're not allowed to do this? Or, could you please help us understand this?
Yes, as I said, it's very much related to distribution fees from external fund companies and from Savings Account + partners and around the markets, also related to the pension company and the yield tax there. As you said, it depends very much on the volumes and how the flows have been in the quarter. We are not worried about those kind of posts. Of course, it's very much linked to the accounting policy where we have income from this year or from 2022, of course, we include that in the income statement for that year.
Okay, why does accrued income in the balance sheet increase more than the volumes on the external deposits and mutual fund volumes?
I don't. It depends. It's also around the markets where we get, which is very much have increased during the year. That is. You cannot just look at the fund volumes, for example.
Okay. Okay, that's fine. Thank you.
Thank you.
Thank you.
Dear participants, thank you very much for all your questions. I would now like to hand the conference over to Rikard Josefson.
Okay, thank you all for listening in. It's Friday, so I wish you all a nice weekend, and take care of yourselves and your families. Thank you.
That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a great day.