Good day, thank you for standing by. Welcome to the Avanza Bank Interim Report January-March 2023 conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there'll be the question and answer session. To ask a question during the session, you need to press star one one on your telephone keypad. You will hear an automatic message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to a speaker today, Rikard Josefson. Please go ahead.
Okay. Thank you very much. A warm welcome to everybody listening in today. Summarizing the first quarter of 2023, you can say it was a quarter with turmoil. We saw risk appetite back. We saw interest for investments. We saw stock market picking up a little bit. Of course, the quarter was also affected by the banking turmoil that started in the U.S.. During this period, of course, we got a lot of questions, and I think it's paying off our low-risk balance sheet, our short duration on our liquidity portfolio. During the times of the crisis in the U.S., we saw everyday net inflows. We believe that the faith from our customers is absolutely still there.
Going forward, I think it's gonna be still a macro environment that will be very much affected by what will happen to interest rates. Will inflation keep coming down? Having said that, I must say that the Swedish household has been able to manage the crisis a bit better than I expected, at least from last summer going forward. A strong this quarter is, I think that we have SEK 17 billion in net inflows, which shows that the customers are prioritizing their savings even though they have to spend a lot of money on other things. Also, I think it's a strong sign that the monthly savings of SEK 1.5 billion is still SEK 1.5 billion. I think we peaked last year at SEK 1.6 billion, so it's a marginal effect.
That's clear evidence that people are trying to save. Also it's quite obvious at these times that people who saved during the good years are feeling more comfortable, in the times we are living in. The need for savings is actually proven more than ever given the circumstances that we are living in right now. We also see that our pension business is developing quite nicely, and we have premiums being paid in every month at a rolling 12-month basis of SEK 345 million. The net inflow is, in my opinion, a strong indicator that we're on a good track with Avanza. Sometimes we talk a lot when we talk to the outside world about fund customer and equity customers.
This is a new picture that we brought into the conference call today, which shows that we have almost 700,000 clients invested in both equities and mutual funds. That is, of course, from a business perspective good because then we have two places where we can manage the customer's money. It also shows that the customers are diversifying, not going all in in a few stocks that a lot of people that own a few stocks also own mutual funds. From diversification perspective, this is quite good. The number of clients invested in both mutual funds and equities are actually growing month by month, and we think that's a very strong thing and good news.
We also during the quarter brought in 41,000 clients, which is up from the previous quarter quite a lot. That shows also that the interest for saving is still solid in the Swedish environment. We actually picked up a few market shares when it comes to number of transactions on Nasdaq Stockholm. We have 19.1% of all trades are going through the Avanza platform. We lost a little bit when it comes to turnover. That's usually because we are not, we do not do the institutional trading that some of the larger banks are doing. It's the left side of the slide that's important for me and that we have increased is actually a good sign that people are appreciating trading stocks at our platform.
During the quarter, we launched two actively managed funds in what we call our Byta concept, one with Ark Invest and Cathie Wood's, and that created a lot of emotions because either you are a fan of Ark Invest and Cathie Wood's disruptive strategy, or you think she's totally crazy. We think it's up to the customers to take that decision. We also advise our customers to have a seven-year time horizon investing in the fund. We also advise our customers to have not put all the money in a high risk fund that this is actually is. It's been very appreciated by our clients, and we have gathered quite a nice AUM in the fund. We also develop in collaboration with Circulus and in global what's it here?
With Coeli.
With Coeli, we launched our first Article nine fund. I will come back to that a little bit. We also developed savings targets as a function. We have had that before. Now you can share savings targets with friends and families. You actually can online in real time save together with your friends. We can also see that customers who use the savings targets tool on the platform are saving more and also are more persistent in saving every month. That has been also very appreciated by our clients. For our equity interested clients, we also during the quarter launched a thousandStock analysis with the collaboration with Morningstar. That's for the more into the market customer, has been very appreciated to get even more information about what equities to buy or to sell.
That has been a good sign for our more equity trading clients. Of course, social, environmental, and sustainability is for us as the world, as all the companies, very, very important. We have done a lot of things the last couple of years. We also during the quarter improved our sustainability information on the platform. As I said before, we launched the first Article 9 fund that also been appreciated by the client. Our goal is of course to be the number one platform for customers who care about their way they're investing their money from a sustainability perspective. We of course, as a company, wants to increase the ESG score when it comes to savings as a total.
We will continue to improve the sustainability part of the company, giving our customers more and more information so that they can take their own decisions, how they want to invest their money, but also with the perspective of how your money from a sustainability perspective will be used, so to speak. I think we are very well positioned for the future. As we often talk about these calls, the underlying structural reasons for savings is quite obvious, especially in these days. The society is more, it's more about if it's to it be, it's up to me. We have a 6.4% market share in Sweden, the growth opportunities in Sweden are extremely good in my opinion.
Lastly, I would also like to comment that Peter Strömberg, our head of our product and tech department, left the company, and we have hired Anders Karlsson with a great experience from Nasdaq, Handelsbanken, at the latest Klarna who will lead our product and tech team, which is a sure bet for me that our innovation and our development capacity will even increase going forward. With those words, I would like to turn over to Anna.
Thank you, Rikard Josefson. Good morning, everyone. Once again, I'm proud to say that we report our second strongest quarter ever in terms of results. Market conditions improved during the quarter, which led to increased customer activity. Of course, compared to Q1 last year, increased market rates contributed to higher NII. Operating income for the quarter consequently improved both compared to Q4 and Q1 last year. Operating expenses increased according to plan by 6% compared to last quarter and 16% compared to last year. The increase from last year is related to the change of the back office system and that we capitalized some of those expenses in Q1 2022. We are comfortable with our cost guidance with a cost cap of SEK 1,160 million for 2023.
Net profit for the quarter ended up at SEK 501 million, given an operating margin at 67% and the return on equity at 38%. The somewhat lower tax rate refers to a higher share of revenues generated within the pension company. Altogether, this gives an earning per share of SEK 3.26 for the quarter. Operating income increased by 2% compared to Q4. Net brokerage income, net currency-related income, and fund commissions increased due to increased customer activity and higher average fund capital, while NII and other income decreased. Since the 1st of January, we pay interest on deposits. The interest expense related to this was SEK 95 million in the quarter compared to SEK 8 million in Q4. The average interest rate on deposits during the quarter was 0.66%.
There are different rates on different accounts and for different customer segments. Toward the end of February, we also made our savings account available to all customers, the volume has doubled during the quarter, ending up at almost SEK 7 billion. As of today, we pay 2.60%. Interest income increased mainly as a result of higher return on surplus liquidity, thanks to a higher average STIBOR rate, even though the volume of surplus liquidity decreased as customers invested more in securities. Surplus liquidity was on average over SEK 5 billion lower in Q1 compared to Q4. Looking at the mortgage portfolio, the 75 basis points policy rate increase from November took effect first in February, the February policy rate hike was postponed to May 1st.
Our mortgage is the only one in the market directly linked to the policy rate, meaning it could make it look less competitive if we would raise the rates immediately in this environment. We now have Sweden's cheapest mortgage for our private banking customers. Regarding margin lending, we have seen increased volumes during the quarter. These volumes are within the lower interest rate buckets and only marginally increased the income from this product. The average interest rate on internally financed lending was 3.16 this quarter. As you know, the Riksbank decision will be published later this week, and how we will act on that decision is yet to be decided. Brokerage income increased due to higher volumes and number of notes, as well as higher gross brokerage income per brokerage generating turnover.
Higher customer activity was also reflected in the increased currency-related income. Turnover in foreign securities increased from 11%- 14% of brokerage generating turnover in the quarter. The fund capital in the quarter increased, whereas income per SEK of fund capital continued to fall to 28.7 BPS from 29.2 BPS at the year-end. This is a result of an increased share of capital in index funds, which was close to 41% at the end of the quarter. As said before, net inflows in the quarter were strong. This also accounts for the net inflow to funds, which was nearly SEK 7 billion. Other income decreased mainly due to lower activity in our Avanza Markets products and in corporate finance, as well as lower income from stock lending.
Related to the first quarter, SEK 26 million was refunded to customers for stock loans, which is already withdrawn in our income line. Looking at costs, operating expenses increased by 6% compared to last quarter, mainly due to higher personnel costs as a result of already communicated salary increases of 4% as of the first of January. Marketing expenses, which are seasonally higher at the beginning of the year, also increased. This was also a result of our two fund launches in the quarter. Compared to the first quarter last year, operating expenses increased by 16%, which as said, is related to the change of the back-office system where we capitalized expenditure last year, as well as higher number of employees. Referring to cost, we have had a few questions regarding prepaid expenses and if this implies unexpected higher costs in 2023.
Therefore, I just want to clarify that these costs are included in our cost guidance, which remains unchanged, and we are comfortable that we will keep our costs under the given cap of SEK 1,160 million. The cost to savings capital ratio increased to 17 basis points due to increased expenses, also as a result of 3% lower savings capital than a year ago. It is important for us to be able to give our customers a competitive offering, which is why high cost efficiency is a priority. Our long-term target remains a cost to savings capital ratio of maximum 12 basis points over time. We are of course to some extent concerned that we are above that long-term target. We are convinced that investing in further growth will take us there.
However, as previously communicated, we are during this year consolidating the operations and stick to our people plan we set last year, meaning we will not expand number of employees in 2023, even though it may fluctuate a bit over the quarters due to natural turnover. While at the same time, it's important to understand that we will continue to invest in our customer offering and our platform to maintain the high customer satisfaction and continue to grow. Our capitalization is naturally very strong given our low-risk business model. The leverage ratio increased to 5.6 in the quarter, meaning deposits can grow by SEK 27 billion without falling short to the 3.9 requirement and without taking any other measures into account.
The leverage ratio is, in other words, well above regulatory requirements. We see no need to issue Additional Tier 1 capital from a regulatory perspective. On the other hand, from a capital efficiency perspective, this is something we will come back to once market conditions have improved. To conclude on what has been emphasized in this quarter in relation to the bank turmoil in the U.S., Avanza has a very low-risk balance sheet. This is not something that just happened by chance, but is carefully considered and a strategic choice made many years back. Avanza is self-financed through equity and customer deposits which are widely spread across a very large number of households and whereof the majority is covered by the government deposit guarantee. Also, surplus liquidity is mainly invested in AAA-rated covered bonds Riksbank with Nordic banks.
All of Avanza's assets have high liquidity, and a significant share of the assets is held in accounts and is disposable immediately or on the following business day if needed. Looking closer to the interest-bearing securities, 93% have an interest rate duration of maximum three months. The resilience in our business model makes us able to report our second strongest quarterly results ever in this macro environment with a ROI of 38%. I would also say that a strong net flow seen during this period is proof of our customers' belief in the market and in Avanza. The development of our customer offering together with our cost cautiousness and strong results make me confident Avanza is very well positioned for the future. With that, I would like to open up for questions.
Absolutely. Fire away.
Thank you. Dear participants, as a reminder to ask a question, you need to press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. This will take a few moments. We're going to take our first question. The first question comes from line of Andreas Håkansson from Danske Bank. Your line is open. Please ask your question.
Hi, thank you. Good morning, everyone. On the deposit side, you are increasing your rates as we see. A few questions there. One is that
We saw a decline in deposits. As you said, you had money flowing into market-related savings. Could you tell us what was the net, versus other banks? Did you also see a stabilization there, or did you have outflow inflows from other banks into your deposits? If we start there.
I wouldn't say we had any outflows from the deposit side as we did in the fall where other banks were paying significantly higher interest rates. I would say that the net inflows was net inflows. The outflows were absolutely on a normal level.
Okay. If I look on what you're offering, you have your own savings account at 2.60% today. You offer a range of external savings accounts.
Yeah.
I would assume, and then maybe you can confirm that the revenues you get from these external accounts is just two basis points distribution fee. The profitability should be much less than what you get in your own savings account, where you can take the deposits in place in the interbank market. I'm wondering, why do you continue to offer these external accounts, and why not like Nordnet just offer your own savings accounts?
I would say that it's a good question. We want to keep that relationship with external savings accounts because we're coming from times with very, very low interest rates where we were actually losing money when we had deposits on the balance sheet because we didn't charge negative interest rates. We think that's something that might come back in the future, so we want to have that opportunity.
Okay. Another question just on your client numbers. It seems like your private banking clients are shrinking fair bit. Was it down 6% in a quarter? Is that? What is driving that? I mean, I, we understand that people were moving some deposits out, but have they left entirely? In that case, what's the reason for that?
They have been downgraded to within, well, to other classes.
Okay. They haven't left the bank. It's just that they lost the money.
No.
They speculated away some of their money, so they were not-
Okay.
We adapt. From time to time, we make a review of the customers and the different premium classes.
Okay, that's fine. That's it. Thank you.
Than k you.
Now we're going to take our next question. Please stand by. The next question comes from line of Jakob Hesslevik from SEB. Your line is open. Please ask your question.
Okay. Good morning, everyone. Another question on interest rates. I mean, I can see that on deposits, it's up to 0.7%. Should we expect a linear increase going forward now from the rate hike, meaning that NII delta more or less is gone?
It's too early to say. As I mentioned, it's all about the competitive environment and how our customers will act. We will get back to that.
Yeah. We will see how we will do because we probably get 50 basis points up on the steering rate on Wednesday. We have not taken the decision how to act because we do that with customer satisfaction, competitive environment, client demands, et cetera, et cetera. We will communicate when we have taken that decision.
They expect it to be net positive, at least on the next 50 basis points. Is this a top level, as good as it's gonna get?
Mm-hmm. I will say that you have to wait for the answer on that question when we communicate how we will act during this interest rate increase.
Okay. On inflows, I mean, in the statistics, you can see that the inflow from private banking is quite moderate at just SEK 2.8 billion during the quarter. What is the view from the private banking clients? I mean, the outflow has stopped, but it's not very strong numbers directly.
I would say that the private banking clients are putting in money. Usually, we have a few clients. That can vary over quarters because sometimes we can have clients who put in a few hundred million SEK, and that comes from time to time. I think that I'm satisfied with the way we have developed our private banking. As yourself said, we had outflows of cash, and I think we're seeing some of that cash coming back.
Okay. Have they communicated anything that's due to you increasing the interest rate for the private banking clients, or is it because they want to invest in the markets?
I would say both. I think some of the money is back in putting on our savings account because we pay a decent interest rates on that. Of course, private banking clients, like all clients, have been having a larger risk appetite when investing more in equities and mutual funds during the quarter.
Okay. Thank you.
Thank you. Now we're going to take our next question. Just give us a moment. The next question comes from line of Patrik Brattelius from ABGSC. Your line is open. Please ask your question.
Thank you. A few questions from my side. I continue on with the NII development. Given the interest rate hike we saw in February, should one believe that will have a higher positive effect on earnings compared to the one we saw in November? Or do you intend to give an equal share to the customer there? How should we think?
I would say that, as I previously said, we will take that decision when we know how the Riksbank will act on Wednesday, if it's gonna be 50 basis points, which I think is the consensus of the market. We are. That's work in progress, but we will communicate that when we've taken that decision. That's all I have to say around that.
Keeping on the subject then, a little bit more granularly if we break it down over the months here. If we look at the NII, was it higher when you entered the Q1 compared to how you ended Q1, given the development of interest rates and deposits during the quarter?
No.
We can see that deposits have gone down, and as we have said, it's because of people have started to reinvest, if that was what you meant.
We started-
Yeah
we started the quarter. On average, I think our deposits was SEK 5 billion less in Q1 than in Q4, and of course, that affects the NII. The reason for that is that when you look at the deposit base, you look at the first of January, and you look at the last of March. At the end of the quarter, you got a lot of dividends being paid out, which made the deposit base pick up a bit. During the quarter, you had an average of SEK 5 billion less, and of course, that affects the NII negatively on the deposit side.
At the same time, the market rates have moved up. I would wondering if that development trumps the lower deposit base.
I would say that Looking at the bond portfolio, for example, it has gone down almost SEK 4 billion, and that has of course an effect on the total NII.
Okay. Thank you. The last question would then be if you were able to provide us with a detailed NII bridge sequentially quarter by quarter, where you break down the, how much the deposits and the NII is impacted also by lending and the liquidity portfolio, please.
More detailed when than we have done now, you mean?
Yeah. Perhaps a table or a chart, that would be very helpful. Is that something you can comment on, where you see the largest movement during the quarter?
I would say that, how we have presented it in this quarter, we have a little bit more transparent than we have been. We think in too much detail getting into all the different customer and account classes, so we have decided that the transparency that we have disclosed now is what we will do further on as well, I would say.
Okay.
To get an idea when it comes to the different customer groups and the how much deposits are within each group, you can look at the overall savings capital within these well, within these customer groups and get a, at least, quite a good idea.
I understand. My last question is then, leaving this topic and going over to cost. Last year, it grew by 20%, and now you reiterate your guidance from Q4 report of approximately 12.5% yearly cost growth, despite the strong cost pressure within the system. Where do you find these cost efficiencies that you didn't find last year given that the world has now changed with higher inflation pressure, apart from them hiring less new staff?
Well, the cost increase this year is that we didn't fulfill our people than in 2022. If we manage to do that, we will have higher expenses for staff. I would say then you have the inflation and the guidance of 4% wage increase, which is, I would not be surprised if it ends up a little bit over that. Then, of course, its IT licenses has gone up. Some of our U.S. suppliers have taken the chance, given the inflation, to increase prices, especially in IT licenses and some IT costs. I would say that we are working with our efficiency quite a lot, and we have made a few big launches this quarter, which also, of course, behind that is a lot of work.
Given that, I would say that our cost is very well under control, and we stick to our guidance.
Okay, perfect. Thank you so much.
Thank you. Now we're going to take our next question. Just give us a moment. The next question comes from line of Nicolas McBeath from DNB. Your line is open. Please ask your question.
Thank you. I'll try again on the NII. Would it be possible to quantify where your NII is at this point or by the end of Q1 at an annual basis, taking into account full repricing of your securities at the current interest rate level and also taking into account the flagged increases to your mortgage rates from May? That's my first question, please.
You mean the policy increase in February have not affected, obviously the quarter fully.
Exactly. Could you say where the current NII would be on an annual basis, taking into full account full repricing of your liquidity portfolio, and also the changes to the mortgage rates?
No, we cannot comment on that.
We give the interest rate sensitivity.
Okay. Could you say something about how much deposits have moved into your savings account? You mentioned in the report that you see, yeah, some movements from transaction deposit to savings deposits by the end of the quarter. Could you quantify how much that is?
Yeah. The volume had almost doubled during the quarter, ending up at almost SEK 7 billion, and it was three and a half at year-end.
Okay. Then in hindsight, how do you think about your decision to increase deposit rates so broadly in January following the rate hike in November last year? Given that it seems like you've taken a different approach after the February rate hike by the Riksbank. Is your assessment now that increasing deposit rates so broadly on most accounts is not in the best interest for Avanza shareholders?
I think it's in the best interest of Avanza clients, and I think that's the long-term target. I think that we have gotten a lot of feedback from our clients, which was very appreciated about the interest rates increases we have seen. That's always something you have to balance between two things, and that's something we do every time we change the interest rates, as we will do when we get the decision this Wednesday. In hindsight, I think we took the right decision for our clients.
Given that you didn't do similar deposit rate increases after the February rate hike, I mean, something must have changed in your approach to how to react to the rate hikes?
I think it's a lot to do with competitors, how the competitor environment looks like. If you look, for example, right now, if you deposit your cash on Länsförsäkringar, they pay, I think, 2.9%. There is a competitive environment now when it comes to deposit accounts which the customers clearly have found. You can also see that.
Okay
... from another perspective, Nicolas, also because talking to people within the industry, you see also a lot of amortization of mortgage loans at the moment. The consumer are saving on accounts to buffer up, and they're amortizing mortgage loans.
Okay. A question on cost. As you mentioned, just recently, your cost to savings ratio is above the target, actually quite well above the target. Yeah, taking into account your cost guidance now, it doesn't seem like it's gonna decline significantly in the foreseeable future, at least not this year. Could you comment on how you see the cost to savings coming down towards the target? Do you have any concrete plans in the area for how to get there, or should we think that the target is not really that high of a priority in the foreseeable future and that you rather prioritize to invest and try to improve the platform?
I would say that to invest and improve the platform is of course very, very high up on the agenda for Avanza, but we are concerned with the cost targets, and we don't like that number of 17 basis points. Of course, we also have a belief that up till 2025, we need a few good years in the stock market, and we have not seen that in 2022 or not that much in 2023. Of course there's a limit to this down the road, but I don't know exactly when that is.
Basically hoping that we're gonna get very strong stock market increases to drive up the volumes on the platform, rather than having some kind of internal measure to address the cost base. Is that how we should think about it?
In the short term, we totally are betting that the markets will come back, maybe not in 2023, but at least in 2024. That will increase the savings capital and the relatively seventeen basis point will start going down again. Of course, we are more on the side, investing in growing the savings capital, growing number of clients, keep the customer satisfaction high. At some point in time, of course, if the market will go like this for five, six, seven years, we have to take some type of measurements around the cost situation. We have I think that this year we are actually...
When we budgeted our cost for 2023, the cost increase was 9%. We came in in 2022 much lower than we had guided for on the cost side. The cost increase became 12% from a percentage perspective. I think the cost target of a bit over SEK 1.1 billion, we are very comfortable that we're gonna keep that cost target.
Okay. Final question on product development. I mean, I appreciate you continue to introduce new funds like the ARK Fund in the quarter, but could you say something about the direction of your product development vision for the next couple of years? Should we expect more of the same like we've seen in the past couple of years, more like evolution, adding more to the current products, improving functionality to the interface? Or do you still think it's possible to create revolution like Avanza, I guess, has done in the, in the, yeah, in the past, like adding products which are more kind of disrupting nature, adding new type of mortgages, new type of mutual funds, or how do you think about your vision for the next couple of years for new products?
I think, if we had any revolutionary things in our back pocket, I wouldn't tell you, Nicolas, you know that. I think that, from just a broad answer to your question is that, it's more evolution than revolution. Also that I think that what we have done now, which has been very appreciated by clients, is that, for example, the equity analysis from Morningstar, we have invested in more information, call it decision-making tools, much better information about mutual funds, which funds are increasing holdings in one equity and are decreasing in another. I think that type of information and decision-making tools is gonna increase going forward, especially also when it comes to the sustainability area where our customer wants more and more information.
I think that that's an area that we have to improve and that we will improve.
Okay, perfect. Thank you.
Thank you. Now we're going to take our next question. Please stand by. The next question comes from line of Rickard Strand from Nordea. Your line is open. Please ask your question.
Hi, good morning. A lot of questions on NII. I thought I'll break in with some on brokerage income instead. Looking at the brokerage turnover per day in relation to brokerage AUM, it looks like the margin there is up from 8.4 basis points in Q4 to 9.0 basis points in Q1. I was just wondering if you could give some more color to the main drivers of this improvement in brokerage margin, and whether you see this as sustainable or temporary in the quarter.
I would say that that's always related to the, to the risk appetite, because what happens in, so to speak, boring or bad markets is that the professional clients, the private banking clients, the broker clients, stands for a larger share of trading. When that number picks up, like it did in Q1, it's customers who have higher brokerage classes that pays a bit more for the trade, and that, relatively speaking, become a larger part. It's very difficult to have an opinion about the future because it's I would say 100% correlation with the stock market and the risk appetite by the broad customer groups, which are a bit more in and out of the market since the private banking and pro traders, they constantly trade, and they pay less.
Since we've seen, quite a lot of market turbulence during the quarter, could you elaborate a bit on what it looked like in the beginning of the quarter versus the end, which could be an indication of the way forward?
I think it's been a volatile quarter from, you had the banking crisis and the beginning of the year started very strongly, so a lot of people go into the market. I would say just the reflection of it is that it's a. Normally, you can say that the markets are good. You know that brokerage every day is in a high level or low level. Now we have seen variations during a week from one day, a lot of trading, next day, maybe 20%, 30% down, and then the third day up again. The volatility is also shown in the brokerage income when you look at it on a daily basis.
Mm-hmm. On the cross-border trading which was up to 14% in Q1 versus 11% in Q4, was this driven by any particular events or more sort of an indication of improved general risk appetite and sentiment among your clients?
I think you gave the answer yourself. I think it's just more trading, more risk appetite. I think also there are always stocks in the U.S. from time to time that are traded a lot like Tesla, for example.
Yep. thanks a lot.
Thank you. Now we're going to take our next question. Just give us a moment. The next question comes from line of Marissa van den Heuvel from Citi. Your line is open. Please ask your question.
Yes, thank you for the presentation. A couple of questions. Let me first start saying that we actually appreciate your additional disclosure on cost of deposits. It's just analysts always want more. I don't know if you can comment on cost of deposits if you take into account changes at the end of the quarter versus the 66 basis points that you had in first quarter.
Do you say compared to last quarter? Because we paid. The cost for deposit were SEK 95 million during Q1, and we started to pay interest on deposits on the 1st of January. we've done-
Yes.
to the savings account during the quarter.
Yes, because a lot of changes came from March. If you could comment, let's say, what was the cost of deposit in March versus the full quarter. That would give us a starting point before the next rate hike, and then we make our own assumptions.
We haven't disclosed that, but you can think like this. We introduced the savings account from the mid or end of February, and then we have seen an increased part of that. Of course, looking at the savings account, we have seen increased cost during the end of the quarter than in the beginning of the quarter, of course, and taking into account a higher rate on that account type.
Okay. Okay, will do then. Maybe on the, on the volumes, customer deposits came down, now they're around 13% of savings capital. I think the most recent historical minimum was around 11%. You also mentioned that there were some dividend payments coming into deposits towards the end of the quarter. Do you get a sense of, let's say, the amount of deposits which are currently kind of waiting to be invested? What do you think is a kind of a reasonable level of share of deposits as percent of savings capital in the current rate environment?
I think that's a very good question, I think that normally over the last couple of years, most of our deposits have been money on the sidelines, so to speak, waiting to be invested. How customers will act now when you can actually get interest rates on accounts, I think it's too early days to see, because we also saw during the quarter a slight increase in money market funds that's doing a comeback in the market right now. It's a good question, but I don't dare to have an opinion about it because it's a new landscape for... especially for people who went into the market, let's say, the last 10 years. That's a new environment with interest rates. We just follow it and see if we're gonna have more cash on a long-term basis from customers or not.
Primarily, most of our clients are interested in investing their money at some point in time.
Understood. I would appreciate if you could maybe comment. You mentioned that, of course, your pass-through for the following hike depends on competition, and you mentioned some other players offering higher rates on the savings account. If we talk about a scale account for the majority of your customer base, for base clients, I believe that one of the largest banks is already offering 1.5% versus your 25 basis points for the base customer.
Is your position with this product is so strong, kind of given your unrivaled market position? You don't look at, let's say, large players, or you're seeing signs of increasing competition for this product as well?
No, we have not seen an increased competition due to that some players are paying higher interest rates on tax wrappers because it's still not quite so smart to have long-term cash in the tax wrapper because that should be invested. If you need that money, cash for the long term, that's the reason. We have our savings account where you can get from today 2.6% interest rate. If you're gonna keep cash for a long period of time, don't do it in a tax wrapper. Don't take money in and out of tax wrapper because then you have a negative tax effect.
If you sell stocks for, let's say, SEK 100,000, and you say, "I'm gonna keep this SEK 100,000 for a foreseeable future," then it's a good idea to take it out and put it on the savings account. I wouldn't say that the competition in tax wrappers is something that's notable from a client's perspective.
That's very clear. Just maybe a final question on net inflows we saw quite strong in the first quarter. Contribution from new customers was quite low, 13% of total.
Mm-hmm.
If I calculate it per customer, it's, let's say, lower than in recent quarters. Just wanted to check if you think this is a reflection of, let's say, increased expenses for Swedish savers, or there's a slightly different profile of customers that you acquired during the quarter.
No, I think the profile is the same. It's still young customers. Then, of course, if you look at customers from... That's why I think the SEK 17 billion is a strong number because I think, of course, the households are struggling a bit. Usually when the market starts picking up a bit, we always see existing clients putting in more money on the platform. We have seen that over the years as a general trend. I think to have it, an idea about this for one quarter is far too early days to take any conclusions on that. I think it's important that we got 41,000 new clients and people who start saving over time. Together with SEK 17 billion in net inflows, I think those are two strong numbers for the quarter given the macro environment.
Absolutely. Well, thank you so much for your answers. That's it from me. Thank you.
Thank you. Now we'll go and take our next question. The next question comes through line of Ermin Keric from Carnegie. Your line is open. Please ask your question.
Morning. Thanks for taking my questions. The first one would just be on the savings account you have now. The capital that's come into there, could you say from which account it's coming from? Is that from other savings accounts or Savings Plus accounts, or is it from the tax wrappers or the more general kind of investment accounts?
I think from all types of accounts.
Yeah.
I think they come both from Sparkonto+ partners. I would say it's from tax wrappers, there are also money coming in. I think that's people who think they have a long term... Let's say I'm gonna keep cash for a long period of time because I don't believe in the market, then it's... It's just from all the places that you mentioned it's coming in.
Great. Thank you. You just mentioned it briefly, but could you tell us anything about the demand for money market funds?
No, I've been wrong in this question because I thought that the money market funds would be growing in popularity quite a lot given the interest rate environment. I think we increased from like SEK 2.5 billion-SEK 4 billion in money market funds or something like that.
Four to five, I think.
Yeah. It's not very, very large yet.
No.
I had been expecting more of that, actually. We will see what the future holds around that. It's an interesting observation to see what our customers will do. I thought that it would grow more in the first quarter than it did, but I think that customers are still a bit skeptical to money markets from, in the sense what happened in March 2020, where some of the high yield funds had to close for taking out money. I think that is a memory that some customer has.
Great. Thank you. The last question would be on the customer intake being so strong in Q1. Have you seen that you're able to sort of get into any new pocket? Is it just the strong equity markets in the start of the year that caused that quite strong inflow compared to previous quarter?
I would say it's a normal customer. They look the same. I would say, and hopeful I'm right in this, is that the crisis that we are in, it make it harder for people to save, but more obvious that you need to save. I think the households are really understanding how difficult it is to go into an inflation economy like we have right now with no savings. I mean, I saw a survey that, like, 50% of the population can't handle an extra expense of SEK 13,000. I think that people don't wanna be in that bracket, so to speak. I think that savings is extremely important at these times. We can... I think a lot of the customers we added during quarter are probably people who have taken the decision to start saving.
Thank you. That's all for me.
Thank you. Now we're going to take our next question. The next question comes to line of Alex Medhurst from Barclays. Your line is open. Please ask your question.
Yeah. Morning, everyone. Thanks for taking my questions. Just one very quick follow-up on NII, if that's okay. Can you give us the average interest rate on the savings product for Q1 this year and also Q4 last year, please? Thank you.
It was the 0.66% this quarter.
No. Sorry. On the savings product, specifically the 2.6% headline rate at the moment.
What was the average this quarter and the previous quarter?
We have done a few increases this quarter. I don't have the average, but we started the year with 1.5%. We increased it on the 10th of February to 2%. Again, well, twice, or to 1.1% and 1.3%. We are at 1.6% today. We increased it today. You mean 2.6%.
2.6.
Yeah, 2.6.
Yeah. Great. Okay. Thank you very much.
Thank you. Now we're gonna take our next question. The next question comes through line of Enrico Bolzoni from JP Morgan. Your line is open. Please ask your question.
Hi. Good morning. Thanks for taking my question. My first question is, in the past you mentioned the full year result that you were possibly considering also an expansion to other countries or the geographies. Can you give some update there? How do you see the opportunity? I think you mentioned that M&A was a potential way of doing so. That's my first question. The second question was again related to cost. I appreciate your guidance and you reiterated it, but what in your mind should be the, let's say, the underlying organic cost growth for a business of this kind or a cost reduction if, for example, you had to assume the saving capital had to remain flat?
In other terms, because of the investment you've done, are you actually reducing some cost line that is not visible to us? Or actually simply everything continues to go up because of inflation or because of other variables? Thank you.
On the first question, what I have said that we are open for international expansions and probably do that with M&A activity. That is basically, as I said before, if opportunity knocks on the door. At the moment there are no opportunities knocking at the door. Our main strategy is still growing the company within Sweden. When it comes to cost, I think it's very difficult to have an understanding about the future because what will happen with inflation and so forth. Then as you know, most of our costs, I think over 70% is staff related. This year we're not increasing number of staff. We're increasing staff costs due to wage inflation and that we're not as many people as we were supposed to be last year.
We will see if we manage to hire those people this year since our people plan are flat. Our costs, since our costs are also much related to staff, it's also about ambitions, what we want to do. Not increasing staff this year is of course, long-term good for our cost because we have to work with our internal efficiency bit more. We have to work with straight-through processing. We have to make our back office more efficient and so forth and so forth. It's very hard at these times to have long-term view of the cost increase, which should be 2024, 2025, 2026 for a company like Avanza. We will come back to that, as we always do when we release the Q4 numbers. We will talk about how we will guide for costs for 2024.
Of course it has to do with our ambition, macro environment, what we think about opportunities and so forth. I cannot give you a better answer than that today.
Thank you.
Thank you. Now we're gonna take our next question. The next question comes from line of Jakob Kruger from Autonomous Research. Your line is open. Please ask your question. Jakob, your line is open. Excuse me, Jakob Kruger, your line is open. Are you muted? Dear speakers, please accept my apologies. It looks like Jakob Kruger line is not answering to us. There are no further questions at this time. I would like now to hand the conference over to Rikard Josefson for any closing remarks.
Okay. Thank you as always for very interesting questions. I wish you all a very good week. Thank you.
That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.