Good day, and thank you for standing by. Welcome to the Avanza Full Year Report 2023 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 this session, you need to press star one one on your telephone keypad. You will then 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, Gunnar Olsson, Acting CEO. Please go ahead.
Thank you, Nadia. Hello, everyone. My name is Gunnar Olsson, and since November, I'm the Acting CEO of Avanza. I will start off this presentation, and then I will hand over to our CFO, Anna Casselblad, and after that, we will have some Q&As. As you all know, 2023 has been a challenging year for many. We have seen high inflation, rate increases, geopolitical concerns, and a weakened Swedish krona, and all this has, of course, affected our households in Sweden. We can also see that we have had a net inflow to the Swedish savings market that has decreased since the record years of 2020 and 2021, and quite frankly, would not have been surprised if we would have seen a similar trend at Avanza. However, we've seen the opposite during the year.
Our customers have prioritized savings throughout this year, and that is quite impressive, I would say. We, from our point of view, we have done what we can do to help our customers. We have kept to help them to keep on the good saving habits during the year. For instance, how we opened up a savings account with competitive interest rate to all customers. We also have made it easier to pause or decrease monthly savings, and that is quite important for the customers, so they don't have to quit their habits. They can decrease monthly savings, it's just going down to zero. We are also, of course, trying to stay close to our customers, communicating to them through social media and our blogs, and the theme has been to help them through these difficult times.
But as we see it, there is hope for 2024. Most likely, we reach peak rates, although it might be a while before we see any rate cuts from the Riksbank, but we also already can see that inflation is going down in the right direction, and that is a good news as we see it. When it comes to net inflows, we are very proud to present that we, during 2023, have seen SEK 72.3 billion net inflows to our platform. That is more than three times as high than 2022, and it has also been driven by the Standard segment, a result of many individual customers' persistent commitment to savings. And when I listen around to our colleagues in the industry, I don't see the same kind of figures at their platforms.
We can also see that we have had a strong customer inflow, and we are now at a total of 1.9 million customers, and we're looking forward to later this year to welcome the number 2 million to our platform. During 2023, we have almost welcomed 125 customers to the platform. And this is quite interesting also from a scalability point of view, I would say, because we have the last couple of years welcomed a lot of customers, and we have not felt it necessary to increase our people planning departments such as back office or customer service, and that is something that feels very good to see going forward.
If we take a look at the Swedish fund market, Avanza has a strong position in stock trading, as you know, but we are relatively small in the fund market. Our ambition is to grow more, and a part of that is to keep improving our pension offering, since nearly 80% of the capital in occupational pension is invested in funds. As you perhaps know, a larger fund capital also strengthens our recurring income, which is important for us. In 2023, our ambition has played out well. The Swedish fund market saw an outflow in Q4, whereas Avanza had an inflow of SEK 5 billion. And for the entire 2023, we had an inflow of SEK 24 billion to funds, giving Avanza a market share of 35% of the net inflow to the Swedish fund market for the full year.
When it comes to our own fund company, it's been a very active year. We have launched 5 new funds, and in altogether, we now have 23 own funds on the platform. We are very proud that our fund company, during 2023, had the largest growth in AUM and also the largest market share growth. That is quite impressive, if I may add. If we're going away to trading activity, there has been a lot of uncertainty in the market during the year, and this has, of course, affected the trading activity. However, we saw some positive signs of recovery in the end of Q4, and hopefully, we are going towards a more positive sentiment. We can conclude that there is a good strength in our customer base when we see indication of more positive sentiment, meaning we are well positioned once opportunism truly returns.
Despite all the uncertainty, both number of customers holding shares and number of customers invested in funds increased during the year to about more than 1 million each. However, as you can see in the graph to the right, not all are trading each quarter, but there is some truly great news for us if we can get them to trade going forward. If you take a look at the largest participant in the stock market in Sweden, our market share decreased in the fourth quarter due to higher share of institutional trading, although we did see a good market share increase in December, giving good, good hopes for the future. I'm happy to say that we are reporting our strongest results since the record year 2021.
We saw a strong performance on targets, and we are proud to achieve the award, to achieve the award for the most satisfied savers for the 14th consecutive year. I'm also very proud to see the strong engagement among our employees with an eNPS of 58. As you perhaps know, the scale for eNPS is from -100 to +100. If you combine that with our employee turnover of 13%, I feel very confident that we have the most engaged employees in the business, and that's make me also very proud. When it comes to return on equity, we, we come in on 38%, and that is to be compared with our target of at least 35%. A strong result in capitalization make the board propose a dividend of SEK 11.50 per share.
That is equivalent to 91% of the profit. This is significantly more than last year's 7.50%, SEK 7.50 per share, and still leave us with very strong margins to the capital requirements. We also saw that in December, our net zero emission target was validated by Science Based Targets. The sustainability score of our customer investors, investment slightly improved, and also the share of savings capital held by women increased, but still on a low level, unfortunately. Looking forward on our focus for 2024, one of our long-term targets is to achieve 10% market share at the end of 2025. This is still our main aim to achieve, but even though it gets more and more challenging for us, to reach the target, we need to focus extra on especially a few areas.
Nearly 2 million customers have entrusted us with their, as their partner for savings and investments. This comes with a great responsibility, and the stability of the platform was high during 2023. It was 99.8%. But as you know, we had a few larger issues in 2023, and quite frankly, we had to do better. And this is something that we have worked hard on during 2023, and we have come a bit far going in the right direction, but there is still more work to be done, and that is my top priority going forward. In 2024, we will continue our focus, when it comes to strengthening our offering for the, our most active customers.
We can seeF that the competition is getting tougher when it comes to active customers and the Private Banking segments, and therefore, we have to do more there. We also see the importance of activating existing customers and helping new customers to get started. As we have talked about before, we need to keep improving our pension offering. That is quite important for us. The pension business is long, long tail business, and it's quite important for us. When it comes to cost efficiency and internal efficiency, one important long-term target is also our cost to savings capital ratio of 12 basis points, which has been affected by the downturn in the market. We do a lot when it comes to efficiency, especially we try to do more optimization. We are collaborating with AI.
We are trying to prioritize internal efficiency because in the long term, that is also something that gives a great customer experience. Our growth prospect with current staffing remain high, and we will not make any major changes to the number of employees during the year. As some of you might know, in 2024, Avanza celebrates 25 years. We have come far, and we have achieved great deal together. The best we can do for our shareholders going forward is to keep on developing, and this can only be done with very engaged employees, which I also am happy to say that we have at Avanza. With that, I would like to hand over to you, Anna.
Thank you, Gunnar, and good morning, everyone. As you already heard, we are reporting very strong results today. For the full year, net profit has only been higher once, and that was the record year, 2021. Once again, we see the strength and resilience in our diversified income model. Operating income increased compared to last quarter due to higher NII and other income. Operating expenses also increased compared to last quarter, mainly as a result of seasonally low personnel costs in Q3. For the full year, costs came in slightly below our communicated cost ceiling. Net profit was 19% higher than 2022, and return on equity ended up at 38% for the year, fulfilling our target of at least 35%. Altogether, this gives us an earning per share of SEK 12.64 for the full year.
Looking at full year revenues, our operating income came out at an all-time high, driven by NII, and despite market conditions negatively affecting customer activity throughout the year. NII has doubled. The increase was mainly due to higher market interest rates and an increased return on surplus liquidity, but also higher average interest rate on internally financed lending. And as I'm sure most of you should be familiar with by now, we started paying interest rates on customer deposits on the first of January, this, last year. And this, of course, affected interest expenses that increased significantly by over SEK 700 million. And the average interest rate on deposits for 2023 was 1.21%. The uncertain market conditions had a negative effect on customer activity throughout the year, which resulted in net brokerage income decreasing by 24%, and net currency related income decreasing by 21%.
However, net fund commissions increased by 3% due to 27% higher fund capital, and the moderate increase in commissions was due to a higher share of index funds, which amounted to nearly 44%. This made the average income per SEK of fund capital decrease. Other income decreased by 10%, and this was mainly a result of lower trading activity within Avanza Markets. Income from stock lending increased as the lending limit was raised in the second half of 2022. Moving over to Q4 revenues, operating income increased by 3% compared to last quarter. NII and other income increased, while net brokerage income was stable, and income from fund commissions and currency related income decreased. When it comes to brokerage for the quarter as a whole, activity was still slow, even though we saw increased activity in December.
Gross brokerage income per brokerage generating turnover decreased from 11.2- 10.6 basis points, as Private Banking and Pro customers accounted for a higher share of the brokerage income. Foreign trading in both equities and funds decreased, resulting in lower net currency related income. Foreign trading as a share of total brokerage generating turnover decreased to 16% from 18% last quarter. As Gunnar mentioned, the fund market in Sweden reported a net outflow of close to SEK 400 million in the quarter, and at Avanza, we had net inflows of mutual funds of SEK 5 billion. Fund capital volumes were 9% higher by the end of the quarter. Despite this, net fund commissions decreased as the share of capital in index funds rose, making the average income per SEK of fund capital decrease to 26.4 basis points.
This, however, stabilized during the quarter and was the same by year-end. Other income increased by 12%, which was mainly a result of higher income from Avanza Markets and corporate finance, where we were financial advisors in two transactions during Q4. Taking a closer look at the NII, despite increased interest expenses, NII increased by 7% in the quarter, where the main driver was return on surplus liquidity that increased to SEK 485 million. And this was the result of both a larger liquidity portfolio and higher market interest rates. Income from lending was also higher and amounted to SEK 224 million. The average interest rate on internally financed lending increased to 4.59%, while volumes were basically flat.
The mortgage rates increase of 25 BPS that was made on the first of August took full effect in the quarter, and on the first of November, we increased the mortgage rate with another 50 BPS. On the first of February, we have the right to do another 25 BPS rate hike, but most likely that will be postponed further due to competition. Interest expenses increased, and the average interest rate on deposits was 1.76% in the quarter, compared to 1.44% in Q3. The last change we made to interest rates on deposits was in September, when the rate of our own savings account was increased to 3.50%. We haven't made any other changes to deposit rates since then.
The policy rate was left unchanged in November, and the general forecast is that peak rates have been reached and that we will see rate cuts during this year. The next Riksbank decision will be announced on the first of February. Moving over to costs, quarterly operating expenses increased by 15%, which was mainly due to seasonally low personnel costs in Q3. Other expenses also increased, primarily due to higher costs for consultants, which also were lower during the summer. Looking at our full year costs, we came in slightly below the communicated cost ceiling due to lower than expected expenses for information and consultancies. Compared to 2022, costs increased by 11%. The increase in personnel costs was a result of salary increases of slightly above 4% for the whole year, but also 4% more employees.
Other expenses increased, mainly due to higher costs for licenses and trading information. Our cost to savings capital ratio for the year is at 16 BPS, which is above our long-term target, and that is, of course, not satisfying. A large part is, of course, related to the market downturn during 2022. However, that target remains unchanged, and as Gunnar emphasized, we have a strong focus on high cost efficiency. We have good growth prospects with current staffing, and we will not make any major changes to the number of employees during the year. The people plan from the last two years still applies on an overall basis, and operational efficiency is a strong focus, and expansion in one area needs to be met with withdrawals in another.
The cost increase for this year is estimated at 9.5%, where inflation will be the main cost driver. Higher personnel costs stands for more than 50% of the increase. This includes total wage adjustments of 4%, market adjustments related to occupational pension premiums for our employees, and an increased cost due to the replacement of the CEO. Higher cost for licenses and information are also in effect from the increased number of employees, which together with inflation, accounts for approximately one third of the total cost increase. Based on the strong capital position, our strong results and low risk balance sheet, the board proposes a dividend of SEK 11.56 per share and corresponding to a dividend ratio of 91%.
This is well above our dividend policy, while at the same time, the board wants to take a cautious stand due to the uncertain macro environment. The margins to the capital requirements are still very prudent, with a total capital ratio at 24.7% and the leverage ratio at 5%, meaning that we could grow our deposit base by another SEK 31 billion without falling short of the leverage ratio requirement of 3.5%. And, amount of capital structure is continuously evaluated from a capital efficiency perspective, where, for example, we are considering the opportunity to issue Additional Tier 1 capital, this year, if market conditions improve. And to conclude, our ROE target ensures a continued focus on profitability, as well as demonstrates that we value, low-risk balance sheet and capital efficiency.
We have a strong focus on costs and are lowering our cost growth in 2024. If it hadn't been for the high inflation, this could have been even lower, and the main part of our cost is inflation driven. Putting 2023 behind us, as one of our most profitable years, we are all eager to take Avanza to the next level. We are a great team of 660 employees, which every day strive to do the best for our customers, and this has made us hold up strong in current macro environment, and our customers have shown resilience. The large number of customers interested in equities also makes us well-positioned once market optimism returns. With that, I would like to open up for questions.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by, we'll compile the Q&A roster. This will take a few moments. Now we're going to take our first question, and it comes from the line of Jacob Hasslevik from SEB. Your line is open. Please ask your question.
Good morning, everyone. When the Riksbank hiked the policy rate, you didn't hike the interest rate on mortgages to Private Banking clients directly, but if I remember correctly, it is linked to STIBOR. So hence, when the Riksbank actually cuts, you will have to cut the rate to Private Banking directly.
No, Jacob, it's directly linked to the policy rate, the Riksbank policy rate. So it's not-
So when the Riksbank cuts with 25 BPS, you're gonna have to cut the interest rate to Private Banking by 25 BPS the same day, right?
Yeah, that's right.
Okay, but how-
Not the same day, but, but in a couple of days, yes.
Okay, but how quickly can you cut the rate on your savings account? Because if we assume your external partners, for example, Resurs, Norion, et cetera, who have a funding problem right now, will have to keep a high deposit rate, then, I mean, Avanza would screen poorly if you cut, which would lead to large deposit outflows. So if that's the case, I assume you will not be able to cut the deposit rate to the same extent as the Riksbank's cuts. Or how do you think about this potential issue?
If, if you take your first part of the question, if you look at the mortgage rate on our Private Banking offering, we haven't followed the rate all the way up when we have had the increased rates, so there are some room for us to elaborate with when the rates are starting cutting down. So we have some handling room there. And when it comes to the interest rates on the savings deposits, we... Your question was how fast we can act on that, wasn't it?
Yeah, because if you think your external partners might not cut as quickly as you might want to.
Yeah, that is a business decision that we have to make in that case. We have done different things over the years. For us, it's most important for sure that we have a great interest rate for our customers, and but we have to stay pretty close to our to our partners, for sure.
So it's more important to screen well than to lose some deposits?
No, I wouldn't say so, but that it is a combination of both aspects that we have to take care of when we make the interest rate decisions.
All right. Thank you very much.
Thank you. Now we're going to take our next question. Just give us a moment…. And the next question comes the line of Patrik Brattelius from ABG. Your line is open, please ask your question.
Thank you. Can you hear me?
Yeah.
Great. We could see in the quarter that the savings capital and also the fund capital increased by 9% quarter-over-quarter. However, the fund income decreased by 2% quarter-over-quarter. Do you see any need for changing your margins within fund income?
We are, as we have said before, if we need to adapt to, for example, new regulations and so on, we are willing to, or we have to adapt the business model. But as it is right now, we are pleased with the business model we have, despite that we see our lower margins. And that is just, and that is also what we have been communicating with our clients for years, that they have to be aware of what they are paying for, especially when it comes to index funds.
Okay, fair. You showed an interesting chart on page five, which an increasing trend on the left side, where you showed brokerage generating turnover per trading day. Could you say anything if this trend has continued here in January, or if that has leveled off?
I would say that it's too soon to say. It has been a little bit by day by day basis here, so I think it's too soon to comment on that. I'm sorry about that.
Okay, that is fair. Going over to capital, your capital surplus in comparison to your requirement is still substantial, with over 650 basis point buffer, and you also have a substantial leverage ratio buffer. Do you foresee any issues that from the regulator's perspective, that if you're always so overcapitalized, that the regulator will demand you, or will always believe that you will maintain this high level in comparison to your requirement, that this will hold back your profitability potential?
I'm not sure if I see that. But of course, as we have said before, we think that we are overcapitalized given the low risk that we're having in the balance sheet. And that is also why the board decided to do a higher dividend ratio or payout this year than last year, because we have been buffering money during a couple of years now. And since we got the Pillar II guidance requirement lowered in by the end of Q3 from 3.9- 3.5, that has also given us some maneuver to do a higher dividend this year.
I would also say that since they did lower it from 3.9-3.5, I don't see that they're going to raise it again.
Okay, that is fair. But, if we were to fast forward one year, do you still perceive yourself to be overcapitalized, so you would deviate from your 70% dividend target and again raise the payout ratio? Or is this a level that you want to be at?
Uh-
I think it's too early days to say, and we have just even started this year. But of course, the board and not from the management, we are all always looking at our capital structure, so we will get back to that.
Okay, thank you. And my last question, I thought the deposit guarantee scheme was lowered. Is that the level here in Q4, is that a sustainable run rate level, or is that a one-time effect?
No, that is a one-time effect because we as we get to the figures for the whole year in Q4, that's why we had taken two high costs during Q1 to Q3, and that is why it has been lowering. But going forward, it's my belief that the cost for this year will be increased because of higher deposits.
What do you expect the quarterly level to be at then?
It might be up around SEK 10 million, don't take it, but around SEK 10 million up from looking at the whole year figure from this year.
Okay. Thank you so much.
Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes from the line of Nicolas MacBeath from DNB. Your line is open. Please ask your question.
Good morning. First, a question on, on that interest income. I was wondering if there are any residual tailwinds, left from the rate hikes, last year that you expect to benefit the NII from here, in addition to the 50 BPS rate hikes on the mortgage portfolio that you mentioned, Anna, in November? Anything in the liquidity portfolio?... That's gonna contribute to higher NII in Q1, maybe the liquidity portfolio is not fully repriced, if you could comment on that, please. Also if you think NII can continue to grow sequentially in Q1 versus Q4?
As you know, it's all depending on the development of, for example, STIBOR . And as you said, we have a lag effect in the surplus liquidity portfolio of three months. So, I think your guess is as good as mine, and we don't have any forecast on when it comes to the NII.
But assuming that the STIBOR remains around current levels, would you expect tailwinds, continued tailwinds from repricing of the liquidity portfolio given that assumption?
No, I don't think so. It's-
Okay. And then I noticed your comment in the report about the development and the savings capital, and you write that most of the net savings in 2023 came from the Standard segment, suggesting that the Private Banking segment is not contributing that much in terms of net savings. So if you could first perhaps comment on what is explaining the reduced savings in the Private Banking segment, and if it's also possible to break down the savings within the Standard segments to even further greater detail, maybe to help us understand what is making your net savings so quite resilient.
Maybe any particular age or wealth bracket within the Standard segment, which is contributing to a disproportionate extent to the net savings, because I think most of us are being quite positively surprised about the relatively high degree of net savings. So anything there that could help us understand the drivers of that, I think, would be interesting.
Well, if we look at the automatic monthly savings from customers, we see increases within all age brackets and within the Standard segment. So I would say it's quite strong. What we have seen rather is that the more ad hoc installments have gone down slightly, which have compensated for the increased monthly savings. So that's also an explanation why the 1.5 monthly savings has been flat.
Right. And the ad hoc savings, so is that has that mainly been coming from the Private Banking segment? Is, is that why the Private Banking is down then, and, and the Standard is compensating for that, or how do you view that?
Not necessarily. I would say that that's spread out throughout the whole customer base.
Okay. And then what is explaining the decline in Private Banking, or why Private Banking is not really adding any net savings? If I interpret your comment in the report right?
It's, of course, hard to say. I don't have a clear explanation of that. I mean, I would say that, of course, we have still installments from the Private Banking segment, and we are growing within Private Banking. I know that they have also amortized more on their mortgages, so that could be one explanation.
All right. And then just a final question on the, on cost. So, 11% cost growth last year, now you're guiding for 9.5%, 2024. Do you think around 10% is a good indication of what kind of cost growth that you see reasonable for Avanza and kind of medium to long term, or is, is the cost growth you are seeing now still at an elevated level, in your view?
Our focus is, of course, coming down when it comes to cost growth, and also especially when it comes to what kind of costs that we have. We see that Anna was talking about earlier on, that we try to minimize our costs in administration and back office and those kinds of things. And where we get more effective there, and a bit more scalable there, we move over to take the costs in innovation and stability. So, our target is to stay lower, and long-term target is 12 basis points, as you know. We're looking for 9.5% this year, and that is something that we're trying to get lower in the future as well.
And also bear in mind that a lot of the cost this year was affected by inflation as well, so hopefully that will lower going forward.
Sure. But on that target, though, I mean, you mentioned that you have had adverse market development. But I mean, looking at where the stock market has, and your savings capital is right now, versus when you set the target, it's not down by so much. I think the stock market is down by around 10% or so. I mean, is there anything else you think you could improve, I mean, internally? Or what, what's your plan, really, to get to the below 12, 12 basis points? Because when you set the target as well, it wasn't like you're targeting 12 basis points.
It was quite clear by the management back then that that was supposed to be a ceiling, and now you're kind of 25% above that level, which was supposed to be a ceiling. So, I mean, anything you can do internally on a more kind of comprehensive level to get the cost base down? Or, I mean, is it just more hoping for the stock market to surge to ... we kind of save you and get you to within that cost target level?
Of course, we had to do a lot internally. And when it comes to internal efficiencies, it is extremely important for us, and we are collaborating with both AI. We are looking over our processes. We are looking on the certain areas that we should perhaps stop doing. So we are doing a lot of things to be more scalable, and we are a bit scalable already when it comes to adding more customers on the platform, but we want to be even more scalable. I think there's a lot of room there for us to work with and be more efficient, and that will help us also with the cost going forward.
But still, I mean, the cost growth is expected at almost 10% for this year, so it doesn't seem like those efforts are really contributing to help you to get to that target. I mean, is it enough what you're doing? Or, if you wanna get to that target, which you feel, which you stand by, it seems like you need to do more.
Yeah, we need to do more. I totally agree with you there. I think we're gonna focus even more on that going forward. But as we also said, we need some help from the market to reach the goal, reach the target. But there are a lot of things that we can do. But still, also, we want to take some cost to be more innovative going forward as well, because we want to reach our other targets when it comes to 10% and also beyond that. And therefore, we need to take some investments going forward as well.
And that is what-
Okay
... we are doing, and for example, for the last year, that is, as I said, if we free up people or and time in one department, we move that capacity to another department. So in those figures, we are working on every day improving the customer offering, as Gunnar said, and that is very important for us. Because we think the ones who dare and have the effort to invest every day will be the winners in the long run, and we still see great growth potential in our customer base and improve even further growth.
All right. Thank you so much.
Thank you. Now we're going to take our next question. Just give us a moment. And our next question comes from the line of Rickard Strand from Nordea. Your line is open. Please ask your question.
Hi, and good morning. Can you hear me?
Yep. Good morning.
Yeah. Thank you. So, starting off, with the margin on brokerage, note that it dropped a basis point in the quarter. Just if you could elaborate, you mentioned in the report that it's you have a higher share of trading done by Pro and PB customers. Is that explaining all of it, or is there some underlying decline as well, or is it due to seasonality?
It's as we said, it's mainly because higher share of the trading was made by the Private Banking and Pro customers segment.
Okay. Regarding your comments there, that you need to work harder on the offering to your most active customers, could you elaborate a little bit on what you mean here, more specifically? What do you want to accomplish in order to address this?
Yeah, sure. That is, that is for, for sure, a very important customer group for Avanza. And, in times like this, what you always see going through years going back is that, a lot of more companies are competing in this customer segment, and therefore, we need to improve our offering. This is also the core offering that Avanza is founded on, so therefore we want to be the best in this area. And there's a lot of things that we need to do here. We need to improve our stock market data. We need to address the stability on the platform. We need to make sure that we have the services that they needed to trade and also what help them to make better decisions.
So there's a lot of things that we are working on and, that we are looking on to implement going forward as well. But the reason is basically that the competition is tougher in this segment, and, and we want to handle them.
Could you mention something about the... has there been sort of customer churn here, or-
No
... or is it just that they?
No
... become more muted in their activity?
No, we haven't seen any churn on this area, but what we feel is that we want to be the best in this area, and that's what we are trying to be as well. So it's not a churn problem, but we want to prevent to have a churn problem.
Then moving on to fund revenues and the margins there declined one bit quarter-over-quarter. Was it fully driven by the sort of the mix impact from higher share of passive funds? Or has there also been some sort of underlying trend of also some price reductions?
I would say it's mainly because greater interest in index funds, and we can see that at Avanza and also in the market in total.
Yeah. And then just lastly, Anna, your comment there about the mortgage prices for internally financed mortgages. Are you still planning to do 25 basis points increase, and or could it be more? And what's the timing you're currently thinking about?
... definitely not more. I think, looking at the—as I said, we have the right to, to do another 25 basis points increase, but looking at the, at the competition, it, it's not the right thing to do. So, given that, that we will see no further interest rates increases from the Riksbank, that's my clear belief that it will be on the level that we're having right now.
Okay. Thank you very much.
Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes to line of Ermin Keric from Carnegie. Your line is open. Please ask your question.
Good morning. Thanks for presentation and for taking my questions. Maybe if we start on NII. So we talked a little bit about the rate you're giving on normal savings accounts. How about on the investment accounts? Do you expect that to be reduced one to one when we see rates start coming down, or is it more when we come down to the same market rate level as we had when you introduced, say, or a rate on those accounts?
We haven't made any decisions there yet, but I think that we're probably gonna reduce when it comes to the investment savings accounts, because it makes more sense than having a traditional savings account if you have liquidity. Having that said, for certain customer groups, such as, for instance, traders, Pro traders, it still could be interesting to have an interest rate because they are often lying in liquidity overnight. So we'll see how we do. But I think that in general, also in the market, you will see a decline when it comes to investment savings account.
Makes sense. Thank you. Then just a little bit more tangibly on Private Banking, you mentioned you want to improve the offering. Do those clients have different digital tools, or is that more that they will get more attractive pricing? Is it more personalization? Would that be more adding kind of sales staff, or how do you more tangibly improve that offering?
Today, I don't know if you see an offering right now, but today it's not that big difference compared to the Standard segment. But we are looking into it right now, and I think we're gonna improve it both digitally and for sure also with the decision-making tools in some way. And there might be a pricing issue as well, but we haven't decided on that yet.
Well, we could see a scenario where you actually have certain decision tools, et cetera, just for Private Banking, because as you said, historically, it's been quite similar in offering, it's been more on the pricing, it's been the difference between the two.
Yeah, that's correct. That's correct.
Okay, thank you. And then just one last question on your capitalization as well. I think we touched upon it before, but should we see the current policy of 70% payout as, as more a floor going forward? Have you had any consideration about announcing a capital buffer target to steer by?
I think that the dividend policy, we haven't made any changes to that, but whether or not, we haven't really disclosed what the internal buffer is. But if we will do it forward, we'll see.
Understood. Thank you.
Thank you. Now we're going to take our next question. The next question comes line of Michael McNaughton from UBS. Your line is open. Please ask your question.
Hi, good morning. Can you hear me?
Yeah.
Yeah.
Great. Just staying on the NII, just on the, the mortgage pass-through that you have the right to do in February. You say that's, you know, potentially be delayed, but should we maybe think that there is a chance that this won't come through, given rate expectations are kind of going in one direction? Just how should we think about that?
I think that depends on what our competitors are gonna do. So we keep the right to increase the rate, but we'll see what competition makes, what kind of moves they make.
Okay. Yeah, makes sense. And then on the costs, just given some of the continued technical issues that you've had, the most recent in January, I think, how confident do you feel that the 9.5% cost growth in 2024 can cater for any additional investment needs to tackle some of these issues? And maybe on the most recent issue, can you give us a little bit more color on the reasons behind that, and yeah, if you, kind of what the steps are being taken to kind of limit these into 2024.
You want me to take it? The cost question, I think that we have been working with stability during the year, and we have a modern tech stack, so it's not about old systems that need to be has a lot of investment needs. But it has been a focus for us since the summer, and in the 9.5%, we have already taking a... We have some focus on that, in that figure.
Okay, great. That makes sense. Thank you very much. That's all for me.
Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes from line of Pablo Salinas from Morgan Stanley. Your line is open. Please ask your question.
...Hi, thanks for taking my questions. You mentioned a couple of times, competition, in terms of, you know, limits your ability to pass on the rates. You have to be conscious of that, and also cutting the rate you pay on cash. In terms of the rest of the offering, how shall we think about pricing and competitive forces? Like here in the U.K., for example, many of the platforms have been cutting prices on dealing, on brokerage. And so how do you think about that? Is it maybe another tool to reactivate maybe some of the users or gain more share? So that's my first question.
Right. First, if you look at pricing in, in the Swedish market, I think the, the pricing are pretty low, actually. We have been driving costs, pricing down over the last 25 years, so, I don't think it's gonna be a, a pricing war, so to speak. I think it's gonna be more about what kind of offerings that you have for your customers, how you communicate, communicate with your customers, what kind of data you can provide to your customers. I think that is what the competition is gonna be all around. For sure, there are some pricing points that, that can... we can fight with each other on, but, mainly when it comes to commission, and, and fund, costs, it's pretty low already in Sweden.
I think that's clear. And then on the, for the longer term guidance to get to the, sorry, target, to get to the 10% market share of the savings market. I was just wondering, I think even if we assume the Swedish savings market doesn't grow from today at this level, it implies that you need to grow the savings capital about 20% a year. Obviously, it's gonna be even more if the whole market is growing as well. But so how do we get there in terms of, what do you think about that, getting to this 10% and the 20% growth that you need to have every year on the savings capital?
Is it gonna come from flows, do you expect more improving the market performance or also a shift within the asset mix you have on the savings?
I would say that, as you know, we already have a great net inflow. But what we have to figure out is what kind of drivers there are that can improve these net inflows even more. We have to take decision if we should go a bit wider in our offering or if we should do something else. But basically, we need to both have a great market the next couple of years, and also we have to be a little bit more successful with attracting even more customer than we do right now.
Okay, thank you. And then the last one on the costs and then, and the target, the 12 basis points. You mentioned there's optimization and, potential efficiencies that you can extract, and also, the use of AI. Maybe you can give us some examples where you can use the AI, and, if there are any sort of one-off implementation costs to achieve these efficiencies from AI.
I would say that we are right now, like probably everyone else in the business, looking into AI in more or less every area of the, of the company. But for sure, that we, we know that, all the way from coding to back offices, to collect data, to enhance the customer experience when in communication with customers, there are so many areas where we can adopt AI. We are not there yet. So right now we are, we are elaborating and see what this take us. So we will definitely come back with that later on, but for now, we are on a more or less testing or a lab status when it comes to AI.
Thank you. That's all very clear.
Thank you.
Thank you.
Now we're going to take our next question. The next question comes from the line of Markus Sandgren from Kepler Cheuvreux. Your line is open. Please ask your question.
Hello, and morning. I just had three questions. One is on: has there been any new nuances in the discussions with the regulator about the split between distribution and asset management of funds that we should be aware of?
Okay.
Inducement fees.
Inducement fees, you know. We have had some discussion with the financial department about it, because you have the European suggestion when it comes to this area, when it comes to inducements. I think more or less everyone think this is a bad suggestion, and because it's unfair for basically both customers and the customers, and the companies acting in the market. I think that we're gonna see. My personal view is that they will withdraw this suggestion and come back with something else, during the year.
Okay, very good. Thanks. And then the next one is about taxes. The tax rate moved up just half percentage point, but it seems like the trend has been that it has come down during the last couple of years, and I understand that's related to what you put in the insurance company and what's in the bank. Is there any trend that we should be aware of going forward? When you talk about expanding your market share within occupational pensions, would that drive down the effective tax rate more? And also, if that happens, is there any other effect on the other income and cost lines that we should be aware of?
... Yeah, as you said, it's correct that it depends on how much that is generated within the pension company and the bank. And that is, of course, fluctuating a bit between the quarters, depending on, for example, trading activity and so on. But over time, as we see a great deal of potential in the pension company, that could be a fair assumption that, going forward, that could have effect on the effective tax rate, implying that a larger share of the revenues are within the pension company.
The tax rates we saw a couple of years back, about 15%, those will not come back?
If we grow tremendously within the bank part of the business.
Okay. Get it, get it. Okay, and then the last one is just, let me also follow up on capital. I was just trying to understand how - I mean, what's your thinking? You consider yourself as overcapitalized, and then you pay a large part of this year's profit, but not everything. And then you're thinking about issuing an AT1. So what should we read into that? Are you - Is this the way to adjust the capital stack to what you want it to be, and then make a one-off dividend payout or something when you adjust your overcapitalization? Or, I mean, why are you considering issuing an AT1 when you consider yourself overcapitalized?
That's a valid question, but it's from a pure capital efficiency perspective. Looking back a couple of years, when we got the leverage ratio requirement, we were talking about issuing Additional Tier 1 capital, but we were awaiting that because we had a lot of capital, so we didn't see the need for it. But that is one thing that we always consider, but just to issue Additional Tier 1 capital and then do an extra dividend, I don't think that is what we're going to do. But we will get back to that question.
Yeah, but I mean, what's the-
What's the-
What conclusion should I draw from that you consider yourself overcapitalized and still think of issuing an AT1?
It is whether we want to free up more capital, but it's not what we have in the plan. I just wanted to emphasize that we are looking into the AT1 market, so to speak.
Okay.
Our follow-up. So it's, it's just more-
Okay, so it's more like a general... You're always looking into it, and if it's-
Yeah.
If it's good, then you can do it. That, basically.
Yeah. Yeah.
Okay, very good. Thanks. That was all for me. Thanks.
Thank you. Now we're going to take our last question for today. Just give us a moment. The question comes from the line of Enrico Bolzoni from JP Morgan. Your line is open. Please ask the question.
Hi, thank you for taking my question. One is on the competitive dynamics in brokerages. Someone has asked already a similar question. There's a number of players that have been lowering their fees also in other Nordics market, and one of the features usually is a reduction in the fees for trading foreign shares, so in particular, the US market, which is very popular among investors. So I was wondering if you could give some color on what you think the medium-term trend is gonna be there. Do you foresee a scenario where everybody would be able to trade ETFs using multicurrency accounts, for example, and therefore, the ETFs commission will gradually disappear, or you think that this is actually quite far in the future, and you don't expect it near term? So that's my first question.
My second question is on the cost of deposit over the quarter. Just wanted to see if you could give some extra color. So over the quarter, your saving accounts grew by, again, by quite a lot, about 20% in terms of volumes, yet the cost of deposit was up around 3% quarter-over-quarter. In the previous quarter, there was, you know, similar strong growth, but then the cost of deposit increased quite a lot. So I was wondering whether what we should read into that, is it because a lot of the increase in saving accounts was maybe funded by Pro and Private Banking clients, and therefore, we didn't see such an uptick? I just wonder if you could give some additional color there.
And then my final question is on the fund margins. Again, there was a bit of a decline, even if arguably, I would have expected maybe a positive mix, in terms of split between equities and fixed income over the quarter. So what kind of floor should we see there? So I would think that, you know, a passive funds probably on average, would cost around 50 basis points, and you're clearly already at 50% of that. So are we close to the floor? Can it go much lower? Any color would be helpful. Thank you.
Thank you. If I try to start with the commission on FX question, your first one. As I said, when it comes to commission, it is rather cheap in Sweden already trading equities. And for instance, Avanza is not the cheapest one in the business, but still we're growing, and you can actually trade for free at some brokers in Sweden, and I haven't seen they have a great success yet, at least. Your question about FX, I think that's quite interesting because that it is possible that you're gonna see some moves in that. Also here, you can see that some brokers have solutions for that when it comes to special FX accounts that they're offering the customers.
So I guess we, bad answer, but I guess we'll see how it develops in the future. But I think, don't think the pricing is going to be the biggest thing when it comes to competition. It's a, it's one part of it, but and then it's much, perhaps much more what kind of pricing model that you offer the customers. But I think that in total, the pricing is pretty low already. And I can also take your third question about the fund margin, and if I understood it correctly, if we see what the floor is for when it comes to the expenses for a fund, you mentioned 15 basis points, I think.
And I think that you will—I don't think that you're gonna see that much more cheaper funds in the future, but perhaps, and I also hope that you're gonna see more ETF business in Sweden. I think that the trend that more and more customers are buying index funds, I think that's a strong trend, and I think it's gonna continue. But so you will see some more shift from active to passive, I think. But I think we're pretty close to how we're gonna see it in the future, but because the active funds definitely have their room as well in the market.
I think it's also very dependent on the market sentiment and what's gonna happen going forward.
Mm.
I mean, we did see the downturn in the margin leveling off during the quarter, so it was the same at the end of the quarter as on average in the quarter. But what's gonna happen this quarter, we'll see. And your... The second question, we didn't really catch that. We the same-
Yeah, no, I just wanted to... I was just asking on the cost of deposits or the deposit remuneration. I was looking at the number you reported, and I think you went from SEK 280 million in Q3 to SEK 287 million in Q4, in terms of how much you paid to customers for their deposits. However, which is, it's quite a small increase, but the savings accounts increased by quite a lot more because savings accounts went from SEK 22.5 billion to nearly SEK 27 billion, so it's about 20% increase. So in a way, I was expecting almost a larger increase in deposit remuneration. So I was just wondering if you can give any color on the dynamics there.
And one thing I was thinking maybe is if a lot of the liquidity moved from current to savings accounts came from Private Banking clients, maybe, that are already paid quite a lot, that would explain. But I don't know, maybe there is some other elements I should keep in mind.
I would say that looking at the three different segments, the Pro, the Private Banking, and the Standard segment, they are around 7%-10% liquidity share as a percentage of the total AUM. And looking at, for example, the endowment insurance and the ISK, it's quite low on those account types, and we have seen the liquidity part going down a little bit during the quarter. And as you said, the growth on the savings account has slowed down a little bit, and we see that customers keep on net buying shares and funds.
Okay. Thank you.
Thank you. There are no further questions. I would now like to hand the conference over to Gunnar Olsson for any closing remarks.
All right. I would like to thank everyone who has participated in this conference. I think we have had some great questions, and also inspiring questions in some sense. And, I guess we see each other in a quarter, if not earlier. So thank you very much for this conference.
That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.