Good morning, and welcome to today's Finwire Webcast with Morrow Bank. We'll start with a presentation of the Q3 2024 report, followed by a Q&A. If you're calling in and have any questions, please press star nine to raise your hand and star six to unmute yourself when you get the word. You can also submit written questions using the form located right. With that said, please go ahead with your presentation.
Thank you very much, Martin, and very welcome to everyone to this third quarter results call for Morrow Bank. My name is Øyvind Oanes. I'm the CEO of the bank, and with me, as always, Eirik Holtedahl, the bank's CFO. As you heard, we will start with a short presentation before we then open up for Q&A at the end. Moving on to the actual presentation, we'll skip the disclaimer. Jumping into this page here, you will see that this is a recap and a page you probably recognize from before, but this is more potentially for those of you new to the case. Morrow Bank is a centralized, fully digital Nordic niche bank with focus on consumer lending. We offer a range of consumer loans and credit cards, as well as deposits, savings products to creditworthy individuals across Norway, Sweden, and Finland.
In total, the market for unsecured lending across these three countries is around SEK 600 billion, of which we currently have just over 2.5% market share. Turning now to page four of the presentation, we can report another very strong quarter with pre-tax profits of SEK 95 million. That's up 32% on Q3 last year. We saw solid loan volume growth of more than SEK 1 billion in the quarter. That's up around 6%, driven by strong demand across all the markets. Our gross loan book has now surpassed SEK 17 billion. That's well diversified as well across the three markets on which we operate. The new Norwegian refinancing product that we launched at the end of the summer has contributed strongly to the growth reported for the quarter and is also now giving us good speed into Q4.
Looking at the main KPIs, we are happy to report that we continue to see a highly competitive cost-income ratio of around 25% and a very solid loan loss ratio of 3.9%. Eirik will review these in more detail in a few minutes. Ultimately, as a result of improving performance, we continue to see profitability going in the right direction with reported return on target equity of 13% for the quarter, a solid improvement over both last quarter and last year. Based on the continued strong performance, we are now confident to make positive adjustments to our end 2026 targets, as well as stating our long-term ambitions of achieving returns of around 20% on the back of our highly scalable platform and the upcoming re-domiciliation to Sweden.
Now, looking at the Q3 results in a longer-term perspective, we can see that we have consistently delivered improving results over the three-year period since we laid out the bank's new strategy. Over the period, we have doubled the loan book to SEK 17 billion while significantly optimizing our cost base, reducing cost-income from above 50% to a strong 25% today. At the same time, loan losses are now at a very comfortable level, back down to a level in line with our guiding. Ultimately, returns are improving as a result of profitable growth and cost optimization. As you can see, the return on target equity came in at a decent 13% for the Q3 report. These numbers are obviously strong on their own merit, but as importantly, they also demonstrate the scalability of the banking platform that we have built.
Morrow Bank is definitely positioned to deliver long-term earnings growth. I wanted to also come back quickly to this slide, benchmarking us to our Nordic peers. As you can see, we continue to deliver strong performance on the key drivers that we have had full focus on over the past few years: growth and efficiency. As for profitability, we continue to move up the list with a reported return on equity of 12% in the quarter. Still as a Norwegian bank, though, this would have been around 15% as a Swedish bank with Swedish regulatory requirements. As we become a Swedish bank and obtain a level playing field with our Swedish peers, we believe that we can achieve return levels in line with the best of them. Sorry.
Turning now to the next page, we wanted to give you a quick review of our progress on becoming a Swedish bank. As a recap, it was our fully owned Swedish subsidiary that applied for and obtained a Swedish banking license. In the next phase, we will be merging the current Norwegian Morrow Bank with a Swedish subsidiary in a cross-border merger. The Swedish entity holding the Swedish license will become the surviving entity of the merger, and the Swedish Morrow Bank will then start operating as of 2nd of January next year. In addition to the actual merger, we will also transfer the listing of the bank from Oslo to NASDAQ Stockholm, and we will be listing on the main market. The listing date is now set to the 9th of January.
All current shareholders will receive detailed information about the change of listing venue and what actions will be needed, if any. The letters will go out next week by post to all of you. The information will also be made available on our investor relations website, including an FAQ. Now over to Eirik to review the financials in a bit more detail.
Thank you, Øyvind. Now, going into the financials, as usual, we will start with the loan balance. As you know, the loan balance is the engine for our bank. It is therefore, as Øyvind has pointed out earlier, we are very happy to point out that we had very strong growth this quarter: SEK 1 billion, or 6% loan balance increase over the quarter. It is particularly the Norwegian market that has proven to be strong this time. This started, as we mentioned, in Q2, and this pace has kept up in Q3. We can also say that it continues in Q4. As a result, we had this nice lift on our loan balance, and you can now see the distribution among the three markets. Year on year, the loan balance growth was 10%.
Going forward, you need to take into account that in Q4, as we have announced, we have sold our NPL portfolio of EUR 72 million, so roughly NOK 800 and some million in Q4. That will affect the loan balance, but at the same time, with the good pace we're having, we will also be able to compensate it. Therefore, we say that our long-term 2026 target is around NOK 19 billion. That also includes these sales as we now have undertaken and possibly some more. Going into the yield picture, you can see that our lending rate is virtually flat, going from 13.5% -1 3.4% in the quarter. This is a combination of both loans and weighted average of both loans and credit cards.
At the same time, we also had a similar decrease in our funding rate, and therefore we have been able to maintain our margins stable. Going forward, we are striving to maintain these margins at a stable level. Now, combining the loan balance development and the yield performance, you can see that we will have, again, an increase in the total income quarter on quarter. Next quarter, we will have a full quarter effect of this nice increase in loan balance we had in Q3, meaning that we will have the full interest income of that in Q4. Therefore, we should expect a further lift in the total income going forward. Jumping to the cost picture, you can see that the underlying performance is fairly stable. The dark solid bars represent our underlying cost base for our operations.
Whereas the light turquoise bars is the one-off cost related to the move to Sweden. We do incur some costs to Sweden, and some further costs will come, particularly because we're listing on NASDAQ on the main list, and that entails costs. At the same time, the underlying part is quite stable. Also, you need to take into account that we are growing the bank considerably. As a consequence, the underlying cost-income ratio, which is the line that we're presenting in the middle, was at 24.7%, and we're maintaining our guidance that it will be around 23%. Again, we consider this to be proof that we have a quite scalable business model. Jumping to the loan losses, and this is quite exciting to see this development. We had a nice drop in the loan loss rate.
You can see it went down to 3.9% measured against the gross loan balance. Now we're actually in the lower end of our guiding range of 4%-4.5%. We will maintain this guiding range going forward, but we can see here that we are now in an area where we probably are at the optimum for maximizing our risk-reward. Also, it's nice to see that despite the strong growth we had, our nominal loan losses actually went down in the quarter from SEK 168 million - SEK 164 million. Now, combining all these items, total income, costs, and loan losses, you get the profitability picture. Again, we're happy to see that we're having this stable upwards development in profitability, whether you measure it before or after tax. Also nice is that we're having a return on target equity now at over 13%. This is measured on Norwegian capital requirements.
As we've been talking about before, when we move to Sweden, our capital requirements will be lower, and hence also the return on target equity will be higher. Finally, jumping to the solidity and capital situation, you can see that we have a strong balance sheet. Yes, our capital ratio is decreasing year on year if you compare it to Q3 last year, but that is a result of our growing loan balance and as well as the fact that we've been paying out dividends. At the same time, our capital requirements, even on a Norwegian basis, have been lowered. Now it's at 12.2%, the requirement, and thereby giving us a headroom of up to 5%. Again, moving to Sweden, this will increase, and we expect therefore that once in Sweden, we should have a capital headroom of CT1 of up to SEK 1 billion.
Kronors against the capital requirements. Going forward, we maintain our capital allocation priority. First, we will focus on organic growth. Should any portfolio opportunities or M&A opportunities arise, yes, we'll definitely look into that, and we have the capital to spend on that in case of. Finally, we also foresee that if we haven't employed all our capital, we will be returning capital to our shareholders. With that, I leave the word back to Øyvind.
Thank you, Eirik. Flipping to this page. As announced this morning, we are now in a position to look a little further ahead and communicate our longer-term ambitions for the bank. Whilst we maintain our targets for year-end 2026, as described by Eirik, we have now also laid a solid foundation for the development of our key value drivers the next three years. We believe in continued organic growth of above 10% per year, achieving a loan book of at least SEK 24 billion at the end of this period. This while maintaining our strong credit risk management. Potential inorganic growth may come on top of this. We will keep a strong focus on cost efficiency, bringing cost-income further down towards 22%. Ultimately, we believe we can achieve our ambition of returns of around 20% by year-end 2028.
Let me try and summarize the key takeaways from today's presentation. We have delivered another strong quarter with solid growth and improving returns. Profit before tax came in at SEK 95 million. That's up 32% compared to Q3 of last year. The re-domiciliation to Sweden is now just around the corner, and we will list on NASDAQ Stockholm on the 9th of January. On the back of this, we have made positive adjustments to our 2026 year-end targets, with target for annual growth now over 10%. We've also introduced longer-term ambitions, as laid out on the previous page, targeting return levels in line with our best-performing Swedish peers. And one more thing.
For those of you who are new to the case or want to hear more about our strategy behind the now communicated long-term ambitions, we will issue an updated company presentation and also host a webcast here on Finwire on Tuesday next week. A separate invitation for this event will follow shortly. Thank you for listening, and we should now open up for questions.
Thank you very much for your presentation. Yes, let's open up the Q&A section here. Start with the first one. Q3 2025 compared with Q3 2024, net interest income in Norway is down. Do you have any comments on that?
In Norway, the loan book growth has just started to pick up during Q3. I do not remember exactly what the Q3 loan balance in Norway was there, but we had seen a decline from Q3 2024 until this summer. As a consequence, the loan balance is probably at a lower range. Also, we do not have a full quarter effect. This is a result of the mathematics of the loan balance development. It will increase now that the loan balance is increasing.
Thank you for that answer. We'll take the next question here, and it's a rather long question. Instabank has significant growth in Germany and has issued more credit cards in Germany in the first six months of 2025 than they have issued in total in Norway and in Finland combined since inception. Instabank is guiding for significantly stronger loan book growth going forward compared to Morrow Bank. 41% of TF Bank's loan portfolio is in Germany, where they have reported strong growth in Q3 2025. TF Bank now has 379,000 active credit cards in Germany, up 33% year-to-year as of Q3. The question is, why shouldn't Morrow Bank consider Germany?
Thank you for that long question, and it's a good question. First of all, maybe just congratulate also Instabank and Robert and the team with a very good performance in Q3. The year so far is interesting to follow them and see that they are performing well with their new venture in Germany. Obviously, Germany is the largest market in Europe and will always be something that everyone, I guess, will look at. For us, in the short to midterm, we have full focus now on the organic growth across the markets on which we operate. As I laid out, this is a SEK 600 billion large market. We have just about 2.5% market share of that market. There is ample room and then some to grow further.
We've also obviously had very much focus on now securing a level playing field for our business across the Nordics by moving the bank to Sweden and becoming a Swedish bank and significantly improving our returns. Now, if we look a few years ahead, we do have a credit card platform. It's well performing in Norway and in Finland, whether we'll go into Germany as well at some point remains to be seen. It is an opportunity, but at the moment, we do focus on the levers that we've laid out, and we do focus on moving the bank to Sweden. Again, when we're in Sweden, we are in EU, and that obviously also opens up a few more opportunities if we take a little longer-term perspective.
Thank you for that answer. Could you describe the timing of the growth during the quarter and how much was explained by your new products?
Yeah, I mean, the growth accelerated through the quarter. There is definitely more new volume in September than in August, naturally, and also more volume in August than in July. It did ramp up in the quarter. September was definitely the strongest month in the quarter in terms of volume generation. As Eirik, I guess, alluded to, when we look at volume on his page, the full effect, obviously, of this volume will come into our numbers in the fourth quarter.
Could you give some more color on the pace of the growth in Q4?
Yeah, I guess we've alluded to that already. There is a very good speed in the business at the moment. As we've now moved in, we actually do have the first month behind us of the fourth quarter. It does look very good. We continue to keep up the growth pace. That is looking very strong.
What gives you the confidence to raise your organic loan growth targets about 10% in the current Nordic consumer finance market?
Basically, a couple of things. As you would have seen from today's presentation, we have already delivered a 10% year-on-year growth from last year. We also have, year to date, delivered a 10% growth, and the year is not over yet. We do see that our platform does have the capability to absorb that growth. We do see that the demand in the market is definitely there across the three markets. We do see that our new product is performing very well, this Norwegian product. We are taking market share, which we should. Based on our scalable platform, that is something that we are quite confident that we can keep up and perform as well into the next years.
We are containing also the risk level. We are not going further down out on the risk curve. We are at the same levels as we were before in terms of client acceptance, just to add that.
Very good point.
Thank you both for that answer. Can you elaborate and add some more color on the operational and financial benefits of moving the bank's headquarters to Sweden and listing on NASDAQ Stockholm?
Ultimately, there are a few drivers for us moving to Stockholm, as we've been talking about, I think, on quite a few of the previous calls. One, we do see that in the market every day when we compete for customers or we compete for capital, we are typically up against Swedish peers. For us, the most important thing with this exercise is to secure a level playing field with those competitors or peers, as we like to call them. That's a level playing field as it comes to the regulatory environment. We do see, and we've shown that in the numbers today as well, that that will give us a significant uplift. The second thing is that, unfortunately, I would say, we have seen more and more of those Norwegian niche players, niche banks, actually move out and establish business outside of Norway.
The sort of niche bank sector, if you like, is much larger in Sweden and outside of Norway. There are a lot of benefits of actually being present where this is a much larger sector. I guess also the capital markets in Stockholm, and we will be listing, as we have said, on the main list of NASDAQ, will also be beneficial. In terms of the operational benefits, we will be operating out of two locations. I think we have laid out a good plan for how to do that. We will continue to have a significant operation also in Norway. I think that will balance itself quite nicely out. Ultimately, it is more of a financial project than an operational project.
Thank you for the answer. With one of the lowest cost-income ratios in the industry, where do you see further efficiency gains as you scale towards NOK 24 billion in loans?
I think we are quite close to the industry, to the best levels in the industry now in the low 20%. To go below 20% is actually very hard, at least in the way we operate. I think there, that going forward, you will see that we will have a steady development. The cost-income ratio will decrease, but it will not decrease so rapidly as we're guiding on, meaning that we believe now we are at the efficiency level. We will definitely aim for the low 20%.
The loan loss ratio improved to 3.9%. Do you expect further improvement or is this a normalized level going forward?
This is probably a normalized level going forward. There is probably more downside risk, downside in the sense that it could go lower than it will go up. For the time being, we're maintaining our guiding at 4%-4.5% there in the near-to-medium term.
Thank you. We'll take one final question here. You've set ambitious 2028 targets of 20% return on tangible equity and NOK 24 billion in loans. What are the key milestones and main execution risks on the way there?
The key milestones are, first of all, what is just around the corner is to establish the bank in Sweden and secure a level playing field as it comes to capital requirements. With that, I think we can become more competitive and continue to drive our organic growth going forward. We do also, as we've said a few times before and also demonstrated we can do before, look for inorganic opportunities, and we will definitely pursue those as we go forward. They could add to that target of SEK 24 billion. The SEK 24 billion is an organic target, and we've also both demonstrated and also guided on a 10% growth organically going forward. Just 10% growth every year, three years ahead, and you'll get pretty close to that SEK 24 billion. We do think there are.