Good morning, everyone, and welcome to the third quarter results call for Komplett Bank. My name is Oyvind Oanes. I'm the CEO of the bank, and with me on this call is Eirik Holtedahl, the bank's CFO. As usual, we'll be going through a presentation before opening up for questions. If you want to send us a question, you can also do so by sending it to ir@komplettbank.no. Turning now to page two of the presentation, starting with a short review of the key highlights of the quarter. I'm happy to report that we have had a strong quarter, confirming that we have restarted the growth engine with record sales volume across the three markets and a loan book growth of 14% in the quarter.
We're also starting to see that we're able to take out cost of the operation with a reduction of 9% quarter-over-quarter. There'll be more to come as we move forward. As market rates increase and given the significant growth, we have had to adjust our deposit rates, putting some pressure on the margins. We have already taken multiple actions to also reprice the back book, albeit with some lag due to regulatory requirements around notifying the customers. The strong growth has also forced us to significantly increase the required loan loss provisions in the quarter. This is just how IFRS 9 works, which again has technically impacted the bottom line results for the quarter versus Q2. As we look forward, we expect growth to continue, and we will be also having strong focus on executing on the significant cost potential that we have identified.
All in all, we are happy and feel comfortable coming out of the quarter that we're on track to deliver on our 2024 ambitions. Turning now to page 4 of the presentation, we wanted to give you an update on how we are progressing across the strategic initiatives we laid out at the beginning of the year. As I already mentioned, we delivered record sales performance in the quarter. This is a result of all the work that has been done to improve throughput of the sales funnel. Combined with better scorecards and test and learn capabilities, we're now seeing conversion up by 2-3 times versus what we saw back in January. In Q3, we delivered the bank's first outsourcing project, and we're now fully operational with front office being handled through a third party.
Combined with several other smaller initiatives, this will deliver an annualized cost saving of NOK 20-25 million from Q1 next year. On technology, we have made big steps forward on the roadmap to streamline and simplify the structure. We're now executing on a plan that will see us reduce the number of systems and dependencies by more than 40% and thereby reduce the annual cost run rate of IT by NOK 30-35 million once the initiatives have been delivered. In sum, we're progressing on plan to deliver the defined strategic initiatives. Turning now to the next page 5. Before handing it over to Eirik to review the financials for the quarter in a bit more detail, let me just take a minute to recap on the repositioning strategy we laid out at the beginning of the year.
We have a solid base to start from with a sizable loan book of NOK 8 billion now, a clean balance sheet and a strong capital position. Additionally, the bank has developed strong credit risk and analytics capabilities, and we are seeing that the throughput initiatives are yielding results with strong growth while focusing on balancing the risk-return equation. We're now executing on both process automation and tech simplification and are seeing that our cost base is coming down. More work to do here, obviously, but we are on track. Hence, our midterm goals remain in line with what we communicated in our previous quarterly reports to grow the loan book by 50%, reduce cost-to-income to below 35%, and deliver a return on target equity of 12%-15% in the long run. Now over to Eirik.
Thanks, Oyvind. As you have heard earlier in this presentation, we're quite excited to report that we're now seeing a strong growth, and a record-setting growth that is, with the loan balance increase of close to 14% or NOK 1 billion over the previous quarters. Hence, in terms of net loans, we're now at the level where we were at before completing the large one-off NPL sale at the end of last year. What is encouraging to see is that this growth is actually taking place in all three of our markets with roughly the same amounts in each. We are attributing this growth to both a benign market development, but actually, most importantly, to enhance sales processes that improve conversion, as you can see described on this slide.
Not the least, a larger sales effort and a considerable investment in upfront loan losses from our side. Now on to slide eight. Jumping over to the yield picture, we're happy to report that overall, we still maintain the yield on all our main products, as well as the credit cards and POS. The competition does remain strong, and as a result, we see that there is a downwards pressure on the yield on our new sales. However, we do nevertheless manage to sustain the average yield on all our loans in all markets, as can be seen on the graphs on the picture. The credit card rates have actually increased, which is attributable to higher revolving rates after summer spending.
That being said, the average rate on our client deposits has increased during the quarter as we have increased rates on our deposits product in line with market development. This trend is continuing into Q4 and probably will do so into next year as well. This will squeeze our interest margin somewhat, but we will also lift the rates on our loans to alleviate this narrowing gap. That being said, there will expectedly be a certain timeline before recovering this gap, which is due to both market and legal conditions. Our interest income did increase with NOK 12.5 million compared to Q2, which is driven by the larger loan balance. It should, however, be noted that most of the loan balance growth took place in September and thus was interest bearing for only a short period in Q3.
This was at the same time offset by higher interest expenses due to the deposit rate increases. Also, Q2 was marked by a high one-offs, mainly relating to insurance cost repayments. As a consequence, the total income in the quarter decreased compared to the previous quarter. We would like to stress that the underlying development for the reasons mentioned above is going in the right direction. Now going to slide 9. Starting in late 2021 and continuing throughout 2022, we have been working on reducing our cost base. We're therefore happy to now see that these measures are bearing fruit, as evidenced by the numbers on the graphs on this slide, as our cost base is decreasing to NOK 94 million. Compared to Q2, the overall reduction is close to NOK 10 million.
This is driven by lower expenses, but there is also a certain amount of CapEx that is capitalized, reflecting investments in the new operational platform that we're developing. We should see further development in Q1 2023, when the additional effects of the restructuring will materialize. Overall, this decrease is foreseen to amount to somewhere between NOK 20 million-NOK 25 million from its peak in early 2022. We have identified initiatives on the IT side that should imply further annualized savings in the range of NOK 30 million-NOK 35 million at the end of 2024. We're working on other measures that should bring our cost base down in the near to mid-term. The cost-to-income ratio is also decreasing, but is somewhat adversely affected due to the lags in total income, as mentioned on the previous slide.
However, the expected future growth in total income and the lowering of the cost base will improve this ratio going forward. Now on to slide 10. The last quarter has, as previously shown, exhibited a record high growth of NOK 1 billion or 14% of our loan balance. The accounting standard, IFRS 9, is, however, requiring us to record 1 year's expected credit losses at loan origination. In layman's terms, this means that we have to set aside 1 year of loan losses when we issue a new loan, even though the loans obviously are in good standing. This is not a new requirement, but given the growth that we're now experiencing, it obviously comes at a cost which we need to take upfront.
I would here also like to stress that these are expected losses for future defaults that we have not seen yet. Consequently, the additional net increase for new loans, which so far are classified as so-called Stage 1 loans, i.e., loans in good standing, was NOK 31 million for the quarter and reflects the said loan loss provisions for our growth. This amount is by and large the same as the increase in loan losses compared to Q2. Hence, our loan loss ratio has increased in the quarter as a consequence of our growth and not a worsening of our portfolio. This will continue when we grow our loan balance at a high pace, and also when some of the new loans migrate to Stage 2 and eventually Stage 3, in other words, delinquency.
We would nevertheless like to emphasize that our portfolio quality remains stable with ample coverage across all stages. Now on to slide 11. As explained on our previous slides, we had a slight reduction in total income, a healthy reduction in costs, but a clear increase in total loan loss provisions as we're investing in further growth. Consequently, we see that the earnings after tax landed at NOK 80 million for the quarter. We would like here to reiterate that the key contributing factor to this is a recording of the 12-month expected credit losses. Over time, we expect that this will improve as we lift our loan balance towards our 50% growth goal. We shift the yield upwards, the OpEx is coming down, and the loan losses start to level out.
In other words, we consider this growth to be an investment to achieve the desired scale with ensuing returns for our business. On to slide 12. As our loan balance growth has surpassed the capital generating rate, our capital ratio has, as a consequence, decreased. Nevertheless, we remain comfortably above the minimum requirements, both internal and external ones, and still have ample room to invest in further growth, and we will continue to use this room going forward. Please note that the CET1 requirement has increased this quarter as a consequence of an increase in the countercyclical buffer in Q3 in Sweden. This increase will be offset by lower systemic risk buffer in Q4, bringing down the CET1 requirement down again to below 17% by year-end. With these words, I leave the floor to Oyvind.
Okay. Let me try to summarize the key takeaways from the presentation today before moving to Q&As. As we laid out our repositioning strategy at the beginning of the year, we addressed two main drivers that we had to focus on turning around, growth and cost. Three quarters into the execution of the three-year plan, we are seeing that both KPIs are now definitely moving in the right direction, with significant growth of 14% in the quarter and cost coming down, as this graph clearly illustrates. Additionally, we have significantly reduced the risk on the balance sheet over the period. In sum, we're on track with building scale and efficiency and deliver on our midterm ambitions. Now, thanks for listening, and we will now open up for questions. Please use the chat function, raise your hand, or send us an email.
If you prefer to ask your question in Norwegian, that's also obviously perfectly okay. I will leave this page on. I think that is the page that kind of says it all and sums it up well for the third quarter. Any questions? Please raise your hand, write us an email. I think we have some emails, so write your question directly in the chat.
Yeah. That's right. We received these emails from you. The first question is how is the credit quality in Q3 new sales compared to what you saw in new sales in first half?
Actually, we have seen a steady improvement over quite some time. I mean, all the way back from Q3 2022. This trend has continued in 2022 and also now into third quarter. Effectively, we are seeing that the credit quality as such has increased. As mentioned earlier, with the high growth we're having, we still have a larger loan loss amount.
We have another one. What are the most important risks to your 2024 ambition?
Good question. Now, obviously, as you see on this page, our ambitions remain the same as we communicated in the last quarters as well, to grow the loan balance by more than 50% from that starting point, to bring down cost-to-income ratio below 35%, and eventually improve the profitability of the bank with an ROE or a return on tangible equity that is 12%-15%. I think as we have demonstrated, actually also a bit in the last quarter, but definitely now in third quarter, where we're on track to deliver on the cost targets, 14% growth in the quarter in Q3.
Also, as you can see also from the slide here, we're starting to also move the cost base in the right direction. Now ultimately, the ROE target is obviously an output of us focusing on delivering the strategic initiatives, which we are on track on doing.
I think the potential risk in some of these targets are external risks, as risks that we can't fully control ourselves, whether that is, you know, market growth, market, you know, the macro environment that we operate in, or obviously, what happened in the interest rate environment, whether we will see continued pressure on margins or, as we believe, we will be able to actually pass on some of that interest rate to customers and actually see yields and margins improve over time.
Again, if I summarize what is the largest risk now, sort of this early still in the transformation plan, I would say it's potentially timing, sort of how quickly are we able to execute, have comfort in that, based on Q3, and the sort of external environments that we can't fully control ourselves.
We get the final question, we have received on email. Have you got any early signals on how demand will be impacted by increasing loan interest rates?
Well, that's pretty much what everybody is reading now throughout most of 2022 is that interest rates are going upward, and that is also applying to our clients. From our side, we saw first that we had to increase our deposit rates in order to remain relevant for a product offering and maintain the funding base. As a bank, we need to maintain margins. We have introduced interest rate increase for our loan product, and this will probably have to follow the expected increase in deposit products. We have not seen any real reaction to this increase. I think that this has been expected from our clients because they have followed the news, they're aware that interest rates are going up and also realize that this will apply to their loans.
So far there is no real impact from those increases in terms of client reactions.
Any further questions, email, chat? Anyone wanna raise their hand? Okay, if there are no further questions, I think I saw some question in the chat. Yep.
We got one more question. What's your plan with POS?
Mm-hmm.
How many employees work with this product? Is this product profitable when you have Komplett, a distribution platform?
Yeah, that's fair. A good question, so thanks for that. You know, we're working very closely with Komplett Group as a strategic partner and have discussions with them on product development and how we continue to improve our offering jointly with Komplett. The current product that we work on, we actually work on several products with Komplett, but that POS product is still a product that is attractive for the customers. Margins, I must admit, margins on that product has come down over the years. Other products are definitely also coming up as alternatives for customers in the checkout.
That's something that we're constantly evaluating how to improve the product and how to potentially reposition other products over time in the checkout. Komplett Group remains a good partner, and we have a strong relationship and continue discussions on how to improve our working relationships with them going forward.
We have another one in the chat.
Mm-hmm.
When do you expect to pay out dividends?
Mm-hmm.
When do you expect ROE to come over 10%?
Our dividend policy to say it is that we will pay out excess capital that we have, which is not needed for growth. Right now, we are seeing good growth. We also have excess capital, so this will be a decision that is coming up for next year when we decide on how to allocate the 2022 profits. The ROE to come up over 10%, we have a target in that by the end of 2024, we should deliver an ROE, which is in the range of 12%-15%. That means that we are, as Oyvind said earlier, going for this target. We are on a good way, and that means that the ROE should by then also exceed 10%.
I'll give people a little more time, if anyone else has a question in the chat or wanna raise their hand. Nothing more coming through. In that case, I guess we would just like, again, to thank you for calling in this morning. I hope this was helpful. Obviously, should you want to talk to us, ask us some questions offline, you're obviously welcome to do so. If not, we'll see you at the next report, at the next call, for Q4, in February next year. Thank you very much, and have a good day.