Avanza Bank Holding AB (publ) (AZA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Avanza Bank Full Year Report 2022 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Rikard Josefson. Please go ahead.

Okay. Thank you very much. Good morning, everybody. Thank you for listening in. I'm going to start with a business update around the quarter, and then Anna will take the financials. Looking at 2022 as a full year, of course, it was a very difficult year given the macro circumstances that we encountered during the year. So the net inflows amounted to SEK 24 billion. In the fourth quarter, we had some one-offs from a negative perspective. We sold the pension portfolio, which we are not actively in. And also, we saw that some larger clients took cash and deposited at other places where they get more interest. Speaking to those clients, we are quite comfortable that they will put big money back on the platform where they will see that is time to invest again in equities or in mutual funds. We also saw that the monthly savings is still at a good level of SEK 1.5 billion. It's slightly down from SEK 1.6 billion, but at the same time, I'm surprised that it's holding up so good given that people have to allocate their money to other things and savings at the moment, given the energy prices, the high inflation, the mortgage rates going up and so forth. The good news, of course, is that the churn is stable around 1.5%. We have not seen an increase in that, which is, of course, good for us that our customers are happy and staying on the platform. Looking at this picture, it's also interesting to note that we have been talking the last couple of years that the growth that we had in the company in 2020-2021 when we doubled the size for Avanza, has also made us perform at a better level in tough times. And I would say that 2022 was a test of this where we had the worst market for decades. We had the stock market down over 20%. And if you compare that with 2019 where the stock market was up 35%, we were still performing on a much, much higher level when it comes to turnover brokerage-generating securities, as you can see from the slide, if you compare '22 to '19. So this is, for me, a sure thing that we are performing much, much better in a tougher environment. And of course, we are helped by a stronger NII during the year. This picture is -- we always look at it and it's about that we have around 17.6% market share of transactions and 8.3% when it comes to turnover. During the fourth quarter, the institutional sales, which we are not active in was a slightly bigger part of the market, which made us go down a little bit, but we are comfortable keeping the #1 position. During the quarter, we had some launches. The most important 1 is, of course, that we got awarded for the most satisfied client for 13 years in a row, which was, of course, very comforting given that the customers had a very difficult year. We also launched The Pension Chase, which was named transfer service of the year. So we also -- during the quarter, launched our Placera forum, which is forum where people can discuss the different equities, which was very popular, and we closed it in December of 2021, and it took a little bit too long before we could reopen it because we did a total rebuild of the forum. So I was a bit nervous when we were launching it that the customer had forgotten about it. But now we have over 19,000 registered customers are discussing equities on the forum, and it's truly come back in a much, much stronger way than I thought it would do and in a much quicker way, which is, of course, very much appreciated by our clients. Given the results, we reached the target when it comes to return on equity, where we have our goal to have 35%. We are at 36%. Given the dividends we are proposing, we are a bit over 70%, which is part of the target. 1 of the targets we have is, of course, 10% market share at the end of 2025. This will be a challenging target for us to reach if we don't get some positive years given the savings market and the stock market. So we need some tailwind from the macro environment to reach that goal. But I'm optimistic that the next couple of years will not be as bad as 2022. A focus area for Avanza, of course, to get more women and female customers to save more. And this is a problem in society that we had not a fair allocation when it comes to sales capital between men and women. And on all platform, 25% of the AUM is held by women, 75% by men. At the same time, 13% of our clients are female and 42% are men, but a slightly good news is that looking at over 116,000 new clients during the year 2022, 42% of those clients are women. And this is an area where we, from an ESG perspective or to be very active to create a more fair society when it comes to saving between women and men. Of course, we're going to have challenging times in 2023. I'm not that optimistic on the first half of 2023. I think we need to get the interest rates stabilized, and we need to get inflation down. We need to get the confidence back in the households for savings. And you have to be very humble that a lot of people have not the ability to save as much as they did before. And if you look at this chart, you can see the long-term trend for the sales goal is still in a positive development. And looking at society when you have more responsibility to the households than the state, people need to save more going forward. So I'm sure the savings goal will come back when times turn around and we will be a little bit better. Also, it's important to note that given the -- looking at 2023, we have more clients now than a year ago on the equities, and we have more clients now invested in mutual funds. So the underlying interest for saving is, of course, still there. And given the 2022 performance in the market and the cost inflation that has affected the household quite a bit, it's also time to reflect that now you really have seen that if you have saved money during the good years, you have the buffer that you can sustain the bad years that we had last year and maybe will have this year. So the [indiscernible] quarter of savings is very evident in 2022, that the people have not spent all their money in the good years and saved some to endure the bad times ahead of us in a much better way. I'm a bit more optimistic on the second half of 2023 from a personal perspective. Our focus for 2023 is, of course, still growing the company. We did grow in 2022, not at the pace we've seen during the pandemic, but still, we have growth. We have also a strong employee engagement with the eNPS engagement. The score is 58, which is above our goal of 50%. We have also been -- this year, we are not increasing number of staff, and I believe that's a very good thing for 2 reasons: 1 is, of course, the cost aspect of it, but also that we have increased number of people Avanza during the pandemic and we need to consolidate more on our efficiency, but I'm also confident that we have enough resources for innovation and doing great things for our clients. We will also modernize and update our tech stack like we do every day, 75% of all our IT systems are cloud-ready. We run our data platform in Google Cloud, and we will move more to the cloud as it makes sense from both cost issues and maintenance issues and so forth. So we are quite optimistic on the long-term perspective. Also, just to note on the impact they have on social media. We have 85,000 followers on Instagram, 60,000 on Twitter and a savings economist [indiscernible] has actually over 80,000 followers on Twitter which is by far the #1 person on Twitter I am jealous because I only have 5,500 followers. So I have to do a better job during the year to catch up with him. And also the back office transformation that we did in 2022, it's finalized with good results. And we also can see that for the next couple of few years of the foreseeable future, we don't have any large infrastructure IT projects or more just improving every day like we always do. Given that, I would like to turn to turn over to Anna, our CFO, to give you some -- guide us through the financials.

Okay. Thank you, Rikard, and good morning, everyone. Market conditions were very much in line with Q3, volatility was still on a high level and stock market was up 11% during the quarter. However, we saw index on an all-time low for 2022 in October. Despite the market conditions, we reported second strongest results ever, both on a quarterly basis and on annual basis. Operating income increased compared to last quarter, explained by the increased NII. Operating expenses also increased, although we came in lower than expected for the full year due to lower personnel and IT costs in Q4 than anticipated, and of course, also due to monitoring our cost carefully. Previously, given cost guidance was SEK 1,050 million to SEK 1,070 million, and we came in at SEK 1,031 million, which is 1.8% lower than the lower part of this range. Net profit for the quarter was 14% higher than in Q3, up 19% lower than worst year in 2021. The operating margins for the full year was continually strong at 65% and return on equity ended up at 36%, with building our target of at least 35%. Altogether, this gives us an earnings per share of SEK 10.69 for the full year. Market conditions continue to expect customer activity and the all-time low index mark in the quarter affected average fund volumes and the fund commissions. This was, however, well compensated by the strong NII. Brokerage was burdened by lower activity, [indiscernible] trading base and private banking and pro customers who pay lower fees standing for a larger share of the turnover in the quarter. Lower customer activity also affected currency-related income where we see the turnover in foreign securities only stood for 11% of the brokerage generating increase in the quarter to be compared with 15% in Q3. And the fifth average fund capital was lower in Q4, and this combined with the lower income per fund krona could pressure on the fund commission. Net inflow to funds on the platform was just over SEK 1 billion, given our market share of 7% of the net inflows to the fund. We still see customers holding a higher share of index funds than before. The policy rate hike of 100 bps in the end of September had, of course, positive effect on NII, increasing 66% compared to Q3. This mainly showed in the surplus liquidity portfolio and also in the lending portfolio, mainly within mortgage lending as mortgage-lending volumes decreased. Other income was more or less unchanged. Income from Avanza Markets, the largest income line within other income, decreased slightly due to somewhat lower customer activity, whereas income from stock lending continued to increase. The stock lending limit was raised to SEK 10 million in Q3, and the number of stocks included in the program was also expanded, which led to the income from stock lending reaching SEK 21 million this quarter versus SEK 12 million in Q3. This increase also benefited our customers who get the refund connected to the stock lending. Looking at full year, operating income decreased by 10%, mainly due to lower customer activity. Nevertheless, activity in this negative market environment was still almost twice as high as before the pandemic, with the positive market sentiment we had at that time. The lower activity in 2022 was, however, to a large extent, compensated by almost 1.5x higher NII due to higher market rate, increasing the NII from surplus liquidity and lending. This shows our resilience even though market conditions have been bad. The main contributor to the NII was surplus liquidity where Avanza funds its customer deposits. And where we -- until the end of September, haven't paid any interest to customers. As for [indiscernible] October, we have paid to 0.9% on savings accounts, and this was raised to 1.5% in November. And however, only a very small part of deposits is within these accounts. But as previously communicated, we started to pay interest also in other accounts on the 1 of January this year. These rates are between 25 and 194 bps depending on customer segment. We also decided to raise the margin lending with an average 35 bps at the latest rate hike of 75 bps. And traditionally, we postpone the hike for the internally financed mortgage to the 1 of February. The last interest rate hike of 75 bps will have a much smaller effect on the NII than previously posted rate hike and the sensitivity going forward will be much harder to predict. The higher the policy rate gets, the harder it will be to forecast customer and competitor behavior and future changes will be a management decision on each occasion. In the report, we have given the sensitivity in a worse and best case scenario based on the volumes and interest rates given at year-end. But as said, exactly how we will -- is hard to see, most likely, we will continue to share the next hike with the customers, but we will get back with that. Lower fund commissions were a result of lower fund capital and lower income per SEK of fund capital which decreased from 35 to 30 basis points. Other income increased mainly due to higher income from stock lending, which will be introduced in Q3 2020 as well as higher income from Avanza Markets due to higher compensation and higher customer activity. Also, other commission costs decreased as a result of lower customer activity Operating expenses increased by 15%. And as you all know, personnel costs are seasonally low in the third quarter. Also other expenses were higher due to higher costs for external services and IT. And as already mentioned, full year cost came in lower than anticipated. And for the full year 2023, we have set the cost cap. Our philosophy is still the same. We believe in investing in our customer offering in both good times and bad times as we are convinced that companies that have [indiscernible] still invest in bad times, will come out stronger when the market turns. Therefore, we are not proposing a cost-cutting program. But as always, we need to monitor our costs wisely and make sure we use all our resources in a good and cost-efficient way. And not that is in light of the last year's strong growth, we are consolidating our operations. This also means we will not increase the number of employees in 2023, which we already communicated in Q3, and we will stick to our people plan for 2022. The cost ceiling for 2023 is total cost at SEK 1,160 million. The cost increase includes salary increases of 4% from January and the full year effect of employees who started working in 2022 as well as ongoing recruitment according to our plan who has not yet started here. IT expenses are also expected to increase partly due to higher licensing costs. The full year effect of the amortization of the new back office system, which was taken into operation in mid-April is also contributing to higher costs. In addition to this, the weak Swedish krona and inflation also accounts for part of the increase. But high cost efficiency is a high priority for us and important to be able to give our customers a competitive offering. Due to declining stock markets, payments capital has decreased by 18% or almost SEK 146 billion compared to the year-end 2021. This has, of course affected the cost of saving capital ratio, which was 15% for 2022. Our target is a cost to savings capital ratio of maximum 12 bps and this target should be seen over time. And as Rikard has said, we will need a couple of strong years until 2025 to reach the target. Income to savings capital ratio was 42 bps for 2022, down from 47 bps last year. Our capitalization is strong with the leverage ratio increased to 5.5%, mainly due to lower deposit volumes. I would say we are overcapitalized given our low-risk business model. However, given the sensitivity to increase deposit volumes and the challenging market environment, the Board will propose a dividend of SEK 7.50 per share to the AGM, which gives the dividend of 70%, which is in line with our policy. And as you can see in the illustration to the right, deposit can increase by around SEK 25 billion without falling short to the 3.9% requirement and without taking any other measures into account. We have not communicated a specific management buffer, but we are very confident with the margins we have and also had in Q3. And at the moment, we see no need to issue additional Tier 1 capital. To conclude and as stated before, Avanza is very well positioned for the future. Our low-risk balance sheet plays off well in this macro environment and we have seen no actual credit losses or weakening repayment capacity among our customers, neither in margin lending or in mortgages. The strong result together with the low risk profile gives us an ROE at 36%. Our cost cautiousness and our ability to present these results seeing very challenging markets, show the resilience in our business model. And that was all for me. And now we can open up for questions?

Absolutely.

[Operator Instructions] Now we're going to take our first question and the question comes from the line of Nicolas McBeath from DNB.

So first, a question on growth. Avanza has, for many years, insisted that investing in further growth within Sweden generates better returns than outside and also that you still see ample growth opportunities within the Swedish savings market. So I was wondering, given the slowdown in your growth trends, in particular, in the second half of 2022, are you still as confident in the Swedish growth outlook or is international expansion starting to look more interesting to you?

I would say that I'm still very confident that we have a great growth potential within Sweden since we have a 6.3% market share, and we think we have a great offering. But of course, that has been affected, especially in the second half of '22 given the market conditions. And as I said previously, we are opportunistic recounting to international expansion. And my personal opinion is that, that will be probably acquisition more than greenfield. And if that will happen, who knows, but we are open for that to take in that room, but it's not one we're actively working on. So they put it like this Nicolas, if opportunity came across, we will seriously look into it to acquire something that could be outside Sweden, but it's not part of our core strategy.

Okay. That's clear. Then a question on the NII. Given the planned and announced changes to your deposit and lending rates, on your current balance sheet. Should we still expect positive NII growth in Q1 versus Q4 or will the raised deposit rates reverse some of the NII tailwinds you enjoyed in Q4?

I mean with the delay in the mortgage lending portfolio, yes and the bond portfolio, I would say that there will still be some effects that -- and also -- positive. And also the margin lending, which was raised almost in mid -- 7 December.

Okay. So to be clear, so you expect the positive effects from the increased lending rates and the liquidity portfolio to more than offset the headwinds you get from the higher deposit rates?

Yes, I would say that, that is going to happen because if you look at the deposit rates that we have paid, we are not paying 190 to all customers different segments. So that means that the overall, if you put it all together will be slightly positive during Q1.

Okay. And then a question on costs for 2023. So you mentioned now below SEK 1.16 billion. So if you could comment how large is the range? What is the kind of the lower level, you can see where costs could end up? And what are the key drivers that you think determines where you will end up in that range on cost for 2023?

When we last communicated that we have a cost ceiling, and I think it's too early days to have -- to predict where we will end up or where the range is. So we might do that going forward for the next quarter or so. But of course, we have some margin in our cost base for unexpected item. But I would say we run a tight ship. So we are basically saying that we will end up of course at maximum SEK 1,160 billion. And I think that's the guidance that we can give and then given what happens during the year. This is a lot affected also by the turnover in staff where we get new people in and so forth and so forth. So I cannot give you a better answer to that right now.

Okay. That's fair. And then my final question, please. So on other income, stock lending revenues grew quite nicely in the quarter as you expanded the offering in Q3. So could you comment on what kind of potential do you see for continued growth in stock lending revenues? Should we expect continued program expansion over the next, let's say, 18 months? Where do you think those volumes or revenues could be?

At the moment, I think 1 thing that we did from 1 of January is that we've also included this year stock lending from occupational pension accounts and around 30% of the volumes in occupational pension are equities 70%. So there will be a positive effect on that. And then, of course, going -- looking ahead, we could also -- which we have not taken a decision on, but there is an opportunity for us to then foreign equities, which we don't do today, and we will communicate if we do that and when we do that later on. But then of course, it's very market related how much people want to go short on stock, so to speak, and that has been during the year, it depends like if you take, for example, in summer, there was a lot of activity in lending, faster stocks and so forth. So it's volatile, but absolutely, it's an opportunity for us going forward. And we could expand the program both in volumes and in lending in foreign equities.

Okay. And just to clarify, how much positive impact or volume expansion did you make on the occupational pension accounts that you mentioned? What kind of impact should we see?

I don't -- it's difficult to say. I think the volumes in occupational pension is about SEK 60 billion.

No, I think it's more about 40 million and about 30% is stocks.

And 30% of that is stock.

Okay. And so should we expect all of those volumes to be included or how much do you see potential for there eventually?

All equities are included, which are healthy in occupational pension accounts. So the 30% of the SEK 40 billion will be --

And they're already being lent out or?

Yes, because we started at the 1 of January.

And the next question comes from the line of Jacob Hesslevik from SEB.

So if we continue on NII, I mean, it was impressively strong in Q4. But Rikard, in your comments, you say that you will share the policy rate above 1.75 with customers. Could you give any clarification what you mean by sharing? Is it 50-50 going forward or are you going to be more generous to customers or what's your view here?

I think on the last interest rate hike, we were generous to our customers and we raised -- they got more than we got, basically. Going forward, I think it's like Anna said, when we get the next interest rate hike, it's a matter of which customer groups where is the demand, how will our competitor act and that's a management decision that it's a bit early to comment on that. And we take those decisions basically well prepared the day we get how much the interest rate hike is. So I don't guide or predict how we will act. We will see that when -- I think it's the 6 of February or whatever it is when we get the next interest rate hike.

All right. But can you give any comment maybe on how your view of the landscape is? Have competition offered deposit rate increased since your last hike?

I think that had increased at the end of the quarter, and it's still our biggest competition on the deposits. I would say that it's -- my prediction would be that competition will be quite tough when it comes to interest rates. But offsetting that, which we don't know is that we have seen tendencies, so more interest in money market funds or cheaper interest rate funds and that could also be a customer behavior that will start moving away from deposit account to get decent returns and don't have to worry about moving money around, that could be the compact of the money market funds during the first half of 2023. That is also something that could happen. And I wouldn't be surprised if you would see that kind of behavior among the client bank also.

Okay. If we move over to cost, I mean, the new ceiling is over 12% growth year-over-year. We do know about your seasonality, but should the cost growth be evenly distributed over the quarters, or should we expect, I don't know, maybe Q1 to have higher cost growth due to you paying any full year fees for this quarter?

I would say that, as you said, it's quite -- it's more or less evenly distributed among the year except from Q3 where we see a little bit lower personnel costs.

Okay. Perfect. If we go into net outflows then, I mean, we saw net outflows during Q4. So my first question is the inflows from automatic savings still around SEK 1.6 billion, as you mentioned in Q3 or have more customers paused their automatic savings?

As I mentioned on the business update, we're down from SEK 1.6 billion to SEK 1.5 billion. A slight decrease, and actually, I'd like to underline the fact that, that decrease is surprisingly low actually, given the challenges that the household has with energy prices and so forth.

But your peer is offering the ability to pause savings for, I don't know, 2 or 3 months for a customer. Is that what they're doing or are they actually canceling the automatic transfers?

I would say most customers paused their automatic savings. And that's --

We have done a lot of development during the year to make it as easy to -- to handle your monthly statement pausing or sweeping just 1 month [indiscernible] economy.

And in that downturn, which I don't have the data on, but I know that I spoke -- people also used to save SEK 3,000 might still save SEK 1,000 or SEK 500. And that's something we encourage because the [indiscernible] monthly savings it's very important to keep it up even in tougher times, even if you lower your amount. So it's both pausing, quitting and lowering the amount that has the effect.

Okay. And 1 last question from me. I mean, in the report, we can see that private banking customers withdrew SEK 8.6 billion in the quarter. Do you know why they are withdrawing? Is it to save elsewhere? Is it going to the big banks again or is it more to pay their bills?

I think in that number is a one-off of about SEK 4 billion, which was somebody -- 1 of our partners moved assets, which was not -- were not very income generating for us. So that doesn't have an effect on the P&L. But I would say that the rest of the money being taken out from the private banking has basically been and we talked to all our clients about this, people wanting to get a bit better interest rates on other places than we can offer. But as I said, when we talk to this client, they basically said, I have a negative sentiment. I will park my money where I get the highest interest rates. But Rikard, you can be sure that when I want to go into the investments, again, we will put the money back on the platform. So we're not seeing that we are losing money that are going to be managed on other places than Avanza is more that people are finding parking spots in other places than us at the moment.

Normally, in Q4, we also see some outflows in -- well, from private banking customers due to tax reasons. So that's also part of the reason.

Yes. So a follow-up on this, then why do you believe your deposits are then less sticky than your peer? I mean they had net inflows during Q4 according to statistics. Is it just due to you having more private banking customers or do you believe it's less competition in other countries to your knowledge?

I would say that we try to -- our customers are more actively, they are more well aware of their personal finances. So they are more looking after their themselves than, I would say, the normal customers that other banks are doing. So in a digital world to move SEK 1 million to get 25 more basis points and then move it back, it's so easily to do it, and we encourage our customers to be active with their funds. So I'm not worried about that.

And the next question comes from the line of Patrik Brattelius from ABG.

Just 2 small questions from me, as we have covered some of the more relevant topics already. But the customer inflow here in Q4 was the lowest that we have seen since 2014. How much do you believe that is connected to increased competition from new entrants and other competitors here in Sweden? And how are you working on increasing customer inflow going into 2023 in this challenging environment?

I would say that my firm belief is that the low inflow new customers during Q4 is more related to market conditions. People are not logging in, not taking care of their investment. They're worrying about mutual -- mortgage rates, energy prices, inflation and all the costs, it's not that savings are in fashion in Q4. I would say that that's absolutely a reason for it. And then, of course, that getting the net inflows of new customers, of course, we do more marketing, we do our [indiscernible] rates, it's about marketing and getting people to talk about savings again and understanding importance of we could get absolutely more flows of new customers in. I wouldn't say as much due to the competitive landscape at this point.

Okay. Because if we compare to 1 of your peers, it seems like they had much higher customer inflow, but you believe that is driven from outside Sweden then. And that those type of market would have the same fundamentals as Sweden, I guess, with increased interest rates and electricity prices coming up as well. But is that just the lower competition in those markets that would help them, you believe?

I don't comment on competition in that way. You have to ask them. We believe that gaining 116,000 clients in the worst year ever when it comes to savings, is not a bad number, but of course, we would like to increase it. And we might firm believe once again is that the market conditions also affected the interest when it comes to moving your savings around opening account at Avanza. So we will see how this year will play out. But I'm a firm believer that when the market conditions are going better, people will start saving more again, and then we will be relevant for a lot of customers at other places. So that's my comment on that.

The last question was regarding issuing AT1. You talked a little bit about that in the presentation here, but you show a very strong capital surplus and a strong leverage ratio. So can you share with us a little bit more in detail your updated view on issue AT1 capital in order -- and then perhaps raise your capital repatriation policy instead, which would boost your profitability?

I mean I think we were planning on issuing AT1 capital during 2022. But as you all know, the market conditions and the spreads were terrible during the year. And since we were not needed to do that, we took the decision not to issue it, AT1. If the spreads will come down, the market condition that absolutely an opportunity that we have, and we will come back to that. But given -- I would say that if the spreads go down, the prices will be attractive, that's absolutely something that we will explore during the year, just for the reasons yourself are mentioning.

And the next question comes from the line of Maths Liljedahl from SEB.

Just 1 follow-up. Since you introduced the interest rate on the accounts, how has the behavior changed this year from clients? Has there even been, I mean, inflow of clients or clients returning their capital, et cetera? Or what has the sort of the wording been among clients?

I would say that we were very -- we got very positive feedback from the clients about the 194. Too early days to say the effects of it. I would predict that 1 effect probably is that some money would stay on the platform that otherwise would have gone to make interest on other places. So from a defensive point of view, I would say that has a positive effect, but it would be too early days to see any trends in that since we introduced it and recommunicated it in December. So I don't have the data on that.

And the next question comes from the line of Ermin Keric from Carnegie.

So maybe starting as a follow-up on the M&A topic we discussed previously. You said that if anything came across, you would look at it seriously, could you give us any color to, if you looked at anything seriously during 2022?

No I would not comment on that. But I can only comment on it that being Avanza, we are a large player in Sweden, of course, investment banks from time to time give me a call. That's only comment I had.

Got it. Then on the fund margin, it was -- came down to 29 bps in Q4. And we've seen during the year, the clients have increased the proportion of savings towards more index or passive funds. Do you expect that to change if the markets recover and we get more stable markets?

Yes, I would say looking from historical figures in bad markets, people tend to go back to index products. And then when the stock market goes up, you always get these -- starts of asset management that are attracting a lot of capital. We saw that especially in 2021 in peak, we heard some asset manager who managed to get a lot of capital in quite expensive funds and they performed well, especially a lot of tech sectors, small-cap funds had a difficult 2022, and that money has gone over to passive. So if we get to a very strong stock market, my firm believe is that you will see people turning back to actively managed funds.

And almost a little bit on the same topic, but we saw the commission rate on the brokerage coming down in Q4, and you mentioned that, that was due to more pro traders and private banking clients. Have you seen anything now when equity markets have started more positive in 2023 that it's more broad-based activity or is it still the same trend in Q4?

Well, there's only been a few weeks in 2023, but of course, the stock market positively development during 2023 has a positive effect on more people are being active. Too early days to say. But what I could say is that we can see normally when we see a high level of trading is quite stable day for day. Now we can see a Monday being very good and a Tuesday being very bad. So it's a volatility in the trading patterns from -- my take on that is that you see still a lot of nervousness, but at the beginning of the year, I would say, positive nervous customers are trading in the market. But of course, the trend during January has been positively when it comes to turnover of the stock exchange and that, of course, has a positive effect on us.

Got it. And then last question was just if we just assume all volumes constant and rates constant from here, how much would you expect to pay in absolute amount for deposits in 2023?

Nothing we comment on.

We don't comment on that. And as I said, it depends on what happens in the world when it happens. So with competitors -- how people will -- I think it's still very -- we have a close interest rate for the first time since 2015 or '14 or whatever it was. And that means that a lot of clients are still trying to figure out whether they can -- the allocation of the capital, I would say that's my personal prediction that you will see, and this is not an Avanza comment, it's a more comment general in the market, I would expect a lot of the customer who has a lot of money will also start amortizing the mortgage loans as being an allocation to interest rates by lowering your monthly payment. So that's also the investment type that has come back into fashion that we have not seen for 7 years or something like that.

And the next question comes from of Alex Medhurst from Barclays.

Alex Medhurst from Barclays. Most of my sort of short-term ones have been answered. So maybe a quick question on sort of a longer-term picture. Clearly, your penetration rates for the Swedish population are quite high and have risen dramatically over the last few years. Are you seeing any difference in the types of cohorts you're attracting in terms of the average savings capital the new customer brings or the activity level a new customer brings over time? And do you have any thoughts on how that might trend going forward?

It's a very good question, but we look into this quite a bit with our analytical team. And the answer is that we still get more young clients and they look the same as they have done for several years. So what they do and what they're looking for and how they act is still the same as has been for several years. So the new clients look like the old sides.

And then maybe just a quick follow-up on that question then. Is there a sort of percentage of the population you can address before the -- in your eyes, before that sort of quality of new customer starts to deteriorate?

I think that we have almost 1.8 million clients, I think we can absolutely attract 3 million clients in Sweden. We don't see a good challenge with -- that we are running out of clients to attract. We think that we could absolutely expand our customer base with quite high numbers for the next couple of years. So I'm very confident in that. And also is something you -- people sometimes miss out a little bit is that we get a lot of young clients. So the people who are 15 now with 5 years down will be 20 and then they will become clients of us. So we have an incremental growth in the population just due to the distribution of the population from each perspective.

And the next question comes from line of Andreas Hakansson from Danske Bank.

Follow-up questions really. Just on back to the NII. Rikard, you mentioned that you start to see the -- I think you said potential effect that people will move from deposits to money market funds. Could you tell us what's the margin on the money market fund? I mean it can't be more than 10 bps or something or is that correct? And is that potential trend included in your guidance for the minus SEK 270 million to plus SEK 580 million. That's the first question.

No, what I say Andreas is that I can see 10 basis of that. And as I said, I think it's -- my personal prediction is that clients will start finding back to money market fund. But we get, as you know, 50% of the management fee. And of course, the money markets fund are priced less. It could be 30 basis points, then we get 15% the money market fund on 20 basis points we get 10 and so forth. So on your note, it's absolutely correct that if a lot of assets will move to money market fund that would have a negative effect of the NII, but I don't think it would be like 50% of the deposit paid will go into money market fund because still a lot of the money people hold on our platform in cash is money waited to be invested. And if you have it in the money market fund, it still takes 2 days to get the money out. So it has to be a more long-term view on saving in cash, so to speak. But it's very interesting to see how the customer will behave since, as I said, this could be the year of the comeback of the money market funds. But it's very hard to predict Andreas.

Yes. And then second question, just on your cost guidance. When you say that you cap it at SEK 1,160 million, what type of revenue assumptions do you do then or what the real impact on that number if revenues would all sort of be much stronger or if they continue to be quite weak?

It will continue to be quite weak. I would not change the cost cap because we still believe, as Anna said, that we want to be able to improve our offering. We want to run the platform to our clients in bad times, we think that will pay off in good times. So -- but then, of course, as I said before recession that would go on for years, that would be a new [indiscernible]. But then absolutely, if something happened in the market that had extremely positive effects and we would see opportunities to capitalize on that, we would come back and say that maybe we want to spend money. And the reason why we want to do it, but I don't believe that 2023 will play out that way. And when it comes to income, we rarely make an income budget because we are very volatile when it comes to income especially from the trading activities since it's affected by the macro environment. So we just try to manage our costs wisely and carefully and then we take care of our clients and then what happens, happens.

And the next question comes from the line of Maria Semikhatova from Citi.

First of all, on NII outlook, I understand that there are a lot of factors to take into consideration. But based on the announced rate changes from 1 of January and the composition of your deposits at the end of the year, what is the blended cost of deposits currently?

We haven't disclosed that. But if you look at the deposit base, most of the deposits are within accounts that we will pay -- that we are paying interest on. But if you look at the distribution of the deposit, I would say the majority sits within the standard segment and quite a small part within the pro segment. So that's what we can say.

Okay. Well, then -- because you are offering 25 basis points for the base customer segment. And I believe Handelsbanken introduced 50 basis points on the [indiscernible] account, which is twice as good. But so do you think that without -- even without the rate increases, you would need to adjust for the majority of your customers, what you're offering based on the current competitive situation?

Not here I would say, because most people -- I mean, they're still not very smart to have cash on an ISK because the tax is 88 basis points. So if you get 25, you're still losing money. So the accounts are not -- they are not intended for cash savings that has a negative effect. And I believe that most client understand that. So I think it's more about savings accounts and keeping cash on longer periods there where you can see the competitive landscape is.

You keep cash on ISK but with the intention to invest.

Yes, you sell an equity, then you have cash for 2 weeks before you buy the next 1 or a few days. So the interest rates on ISK accounts are not that, I would say, differentiating or that high on the agenda for the customers, where it has an impact where we pay 194 is on day traders and pro segment because they usually never hold positions overnight. So they trade during the day and they have cash until the stock market opens the next morning. So there is a valid reason for them to consider it, but not for normal client you're saving on an ISK.

Understood. That's actually quite clear that maybe on the last part of your clients on private banking, and that's what -- where you see the outflows and you're offering 1%. Just kind of trying to understand your thinking behind it. So clearly, there is higher interest rates offered by the other markets. So you don't think you need to pay up, you're just willing to wait for the improved sentiment and these clients coming back to Avanza for you kind of ready to compete for the private banking.

I would say the clients are not coming back because they're still on Avanza, they take not all their money out to put in another platform, they take part of the cash out to get higher interest. And that usually by companies that can offer a lot better interest rates on deposits are usually consumer lending companies that has a different business model than we do, and we don't do any lending that is unsecured. So we cannot charge 8%, 10% and fund it at 3% on the deposit rate. So I'm not that concerned with that. And we have never -- we have 180 on our partner accounts with savings account plus -- and the outflows that we have seen has not been massive in that sense. It's more some private banking clients -- most private banking clients have not withdrawn any cash. They're still on the platform, and they use their savings that come from us and they get 1% of the high scale accounts. And it is same for the private banking clients as a normal client, still 1% is not the reason enough to have a lot or cash in a higher scale account.

Understood. And then just maybe on -- as we discussed fully the competition on deposits, maybe competition on the brokerage given the launch of free trade. I don't know if you see any increased competition on pricing near term or, let's say, more broadly without the entrance of new players, but just the positive interest rate environment. Does it change your thinking about charging brokerage commissions?

We have not seen any effects on new entrants into the market when it comes to brokerage. Of course, we follow all of it carefully. But as I've said for several years, I believe that privacy is extremely important, but the competition today is more about user experience, data, order depth, online trading in 11 markets that you can do in our platform and so forth and so forth. So I would say that price is 1 factor when the customer decides who wants to trade with. And if you look at pricing, generally speaking, our pro clients and our private banking clients, in my opinion, have very competitive pricing from Avanza. So we follow it. We have not seen anything about the new entrants. But the future will tell if we need to adjust our prices, but it's nothing that we're discussing at the moment.

And the next question comes from the line of Enrico Bolzoni from JPMorgan.

So first question leads to one of the recent answers. So are you not concerned that because you're still remunerating rapidly [indiscernible] for the basic type count to 25 bps, you're going to see a substantial decline in the new books. So net new money coming in from existing clients rather than necessarily just losing those on the back book. So this is my first question. My second question relates to a couple of data points from your spreadsheet. So what I noticed that your internal deposits fell about 9% quarter-on-quarter, but they were flat for the external deposit volumes. And also the internal mortgages were basically growing, I think they were flat while they want provided with the 1 with the external provided were up. So I was curious to get some color maybe on why you think your internal products have been growing less. And then the final question is on cost growth. So how should we think about it in terms of growth in the company? So one of your competitors in another geography historically link to cost growth to customer growth, you said it should be roughly similar? Shall we think it the same way? So if you think that customer number -- customer growth will slow down, the cost growth also will go down or is it more associated to the activity of the existing client base just to try to see and read through what do you imply from your cost to growth guidance?

Well, we start with the cost growth, I would say that all our costs are basically fixed. So that's not variable to a number of -- growing number of clients. That would be my answer to that. And I think that our cost growth is, as we said, it's a lot to do about the wage inflation, inflation licensing costs and so forth since we get the number of employees at the same level in '23 as did in '22. When it comes to mortgages, as I said before, I think that we see -- and this is my prediction. We see amortization. We see that the rich clients are making asset allocation and 1 asset allocation you can do is to amortize your mortgage loans we get rid of that cost, so to speak, in your personal finances. And I predict that this could be the first year ever almost that the mortgage market in Sweden will not grow or could actually be a favorable growth or very, very small growth due to the housing markets going down, turnover of people are not moving as much and at the same time, once again, amortization comes in fashion. So that has a local effects when it comes to the mortgages. And on your first question, if I remember correctly, is that the 0.25 is that a competitive thing when it comes to attracting new clients, I would say no, because you don't become a client of Avanza to use us for deposits. You come to Avanza because you have a fantastic offer come to investment opportunities, and that's a driving factor for choosing us. I hope that answered all your questions.

And if I may, just to follow up. I mean, considering that the outflows were driven mainly by the private banking segment in the last quarter. Have you seen actually a decline in new flows from the nonprivate banking customers or actually because the -- shall we expect that because if the current environment is more difficult and rates are higher, actually, we might see a bit more of a decline in flows from standard type of customers?

No I would say that this has to do with the sentiment of the investment. We have seen always that the market conditions are good, we get more inflows from existing clients where the markets are bad, inflows more from new clients. And that means that the private banking clients usually have more assets than they have with us, and they put those assets and cash on the platform where they're going to invest. And we have not had the sentiment, especially in Q4 when people are increasing the portfolios that most people are stable, sitting on their hands, and then they have cash, they want to get the interest on that and they will move it back to the platform. So it's nothing that has a great concern for me because I talk to the clients that have withdrawn money and they basically say, we will put it back in when I want to invest. And who knows when that is, given the market conditions.

And the next question comes from the line of Jacob Kruse from Autonomous.

Just I guess, 2 quick questions. Firstly, when you talk to your clients, when you talk to the standard offer clients, you get 25 basis points and given the big outflows you've seen in deposits, what kind of deposit rates would you -- do you think you would have need to pay to keep them? And do people have a problem with this idea that they're getting a negative rate after tax on liquidity in the account, given the 88 basis points ISK tax? And then just secondly, do you comment at all on your market share in Swedish retail trading on the stock exchange?

I would say that the 25 basis points, we still pay that. I don't think it's a big thing actually because you don't want to give cash on a higher scale. I think the companies or the banks that are offering our interest rates on ISK is actually more a marketing tool or getting away from negative publicity. So it's more something -- at the same time, [indiscernible] to keep the money. I would say then we have to look at the consumer learning company that think pay 225 or something like that. So that will probably be my guess on that.

The other question, could you take that again, Jacob?

Yes. You give your market share of trading on the stock exchange in Sweden. Do you have an idea or some kind of estimate of your market share over retail trading, so excluding all the institutional trading?

No. We don't have that because we don't get that data from NASDAQ, so it's very difficult to predict. But of course, it's much higher than the 17%, especially if you look at some of the smaller stocks, I think we for some popular small stocks, I would say that we have better than high market shares.

Okay. But are we talking 60%-70% in those instances?

I think it's hard to say because we don't get the data from the others. But if you look at us [indiscernible], I think we are at about 50%.

And I think at the MGM, we are all at 50%.

And the last question comes from the line of Nicolas McBeath from DNB.

Can you hear me?

Yes.

Okay. Just a couple of quick follow-up questions. So first, on net inflows. So normally, January is a seasonally good month for net savings. And given the changes you made to your deposit rates, could you please comment if you've seen net inflows so far in January or if the outflow trend has continued?

I think you have too many times that we have published in monthly statistics.

Okay. And then a detailed question on your accrued income booked in your balance sheet. So there's been some talks in the market recently about your accrued income, which I think it's revenues you booked for distributing external volumes to the [indiscernible] and mutual fund partners, but where you haven't received the cash flow yet. So this line in the balance sheet has continued to grow, and it went up also a bit more now in Q4. So could you please just to educate the market and possibly also alleviate any concerns regarding this trend, explain the increase behind the accrued income and the motivation behind why you have this accounting practice as opposed to, I guess, book these revenues when cash is received, which would, I think, maybe considered more conservative? Is it because of IFRS policies that you're not allowed to do this or yes, could you please help us understand this?

Yes. But as I said, it's very much related to distribution fees from external fund companies and from savings account as partners and [indiscernible] market and also related to the pension company in the yield tax there. And as you said, it depends very much on the volumes and how the growth has been in the quarter. And we are not worried about those kind of post but -- and of course, it's very much linked to the accounting policy where we have income from this year or from 2022, of course, we do that in the income statement for that year.

Okay. And why does accrued income in the balance sheet increase more than the volumes on the external deposits and mutual fund volumes?

I don't -- it depends -- it's also around the markets where we get -- which is very much have increased during the year. So that's -- you cannot just look at the fund volumes, for example.

Dear participants, thank you very much for all your questions. I would now like to hand the conference over to Rikard Josefson.

Okay. Thank you for listening in, and it's Friday. So I wish you all a nice week and take care of yourselves and your families. Thank you.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.