Morrow Bank ASA (MOBA) Earnings Call Transcript & Summary

Hello, and welcome to today's webcast with Morrow Bank. We will be presenting the report for the second quarter of 2025. [Operator Instructions] And with that said, I hand over the word to you guys.

Thank you very much, and a warm welcome also from Erik and myself to this results presentation for the second quarter of 2025. And as you heard, my name is Oyvind Oanes. I'm the CEO of the bank. And with me, as always, I have Eirik Holtedahl, the bank's CFO. We will start today with a short presentation as usual, and then we'll take the question-and-answer session at the end of the presentation. So moving on to the actual presentation. A quick recap 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 deposit or savings products to creditworthy individuals across Norway, Sweden and Finland. In total, the market for unsecured lending across these 3 countries is around NOK 600 billion, of which we have currently about 2.5% market share. Turning now to Page 4. We can report another strong quarter with pretax profits of NOK 91 million, that's up 35% on Q2 last year. We saw solid loan growth in the quarter of around 4%, driven by strong performance specifically in Finland. And our gross loan book has now surpassed NOK 16 billion, well diversified across the 3 countries in which we operate. We also launched a new refinancing product in Norway towards the end of the quarter, and that is now giving us good speed as we move into the third quarter of the year. Looking at the main KPIs, we are happy to report that we have achieved an improvement in the net interest margin in the quarter, a very competitive cost/income ratio of around 26% and a solid loan loss ratio of 4.3%. Erik 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 a reported return on target equity for the quarter of 12.2%, a significant improvement both over last quarter and last year. And now based on this continued strong performance, we are now confident to make positive adjustments to our end 2026 targets as well as stating our long-term ambition of achieving return levels above 20% on the back of our highly scalable platform and the upcoming redomiciliation to Sweden. And talking about Sweden, turning to Page 5 of the presentation, the next page here, we wanted to give you just a quick review of our progress on becoming a Swedish bank. And as a recap, it was our fully owned Swedish subsidiary that applied for and now has obtained the Swedish banking license. In the next phase, we will seek to merge 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 this merger and the Swedish Morrow Bank will then start operating. The merger plan has now been approved by both, the bank's general assembly and the Norwegian regulator. In addition to the actual merger, we will also transfer the listing of the bank from the stock exchange in Oslo to Nasdaq Stockholm's main market. We are targeting to complete both processes, merger and relisting in January next year. And all current shareholders will receive detailed information about the change of listing venue in due time, and you will also find more and updated information about the move on our Investor Relations website. Turning now to Page 6. And as already indicated, we are now confident, based on current performance, to make some positive adjustments to our year-end 2026 targets for both loan balance growth and returns as follows: Growing the loan book organically by 5% to 10% per year above -- to above NOK 18 billion. We have previously communicated NOK 17 billion. So we're adding another NOK 1 billion on top of that. And as we have now a clear path to becoming a Swedish bank, we've also increased our return on target equity target to around 17% based on the estimated Swedish capital requirements. Additionally, we confirm our target to drive the cost/income ratio further down towards 23% as well as delivering stable and solid loan loss ratio in the range 4% to 4.5%. As you hear, we are happy with the strong progress of the bank and comfortable with our targets. And before handing over to Erik to review the financial results in more detail, I wanted to come back to this slide, actually one of my favorite slides, benchmarking us to our Nordic peers. As you can see, we continue to outperform 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 reported improved return on equity of above 11% in the quarter. And remind you, this is still as a Norwegian bank. 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. Now over to Erik.

Thank you, Oyvind. We'll now go into the financial review. And as always, we'll start with the development of the loan balance. We're happy to confirm to you that growth is back. As you can see here, we grew the loan book by 4% in the quarter. That's the gross loan book. And most of the loans took place in Finland. Again, this is our largest market, and you can see it from the graph that this is taking a larger and larger relative share of our loan book. But also, we're happy to see that we have introduced some new refinancing product in Norway, and this is showing initial promising results. And this will continue into H3 (sic) [ Q3 ]. And from that perspective, we should also see some more growth in Norway coming in the next quarter or so. And also, we will take these product features and apply them to some degree in as well Sweden and Finland. And as always, when we look forward for our growth in our loan book, we are aiming now to achieve around NOK 18 billion at the end of 2026. It's an approximate target because we also foresee that we will make some NPL sales, and that will also impact our loan book, i.e., it will become lower, but the NOK 18 billion remains now our rough estimate for the end of the year. And as always, we will continue to pursue structural growth opportunities if these are value accretive and of course, if they're available. Now jumping to the total income picture. We can see here that we grew this 15% year-on-year. There was also a small growth in the current -- from Q1 to Q2. And this is driven by the fact that, as we'll come to in the next slide, we have increased our interest margins and also the loan book also is growing. In addition, in this amount here, there's also some other items such as other income, et cetera, and these are a bit fluctuating a bit up and down quarter-to-quarter, influenced by one-offs that has some impact. Now looking at the margins we have here, we can see that, first, we're happy to say that our lending rate has flattened out. It was 13.5% in Q1 and 13.5% in this quarter. But at the same time, we've been able to decrease our funding rate, i.e., the deposit rate. And you can see here the difference between what we receive on our performing loans and what we pay on our deposits and therefore, decreased by -- increased, sorry, from 10.5% to 10.9% in the quarter. And this margin expansion is contributing nicely to our income. Going forward, we expect to have either a stable or a slightly positive net margin outlook. Also, we're happy to see here that our loan loss ratio is at a stabilizing level. This ratio has been decreasing for the 5 consecutive quarters. This is driven by the fact that we have improved and continuously improving our credit risk management, both in terms of which clients we accept and also how we manage delinquent accounts. And this has given results, and we're now stabilizing at around 4.3%. This is in line with our guiding that we said that we expect to have a loan loss ratio in the range of 4% to 4.5%, and we maintain that guidance going forward. Now looking at our cost level, we're also like happy to demonstrate that we're able to have a stable cost base. The dark turquoise bars are our underlying OpEx costs. And then the light green on top are the one-offs related to the move to Sweden. And as you can see, the dark area remains quite flat from quarter-to-quarter. We're also seeing that we had a little bit lower expense for our Sweden cost in the quarter, namely NOK 6 million approximately. And this leaves us in all, including Sweden, that a cost/income ratio of 25.8%. There will be, as we said before, some more costs going forward, but these costs will eventually come out, and we will expect going forward to maintain our efficient cost base. And therefore, we also maintain that we have an expectation at the end of 2026 of a cost-income ratio of around 23%. Finally, combining these items together, you can see that we had a nice jump in our profit before taxes of NOK 8 million from NOK 83 million to NOK 91 million this quarter. That's also a 35% growth year-on-year. The return on target equity is now 12.2%, and this has continuously gone upwards for 7 consecutive quarters. We, therefore, revised upwards our target return on target equity to 2026 for around 17%. And this is driven by the fact that we expect this development to continue going forward. And the main drivers is that we foresee that we will have a continued loan balance growth as well as the other operating metrics will be stable. A word on our solidity. It is strong. We have been growing considerably. That's why you see the fact that we've gone down in overall capital ratio year-on-year from 19.6% to 17.9% on CET1 ratio. But at the same time, also the regulatory requirements has eased also on a Norwegian basis. And you can see here that now our CET1 requirement is 11.9% which gives us a headroom of 6% or roughly NOK 400 million and NOK 700 million. We also use a 2% buffer on top of our target, so do our requirement, so that our target is 2% above that and then the buffer is NOK 470 million. We're also happy to announce that we raised NOK 275 million in AT1 bonds to refinance an old one at NOK 200 million. And with that, we also had a more better pricing where the margin went down from 8% to 6.9%. Going forward as a Swedish bank, as you know, we already have ample capital, and we will get further capital release. And going forward, we'll need to decide how to allocate this -- or prioritize this capital allocation. And first, we will focus on organic growth and grow that as much as we reasonably can deem possible. The second priority will be portfolio acquisitions or M&A, if we can find these, if these opportunities occur and that they are accretive. And finally, what we do not spend on that, we will return to our shareholders. And with this, I'll leave the word back to Oyvind.

Thank you very much, Erik. And as you have seen in this presentation, the bank is on a very good trajectory, both when it comes to organic business performance as well as on the process to become a Swedish bank. We have, therefore, made positive adjustments to our end 2026 target as shown. And taking a little longer view, we believe that we have all the building blocks in place to compete with the best in the sector. We've demonstrated that we have built a highly scalable platform, doubling our loan book size while driving costs down. We have secured a Swedish banking license and we will be able to operate under the same regulatory capital regime as our Swedish peers from next year. The reported 12% return on target equity in Q2 would actually translate to 15.5% as a Swedish bank. Adding continued improvement and growth to the picture should enable us to achieve return levels above 20% in the long run, as illustrated on this page. So to the last slide of this morning's presentation, trying to sum up the key takeaways. We have delivered another strong quarter with solid growth and improving returns, and we are progressing on our plan to redomicile to Sweden early next year. On the back of this, we have made positive adjustments to our end 2026 targets with return on target equity expected to come in around 17%. And we have ample room for more growth and further value creation as we move forward. With that, I would like to thank you for calling in and listening this morning. And I guess we will now open up for questions.

Thank you so much for the presentation. [Operator Instructions] And the first one is, how sustainable is the 35% year-over-year profit growth? And what are the main drivers behind it?

Thank you for the question, and it's a good one. The 35% growth year-on-year, this is a combination of several factors. And one of the most contributing factors is obviously that we've grown our loan balance considerably over this time period. And also the fact that we have improved our loan loss ratio as well as we kept our costs stable and maintained our margins. And the combination of all these items have given, for this last year, the growth that you've seen. Now the exact growth going forward, it's difficult to predict. But as you do see that we expect a higher return on equity going forward, there will obviously be some growth, and that is because the same drivers that I discussed just now, they will also continue to develop positively.

Thank you. Has your view on net margins improved during the quarter?

There's a slight -- we have gotten a confirmation that we're able to actually increase our margins. And from that perspective, we expect that we also should be able to at least maintain it. So yes, we're confident that our margins will remain strong going forward.

Thank you. How do you expect repricing to be given the first rate cut in Norwegian market?

The Norwegian loan book and the funding accordingly is now quite small, as you saw on our loan balance, only 14% of our loan balance. So that will impact us positively because we will have lower funding costs and the rates on the loans will usually don't -- will not usually that be much affected. So we will have a margin increase there. But again, our Norwegian loan book is not that big. So the overall bottom line effect will, therefore, not be as large either.

What are some key downside risks to your target RoTE?

The key downside risk is if we don't achieve the growth we expect, if we get an unforeseen margin squeeze and also if the loan losses should develop negatively, that could, for instance, be driven by an external macroeconomic shock. On the cost side, we're quite confident that we have control, so we should not foresee to see any large impact from that.

What impact will the relocate to Sweden and Nasdaq Stockholm listing have regulatory cost and investor access?

As we've indicated, I believe, in the last few quarters as well and one of the sort of core drivers for redomiciling to Sweden is, one, to achieve level playing field with the Swedish peers. They are mostly now Swedish niche banks competing in our space. And they do have lighter capital requirements than we have today in Norway. So we assume and plan for achieving the same level of capital requirements as the Swedish peers. And as we've shown and demonstrated also in the presentation, that will give us an uplift on our returns and our pricing. Secondly, in terms of capital markets, we also do believe that, that is a strong driver of motivation for moving the bank to Nasdaq Stockholm. There is a larger cluster of niche banks, fintech in Stockholm. That's a fact, and we want to tap into that. And we believe that becoming a Swedish bank, listing on NASDAQ Stockholm helps us tap into the capital markets in Sweden.

Could you give some details on why the Finnish market appears more attractive at the moment?

Yes. Again, something that I think has come up as a question a few times before, and the answer continues to be the same. We do deploy capital to where we see the best return for that capital. And over the last couple of years, that has been Finland, growth in Finland. And that is driven by the fact that we have seen better margins, i.e., the interest rate that we are able to charge to the customers are slightly higher in Finland compared to, for example, Sweden. The funding rate has come down quicker on euro. I mean Finland is a euro country, and we continue to drive euro down and euro has come down faster than the other currencies in the region. And there's been some lighter or lower capital requirements to the loans we issue in Finland. So overall, we've seen that the profitability and the returns in Finland are slightly better than those we've been able to achieve in both Sweden and Norway.

Can the bank maintain its industry-leading cost/income ratio as it scales and enters new markets with new products?

Absolutely. Actually, scaling is actually a key to drive cost/income ratio further down. As Erik has explained as well, we have demonstrated over the past many quarters that we are able to keep cost stable. We're actually taking cost down as we've grown. Taking 3 years back view, we have actually doubled our balance while driving cost down. So as we continue to grow and do that with a stable cost base, our cost/income ratio will actually continue to go down. So definitely, as we've indicated also in the presentation, we are quite confident that, that cost/income ratio will continue down towards the 23% level by end of 2026.

You may have already touched upon this, but with 4% organic quarterly loan book growth and successful refinancing loan in Norway, how sustainable is the growth and what will drive your 5% to 10% annual target?

Well, I mean, the 4% growth in the quarter is an organic growth that we obviously are happy with. If you do an annualized number out of that, that becomes a pretty significant number. But as we've indicated also throughout the presentation today, we have seen, especially towards the end of the quarter, that growth is picking up. There is good demand in the market across the 3 markets. We've launched a new product into the Norwegian market into the refinancing space of the market that is giving very, very positive initial results. And as we go into Q3 and further into the next few quarters, we will ramp that up and definitely believe that, that's going to help us achieve the 5% to 10% organic loan growth that we have indicated or communicated in today's presentation.

Another question in the same subject here. Given the improved loan loss ratio, how does Morrow Bank plan to manage credit risk as it target higher organic loan growth of 5% to 10%?

We expect it to handle it in the same way that we have. The development that we've had is driven through improved credit management, as I mentioned earlier, that is better credit risk analysis, better follow-up on delinquent accounts. Also, we will apply that going forward to our new loans. And also, it's also math comes into the play here. And a couple of effects. First of all, initially, you will bleed out the bad loans in the beginning. But then secondly, our loan book is now quite large, SEK 16 billion and growing. And as we add here, the relative amount of new loans will therefore be quite small. So that will also help us maintain or limit our overall loan loss ratio for the whole book.

Thank you. That was all the questions we have received. So thank you so much for presenting here today and answering all our questions, and thank you all at home watching today.

Thank you very much. I guess if there are no more questions, as always, we would just say that if you do have questions after the call, we're always available. You can contact us through our Investor Relations pages. There's an e-mail address there. There are also some phone numbers. So feel free to reach out. Erik and myself will always be happy to answer your questions or go on a call with you if that's what you would like to do. So always available for more questions after the call today. With that, I think we would just say, again, thank you very much. I hope this was fruitful, helpful for you, and we'll see you at the next crossroads.