Komplett Bank annual report 2019

earnings in its entirety. This allocation will increase retained earnings by NOK 203 million. Outlook Komplett Bank follows a strategic roadmap for geographical and product-wise diversification and expansion and in early 2019 credit cards were launched in Sweden and Finland. In 2020, the Bank will not seek to expand into new products or markets but will work to deepen market penetration and to strengthen its competitive position within existing products and markets. In 2019, increased regulatory pressure had a significant impact on loan growth in the Norwegian market. Komplett Bank expects that the new consumer lending regulations introduced in Norway in May 2019 will continue to dampen market growth for consumer lending in Norway going forward. Strengthening operational performance Komplett Bank will continue to focus on creating customer value through flexible solutions and efficient and customer friendly processes. To do this, the Bank will enhance key customer touch points. A new mobile app will be launched in the first half of 2020, enhancing functionality for the Bank’s customers. In 2019, the lack of a competitive refinancing product negatively impacted loan growth in Norway. A new annuity lending product with refinancing functionality will be introduced to the Norwegian market during the first half of 2020 and is expected to improve Komplett Bank’s competitive position in Norway. Following the initial launch in Norway, the product might also be introduced to the Swedish and Finnish markets alongside the Bank’s existing flexible loan products. Reversing the negative trend in credit losses In the fourth quarter of 2018, Komplett Bank adjusted its credit risk appetite, implementing stricter credit measures in the Norwegianmar- ket, and throughout 2019 the Bank continuously worked to improve its customer acquisition process and to strengthen its credit risk strategy. Following the negative development in losses on loans in the fourth quarter, Komplett Bank initiated a complete revision of its credit risk strategy. Going forward, the Bank will continue its strict focus on improving risk management procedures, including policy rules and scorecards, invoicing and collection processes and bill payment functionality, to reverse the recent negative trend in credit losses. Losses on loans are expected to remain high in 2020, which will impact profitability. Komplett Bank is therefore not expected to meet its long-term target of 20% return on equity in 2020. Ensuring a continued robust financial position and dividend capacity Komplett Bank has a solid financial position and remained well cap- italised at the end of 2019. At the end of 2019, Komplett Bank did not fully utilise its capacity for AT1 and T2 capital and, as such, there is potential to improve the efficiency of the Bank’s capital structure. As a result, total capital ratio did not meet the Bank’s total capital ratio target at the end of 2019. Going forward, Komplett Bank expects to continue to build capital organically and to reach its capital adequacy target during the first half of 2020. At Komplett Bank’s annual general meeting on 26 March 2019, the Board of Directors was given authorisation to raise up to NOK 400 million in AT1 or T2 capital. Going forward, Komplett Bank will consider the issuance of such capital to improve its capital structure and enable a more efficient use of its core capital. Financial risk Credit risk The Board has adopted a credit policy with guidelines for credit approval, risk limits, monitoring and reporting in the area. The Board of Directors is working in close cooperation with the Bank’s man- agement on the losses of loans and are frequently updated on vital credit risk processes and key performance indicators. The credit risk appetite set by the credit risk policy is maintained by the Bank. The Bank only offers loans to private individuals following a credit assessment which evaluates the borrowers’ willingness and ability to pay. The credit decision for individual loan applications is based on an assessment of available external and internal information pertaining to the applicant. A combined process is carried out using both an application score and specific credit rules. The Bank applies risk-based pricing in accordance with the assessment carried out in the establishment of each loan. As a result of a higher loan loss ratio in 2019 than desired, actions have been put in place to address the loan losses. Enhancement has been done to mitigate high risk with changes made to the Bank’s credit risk policy rules, limit strategy and rebuilding of scorecard. Focus is also to improve the Bank’s invoice and collection processes, including bill payment functionality. Operational risk The Board has adopted policies that include guidelines for operational risk, risk limits, monitoring and reporting. The policies are discussed by the Board at least annually. The Board receives regular updates and reports on operational matters and any planned or possible measures. Komplett Bank Annual Report 2019 27