Komplett Bank Annual Report 2020

The resulting profit after tax for the year was NOK 263 million, up from NOK 203 million in 2019. This corresponds to a return on equity (ROE) of 13.6%, up from 12% in 2019, but below the Bank’s long-term target of 20%. Adjusted for the additional macroeconomic loan loss provisions in 2020, profit after tax was NOK 293 million, corresponding to an adjusted return on equity of 14.7%. Cash flow In 2020, cash flow from operating activities was NOK 551 million, compared to NOK -197 million in 2019. Profits after tax contrib- uted positively by NOK 263 million, but the increase was otherwise mainly driven by customer payments and increased deposits. The cash flow from investments was NOK -80 million, down from NOK -99 million in 2019. Among the most important projects the Bank is working on are related to activities to strengthen risk management. As a result of this, the Bank has switched to the Standardised Approach for calculation of operating risk for capital adequacy purposes. The cash flow from financing activities was NOK 190 million, up from NOK -378 million in 2019. The positive cash flow from financ- ing activities corresponded to the net proceeds from issuing a perpetual Tier 1 bond of NOK 200 million in June 2020. At the end of the period, total cash and cash equivalents were NOK 1,204 million, up from NOK 615 million at the end of 2019. TABLE 4: CASH FLOW NOK million 2020 2019 Cash flow from operations 551 -197 Cash flow from investments -80 -99 Cash flow from financing 190 -378 Net cash flow 662 -674 Cash at the end of the period 1,204 615 Financial position As at 31 December 2020, total assets were NOK 11,586 million, an increase from NOK 10,620 million at the end of 2019. The increase is mainly driven by growth in cash holdings during 2020. Defaulted loans at the end of 2020 amounted to NOK 2,039 million, equivalent to 21.5% of gross lending to customers. At the end of 2019, defaulted loans were NOK 1,285 million, correspond- ing to 13.8% of gross lending. Due to the Bank tightening lending because of macroeconomic uncertainty, the loan balance was reduced, which impacted the ratio of impaired loans to gross loans. The share of impaired loans increases as a percent of total loans when new loans aren’t issued, and other lenders repay their loans. Accumulated impairments of loans as at 31 December 2020 amounted to NOK 1,146 million, up from NOK 810 million at December 2019. Losses on loans for the 2020 financial year were NOK 364 million, a decrease from NOK 454 million in 2019. Deposits from customers increased from NOK 8,520 million in 2019 to NOK 8,992 million at the end of 2020 driven by the launch of Swedish deposit products in 2020. In 2020, the Bank issued a perpetual Tier 1 bond of NOK 200 million to strengthen the Bank’s capital. The new issue refinances another perpetual Tier 1 bond of NOK 65 million being repaid in February 2021. The Bank’s liquid assets, comprising deposits with credit institu- tions and liquid securities, totalled NOK 3,052.2 million, which is equivalent to 26.3% of the Bank’s total assets. Total equity was NOK 2,304 million, up from NOK 1,850 million at the end of 2019. TABLE 5: BALANCE SHEET NOK million 2020 2019 Change Total assets 11,586 10,620 9% Total liabilities 9,283 8,771 6% Total equity 2,304 1,850 25% Total equity & liabilities 11,586 10,620 9% Capital adequacy In May 2019, The Financial Supervisory Authority of Norway completed its Supervisory Review and Evaluation Process (SREP) of Komplett Bank and set the Bank’s Pillar 2 common equity Tier 1 (CET1) buffer requirement to 6.5% of risk-weighted assets. Because of the pandemic, the Swedish FSA reduced the counter- cyclical capital buffer requirement from 2.5% to 0.0% in 2020, and the Norwegian Ministry of Finance reduced the countercyclical capital buffer requirement from 2.5% to 1.0% in March 2020. In Finland, the countercyclical capital buffer requirement was already 0% before the pandemic. As at 31 December 2020, the Bank’s weighted countercyclical capital buffer requirement was 0.49%. As of 31 December 2020, the minimum requirement for CET1 for Komplett Bank was 17.0% and the total capital requirement was 20.5%. Komplett Bank has set a CET1 ratio target of 18.0%, which Komplett Bank Annual Report 2020 33