Komplett Bank Annual Report 2020

includes a 1.0% management buffer. The Bank thus targets a total capital ratio of 21.5%. At the end of 2020, Komplett Bank remained well capitalised with a CET1 ratio of 22.7%, significantly above the minimum regulatory requirement. The total capital adequacy ratio was 26.3%, up from 22.5% at the end of 2019. Perpetual Tier 1 (AT1) and additional Tier 2 (T2) capital made up 2.8% and 0.7% of the Bank’s capital adequacy, respectively. In the fourth quarter of 2020, the Bank changed from the Basic Indicator Approach to the Standardised Approach for measuring operational risk. The change had a positive impact of 1.1% point on the Bank’s capital adequacy as at 31 December 2020. For additional information on capital adequacy, please refer to Note 9. Allocation of profit for the year Komplett Bank’s dividend policy is to pay out excess capital which is not deployed for growth purposes. Both the Norwegian and European authorities have introduced limits to all kinds of dividends from banks due to the uncertainty regarding the ongoing Covid-19 pandemic. Norwegian authorities have in recent publications encouraged Norwegian banks to exer- cise caution when evaluating potential dividends. Nonetheless, well-capitalised banks have justification for some dividends in 2021, within certain limitations determined by regulatory authorities. It has been said that total distributions should be at most 30% of the cumulative annual result for the years 2019 and 2020 until 30 September 2021. The limitation will thus be below NOK 140 million for Komplett Bank, based on the total cumulative earnings for 2019 and 2020. After a thorough evaluation, the Board proposes to the general meeting in Komplett Bank that NOK 78.5 million, equal to NOK 0.42/share, be paid as dividend after the ordinary general meeting in 2021. This corresponds to 30% of the Bank’s earnings for 2020 and lies within the Bank’s stated dividend target of 30-50% of the annual result. Furthermore, the Board will ask the general meeting of Komplett Bank for authorisation to pay additional dividends for 2020. The authorisation will give the Board the opportunity to decide on the payment of a dividend of up to NOK 52.3 million of the result allocated to shareholders for 2020 if the macroeconomic outlook permits. The authorisation will apply until the next ordinary general meeting in 2022, and payment will take place no earlier than the fourth quarter of 2021. The annual result totalled NOK 263 million. NOK 9 million have been allocated to owners of perpetual Tier 1 bonds. The remain- der is transferred to other equity. Outlook Growth Komplett Bank follows a strategic roadmap for long-term value creation based on geographical and product-wise diversification and expansion. In 2020, however, the Bank’s focus has been to maintain its resilience and to strengthen its position within existing products and geographic markets. In the aftermath of increased capital requirements in 2019, increased loan losses in Q4 2019 and increased macroeconomic uncertainty related to Covid-19, the Bank held back on lending to new customers in the first half of 2020. This was to strengthen the ability to withstand potential, temporarily increasing lending losses. The impact of Covid-19 has so far shown itself to be rather limited, and only a few customers have asked for their lending terms to be eased. With demand still good, stable lending losses in the existing portfolio and an underlying improvement in credit quality through the first half of 2020, the Bank resumed lending to new customers starting in Q3. In the fourth quarter, net lending growth was once again positive. Throughout 2020, Komplett Bank experienced strong demand for its financing products, and combined with a continual improve- ment of customer processes, this gives a good basis for further growth. For 2021, the Bank expects lending growth of 5-10%, based on existing products and geographic markets. In 2022, Komplett Bank expects to expand in new geographical areas or launch new products, which should further support the Bank’s growth ambitions Operational efficiency Komplett Bank will continue to focus on creating customer value through improved interaction with customers, as well as develop- ing new products and related services. One example is how the launch of the mobile app has enabled easier access to information for the customer and reduced the need to contact the Bank’s customer services. At the same time, Komplett Bank has increased its focus on costs during 2020, which will continue into 2021 and beyond. The Bank expects that measures implemented to improve cost efficiency, along with operational gearing, will result in a lower cost/income ratio in 2021 and beyond. The Bank has, among other things, started the process of renegotiating terms in the most important supplier contracts as well as reducing the use of external consult- ants. In addition, further justification is required before hiring, to 34 Board of Directors’ Report