Komplett Bank Annual Report 2020

make sure the Bank keeps an efficient workforce. Growth in sales, combined with increased operational efficiency and a stable outlook for loan losses, means that the Bank expects earnings to grow in 2021. Expansion in 2022 is expected to contribute further to the company’s growth and earnings. Credit losses Komplett Bank will maintain its strong focus on handling credit risk and defaults, as well as continuously developing the Bank’s data and analysis capabilities. After implementing measures to improve credit quality in 2019, loan losses stabilised at a lower level in 2020 than in the prior year. Some of the measures have been establishing scorecards in Norway and Finland for more precise credit evaluation, imple- menting credit collection systems and adjusting credit rules. Even though the Bank increased lending to new customers toward the end of 2020, loan losses are expected to be relatively stable in 2021 compared to the end of 2020. Solidity Komplett Bank has a solid financial position and was well-capi- talised at the end of 2020. The Bank’s CET1 ratio was 22.7% at the end of 2020 and the capital adequacy ratio was 26.3%. In comparison, the Bank’s targeted CET1 ratio is 18.0%, correspond- ing to the capital requirement of 17.0% plus one percentage point in the management buffer. Profitability The long-term profitability target for Komplett Bank is a return on equity of more than 20%. In 2020, the Bank’s capital position had a negative effect on the return on equity. Based on a CET1 ratio of 18%, the return on equity adjusted for the additional loss provisions related to Covid-19 would have been 18% for the year. In 2021 and onwards, Komplett Bank expects to increase its return on equity towards the long-term target of 20 per cent. Financial risk Credit risk The board has adopted a credit policy with guidelines for granting credit, risk limits, monitoring and reporting. The Board is regularly updated on important credit risk processes and key indicators. The credit risk appetite stipulated in the Bank’s policy for credit risk is enforced by the Bank. The bank only offers loans to private individuals after a credit assessment that considers the borrower’s willingness and ability to pay. The credit decision for the individual loan application is based on an assessment of available external and internal information about the applicant. A combined process is carried out using an application score and specific credit rules. The Bank applies risk-based pricing in accordance with the assessment carried out in connection with the establishment of each loan. Efforts are continuously being made to improve the Bank’s invoicing and collection processes, including the functionality for paying bills (e-invoices and direct debit agreements). Operational risk The Board has adopted policies that include guidelines for oper- ational risk, risk limits, monitoring and reporting. The policies are discussed by the Board at least once a year. The Board receives regular updates and reports on operational matters and any planned or possible measures. Services from external service providers are used extensively in the Bank’s operations. These services are monitored in line with established guidelines for outsourcing. The Bank strives for a high degree of automated, effective and scalable processes that safeguard the needs of customers and the Bank in a satisfactory and reliable manner. Liquidity risk The Board has adopted a financial policy, which includes guide- lines for liquidity management, risk limits, monitoring and reporting within this area. The guidelines are discussed by the Board at least once a year. The Board receives regular reports on developments in the Bank’s liquidity risk. The Bank’s objective is to have low liquidity risk. Liquidity risk is regularly monitored, and the Bank’s investments are made in such a manner that the liquidity risk is kept at a low level. The Bank’s investments principally consist of deposits in other financial institutions and interest-bearing securities with good liquidity and low counterparty risk. The liquidity risk was considered low during 2020. Loans to cus- tomers have been financed using paid-in equity, retained earnings, subordinated bonds and deposits from the Bank’s customers. The liquidity coverage ratio (LCR) requirement that entered into force on 31 December 2015 has been complied with, and with a good margin. The Bank had an LCR of 774% as at 31 December 2020, compared to a regulatory requirement of 100%. The Bank’s liquidity has largely been strengthened during 2020 due to the launch of deposits in Sweden. Market risk The Board-approved finance policy also covers guidelines for market risk (including interest rate and currency risk), risk limits, monitoring and reporting in this area. The guidelines are reviewed Komplett Bank Annual Report 2020 35