Board of Directors’ Report 2020

Areas of operation and markets

Sparebanken Møre is an independent, listed financial services group, which consists of the Parent Bank, the mortgage company Møre Boligkreditt AS, the real estate agency Møre Eiendomsmegling AS and the property company Sparebankeiendom AS.

Sparebanken Møre was established in 1985 by the merger of a number of local savings banks. The oldest bank that was part of this merger was Herrøe og Røvde Sparebank, which was founded in 1843.

In the years since then, a strong local presence has been the very foundation of the bank’s business, and today Sparebanken Møre is the leading financial services group in Nordvestlandet. At the end of 2020, the bank employed 346 full-time equivalents (FTEs) spread across 27 branches in Møre og Romsdal. The bank’s head office is in Ålesund.

Over many years, the bank has built up a large expert environment in relation to the retail and corporate markets, as well as the equity-, interest rate- and currency markets. Together with it's subsidiary Møre Eiendomsmegling AS, Sparebanken Møre is a full-service bank for retail customers, businesses and the public sector in Nordvestlandet.

Sparebanken Møre offers a full range of financial services within the following areas:

• Financing
• Deposits and investments
• Asset management
• Financial advicory services
• Money-transfer services
• Currency and interest rate business
• Insurance
• Real estate brokerage

Key figures 2020

Group’s key figures

(Comparable figures for 2019 in brackets)

• Profit after tax: NOK 567 million (NOK 711 million) 
• Return on equity after tax: 8.6 per cent (11.7 per cent) 
• Lending growth in the past 12 months: 4.4 per cent (6.1 per cent)
• Deposit growth in the past 12 months: 6.0 per cent (6.9 per cent)
• At year end, primary capital amounted to NOK 7.3 billion, or 21.3 per cent of the calculation basis. Consequently Tier 1 capital amounted to 19.2 per cent and Common Equity Tier 1 capital amounted to 17.5 per cent.
• Earnings per equity certificate: NOK 27.10 (NOK 34.50)
• The Board of Directors recommends that the Annual General Meeting pays a cash dividend of NOK 4.50 per equity certificate and sets aside NOK 45 million for dividend funds for local communities. The Board will also propose to the Annual General Meeting that the Board be issued special authorisation that allows payment of up to a further NOK 9.00 per equity certificate to be proposed as a cash dividend and up to NOK 91 million to be allocated as dividend funds for the local community for the 2020 financial year.

 

Parent bank’s key figures

(Comparable figures for 2019 in brackets)

• Profit after tax: NOK 561 million (NOK 661 million)
• At year end, primary capital amounted to NOK 7.0 billion, or 21.7 per cent of the calculation basis. Consequently Tier 1 capital amounted to 19.5 per cent and Common Equity Tier 1 capital amounted to 17.7 per cent.
• Earnings per equity certificate: NOK 26.83 (NOK 32.00)

Strategy and goals

Vision and values

Sparebanken Møre’s vision is to be the leading contributor to creative enthusiasm in Nordvestlandet. Every day.

As a regional savings bank, Sparebanken Møre has strong ties to its local communities. The bank’s development depends on the sustainable development of the region, and the region depends on a financially strong, forward looking bank. Sparebanken Møre’s vision reflects this interplay. The bank’s core values are: Close, Committed and Capable.

Business model

Sparebanken Møre shall be an independent bank and the preferred choice of retail customers and small and medium-sized enterprises in Nordvestlandet. The bank shall also be an attractive partner for larger companies and the public sector.

The Group’s products and services shall, in total, be competitive, sustainable and contribute to the Group’s profitability.

Sparebanken Møre bases its business on a contract banking model, which means that the Group can choose to operate and develop alone or together with partners/suppliers when appropriate. The Group shall collaborate with the best partners.

Sparebanken Møre shall also attract the best employees, and its corporate culture shall be characterised by cooperation, learning, job satisfaction and motivation. The attitudes and methods shall create economic, social and environmental value for both the bank and its stakeholders.

Through good interaction between the bank’s branches, digital channels, specialist functions and customer service, the bank shall ensure that it provides a high-quality customer experience.

 
Financial objectives

The financial targets for the strategy period 2021-2024 are a return on equity above 11 per cent and a cost income ratio below 40 per cent. The bank also aims to achieve a lower level of losses than the average for Norwegian banks.

Driving force behind sustainable development

Sparebanken Møre has signed up to the UNEP FI’s Principles for Responsible Banking, which commits the bank to adapting its business strategy to the UN Sustainable Development Goals, the Paris Agreement and relevant national framework. The bank’s clear objective is to be a driving force for sustainable development, and this has been made a priority area in the bank’s strategic plan for 2021-2024. More information about the bank’s work on sustainability and corporate social responsibility can be found in the Directors’ Report under “Sustainability and corporate social responsibility”, as well as in the chapter of the annual report devoted to sustainability.

Framework conditions

Economic development influenced by infection control

In 2020, the global economy and the Norwegian economy were heavily influenced by the measures aimed at limiting the Covid-19 pandemic. According to statistics produced by Statistics Norway, Mainland Norway’s GDP fell by 3.0 per cent in 2020 measured against the average for 2019. This happened despite a sharp upturn in production in May to October due to less strict infection control measures. Activity particularly dropped within service industries. Unemployment fell sharply in parallel with the upturn in activity from the spring onwards. In December, registered unemployment in Norway was at 3.8 per cent according to the Norwegian Labour and Welfare Administration (NAV).

Total credit growth in Norway (K2) ended at 4.7 per cent in November 2020. The growth in credit for households was 4.8 per cent while for non-financial companies  3.8 per cent. Housing prices fell slightly from February to March last year, although the housing market was strong during the rest of the year and the country as a whole saw housingprices rise by an average of 8.7 per cent in 2020.

Key policy rate

Norges Bank reduced its key policy rate three times in the period March-May last year. The key policy rate was cut to 0.00 per cent. This is the lowest rate ever. The cuts were made in order to mitigate the negative economic effects of the infection control measures. According to the central bank’s latest interest rate forecast, published in December 2020, the key policy rate will remain unchanged in 2021.

Developments in the financial markets

Deposits are the Group’s most important source of financing. The deposit-to-loan ratio of 58.1 per cent as at 31 December 2020 is high and helps both reduce Sparebanken Møre’s dependence on the financial markets and protect net interest income during periods of rising interest rates.

The funding markets functioned throughout 2020, although there was a marked spread widening early in the coronavirus pandemic. This widening reversed during the course of the year.

The bank has focused on diversifying its sources of funding in the past years. One important means of this has been Møre Boligkreditt AS’s issuing of semi-benchmark covered bonds in the European market. In 2020, Sparebanken Møre also established a green framework for issuing bonds from the bank and Møre Boligkreditt AS as part of the bank’s sustainability strategy.

Sparebanken Møre’s positive credit rating development was confirmed on 20 January 2021 when Moody’s Investor Service upgraded the bank’s long-term rating to A1 from A2, both with a stable outlook.

 
MREL

In 2020, in line with the EU Crisis Management Directive, the Financial Supervisory Authority of Norway set a minimum requirement for own funds and eligible liabilities (MREL) for Sparebanken Møre. The requirement expresses the minimum requirement for the sum of primary capital and eligible liabilities, and was NOK 9.2 billion, or 31.40 per cent of the adjusted risk weighted assets (RWA). This resulted in a provisionally calculated need to issue senior non-preferred bonds (SNP) worth NOK 4.2 billion. The bank will submit its plan for phasing in MREL qualifying liabilities to the Financial Supervisory Authority of Norway by 31 March 2021. The calculations will be based on the anticipated adjusted risk-weighted calculation basis as at 1 January 2024. The requirement for non-preferred liabilities must be met in full by 1 January 2024. Sparebanken Møre intends to satisfy the requirement by 31 March 2021, although during a transitional period the bank may use senior bonds (Senior Preferred) with remaining maturity above 1 year to satisfy the requirement.

Sustainable finance

The EU’s Sustainable Finance Action Plan consists of a number of regulations designed to divert the flow of capital to sustainable investments. The plan is an important step for the EU in achieving its goal of net zero greenhouse gas emissions by 2050.

The introduction of a classification system that defines what types of activity can be called sustainable (the EU taxonomy) forms a key part of the action plan. A regulation has also been approved that sets requirements for sustainability-related disclosures in the financial services sector (EU regulation on sustainability-related disclosures in the financial services sector).

In October 2020, the Ministry of Finance circulated a draft ‘Sustainability-related Disclosures Act’ for consultation purposes. The consultation paper contained proposals regarding incorporating the two regulations into Norwegian law, with a deadline for submissions in January 2021.

Sparebanken Møre has implemented a number of measures to adapt to the new requirements in this area. More information can be found in the chapter on sustainability and corporate social responsibility.

Results

The annual financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), as established by the International Accounting Standards Board and approved by the EU as at 31 December 2020.

Net interest income

Net interest income totalled NOK 1,228 million (NOK 1,314 million) or 1.57 per cent (1.79 per cent) of average total assets. Net interest income accounted for 81.2 per cent of total income in 2020 (81.8 per cent).

The lending and deposit margins for 2020 were heavily affected by the interest rate changes implemented during the second and third quarters. Lending rates were reduced before deposit rates and this significantly affected the net interest income and the margins for the year.

Falling interest rates reduced funding costs, but also significantly reduced the net interest contribution from the bank’s equity.

Strong competition in both lending and deposits, and reduced risk in the lending portfolio, contributed to downward pressure on net interest income, while higher lending and deposit volumes resulted in an increase in net interest income.

The retail market saw a weak increase in the interest margin for lending, but there was a large reduction in the deposit margin compared with 2019. In the corporate market, the interest margin for lending was on a par with 2019, while the interest margin for deposits decreased.

Other operating income

Other operating income was NOK 285 million in 2020 (0.36 per cent of average total assets). This is a decrease of NOK 8 million compared with 2019.

Dividends were NOK 22 million, compared with NOK 12 million in 2019. Capital losses from bond holdings were NOK 4 million, compared with losses of NOK 9 million in 2019. Capital losses on equities totalled NOK 3 million, compared with gains of NOK 16 million in 2019. Income from other financial investments increased by NOK 8 million compared with 2019.

Other operating income decreased by NOK 8 million compared with 2019, with income from money-transfer services decreasing by NOK 16 million.

Costs

Total costs were NOK 630 million, which is NOK 16 million lower than in 2019. Personnel costs decreased by NOK 22 million compared with 2019 and were NOK 332 million. Staffing has been reduced by 11 FTEs in the past 12 months to 346 FTEs. Other costs were NOK 6 million higher than in 2019, primarily due to higher ICT costs.

The cost income ratio for 2020 was 41.6 per cent, which represents an increase of 1.4 percentage points compared with 2019.

Credit-impaired commitments

In 2020, the income statement was charged with NOK 149 million (NOK 50 million) in losses on loans and guarantees. This represents 0.19 per cent (0.07 per cent) of average total assets.

At year end 2020, total expected credit losses were NOK 326 million, equivalent to 0.47 per of gross loans and guarantees (NOK 375 million and 0.57 per cent). Of the total expected credit losses, NOK 18 million is linked to a credit-impaired commitment more than 90 days past due (NOK 24 million), which amounts to 0.03 per cent of gross loans and guarantees (0.04 per cent). NOK 191 million relates to other credit-impaired commitments (NOK 216 million), which is equivalent to 0.28 per cent of gross loans and guarantees (0.33 per cent).

Net credit-impaired commitments (commitments more than 90 days past due and other commitments in stage 3) have increased by NOK 105 million in the past 12 months. At year end 2020, the corporate market accounted for NOK 750 million of net credit-impaired commitments and the retail market NOK 91 million. In total, this represents 1.22 per cent of gross loans and guarantees (1.12 per cent).

Total assets

Total assets increased by NOK 4,611 million, or 6.2 per cent, in 2020 to NOK 79,486 million as at 31 December 2020. The change in total assets is primarily attributable to an increase in lending. The bank also improved its liquidity contingency in 2020 by increasing the liquidity portfolio.

Lending to customers

At year end 2020, lending to customers amounted to NOK 66,850 million (NOK 64,029 million). Customer lending has increased by a total of NOK 2,821 million, or 4.4 per cent, in the past 12 months. Retail lending has increased by 4.0 per cent, while corporate lending increased by 5.3 per cent, in the past 12 months.

Retail lending accounted for 68.2 per cent of lending at year end 2020 (68.4 per cent).

Deposits from customers

Customer deposits have increased by NOK 2,220 million, or 6.0 per cent, in the past 12 months. At year end 2020, deposits amounted to NOK 39,023 million (NOK 36,803 million). Retail deposits have increased by 7.8 per cent in the past 12 months, while corporate deposits have increased by 3.4 per cent, and public sector deposits have increased by 5.8 per cent. The retail market’s relative share of deposits amounted to 59.9 per cent (58.9 per cent), while deposits from the corporate market accounted for 38.0 per cent (39.0 per cent) and from the public sector market 2.1 per cent (2.1 per cent).

The deposit-to-loan ratio was 58.1 per cent at year end 2020 (57.2 per cent).

Capital adequacy

Sparebanken Møre is very well capitalised. At year end 2020, the Common Equity Tier 1 capital ratio was 17.5 per cent (17.7 per cent), which is 4.8 percentage points higher than the total regulatory minimum requirement of 12.7 per cent for the Common Equity Tier 1 capital ratio. Primary capital amounted to 21.3 per cent (21.7 per cent) and the Tier 1 capital amounted to 19.2 per cent (19.5 per cent).

Covid-19: Liquidity, funding and profit consequences

Sparebanken Møre entered the crisis with good key figures for liquidity and capital. At the end of 2019, LCR (short-term liquidity indicator) was at 165 and NSFR (long-term liquidity indicator) was at 113, while Common Equity Tier 1 capital (CET1) was at 17.7 per cent.

At year end, LCR was at 138, NSFR was at 114 and Common Equity Tier 1 capital was at 17.5 per cent.

The Group had one major maturity date in the bond market in 2020 when the gross amount of NOK 3,000 million from MOBK14 from Møre Boligkreditt AS matured on 23 September. Early repurchases had reduced MOBK14 to NOK 438 million at the time of redemption.

In addition to maturity dates for market funding, the bank’s liquidity was affected by the normal seasonal variations and changes in growth rates for loans and deposits due to the current situation. The government’s tax deferral measures, as well as support schemes, etc. related to Covid-19 have also affected the liquidity situation to some extent.

During the year, lending increased by NOK 600 million more than deposits. The Group’s deposit-to-loan ratio increased from 57.2 per cent to 58.1 per cent.

The funding markets functioned throughout 2020, although there was a marked spread widening early in the coronavirus pandemic. This widening reversed during the course of the year. Sparebanken Møre had good access to competitive financing, not only in the form of deposits but also through the issue of senior debt and covered bonds, and the Group executed its planned funding strategy in 2020. Nevertheless, in the first quarter, the bank chose to take advantage of Norges Bank’s F-loan scheme with two loans totalling NOK 1,000 million. NOK 500 million with a 6-month term to maturity and NOK 500 million with a 12-month term to maturity. The first loan matured in September 2020. The liquidity from the loans has been used to strengthen the bank’s LCR liquidity portfolio correspondingly.

The bank monitors liquidity developments closely. Since March 2020, frequent meetings have been held by the contingency group for liquidity, reporting to the executive management team and Board on a very frequent basis. The status of liquidity and the development of deposits have also been regular items on the agenda in the bank’s crisis management group. LCR has been continuously monitored and reported daily. We have not registered any days without robust spreads in relation to the minimum requirement.

The Group’s market funding is raised at floating interest rates or by swapping the fixed-rate issues to floating rates. The funding cost of borrowing will therefore follow developments in the 3-month NIBOR with a time lag corresponding to the timing of the rate fixing. Therefore, it was not until July last year that Sparebanken Møre’s funding costs for outstanding market funding were adjusted to the new lower level of market interest rates.

The above-mentioned interest rate fixing profile and the fact that lending rates to customers were reduced immediately after the central bank cut its rates, while deposit rates were not cut until 6 weeks later, markedly weakened the bank’s net interest income in the second quarter of 2020. During 2020, net interest income was generally also negatively affected by lower returns on the bank’s equity as well as the ability to maintain the deposit margin in a low interest rate environment. Net interest income amounted to NOK 1,228 million in 2020, compared with NOK 1,314 million in 2019. As a proportion of average total assets this represents a drop from 1.79 per cent to 1.57 per cent.

The item that had the largest negative impact on the bank’s results in the first quarter was the development of the market value of the bank’s LCR liquidity portfolio. This effect was largely reversed before the end of the year. The bank has no trading portfolio in equities or significant ownership stakes in product companies, which results in low volatility in relation to financial performance due to developments in the capital market.

Changes in economic conditions have had consequences for macroeconomic scenarios and weightings in the Group’s calculations for expected credit loss (ECL) in 2020. In the first quarter of 2020, the probability of the pessimistic scenario occurring was increased from 10 to 40 per cent, while for the base scenario it was reduced from 80 to 50 per cent.

During the fourth quarter the outlook was more positive and clearer. The macroeconomic conditions improved. A public vaccination programme started. There were very few bankruptcies and credit-impaired commitments were relatively low. The authorities announced new stimulus packages for the hardest hit industries. Oil prices also rose markedly during the fourth quarter.

The bank granted payment relief in the first and second quarters of 2020 due to the consequences of Covid-19. Customers who applied were granted 6-month interest-only periods until the second half of 2020. Most of the customers granted interest-only periods are now paying their instalments in line with their original agreement.

As part of the process of granting payment relief, a specific, individual assessment is made of whether the application for payment relief is ‘forbearance’ and whether the loan should thus migrate to stage 2 (performing) or stage 3 (non-performing) in the Group’s ECL model.

This has been further supplemented by a more portfolio or segment based (hotels, tourism, travel industry, and personal services industry) approach to assess significantly increased credit risk and migration to stage 2. This was due to the fact that current changes in future prospects are not adequately captured by the ECL model.

The positive changes in economic conditions resulted in changes to the macroeconomic scenarios and weightings as at 31 December 2020. The probability of the pessimistic scenario occurring was reduced from 40 to 20 per cent, while for the base scenario it was increased from 50 to 70 per cent. The best scenario’s weighting was kept unchanged at 10 per cent. For further information about the consequences of Covid-19 and the measurement of expected credit loss see note 9.

Proposed allocation of the profit for the year

In a letter to the Financial Supervisory Authority of Norway dated 20 January 2021, the Ministry of Finance expressed an expectation that Norwegian banks, which after a careful assessment and based on ESRB’s recommendations find a basis for distributions, keep overall distributions within a maximum of 30 per cent of the cumulative annual result for the years 2019 and 2020 up to 30 September 2021.

The bank’s dividend policy indicates a cash dividend for 2020 of NOK 13.50 per equity certificate. Given the current extraordinary situation and the government’s expectations, the Board believes it is right to recommend to the Annual General Meeting a cash dividend per equity certificate of NOK 4.50 for the 2020 financial year.

The corresponding provision for dividend funds for the local community will amount to NOK 45 million. The total dividend for 2019 and 2020 will thus amount to 30 per cent of the cumulative annual result for the years 2019 and 2020.

The Board will also propose to the General Meeting that the Board is issued special authorisation that allows payment of up to a further NOK 9.00 per equity certificate to be proposed as a cash dividend and up to NOK 91 million to be allocated as dividend funds for the local community for the 2020 financial year. In the event of such further distribution, the overall dividend for the 2020 financial year will thus be in line with the bank’s dividend policy.

Based on the accounting breakdown of equity in the Parent Bank between equity certificate capital and the primary capital fund, 49.6 per cent of the profit will be allocated to equity certificate holders and 50.4 per cent to the primary capital fund. The Group posted earnings per equity certificate of NOK 27.10 in 2020.

Business areas

Retail Banking Division

Sparebanken Møre is a market leader in Nordvestlandet and has a strong presence with 130 authorised financial advisers in the retail market. Availability and expertise in a financially strong bank have been important to our customers in what has been an extraordinary year. The shut down of society in March and strict infection control measures during the year, affected how we work and presented both challenges and opportunities. Growth in the bank’s prioritised market areas has been strong with a good increase in new customers and an increasing volume of business.

Lending in the retail market increased by NOK 1.75 billion (4 per cent) and ended the year at NOK 45.6 billion. Deposit growth was rising and at the end of the year was no less than 7.8 per cent, equal to NOK 1.68 billion. The deposit balance showed NOK 23.37 billion for the retail market at the end of the year.

Sparebanken Møre believes availability and expertise are very important. In an extraordinary year, with periodic restrictions on in-person meetings with customers, we focused on rapid response times via customer service, on the telephone and in email conversations with customers. Many customers improved their digital skills during the year. This resulted in more customers choosing to meet us in digital conferences. We have also seen a general increase in the use of the bank’s digital solutions. This gives us the chance spending more time and resources on good advicory services  for our customers. Demand for advice has been increasing, and in particular we have seen that customers have had to restructure their personal finances due to changes in their earnings situation. During the year, we launched a new digital tool for use in both in-person and digital customer meetings to improve the customer experience even further.

Good councelling combined with products that are well-suited to meeting customers’ needs made important contributions to creating good customer experiences. All employees who advise customers must complete their FinAut authorisation programmes. They must also undergo continuous updates in market developments, systems training and training in providing good customer councelling. The bank also has a product committee that assesses new and existing products to ensure that they are suitable for the needs of customers.

The liquidity of many households and individuals significantly improved during the year due to the sharp drop in interest rates. With a key policy rate set at 0 per cent, many customers have chosen to invest parts of their savings in funds and the equity market. Many were entering the market for the first time and thus sought advice from their regular adviser. Our availability and strong competence have therefore been competitive advantages in the year just ended.

During the year, the bank worked systematically to ensure good customer experiences when customers contact us. In 2020, for the second year in a row, Sparebanken Møre was named as having the best customer services in Norway in the banking category.

Availability and expertise will remain important priority areas for the bank, and this work will be continued with full force in 2021. These are important success factors for Sparebanken Møre in the battle for customers.

Corporate Banking Division

The Corporate Banking Division is Nordvestlandet’s largest financial environment for business and in 2020 maintained good growth rates for both the lending and investment markets, although they were somewhat more subdued compared with the strong volume growth in the past 3 years.

Lending to the corporate market increased by NOK 1.1 billion to a total of NOK 21.5 billion, which represents growth of 5.3 per cent. At the end of the year, deposit growth was 3.6 per cent and deposits from corporate customers totalled NOK 15.7 billion.

The largest individual industries measured in terms of lending were commercial real estate and fisheries. The quality of the lending portfolio is good and both credit-impaired commitments and losses remain low in most industries. The losses in 2020 were mainly related to the oil related/supply sector.

The growth in new customers continues to gather pace and after around 500 new corporate customers chose to establish an active customer relationship with Sparebanken Møre in 2019 this increased to more than 600 new customers in 2020. The majority of these were companies in the SME segment.

Further developing employees’ competence is an important focus area. All account managers in the Corporate Banking Division are authorised financial advisers and must pass annual tests to renew their authorisation. In order to create added value for customers based on sound expert advice, the bank is also systematically working to develop cutting edge, updated and relevant industry knowledge.

Being local and knowing our customers are considered one of our most important competitive advantages. In this context, a close dialogue with the customers through individual customer meetings and a presence in various industry arenas are important elements. In a year with strict restrictions on physical meeting places, customer contact has increasingly been addressed through digital channels. Our functionality and operational stability have been good, and we have thus been able to maintain good availability and councelling for our customers.

Some industries have seen major changes in their framework conditions due to Covid-19, and we believe it is very important to assist customers in a difficult situation with good financial solutions. In 2020, a number of government packages of economic measures were introduced, and our ambition has also been to function as good advisers in relation to the economic measures available to our customers.

In parallel with further improving and strengthening our advisers’ industrial and other technical expertise, focus is also on digitalising and streamlining both internal processes and better self-service solutions in order to simplify processes for customers with respect to customer and product establishment. This also applies to efficient, digitalised, self-service credit solutions. This will help ensure that the bank’s account managers can give even greater priority to direct customer contact and councelling that provides added value to customers in 2021.

Capital Market

Sparebanken Møre’s investment firm licence is administered by the Treasury and Markets Unit where the Treasury department follows up services related to financing and management for the Group, while the Markets department manages the customer-oriented services through customer trading in foreign exchange, interest rates and equities, as well as discretionary asset management.

Sparebanken Møre must aim for low to moderate overall risk in the activities of the bank and the Group. Earnings should be a product of customer-related activities, and not financial risk taking, and the bank’s market risk must be low.

The unit’s  customer-oriented services generated income of NOK 117 million in 2020, which represents just over 41 per cent of the bank’s other operating income in 2020 and an increase of about 11 per cent compared with 2019. Currency and fixed income trading, as well as discretionary asset management, are the most important income areas. After deducting costs, the income is allocated to the branches and departmentsin the Corporate Banking Division and the Retail Banking Division.

Subsidiaries

The aggregate profit of the bank’s three subsidiaries was NOK 232 million after tax in 2020 (NOK 222 million).

Møre Boligkreditt AS

Møre Boligkreditt AS was established as part of the Group’s long-term funding strategy. The main purpose of the covered bond company is to issue covered bonds for sale to Norwegian and international investors. At year end 2020, the company had outstanding bonds of NOK 24 billion, of which around 35 per cent was issued in currencies other than NOK. NOK 500 billion of the volume of bonds issued by the company was held by the Parent Bank at year end 2020. Møre Boligkreditt AS contributed NOK 230 million to the Group’s result in 2020 (NOK 222 million).

Møre Eiendomsmegling AS

Møre Eiendomsmegling AS provides real estate brokerage services to both retail and corporate customers. The company contributed NOK 0.5 million to the result in 2020 (NOK 0.8 million). At the end of the quarter, the company employed 11 FTEs.

Sparebankeiendom AS

Sparebankeiendom AS’s purpose is to own and manage the bank’s commercial properties. The company contributed NOK 2 million to the result in 2020 (NOK -1,1 million). The company has no employees.

Research and development

The bank takes a systematic approach to various development projects where the purpose is to provide improved products and services for customers, or to help streamline and enhance the quality of internal work processes. Some of the projects are carried out in collaboration with partners, including through TEFT lab, which is a research partnership with the Norwegian University of Science and Technology (NTNU) in Ålesund. In this we are researching the opportunities the technological shift is presenting and taking an active part in education, research, innovation and dissemination in the intersection between economics and technology.

The Group does not carry out its own research activities beyond this, although it is a major contributor to R&D activities in Nordvestlandet via knowledge parks and industry clusters.

Corporate governance report

Corporate governance in Sparebanken Møre includes the targets and overall principles in accordance with which the Group is managed and controlled for the purpose of safeguarding the interests of owners, depositors and other groups in the Group. The Group’s corporate governance should ensure prudent asset management and provide assurance that the communicated goals and strategies are attained and realised.

The Board highlights the following areas as critical to maintaining the confidence of the market: 

• Capital appreciation for equity certificate holders and other investors in the bank’s securities
• Competent and independent management and control 
• Good internal management and monitoring processes 
• Compliance with laws, rules and regulations
• Transparency and good communications with equity certificate holders, other investors, customers, employees and the community at large
• Equal treatment of all equity certificate holders

The Group’s corporate governance is based on the Norwegian Code of Practice for Corporate Governance, most recently updated on 17 October 2018. Sparebanken Møre’s corporate governance report is included in the annual report as a separate section.

Risk and capital management

Risk-taking is a fundamental element of banking operations. Risk management and risk control are two of the Board’s focus areas. The overall purpose of risk management and risk control is to ensure that set targets are attained, ensure effective operations, manage risks which may prevent the attainment of commercial targets, ensure high quality internal and external reporting, and ensure that the Group’s operations comply with all relevant laws, regulations and internal guidelines.

The stated goal of the Board of Sparebanken Møre is to ensure that the operations of the Group maintain a low to moderate risk profile. Earnings should be a product of customer-related activities, and not financial risk taking. Sparebanken Møre constantly strives to maintain control of the risks that exist. In those cases where the risk is deemed to exceed an acceptable level, immediate steps will be taken to reduce this risk.

The overall framework and limits for Sparebanken Møre’s risk management are assessed annually by the Board as part of the preparation of the bank’s strategic plan. In January 2021, the Board adopted a new strategic plan, ‘Møre 2024’. The Board approves overall guidelines for management and control in the Group each year, and the Parent Bank and subsidiaries adopt individual risk strategies tailored to their activities. Separate guidelines have been approved for each significant risk area, including credit risk, counterparty risk, market risk, concentration risk, operational risk and liquidity risk.

The various guidelines form the framework for the Group’s ICAAP. The Board actively participates in the annual process and establishes ownership of the assessments and calculations made, including through the ICAAP’s key role in long-term strategic planning. The ILAAP process, which is the bank’s assessment of liquidity and funding risk, is included as part of the ICAAP. Calculations performed in ICAAP 2020 indicate that the Group’s capital adequacy is sufficiently robust to tolerate an economic development that is significantly more negative than the development on which the basic scenario in the long-term strategic plan is based. This is supported by both economic calculations and simulations based on various stress tests.

Sparebanken Møre has established a monitoring and control structure that is intended to ensure compliance with the overall framework of the bank’s strategic plan. The Group’s risk exposure and risk development are followed up on an overall basis through periodic reports submitted to the executive management team, Risk Committee and the Board of Directors. One of the Risk Committee’s primary purposes is to ensure that Sparebanken Møre’s risk management is addressed satisfactorily.

The Board is of the opinion that Sparebanken Møre’s aggregate risk exposure conform to the Group’s targeted risk profile. The Board considers the Group’s and bank’s risk management to be satisfactory.

The EU capital requirements regulations, CRR/CRD IV, have been enacted in Norway, and Sparebanken Møre reports, among other things, its capital adequacy requirements and liquidity requirements in accordance with these regulations. A revision of the regulations is expected to come into force in Norway during 2021 and will result in several changes such as the extension of the SME discount and the introduction of a minimum requirement for NSFR.

Based on the capital adequacy regulations, the minimum requirement for capital adequacy consists of a Pillar 1 requirement and a Pillar 2 requirement. The Pillar 2 supplement applies to risks that are not covered or are only partly covered by Pillar 1.

The Financial Supervisory Authority of Norway has set the bank’s Pillar 2 requirement at 1.7 per cent, applicable from 31 March 2019. The next time it sets the Pillar 2 requirement, in 2021, the Financial Supervisory Authority of Norway will also express its expectation concerning a capital requirement margin (P2G) in excess of the total risk-weighted capital requirement.

Sparebanken Møre’s total minimum requirement for Common Equity Tier 1 capital amounted to 12.7 per cent as at 31 December 2020.

Sparebanken Møre has authorisation from the Financial Supervisory Authority of Norway to use the Foundation IRB method for calculating capital requirements for credit commitments. Operational risk calculations are performed using the basic method.

Sparebanken Møre’s capital adequacy at year end 2020 was well above the regulatory capital requirements and the internally set minimum target for Common Equity Tier 1 capital of 15.2 per cent. Primary capital amounted to 21.3 per cent (21.7 per cent) and Tier 1 capital 19.2 per cent (19.5 per cent), of which Common Equity Tier 1 capital amounted to 17.5 per cent (17.7 per cent).

The minimum requirement for the Tier 1 leverage ratio has been set at 3 per cent. Every bank must also have a buffer of at least 2 percentage points. At year end 2020, the Tier 1 leverage ratio for Sparebanken Møre was 8.0 per cent (8.1 per cent), which represents a good margin with respect to the total requirement of 5 per cent.

The Board continuously monitors capital adequacy, and the Group must have a level of capitalisation that corresponds with its accepted risk tolerance. The bank’s recovery plan clarifies options that the bank can implement if the capital adequacy comes under stress. The options are listed in order of priority, with the measures described and their implementation specified should they become necessary.

Credit risk

Credit risk (or counterparty risk) is the risk of losses associated with customers or other counterparties being unable to fulfil their obligations at the agreed time pursuant to written agreements, and of received collateral not covering outstanding claims.

Credit risk also encompasses concentration risk, including risk linked to major commitments with the same customer, concentration within geographic areas or industries or with similar groups of customers.

Credit risk represents Sparebanken Møre’s biggest risk area. The Group has a moderate risk profile for credit risk, as this risk is defined through the Group’s credit risk strategy. The strategy provides, for example, limits for concentration in industrial sectors and the size of commitments, geographic exposure, growth targets and risk levels.

Compliance with the Board’s resolutions within the area of credit is monitored by the bank’s Risk Management & Compliance Unit, which is independent of the customer divisions. The Board receives reports on credit risk trends throughout the year in a monthly risk report. In addition, periodic reviews of the credit area are carried out by the Audit Committee and the Risk Committee. The Board receives quarterly reports in line with the regulations for residential mortgages and the regulations for lending. Sparebanken Møre’s internal guidelines conform to the Financial Supervisory Authority of Norway’s guidelines for mortgage lending.

Sparebanken Møre has, as part of the IRB system, developed its own risk classification models for classifying customers:

• Probability of default (PD) is used as an indicator of quality. Customers are classified in a risk class according to the probability of default.
• Exposure at default (EAD) is a calculated amount which includes drawn commitments or lending, loan commitments, and a proportion of approved, undrawn facilities.
• Loss given default (LGD) indicates how much the Group would expect to lose if the customer defaulted on its obligations. The models take account of the collateral that the customer has pledged, future cash flows and other relevant factors.

These models make an important contribution to the in-house management of credit risk. The customers are scored on a monthly basis, and this provides the basis for ongoing monitoring of the development of Sparebanken Møre’s credit risk. Specific application scoring models are used in the credit approval process.

Through the Group’s reporting portal, each member of staff with customer responsibilities has access to reports which show the development of the credit risk in his or her portfolio. The portal has a hierarchical structure allowing managers in Sparebanken Møre to monitor performance within their respective area of responsibility. The reporting is used to analyse customers, portfolios and segments, among other things. The portal also provides customer account managers with an overview of the customers’ positions and limits in relation to exposure in financial instruments.

The Special Commitments Department is part of the Risk Management & Compliance unit. The purpose of this department is to improve the efficiency of the processes associated with credit-impaired commitments. This will improve the quality and professionalism in handling impaired commitments and ensures that case processing will be objective and independent. The department reports upwards in the management hierarchy independent of the line.

The Board finds that Sparebanken Møre’s overall credit risk is within the Group’s adopted risk tolerance. Exposure to large commitments is well with the adopted limits and the follow-up and control of this area is good. The Board finds that Sparebanken Møre is well prepared to handle any increased credit risk in the loan portfolio, and that the Group has a good foundation for increasing its focus on solid lending projects in Sparebanken Møre’s area of operation in the future.

Climate risk

Climate risk is the impact resulting from climate change. Climate risk will also impact the bank’s credit risk. It is therefore crucial that the bank understands how climate risk will affect the business model and profitability of corporate customers. At the same time, the bank wants to be a driving force behind ensuring that customers do not have a negative impact on the climate, but rather choose a greener direction (low emission).

When assessing climate risk, two types of risks in particular must be assessed: physical risk and transitional risk.

• Physical climate risk arises as a result of more frequent and severe episodes of drought, flooding, precipitation, storms, landslides and avalanches, as well as rising sea levels.
• Transitional risk is the risk associated with changes to, and the escalation of, climate policies/regulations, the development of new technologies and changed customer preferences (consumers) and investor requirements that may result in sudden changes in the market value of financial assets and especially assets associated with carbon-intensive activities (high consumption of energy from fossil fuel: coal, oil, natural gas, oil shale and tar sands).

In 2020, the bank started a project aimed at establishing guidelines and requirements for ESG assessments in connection with granting credit to the bank’s corporate customers. A special assessment tool has been developed for this work, which should help to map the bank’s customers in relation to ESG. Analyses and assessments must be documented and included in the basis for making decisions when granting credit or conducting annual reviews of credit commitments. All of the dimensions (ESG) will be included, although the main focus will still be on the customers’ impact on the environment and climate. This work will continue in 2021.

The periodic reporting of climate risk to the Board will be further strengthened in 2021.

The Board believes that the planned measures will align the bank’s operations with its the risk tolerance for climate risk.

Market risk

Sparebanken Møre’s market risk is primarily a reflection of activities which are conducted in order to support the Group’s daily operations. This relates to the Group’s funding, the bond portfolio which is maintained in order to meet funding needs and safeguard access to loans from Norges Bank, as well as customer-generated interest rate and currency trading.

The Board stipulates limits for Group market risk in the market risk strategy. The limits are monitored by Risk Management & Compliance . The limits are established based on analyses of negative market movements. Based on an evaluation of risk profile, management and control, it is assumed that the bank accepts low risk within the market risk area. The reporting on monthly activity is included in Sparebanken Møre’s periodic risk report for Group Management, the Risk Committee and the Board. Monthly performance is reported in addition to the actual risk exposure within each portfolio, individually and aggregated. The limits for market risk are conservative, and on an overall basis, market risk represents a small part of the Group’s aggregate risk.

The Board finds that the Group’s risk exposure in the area of market risk is within the adopted risk tolerance limits.

Funding risk

The management of Sparebanken Møre's funding structure is incorporated into an overall funding strategy. The strategy reflects the moderate risk level that is accepted for this area of risk. It describes Sparebanken Møre’s targets for maintaining its financial strength. Specific limits have been defined for different areas of the Group’s liquidity management. Sparebanken Møre’s recovery plan includes a description of how the funding situation should be handled in turbulent financial markets.

Two key quantitative requirements have been established for liquidity:

• Requirement for liquidity coverage under stress: liquidity coverage ratio (LCR) 
• Requirement for long-term stable funding: net stable funding ratio (NSFR)

LCR measures an institution’s ability to survive a 30-day stress period. LCR increases the importance of high-quality liquid assets. NSFR measures the longevity of an institution’s funding. NSFR means that institutions have to fund liquid assets with the aid of a greater proportion of stable and long-term funding.

The minimum LCR requirement is 100 per cent. The LCR target established by the Group for complies with the regulatory requirement and the reporting shows that Sparebanken Møre has a good margin in relation to the requirement.

A stricter liquidity requirement generally entails a significant interest cost for the bank. It also makes the bank more vulnerable to changes in credit spreads.

To ensure that the Group’s funding risk is kept at a low level, lending to customers must primarily be financed by customer deposits and issuing long-term debt securities. The bank’s deposit-to-loan ratio at the end of 2020 was 58.1 per cent.

Møre Boligkreditt AS increases the diversification of the Group’s sources of funding. The company issues covered bonds. The bank transfers parts of its mortgage portfolio to the mortgage company, and this facilitates access to these funding opportunities. At year end 2020, around 42,1 per cent of the Group’s total lending (62 per cent of lending to the retail market) had been transferred to the mortgage company.

Sparebanken Møre will continue to transfer loans to Møre Boligkreditt AS in accordance with the plans set out in the funding strategy. By year end, Møre Boligkreditt AS had issued seven loans that qualify for level 2A liquidity in LCR. Møre Boligkreditt AS will issue and accumulate more loans in this category going forward.

In order to gain access to new sources of financing and seek stable access to funding from external sources, securities issued by both Sparebanken Møre and Møre Boligkreditt AS are rated by the rating agency Moody’s.

In January 2021, the ratings agency Moody’s upgraded Sparebanken Møre’s long-term rating from A2 to A1 with a stable outlook. Bonds issued by Møre Boligkreditt AS are rated Aaa by Moody’s.

As far as the composition of the external funding is concerned, priority is given to ensuring that a relatively high proportion of funding has a maturity above one year. Total market funding ended at net NOK 30.6 billion at year end; almost 86 per cent of this funding has a remaining term of more than 1 year. The Parent bank’s outstanding senior bonds, with a term of more than 1 year, had a weighted remaining term of 3.21 years at year end 2020, while covered bond funding correspondingly had a remaining term of 3.57 years.

Sparebanken Møre has started reporting on liquidity to the Board in line with the reporting structure in the Financial Supervisory Authority of Norway’s module for liquidity risk.
The Board receives a monthly review of the bank’s liquidity status and the actual costs of market loans, development of marginal costs and average borrowing costs, as well as prognoses regarding liquidity requirements and comments on refinancing in the coming period.

The Board also receives a monthly status update on the liquidity situation via the risk report, and immediately if any important events occur that could impact the bank’s current or future liquidity situation. The reporting includes several different key figures related to the development of financial strength, balance sheet performance, earnings performance, credit-impaired commitments and the development of cost of funds. The reporting tries to identify the funding situation during normal operations, identify any early ‘warning signs’ and assess the bank’s stress capacity.

The Board considers the bank’s liquidity situation at year end to be good. The Board also considers the ongoing liquidity management of the Group to be good.

Operational risk

Management of Sparebanken Møre’s operational risk is set out in a strategy that is evaluated and approved by the Board every year. The strategy clarifies the risk tolerance accepted for this area of risk.

Operational risk is defined as the risk of losses due to inadequate or failing internal processes or systems, human error or external events. Operational risk is a broad area of risk and includes legal and reputational risk in the processes, cyber/IT risk, third party risk, behavioral risk and more.

The process for managing operational risk must ensure that no single incident can seriously harm Sparebanken Møre’s financial position. The Board has adopted internal guidelines for the area and risk assessments are carried out based on external and internal incidents to which the Bank is exposed.

Major changes are taking place in relation to operational risk. These are being driven by the digitalisation of society and the financial services industry. As a result of this, the risk associated with information security due to, for example, hacking is increasing, at the same time as the risk of human error can be mitigated in selected areas.

The quality and stability of our digital banking services and other IT services were generally good in 2020. Good cooperation between the actors in the industry makes an important contribution to the work on reducing the consequences of targeted attacks aimed at banks and other financial institutions. Sparebanken Møre has a strong focus on information security, including amongst the bank’s employees and at the bank’s service providers. During the year, an extensive project was conducted to secure the bank’s management system within information security. Mandatory e-learning courses in information security have also been conducted regularly ever since the start of the Covid-19 pandemic.

The bank’s business model with subsidiaries, associated companies due to the outsourcing of several critical processes and increasing requirements for regulatory regulations will have consequences for operational risk. Covid-19 has also contributed to a change in the risk picture and together this underscores the importance of managing operational risk and keeping it under control.

The regulatory requirements and guidelines for the management and control of operational risk are increasing and the bank has seen a need to professionalise this area. Although such management and control has been carried out for many years, the bank sees a need for broad input to the improvement work. The bank has, therefore, started an extensive project to design and implement a management and control framework for operational risk that helps to ensure that the risk exposure is within the risk tolerance, satisfies the regulatory requirements and expectations and contributes to continuous improvement.

Sparebanken Møre attaches great importance to external activities that focus on customers. Our employees’ high level of expertise and products that are well-suited to meeting the needs of customers both contribute to the mitigation of operational risk and ensuring that our customers find being a customer of our bank a good experience. All employees who advise customers are authorised via FinAut’s authorisation programmes. They also receive regular updates in market developments, systems training and training in providing good councelling.

Sparebanken Møre’s established, operational internal control represents an important tool for reducing operational risk, through both identification and follow-up. The Board receives a quarterly risk report that includes the risk associated with any significant deviations and incidents that might occur.

The Board believes that the bank’s overall risk exposure related to operational risk is prudent.

Compliance risk

Compliance risk is the ongoing and future risk with respect to earnings and capital related to any breach of, or failure to comply with, statutory or regulatory requirements, or requirements stipulated pursuant to acts and regulations, by the Group.

Compliance risk may result in public sanctions (loss of licence or fines), civil law compensation, and/or damages for losses in the event of breaches of contract. Compliance risk can also result in loss of reputation, limit business opportunities and reduce the potential for expansion.

Sparebanken Møre’s overall goal for compliance is to ensure that the Group operates in accordance with acts and regulations, and the tolerance for deviations must be low.

The main principle for compliance with the regulatory requirements to which Sparebanken Møre is exposed is the sharing of work and liability. This means that the various divisions, staff units, departments and business units have an independent responsibility to ensure compliance with acts and regulations in their day-to-day work.

All employees have an independent responsibility to comply with routines and guidelines established in accordance with acts and regulations, including providing feedback in the event of any discrepancies.

The Group’s compliance function must ensure compliance with statutory or regulatory requirements and reports directly to the CEO and Board. The function is responsible for identifying, assessing, monitoring, reporting and advising on compliance risk.

The Board adopts annual compliance instructions and receives quarterly compliance reports. In the opinion of the Board, the bank’s operations are organised such that the compliance risk is within the adopted risk tolerance.

Internal control in connection with the financial reporting process

The purpose of internal control in connection with the financial reporting process is to ensure that the financial statements are prepared and presented free from material error. Moreover, internal control shall ensure that external accounting requirements are met, as well as safeguard that information disseminated to analysts, supervisory authorities, investors, customers and other stakeholders is complete and provides a true and fair view of the Group’s financial situation.

Responsibility for the financial reporting process itself is assigned to the Finance and Facilities Management unit.

Transactions are registered in the bank’s core systems, and a reconciliation is performed between these systems and the accounting system (BGL) on a daily basis. Management reports from the accounting system are prepared periodically, and quality checked. Any deviations that are recorded are rectified on an ongoing basis. Various management reports are prepared every month, Balanced Scorecard, analyses, risk reports, etc., and accounting consolidation and the associated internal accounting takes place on both a monthly and a quarterly basis. Items in the income statement, statement of financial position and note disclosures are reconciled against the accounting system and previous reports.

Part of the internal control in connection with reporting the annual financial statements is the cooperation with the external auditor and their audit of the Group accounts.

The interim and annual financial statements are reviewed by the bank’s management group and the Audit Committee prior to final consideration by the Board and General Meeting. The annual financial statements are also considered by the Annual General Meeting.

Internal control reporting

Internal control reporting in Sparebanken Møre is decentralised, with Compliance Management as the coordinating unit. The internal control system is reviewed and verified every year in a process that involves all managers at levels 1, 2 and 3.

The CEO has also submitted an annual report to the Board containing an overall assessment of the risk situation and an assessment of whether the established internal controls function satisfactorily.

The Board has received regular reports on the operations and risk situation throughout the year. Based on the reports received, the Board believes that internal control is being properly addressed at Sparebanken Møre.

Sustainability and corporate social responsibility

During 2020, Sparebanken Møre both further intensified and structured its work on sustainability. Responsibility for sustainability has been delegated to people in all relevant fields, and together they constitute the Group’s sustainability committee.

A materiality analysis has been conducted in order to focus efforts on the most important areas for both stakeholders and the bank’s long-term value creation. Specific goals have been formulated based on this and these are included in an overall strategy for sustainability that is approved by the Board.

Sustainability has also been made a priority focus area in the bank’s group strategy for the period 2021-2024. The overarching objective is for Sparebanken Møre to be a driving force behind sustainable development. The objective has been firmed up through special action plans and measures in all of the bank’s units/divisions.

Over the year, sustainability became better integrated into the Group’s governing documents and training measures have been implemented throughout the organisation. A number of internal processes have also been introduced to make sure sustainability is taken into account in the Group’s operations and a green framework has been established for issuing green bonds.

Sparebanken Møre has signed up to the UNEP FI’s Principles for Responsible Banking, which commits the bank to adapting its business strategy to the UN Sustainable Development Goals, Paris Agreement and relevant national framework. Sparebanken Møre has commenced this work and will publish a self-evaluation that includes the status of the process by the end of spring 2021. The information will be reviewed by an independent third party and made available on the bank’s website.

Please refer to the separate section on sustainability and corporate social responsibility for information on how Sparebanken Møre addresses and fulfils its responsibilities with respect to human rights, labour rights and social conditions, the external environment and combating corruption in business strategies, day-to-day operations and in relation to stakeholders.

Employees and working environment

Sparebanken Møre wants to be an attractive employer. A good working environment must be achieved through personnel policy measures, employee involvement and development, and reflected feedback.

Employee satisfaction is measured every year and the working environment, engagement, management and communication, as well as the risk culture in Sparebanken Møre, are analysed. For 2020, the working environment committee score was 8.3 on a scale from 1-10, which reflects a very good working environment. The results also show that the bank’s employees were highly likely to recommend Sparebanken Møre as a place to work.

Sparebanken Møre wants to contribute to low work-related sick leave through systematic HSE work, good management and a good working environment. Sick leave has been low over time and in 2020 it was 3.86 per cent.

Read more about the bank’s work on training, as well as working conditions, equal opportunities and diversity in the chapter on sustainability and corporate social responsibility.

Internal auditing

The internal auditing function’s remit is to provide independent assessments of the quality and effectiveness of management and control, risk management and internal control, and compliance with relevant laws and regulations.

The Group’s internal auditing was outsourced to EY in 2020. The internal auditing function reports to the Risk Committee and the Board. A plan has been prepared for the work of the internal auditor and approved by the Board. The Risk Committee and the Board received regular reports from the internal auditor in 2020 in accordance with this plan, and no material breaches of relevant laws or regulations were identified.

Equity certificates and dividends

At year end 2020, there were 5,758 holders of Sparebanken Møre’s equity certificates. 9,886,954 equity certificates have been issued. Equity certificate capital accounts for 49.6 per cent of the bank’s total equity.

The 20 largest equity certificate holders represented 50.7 per cent of the bank’s equity certificate capital at year end. Of these equity certificate holders, nine were residents of Møre og Romsdal, with a relative ownership interest among the 20 largest of 57.3 per cent (57.7 per cent). Note 34 includes a list of the 20 largest holders of the bank’s equity certificates.
Sparebanken Møre encourages all employees to own equity certificates in Sparebanken Møre and contributes to this via reward schemes. At the end of the year, employees held 269,829 equity certificates, which makes employees the eight largest MORG owner overall.

As at 31 December 2020, the bank owned 22,111 of its own equity certificates. These were purchased on the Oslo Børs at market prices. The equity certificates are freely negotiable in the market.

Sparebanken Møre’s dividend policy states that the bank’s aim is to achieve financial results which provide a good and stable return on the bank’s equity. The results should ensure that the owners of the equity receive a competitive long-term return in the form of cash dividends and capital appreciation on their equity.

Dividends consist of cash dividends for equity certificate holders and dividend funds for local communities. The proportion of profits allocated to dividends is in line with the bank’s capital strength. Unless the bank’s capital strength dictates otherwise, it is expected that about 50 per cent of this year’s surplus can be distributed as dividends.

Sparebanken Møre’s allocation of earnings should ensure that all equity certificate holders are guaranteed equal treatment.

Going concern assumption

In accordance with the requirements of Norwegian accounting legislation, the Board confirms that the prerequisites for the going concern assumption have been met, and that the annual financial statements have been prepared and presented on a going concern basis. This is based on the Group’s long-term forecasts for the coming years.

Events after the balance sheet date

No significant events have occurred after the balance sheet date that materially affect the annual financial statements as presented.

Future prospects

Labour market developments in Møre og Romsdal indicate that the total output of goods and services in the county stabilised during the fourth quarter of 2020. At the end of December, registered unemployment amounted to 2.9 per cent of the workforce according to NAV. By comparison, the unemployment rate for the country as a whole was 3.8 per cent.

Meanwhile, there is a risk of some rise in unemployment and the number of bankruptcies increasing due to prolonged activity-reducing infection control measures. A number of industries are facing serious economic situations.

This is particular true for tourism-related sectors such as the hotel and restaurant industry, personal services, and the maritime industry and its suppliers. Challenges will also remain in oil-related industries.

After falling prior to June, the figures for the second half of 2020 show that the pace of growth in lending to households was increasing in the second half of the year for Norway as a whole. At year end 2020, lending growth in the corporate market was somewhat lower than at the end of the year before.

During the first three quarters of 2020, the bank noted somewhat slower growth in both lending to the retail market and lending to the corporate market compared with the annual growth rates at year end 2019. The pace of growth increased in the fourth quarter and ended the year at 4.0 per cent for the retail market, while the growth in lending to the corporate market ended 2020 at 5.3 per cent. Deposits increased by 6.0 per cent in 2020 and the deposit-to-loan ratio remains high.

Sparebanken Møre expects lending growth for the bank in 2021 to be slightly higher than the growth in 2020. Deposit growth is expected to remain high.

The bank has a solid capital base and good liquidity and will remain strong and  committed in supporting our customers. The focus will always be on good operations and profitability.

Although Sparebanken Møre’s strategic financial targets were not achieved in 2020 and the activity-reducing measures due to the coronavirus pandemic are expected to impact the market in 2021 as well, the targets of a return on equity in excess of 11 per cent and a cost income ratio of less than 40 per cent stand. The bank has taken steps aimed at achieving these targets.

Vote of thanks

The Board of Directors would like to thank all of the Group’s employees and elected representatives for their good contributions in 2020. The Board of Directors would also like to thank Sparebanken Møre’s customers, investors and other associates for our good partnership throughout the year.

Ålesund, 31 December 2020
18 February 2021 

THE BOARD OF DIRECTORS OF SPAREBANKEN MØRE 

LEIF-ARNE LANGØY, Chair of the Board 
RAGNA BRENNE BJERKSET, Deputy Chair  
HENRIK GRUNG 
JILL AASEN
ANN MAGRITT BJÅSTAD VIKEBAKK
KÅRE ØYVIND VASSDAL 
HELGE KARSTEN KNUDSEN
MARIE REKDAL HIDE

TROND LARS NYDAL, CEO