1.1 GENERAL INFORMATION
Møre Boligkreditt AS (the company) is part of the Sparebanken Møre Group. The company's Head Office is located at Keiser Wilhelmsgt. 29/33, P.O.Box 121 Sentrum, 6001 Ålesund, Norway.
Preliminary Annual statement was approved for publishing by the Board of Directors 23 January 2019. Final Annual statement was approved by the Board of Directors 4 February 2019.
1.2 ACCOUNTING POLICIES
The company`s financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board, and approved by the EU as at 31 December 2018.
How the company’s accounting policies are to be read:
Møre Boligkreditt AS describes accounting policies in connection with relevant notes. See the table below for an overview of accounting principles and the notes in which they are described, as well as reference to relevant and important IFRS-standards.
|Accounting policies||Note||IFRS standard|
|Operating segments||Note 2 Operating segments||IFRS 8|
|Impairments||Note 3 Impairment, losses and non-performance||IFRS 9, IFRS 7|
|Financial derivatives||Note 7 Market risk||IFRS 9, IFRS 7, IFRS 13|
|Hedging||Note 9 Hedging of interest rate and currency exposure||IFRS 9, IFRS 7|
|Classification of financial instruments||Note 8 Financial instruments - classification and measurement||IFRS 9, IFRS 7|
|Amortised cost||Note 8 Financial instruments - classification and measurement||IFRS 9, IFRS 7|
|Fair value||Note 8 Financial instruments - classification and measurement||IFRS 9, IFRS 13, IFRS 7|
|Tax||Note 13 Tax||IAS 12|
|Equity||Note 15 Share capital||IAS 1|
|Events after the reporting date||Note 16 Events after the reporting date||IAS 10|
Changes in accounting policies and presentation
There were no material changes to the accounting policies in 2018.
New or revised standards applicable for 2018
The mortgage company has implemented one new standard in 2018, IFRS 9 Financial Instruments which replaced IAS 39 as of 1 January 2018. Please see note 3 for information and specifications regarding the effects of the implementation on impairments and note 8 regarding classification and measurement.
Approved IFRSs and IFRICs with future effective dates
Standards and interpretations that are issued up to the date of issuance of the financial statements, but not yet effective are disclosed below. The company’s intention is to adopt relevant new and amended standards and interpretations when they become effective, subject to EU approval before the financial statements are issued.
The following approved IFRS with future effective date is not expected to be relevant for the company, thus have no impact on the financial statements of the company:
- IFRS 16 Leases
All amounts in the financial statements and notes are stated in NOK million, unless otherwise specified. The company's functional currency and presentation currency is Norwegian kroner (NOK). Cash items in foreign currencies are converted into NOK at the exchange rates at the reporting date. Changes in value for such items due to exchange rates differences between the transaction date and the reporting date are recognised in the income statement. Income statement items are converted using the exchange rate at the time of the transaction.
1.4 PRESENTATION IN THE STATEMENT OF FINANCIAL POSITION AND INCOME STATEMENT
Lending is presented in the statement of financial position, depending on the counterparty, either as "Loans to and receivables from credit institutions" or "Loans to and receivables from customers". Interest income is recognised in the lines "Interest income from: Loans to and receivables from credit institutions and Loans to and receivables from customers"using the effective interest rate method. Impairments are recognised in "Impairment on loans".
Certificates and bonds
The holding of covered bonds measured at fair value is presented in the balance sheet as “Certificates and bonds”. The interest income is included in “Certificates, bonds and other interest-bearing securities” and fair value changes in “Net change in value of securities and related derivatives”.
Liabilities to financial institutions
Liabilities to financial institutions are recognised in the statement of financial position as "Loans from credit institutions". Interest expenses on liabilities are included in "Interest expenses in respect of loans from credit institutions" based on the effective interest rate method.
Debt securities issued
Debt securities issued include issued bonds. Interest expenses on the financial instruments are included in "Interest expenses in respect of debt securities" based on the effective interest rate method.
1.5 PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES
A provision is only recognised when an obligation exists (legal or constructive) as a result of a previous event, and it is likely that an outflow of resources embodying economic benefits will be required to fulfil the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are recognised at the amount that expresses the best estimate of the expenditure required to fulfil the existing obligation. If material the time value of money is taken into account when calculating the size of the provision. Contingent assets or contingent liabilities are not recognised.
1.6 USE OF ESTIMATES IN THE PREPARATION OF THE ANNUAL FINANCIAL STATEMENTS
In the preparation of the financial statements, management makes estimates and assumptions that affect the financial statements and the reported amounts of assets and liabilities, income and costs. The assessments are based on historical experience and assumptions deemed to be reasonable and sensible by the management. There is a risk that the actual outcomes will deviate from the estimated outcomes.
The financial assets and liabilities of the company are allocated to different categories according to IFRS 9 by the management. Normally this process requires limited judgment.
In the opinion of the management, the most important areas which involve critical estimates and assumptions are as follows:
Impairment on loans
The measurement of expected credit losses (ECL) under IFRS 9 requires judgement when assessing whether there has been a significant increase in credit risk and in determining the level of impairment losses, in particular with regards to the estimation of the amount and timing of future cash flows and collateral values. These estimates are driven by a number of factors, changes in which can result in different levels of allowances.
The Sparebanken Møre Group has developed an ECL-model based on the Group’s IRB parameters. The ECL calculations are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL model that are considered accounting judgements and estimates include:
- The internal credit grading model, which assigns probability of default (PD)
- The criteria for assessing if there has been a significant increase in credit risk resulting in allowances for financial assets being measured on a lifetime ECL basis
- Development of the ECL model, including the various formulas and the choice of inputs
- Determination of associations between macroeconomic scenarios and economic inputs, such as unemployment levels and collateral values, and the effect on probability of default (PD), exposure at default (EAD) and loss given default (LGD)
- Selection of forward-looking macroeconomic scenarios and their probability weightings
Fair value assessments
For financial instruments which are not traded in active markets, various methods are applied in order to ascertain fair value. Further information and a description of the techniques used, is stated in note 8. Financial instruments not traded in an active market are measured based on in-house judgments and assumptions with regards to current market conditions, or valuations from other market participants.