BackReport from the Board of Directors
Figures in brackets refer to the corresponding period last year.
OPERATIONS IN 2023
Møre Boligkreditt AS is a wholly owned subsidiary of Sparebanken Møre, a regional Norwegian savings bank. Møre Boligkreditt AS is licensed to operate as a mortgage company and to issue covered bonds. Møre Boligkreditt AS is Sparebanken Møre's most important source of long-term market funding and an important part of the parent bank's funding strategy. Møre Boligkreditt AS is located at Sparebanken Møre's headquarter in Kipervikgata 6, in the city of Ålesund.
Net mortgage lending to customers increased by NOK 1,893 million in 2023 and amounted to NOK 32,357 million at year end 2023 (NOK 30,464 million). Mortgages in the company's cover pool are secured by Norwegian residential properties.
One new NOK 4,000 million covered bond premium loan was issued in 2023. One EUR 250 million covered bond loan matured in 2023, and an early redemption of NOK 653 million was made in a covered bond loan maturing in March 2024. Møre Boligkreditt AS had twelve bond loans outstanding as at 31 December 2023 with a total bond loan debt of NOK 28,311 million (NOK 26,807 million).
RATING
The rating agency Moody's has assigned Aaa-rating to all covered bond loans issued by Møre Boligkreditt AS.
Moody’s has furthermore assigned long-term and short-term issuer ratings of A1/Prime-1, and long-term and short-term Counterparty Risk Ratings of A1/Prime-1 to Møre Boligkreditt AS, aligned with the ratings of the parent bank Sparebanken Møre.
THE MORTGAGE COMPANY’S ANNUAL FINANCIAL STATEMENTS
The financial statements of Møre Boligkreditt AS show a profit before tax of NOK 164 million (NOK 177 million). Net interest income amounted to NOK 237 million in 2023 (NOK 263 million). Total operating costs amounted to NOK 58 million (NOK 51 million).
The ECL calculation as at 31 December 2023 shows expected credit loss of NOK 11 million (NOK 10 million).
Profit after tax amounted to NOK 128 million in 2023 (NOK 138 million). Tax amounted to NOK 36 million (NOK 39 million). Total assets at the end of 2023 amounted to NOK 34,600 million (NOK 32,714 million).
Net cash flow from operating activities amounted to NOK -875 million in 2023 (NOK -486 million). The main outflow and inflow is related to payments for mortgages from the parent bank and payments related to instalment loans and credit lines to customers.
As at 31 December 2023, the company's substitute assets included in the cover pool amounted to NOK 854 million (NOK 1,409 million). Over-collateralisation, calculated as the nominal value of the cover pool relative to the nominal value of outstanding covered bond loan debt is 19.8 per cent as at 31 December 2023 (19.4 per cent).
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 154 million as at 31 December 2023, reporting total LCR of 493 per cent.
It is the opinion of the Board of Directors that the presented financial statements provide correct and adequate information about the company's operations and status as at 31 December 2023.
CAPITAL STRENGTH
Paid in equity and retained earnings amount to NOK 1,665 million by year end 2023 (NOK 1,712 million). Risk weighted assets amount to NOK 7,640 million (NOK 7,845 million). Net equity and subordinated loan capital amount to NOK 1,489 million (NOK 1,515 million). This corresponds to a Common Equity Tier 1 capital ratio of 19.5 per cent as at 31 December 2023 (19.3 per cent). Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk. The minimum capital adequacy ratio for Møre Boligkreditt AS is 17.5 per cent.
Norges Bank increased the countercyclical capital buffer requirement to 2.5 per cent effective from 31 March 2023. The systemic risk buffer requirement increased from 3.0 to 4.5 per cent effective from 31 December 2023.
RISKS
Møre Boligkreditt AS is subject to a number of acts, regulations, recommendations and regulatory provisions. These regulations largely stipulate restrictions concerning the scope of the company's various risk exposures. The Board and the Managing Director of Møre Boligkreditt AS are responsible for ensuring that proper risk management is established, and that such risk management is adequate and complies with current laws and regulations. Operational risk management in Møre Boligkreditt AS is maintained by Sparebanken Møre according to service agreements concluded between Møre Boligkreditt AS and Sparebanken Møre.
Risk management emphasizes identifying, measuring and managing the company's risk elements in a manner that ensures that Møre Boligkreditt AS complies with the professional credit regulations and keeps the various risks at a low level.
CREDIT RISK
Credit risk is defined as the risk of losses associated with customers or other counterparties being unable to fulfil their obligations at the agreed time and pursuant to written agreements, and that the received collateral is not covering outstanding claims.
The credit risk strategy adopted by the company defines which loans can be acquired by the company. The strategy stipulates criteria for both borrowers and the collateral for the loans that can be acquired. At year-end 2023, the mortgages in the cover pool had an average loan-to-value ratio of 55.1 per cent, calculated as mortgage amount relative to the value of the property used as collateral. The Board regards the quality of the loan portfolio as very good and the credit risk as low.
MARKET RISK
Market risk is the risk that will arise due to the mortgage company holding or assuming positions in lending and financial instruments in which the values over time will be affected by changes in market prices. Møre Boligkreditt AS must, pursuant to laws and regulations, have very low market risk and Board approved restrictions concerning its maximum exposure to market risk. The company utilizes financial derivatives to keep this type of risk at a low level. A specific market risk strategy has been adopted for Møre Boligkreditt AS which establishes the limits for this type of risk. The company's positions in fixed interest and foreign currencies are hedged with financial derivatives. The Board considers the overall market risk as low.
LIQUIDITY RISK
Liquidity risk is the risk that Møre Boligkreditt AS will be unable to fulfil its obligations without substantial extra costs being incurred in the form of decline in asset values, forced sales or more expensive funding. The company has adopted a liquidity risk strategy and established limits for long-term funding and short-term liquidity risk limits. Bonds issued by Møre Boligkreditt AS have a soft bullet structure in which the company has the opportunity to extend the term of its borrowing by up to 12 months. Møre Boligkreditt AS reports LCR of 493 per cent by year-end 2023. The Board regards the company's liquidity risk as low.
OPERATIONAL RISK
Operational risk is the risk of losses due to inadequate or failing internal processes, human error, system failures or external events. Møre Boligkreditt AS has entered into management agreements with Sparebanken Møre. The services covered by these agreements include administration, production, IT operations, and financial and risk management. Although the operational risk of Møre Boligkreditt AS is dependent of Sparebanken Møre's ability to manage this type of risk, Møre Boligkreditt AS independently bears risk associated with errors in the deliveries and services provided by Sparebanken Møre.
The evaluation of the management and control of operational risk is included in the Group's ICAAP. The operational and established annual internal control report, both within Sparebanken Møre and by the Managing Director of Møre Boligkreditt AS, is an important tool for reducing operational risk. The internal control reports will help identifying any operational risk and enable action to be taken. The Board regards the company's operational risk as low to moderate.
CLIMATE RISK
Climate risk is the impact resulting from climate change, and climate risk will impact the company’s credit risk. 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.
For additional information, see Sparebanken Møre’s consolidated annual report at www.sbm.no
LEGISLATION
The Norwegian Financial Supervisory Authority raised the minimum regulatory requirement for overcollateralization from 2 per cent to 5 per cent. Møre Boligkreditt AS, according to the Directive, report eligible mortgage volume in the cover pool with LTV up to 80 per cent.
The Norwegian Financial Supervisory Authority has approved Møre Boligkreditt AS’ European Covered Bond Premium Program. Covered bonds issued by Møre Boligkreditt AS that complied under existing legislations before 8 July 2022 are grandfathered and eligible for preferential treatment to maturity.
The new regulation in Norway states that the role as cover pool monitor no longer can be filled by the company’s external auditor. BDO was appointed Møre Boligkreditt AS’ cover pool monitor from 1 January 2023.
CORPORATE GOVERNANCE STATEMENT
Møre Boligkreditt AS complies with the latest Norwegian Code of Practice for Corporate Governance. Møre Boligkreditt AS was established as part of Sparebanken Møre's long-term funding strategy with the purpose of funding the bank through issuing covered bonds. Møre Boligkreditt AS helps ensure that the Sparebanken Møre Group properly manages its assets, as well as providing additional assurance that goals and strategies are achieved and realized.
The Board ensures that risk management and internal control are adequate and systematic, and that they have been established in compliance with the law and regulations, articles of association, ethical guidelines, instructions, and external and internal guidelines. The Board sets principles and guidelines for risk management and internal control for the various levels of activity pursuant to the company's risk bearing capacity, in order to assure that the strategies and guidelines are being followed. The Board systematically and regularly assesses the strategies and guidelines for risk management.
In order to ensure that Møre Boligkreditt AS' risk management and internal control are carried out satisfactorily, the Board continuously receives various types of reports throughout the year from Sparebanken Møre's control bodies, as well as from internal and external auditors. The Board actively participates in the annual implementation of the long-term strategic plan. The Board revises and approves all the company's general risk management documents at least once a year. The Managing Director of Møre Boligkreditt AS reports annually on the structure and efficiency of the company's internal control.
The overall responsibility for ensuring that principles of accounting and financial control are identified, monitored and evaluated is outsourced to the Finance and Accounting department and the Risk Management department in Sparebanken Møre. The responsibility for the preparation of financial statements, and the reporting of these to the Managing Director in Møre Boligkreditt AS, is assigned to the Finance and Accounting department in the parent bank.
The Board of Directors and the Chair of the Board are elected by the General Meeting and shall consist of four to six members elected for a period of two years. After one year, at least half of the elected members shall step down, based on the drawing of lots, while the remainder shall step down after one more year. Board members can be re-elected.
The Chair of the Board in Møre Boligkreditt AS shall, by the end of October and in consultation with the Managing Director, set out a proposed annual plan for the Board's work for the coming year and the main items on the agendas of board meetings for the next calendar. Each year, the Board evaluates its own methods and professional competence to see if improvements can be made.
The Chair of the Board shall ensure that the Board of Directors convenes at least once every quarter and otherwise as often as is called for by the nature of the company's activities, or when requested by a board member. A valid Board resolution is passed by at least three board members voting in favour of the resolution. The annual General Meeting shall be held each year before the end of June.
The company's paid-in equity of NOK 1,550 million consist of 1,100,000 shares of NOK 1,250 fully paid in, together with a share premium of NOK 175 million. With the consent of the Financial Supervisory Authority of Norway, the General Meeting may raise additional share capital, subordinated loan capital and guarantee capital.
Møre Boligkreditt AS is part of the Sparebanken Møre Group. The Group’s corporate governance is based on the Norwegian Code of Practise for Corporate Governance. The corporate governance report is included in Sparebanken Møre’s consolidated annual report, see www.sbm.no
The Norwegian Transparency Act, and compliance with fundamental human rights and decent working conditions is reported for the Sparebanken Møre Group, including Møre Boligkreditt AS, and made available in Sparebanken Møre’s annual report (Sustainability Report), see www.sbm.no.
Statement on ethics and corporate social responsibility in the consolidated annual report for Sparebanken Møre also includes Møre Boligkreditt AS, see www.sbm.no
INTERNAL CONTROL
The Managing Director of Møre Boligkreditt AS is responsible for establishing proper risk management and internal control based on the guidelines decided by the Board, making sure that these are adhered to, and providing the Board with information about developments within the various areas. The Managing Director reports on structure and efficiency of the company's internal control in the fourth quarter every year.
Møre Boligkreditt AS bases its internal control on an overall risk management process. The Board has decided upon guidelines for establishing proper risk management and internal control and ensures that risk management and internal control in Møre Boligkreditt AS are adequate and systematic, and that the processes have been established in compliance with the law and regulations, articles of association, instructions, and external and internal guidelines. The Board systematically and regularly assesses the strategies and guidelines for risk management.
In the financial reports, written procedures relating to critical areas within the company, as well as the level of achievement of both the company's financial goals, and the qualitative goals relating to risk managing are presented. This ensures a close and accurate monitoring of the financial reporting and increases the possibility of early risk detection. The Managing Director of Møre Boligkreditt AS has the primary responsibility for managing risks associated with the company's operational and financial reporting, which is the foundation for satisfactory quality in the financial reporting.
The internal control and risk assessment of the financial reporting is one of the areas of focus in the Managing Director’s annual confirmation on the quality of, and the compliance with internal controls. The Auditor has an important role in the monitoring of internal controls related to financial reporting. The financial statements provide additional information about the risk management and internal control of Møre Boligkreditt AS.
PROFIT DISTRIBUTION POLICY
Møre Boligkreditt AS’ profit distribution policy states the following: "The company shall make a maximum payment from the profit generated in the fiscal year, either in the form of a dividend or as a group contribution. Such payments, however, shall not conflict with the requirements for liquidity and financial strength of the company, and shall in any case abide by what is considered good and prudent business and accounting practice.”
GENERAL MEETING AND COMPANY BOARD
The General Meeting is the supreme body of Møre Boligkreditt AS. The General Meeting of Møre Boligkreditt AS consists of the Board of Directors of Sparebanken Møre, Sparebanken Møre being the sole owner of the company.
The Board shall consist of four to six members elected for a period of two years.
The Board's responsibilities and tasks are set forth in a separate document which is discussed and revised by the Board regularly. The document contains the dividing of responsibilities and tasks between the Board and the Managing Director of the company. Each year, the Board evaluates its own methods and professional competence.
BOARD LIABILITY INSURANCE
Møre Boligkreditt AS is covered by Sparebanken Møre Group’s board liability insurance with AIG. The insurance covers previous, current and future board members, the Managing Director and member of the corresponding bodies within the Group, including subsidiaries. Continuity date January 1, 2008.
The insurance does not cover losses as a result of the insured's intentional actions or omissions, or cases where the insured individual has obtained unjustified personal gain. In addition, the terms of the insurance also stipulate other cases where the insurance will not apply. The insurance excludes liability in connection with breaches of money laundering rules. The insurance does not cover claims for payment of fines, fees and taxes, or other non-insurable matters in accordance with current legislation.
GOING CONCERN ASSUMPTION
The Board is of the opinion that the prerequisites for the going concern assumption exist, and the Board confirms that the 2023 annual financial statements are prepared based on the going concern assumption.
EMPLOYEES
Møre Boligkreditt AS had no employees at year-end 2023. One man-year from Sparebanken Møre is dedicated full time to the mortgage company. Furthermore, a number of services are outsourced to Sparebanken Møre, regulated by specific agreements between the mortgage company and the bank.
No special work environment measures have been implemented in Møre Boligkreditt AS.
EQUAL OPPORTUNITIES
The Sparebanken Møre Group strives for gender-neutral employment – and wage policy. The Board and management in Sparebanken Møre systematically and actively work to promote equality. The Board of Møre Boligkreditt AS consists of two men and two women.
POLLUTION OF THE EXTERNAL ENVIRONMENT
The activities of Møre Boligkreditt AS do not pollute the external environment. For additional information, see Sparebanken Møre’s consolidated annual report.
OTHER FACTORS
As far as the Board is aware, no events have occurred after the end of the financial year 2023 of material importance to the position and result of Møre Boligkreditt AS.
RESEARCH AND DEVELOPMENT
Møre Boligkreditt AS has no research and development activities.
CORPORATE SOCIAL RESPONSIBILITY
For information on corporate social responsibility, Møre Boligkreditt AS being a wholly owned subsidiary of Sparebanken Møre, we refer to Sparebanken Møre 's consolidated annual report.
FUTURE PROSPECTS
From December 2022 to December 2023 the Consumer Price Index (CPI) increased by 4.8 per cent, while the CPI adjusted for tax changes and excluding energy products (CPI-ATE) rose by 5.5 per cent. These levels are slightly below Norges Bank’s projections, but still significantly higher than the long-term inflation target of 2 per cent. The depreciation of the Norwegian krone adds to pressure on inflation levels through imported goods and services.
Unemployment levels in Norway remain low. In December 2023, the national level of registered unemployment was 1.9 per cent, compared to 1.7 per cent in the county of Møre og Romsdal.
In December, Norges Bank delivered a rate-hike of 0.25 percentage points to a policy rate of 4.5 per cent. The policy rate path indicates that the policy rate will stay at 4.5 per cent for the larger part of 2024.
National twelve-months growth in household loan debt is declining and reported at 3.3 per cent in November 2023. This is the lowest growth level since the mid 1990’s. National housing prices increased by 0.2 per cent in December 2023, seasonally adjusted, and are up by 0.5 per cent the last twelve months.
The Board expects to see a further dampened growth in household debt going forward, due to both the increase in mortgage interest rate levels and a general increase in household costs. Unemployment levels, both on a national level and in the county of Møre og Romsdal, are expected to increase somewhat in the coming quarters, but still stay at low levels. The Board also expects to see a moderate decline in housing prices in the first quarters of 2024.
DISTRIBUTIONS
Profit after tax amounted to NOK 128 million in 2023. Total comprehensive income after tax amounted to NOK 99 million in 2023. The recommendation from the Board of Directors to the annual General Meeting is a dividend payment of NOK 128 million.
Ålesund, 31 December 2023
13 February 2024
THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chair
ELISABETH BLOMVIK
KRISTIAN TAFJORD
SANDRA MYHRE HELSETH
OLE ANDRE KJERSTAD, Managing Director