BackInterim report from the Board of Directors
About the company
Møre Boligkreditt AS is a wholly owned subsidiary of
Sparebanken Møre. The company is licensed to operate as a mortgage company,
issuing covered bonds. Møre Boligkreditt AS is Sparebanken Møre's most
important source of market funding and an important part of the parent bank's
long term funding strategy.
The accounts have been prepared in accordance with
IFRS.
First quarter results
The financial statements of Møre Boligkreditt AS show
a pre tax profit of NOK 42 million in first quarter 2017, compared to NOK 56
million in first quarter 2016. Net interest income amounted to NOK 57 million,
compared to NOK 60 million for the same period last year. Costs amounted to NOK
10 million in first quarter 2017, compared with NOK 8 million in the
corresponding quarter in 2016. Net loss in value of debt securities issued and
related derivatives was NOK 5 million at first quarter end 2017, compared to net
gain of NOK 4 million at first quarter end 2016.
Møre Boligkreditt AS has not established losses or
impairment for individual losses in first quarter 2017, nor made any changes to
the collective impairment. Profit after tax amounted to NOK 32 million in first
quarter 2017, compared to NOK 42 million in the corresponding quarter 2016.
Total assets at first quarter end 2017 amounted to NOK
19 572 million compared to NOK 19 150 million at first quarter end 2016. Net lending
decreased by NOK 1 276 million in first quarter and amounted to NOK 18 534
million at first quarter end 2017, compared with NOK 18 023 million at first
quarter end 2016.
At first quarter end 2017, the company's liquidity
assets amounted to NOK 652 million of which NOK 602 million was included in the
cover pool as subsitute assets, compared to NOK 581 million at first quarter
end 2016.
No new bond loan volume was issued in first quarter 2017
and no outstanding bond loans matured in first quarter 2017. A partly early
redemption of NOK 1 369 million was made in one bond loan maturing in May 2017.
Møre Boligkreditt AS had twelve bond loans outstanding at 31 March 2017 with a
total bond loan debt of NOK 16 906 million, compared to twelve bond loans with
NOK 15 765 million outstanding at 31 March 2016.
The amount allocated for collective impairment was NOK
5 million at first quarter end 2017, compared to NOK 4 million at first quarter
end 2016.
Rating
The rating agency Moody's has assigned Aaa-rating to
all covered bond loans issued by Møre Boligkreditt AS.
Capital strength
In first quarter 2017 Møre Boligkreditt AS increased
its equity by NOK 150 million through an issue of 120 000 shares á NOK 1 250.
The capital increase was fully paid in by Sparebanken Møre as the owner of all 1
060 000 shares in Møre Boligkreditt AS. Paid in equity and other equity
amounted to NOK 1 503 million by end of first quarter 2017, compared to NOK 1 353
million by end of first quarter 2016. Net equity and subordinated loan capital amounted to NOK 1 467 million by the end of first quarter 2017, compared to NOK 1 318 million by end of first quarter 2016. This corresponds to a capital
adequacy/core capital ratio of 17.9 per cent. Risk weighted assets amounted to NOK 8 173 million by end of
first quarter 2017. Møre Boligkreditt AS uses internal rating based (IRB)
models to calculate capital requirements for credit risk.
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 a service agreement 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 fulfill 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 that can be
acquired by the company. The strategy stipulates criteria for both borrowers
and the collateral for the loans that can be acquired. At end of first quarter 2017,
the mortgages in the cover pool had an average loan-to-value ratio of 54 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’s 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 the Act on financial institutions and financial groups, have
very low market risk and Board approved restrictions concerning it’s maximum
exposure to market risk. The company utilizes financial derivatives to keep
this type of risk at a low level. A specific market 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 fulfill 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. A 12 month’s rolling revolving
credit facility guarantee from Sparebanken Møre ensures timely payments to
derivative counterparties and owners of bonds issued by Møre Boligkreditt AS.
Furthermore the bonds 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 204 per cent by first quarter end 2017. 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 a management agreement with Sparebanken Møre. The services covered
by this agreement 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 bear risk
associated with errors in the deliveries and services provided by Sparebanken
Møre.
The
evaluation of the management and control of operational risk is also afforded
considerable attention in the Group's annual ICAAP. The operational and
established yearly 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.
Outlook
Growth
in the gross domestic product for mainland Norway was 0.3 per cent in the 4th
quarter of 2016, slightly up from the 3rd quarter, and we expect this positive development
to continue also in the coming quarters.The Consumer Price Index rose 0.4 per
cent from January 2017 to February 2017. The year-to-year growth in the
Consumer Price Index was 2.5 per cent in February, down by 0.3 percentage points
from January. Norges Bank, at its March meeting, decided to keep the key policy
rate unchanged at 0.50 per cent. The twelve-month household debt growth was 6.6
per cent at end of February 2017, up from 6.5 per cent the month before.
Continued
high growth in house prices may lead to even higher debt accumulation and
increased household vulnerabilities.
A
still strong household sector, due to record low interest rates, relative low
unemployment levels, together with a solid public sector will keep the
production levels high in several sectors. The still relative weak NOK against
EUR and USD is positive for the competiveness of the export industry and also
tourism.
The
development of house prices, together with growth in debt, is still the most
important risk factors to Norwegian households. Important risk factors going
forward are also the oil price development, macroeconomic growth in export
markets and the NOK exchange rate.
The
combined activity of businesses, especially export oriented and tourist
related, located in Møre og Romsdal county remains high despite the decline in
the petroleum related industries. The registered unemployment rate in Norway
was 2.9 per cent in March 2017, in the county of Møre og Romsdal the similar
figure was 3.2 per cent. We expect the unemployment rate in the county just
above national average levels in the coming quarters.
The
retail lending growth in Sparebanken Møre Group was 8.0 per cent the last
twelve months. The Board believes that the low interest rates and
high disposable household income, will contribute to further mortgage loan
growth in Sparebanken Møre and position Møre Boligkreditt AS to acquire
mortgage loan portfolios from the Parent Bank.
Ålesund, 31 March 2017
26 April 2017
THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chairman
BRITT IREN TØSSE AANDAL
TROND NYDAL
GEIR TORE HJELLE
SANDRA MYHRE HELSETH
OLE KJERSTAD, Managing Director