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 65 million in first quarter 2018, compared to NOK 42 million in first quarter 2017. Net interest income amounted to NOK 72 million, compared to NOK 57 million in the same quarter last year. Costs amounted to NOK 10 million in first quarter 2018, compared with NOK 10 million in the corresponding quarter in 2017. The transition from IAS 39 to IFRS 9 from 1 January 2018 impacts the company's accounting for basisswap spreads as these are charged to OCI with NOK 5 million as at 31 March 2018. Net gain in value of debt securities issued and related derivatives was NOK 1 million at first quarter end 2018, compared to net loss of NOK 5 million including basisswap spreads at first quarter end 2017.
IFRS 9 also changes the loan loss impairment methodology, and replaces IAS 39’s incurred loss approach with a forward looking expected credit loss (ECL) approach. The ECL calculation of expected loss for Møre Boligkreditt AS as at 31 March 2018 resulted in reduced impairments of NOK 2 million in first quarter 2018, compared to no changes in impairments in first quarter of 2017. Profit after tax amounted to NOK 50 million in first quarter 2018, compared to NOK 32 million in the corresponding quarter 2017.
Total assets at first quarter end 2018 amounted to NOK 24 065 million compared to NOK 19 572 million at first quarter end 2017. Net lending increased by NOK 2 103 million in first quarter and amounted to NOK 23 245 million at first quarter end 2018, compared with NOK 18 534 million at first quarter end 2017.
At first quarter end 2018, the company's substitute assets included in the cover pool amounted to NOK 402 million, compared to NOK 602 million at first quarter end 2017. Over-collateralisation, calculated as the value of the coverpool relative to the value of outstanding covered bond loan debt was 11.1 per cent as at 31 March 2018, compared to 13.9 per cent as at 31 March 2017.
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 60 million at 31 March 2018, reporting total LCR of 285 per cent by first quarter end 2018.
One new bond loan of NOK 2 500 million was issued in first quarter 2018. No outstanding bond loans matured in first quarter 2018. Møre Boligkreditt AS had eleven bond loans outstanding at 31 March 2018 with a total bond loan debt of NOK 21 217 million, compared to twelve bond loans with NOK 16 906 million outstanding at 31 March 2017.
The ECL model calculation as at 31 March 2018 shows expected credit loss of NOK 20 million for Møre Boligkreditt AS, compared with NOK 5 million allocated for collective impairment as at 31 March 2017.
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 2018 Møre Boligkreditt AS increased its equity by NOK 100 million through an issue of 80 000 shares á NOK 1 250. The capital increase was fully paid in by Sparebanken Møre as the owner of all 1 140 000 shares in Møre Boligkreditt AS. Paid in equity and retained earnings amounted to NOK 1 646 million by end of first quarter 2018, compared to NOK 1 535 million by end of first quarter 2017. Risk weighted assets amounted to NOK 9 769 million by end of first quarter 2018. Net equity and subordinated loan capital amounted to NOK 1 574 million by the end of first quarter 2018, compared to NOK 1 467 million by end of first quarter 2017. This corresponds to a Common Equity Tier 1 capital ratio of 16.1 per cent. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Outlook
The slowdown of the oil related part of the Norwegian economy is levelling out, and Norwegian oil investments are expected to increase in 2018 for the first year since 2014. A strong household sector due to record low interest rates, low unemployment levels, together with a solid public sector has kept the production levels high in several other sectors. The still weak NOK is positive for the competitiveness of the export industry and the tourist industry.
The development of house prices, together with growth in debt, is the most important risk factors to Norwegian households. The Norwegian key policy rate will most likely be raised in second half of 2018, and we will also probably see upward pressure on mortgage interest rates. 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 located in the county of Møre og Romsdal remains high despite recent years decline in the petroleum related industries. The registered unemployment rate in the county of Møre og Romsdal is 2.6 per cent in March 2018, down from 3.2 per cent in March 2017, compared to Norwegian national average of 2.5 per cent in March 2018, down from 2.9 per cent in March 2017. We expect unemployment in the county to stay around national average levels.
Annual retail lending growth in the Sparebanken Møre Group was 6.3 per cent by the end of first quarter 2018.
The Board believes that the reduction in unemployment, still low interest rates and high disposable household income will contribute to further mortgage loan growth in Sparebanken Møre. This mortgage growth will position Møre Boligkreditt AS to acquire further mortgage loan portfolios from the parent bank, and further increase the volume of outstanding bond loans from Møre Boligkreditt AS.
Ålesund, 31 March 2018
23 April 2018
THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chairman
BRITT IREN TØSSE AANDAL
ELISABETH BLOMVIK
GEIR TORE HJELLE
SANDRA MYHRE HELSETH
OLE KJERSTAD, Managing Director