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 by the Norwegian FSA to operate as a mortgage company and issue 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 61 million in the first quarter of 2019, compared to NOK 64 million in the first quarter of 2018. Net interest income amounted to NOK 69 million, compared to NOK 72 million in the same quarter last year. Costs amounted to NOK 10 million in the first quarter of 2019, equal to the corresponding period in 2018.
The calculation of expected loss (ECL) for Møre Boligkreditt AS resulted in a reduction of impairments of NOK 1 million in the first quarter of 2019, equal to the corresponding quarter in 2018.
Net gain in value of debt securities and related derivatives as of 31 March 2019 was NOK 1 million, equal to the corresponding quarter in 2018. Basis swap spreads are charged to other comprehensive income (OCI) with NOK 3 million after tax in the first quarter of 2019, compared to NOK 4 million in the corresponding quarter of 2018.
Møre Boligkreditt AS acquired mortgages in the amount of NOK 1,805 million from Sparebanken Møre in the first quarter of 2019, and net loans to and receivables from customers increased by NOK 273 million in the quarter. No new covered bond loans were issued, and no outstanding bond loan debt matured in the first quarter of 2019.
Profit after tax amounted to NOK 47 million in the first quarter of 2019, compared to NOK 49 million in the corresponding quarter in 2018. Tax amounted to NOK 14 million in the first quarter of 2019 compared to NOK 15 million in the corresponding quarter in 2018.
Møre Boligkreditt AS had twelve bond loans outstanding at 31 March 2019 with total debt securities issued of NOK 22,296 million, compared to eleven bond loans and NOK 21,217 million outstanding at 31 March 2018.
Total assets at first quarter end 2019 amounted to NOK 25,712 million compared to NOK 24,070 million at first quarter end 2018. Net lending amounted to NOK 23,682 million at first quarter end 2019, compared to NOK 23,252 million at first quarter end 2018. The ECL calculation as at 31 March 2019 shows expected credit loss of NOK 14 million, compared to NOK 13 million as at 31 March 2018. At first quarter end 2019, the mortgages in the cover pool had an average loan-to-value ratio of 57.9 per cent, calculated as mortgage amount relative to the value of the property used as collateral.
At first quarter end 2019, the company's substitute assets included in the cover pool amounted to NOK 1,321 million, compared to NOK 402 million at first quarter end 2018. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt was 12.8 per cent as at 31 March 2019, compared to 11.1 per cent as at 31 March 2018.
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 60 million at 31 March 2019, reporting total LCR of 314 per cent by first quarter end 2019.
Rating
The rating agency Moody's has assigned Aaa-rating to all covered bond loans issued by Møre Boligkreditt AS.
Capital strength
In the first quarter 2019, Møre Boligkreditt AS increased its equity by NOK 450 million through an issue of 360,000 shares á NOK 1,250. The capital increase was fully paid in by Sparebanken Møre as the owner of all 1,500,000 shares in Møre Boligkreditt AS. Paid in equity and retained earnings amounted to NOK 2,094 million by end of first quarter 2019, compared to NOK 1,651 million by end of first quarter 2018. Risk weighted assets amounted to NOK 10,095 million by end of first quarter 2019. Net equity and subordinated loan capital amounted to NOK 2,016 million by end of first quarter 2019, compared to NOK 1,574 million by end of first quarter 2018. This corresponds to a Common Equity Tier 1 capital ratio of 20.0 per cent as at 31 March 2019. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Outlook
A strong household sector due to record low interest rates, low unemployment levels, together with a solid public sector has kept Norwegian production levels high. The still weak NOK is positive for the competitiveness of the export industry and the tourist industry. The Norwegian key policy rate was announced raised with 0.25 percentage points to 1.0 per cent 21 March 2019 , followed by announcements of mortgage interest rate hikes from banks operating in the Norwegian mortgage market. The development of housing prices, together with the growth in debt, are the most important risk factors to Norwegian households. Important risk factors going forward are also the oil price development, macroeconomic growth in export markets, the concern for a global trade war 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 2.3 per cent in March 2019, just below the Norwegian national average of 2.4 per cent. We expect unemployment level in the county to be around national average levels also going forward.
Annualised retail lending growth in the Sparebanken Møre Group was 5.2 per cent in the first quarter of 2019.
The Board believes that the low level of 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 mortgage loan portfolios from Sparebanken Møre and increase the volume of outstanding bond loans from Møre Boligkreditt AS.
Ålesund, 31 March 2019
24 April 2019
THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chairman
BRITT IREN TØSSE AANDAL
ELISABETH BLOMVIK
GEIR TORE HJELLE
SANDRA MYHRE HELSETH
OLE ANDRE KJERSTAD, Managing Director