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 2020, the same as in the first quarter of 2019. Net interest income amounted to NOK 81 million, compared to NOK 69 million in the same quarter last year. Costs amounted to NOK 12 million in the first quarter of 2020, compared to NOK 10 million in the corresponding quarter in 2019.
The calculation of expected loss (ECL) for Møre Boligkreditt AS resulted in an increase of impairments of NOK 3 million in the first quarter 2020 compared to a reduction in ECL of NOK 1 million in the corresponding quarter in 2019.
Net losses in value of debt securities and related derivatives as of 31 March 2020 was NOK 5 million, compared to NOK 1 million gain in the corresponding quarter in 2019. Basis swap spreads are added to other comprehensive income (OCI) with NOK 5 million after tax in the first quarter of 2020, compared to being charged with NOK 3 million in the corresponding quarter of 2019.
Møre Boligkreditt AS acquired mortgages in the amount of NOK 1,802 million from Sparebanken Møre in the first quarter of 2020, and net loans to and receivables from customers increased by NOK 225 million in the quarter. No new covered bond loans were issued, but one existing covered bond loan was increased with a tap issue of NOK 500 million 30 March 2020. The tap issue was sold in its entirety to Sparebanken Møre. One bond loan with NOK 230 million in remaining outstanding debt matured in the first quarter of 2020.
Profit after tax amounted to NOK 48 million in the first quarter of 2020, compared to NOK 47 million in the corresponding quarter 2019. Tax amounted to NOK 13 million in the first quarter of 2020 compared to NOK 14 million in the corresponding quarter in 2019.
Møre Boligkreditt AS had twelve bond loans outstanding at 31 March 2020 with total debt securities issued of NOK 24,880 million, compared to twelve bond loans and NOK 22,296 million outstanding at 31 March 2019.
Total assets at first quarter end 2020 amounted to NOK 31,159 million compared to NOK 25,712 million at first quarter end 2019. Net lending amounted to NOK 25,880 million at first quarter end 2020, compared to NOK 23,682 million at first quarter end 2019. The ECL calculation as at 31 March 2020 shows expected credit loss of NOK 7 million, compared to NOK 14 million as at 31 March 2019. At first quarter end 2020, the mortgages in the cover pool had an average loan-to-value ratio of 58.6 per cent, calculated as mortgage amount relative to the value of the property used as collateral.
At first quarter end 2020, the company's substitute assets included in the cover pool amounted to NOK 1,841 million, compared to NOK 1,321 million at first quarter end 2019. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt was 17.9 per cent as at 31 March 2020, compared to 12.8 per cent as at 31 March 2019.
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 97 million at 31 March 2020, reporting total LCR of 335 per cent by first quarter end 2020.
Rating
The rating agency Moody's has assigned Aaa-rating to all covered bond loans issued by Møre Boligkreditt AS.
Capital strength
Paid in equity and retained earnings amounted to NOK 2,102 million by end of first quarter 2020, compared to NOK 2,094 million by end of first quarter 2019. Risk weighted assets amounted to NOK 6,924 million by end of first quarter 2020. Net equity and subordinated loan capital amounted to NOK 2,007 million by end of first quarter 2020, compared to NOK 2,016 by end of first quarter 2019. This corresponds to a Common Equity Tier 1 capital ratio of 29.0 per cent. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Outlook
The Norwegian economy has contracted sharply as a consequence of the outbreak of the COVID-19 virus, causing great turmoil in capital markets.
Extensive measures to combat the outbreak was announced by the Norwegian government on March 12. Measures such as shutting down schools, imposing transportation- and travel restrictions, together with temporarily closing-down parts of both the public- and private service sector led to steep increase in unemployment. The national number of registered wholly unemployed, including the temporarily laid off, rose to 10.7 percent of the labour force in March, sharply up from 2.3 percent in February. In the county of Møre og Romsdal, the number of registered wholly unemployed ended at 10 percent by end of March, up from 2.1 per cent in February.
Mitigating steps to dampen the immediate impact on the economy were taken relatively fast. The countercyclical buffer requirement for banks was lowered from 2.5 to 1 per cent, effective immediately. Norges Bank reduced the key policy rate in extra ordinary meetings, first from 1.5 per cent to 1 per cent, then to the record-low level of 0.25 per cent. Norges Bank also introduced liquidity to the market through the offering of F-loans with maturities of up to 12 months.
Housing prices fell by moderately 1.4 percent seasonally adjusted in March and was up 1.5 percent as a national average last 12 months. House prices are expected to decline further in the second quarter of 2020 due to the sharp increase in unemployment and Covid-19 uncertainty. We expect, however, unemployment levels in the county to be reduced when Covid-19 restrictions are lifted. Most of the temporarily laid off are likely to be back at work when restrictions are eased, but we will see higher unemployment levels going forward than before Covid-19.
The long-term financial implications of the Covid-19 virus are difficult to predict, but the Board believes that the efforts to minimise the potential negative consequences of the outbreak are taken, and that the financial implications for Møre Boligkreditt AS will not be significant.
Ålesund, 31 March 2020
29 April 2020
THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chairman
ELISABETH BLOMVIK
GEIR TORE HJELLE
SANDRA MYHRE HELSETH
OLE ANDRE KJERSTAD, Managing Director