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 76 million in first quarter 2021, compared to NOK 61 million in first quarter 2020. Net interest income amounted to NOK 88 million, compared to NOK 81 million in the same quarter last year. Costs amounted to NOK 13 million in first quarter 2021, compared to NOK 12 million in the corresponding quarter in 2020.
The calculation of expected credit loss (ECL) for Møre Boligkreditt AS resulted in unchanged level of impairments in the first quarter 2021 compared to an increase of NOK 3 million in the corresponding quarter in 2020. Profit after tax amounted to NOK 59 million in first quarter 2021, compared to NOK 48 million in the corresponding quarter 2020.
Basis swap spreads are charged to OCI with NOK 7 million after tax in first quarter 2021, compared to NOK 5 million added in first quarter 2020.
Møre Boligkreditt AS acquired mortgages from Sparebanken Møre in first quarter 2021, and net mortgage volume increased by NOK 157 million in the quarter. Net mortgage lending to customers amounted to NOK 29,198 million at first quarter end 2021, compared to NOK 25,880 million at first quarter end 2020.
One new bond loan of NOK 2,700 million was issued in the first quarter 2021. Møre Boligkreditt AS had thirteen bond loans outstanding at 31 March 2021 with a total bond loan debt of NOK 26,278 million, compared to twelve bond loans with NOK 24,880 million outstanding at 31 March 2020. Møre Boligkreditt AS reported Net Stable Funding Ratio (NSFR) of 98 per cent as at 31 March 2021.
Total assets at first quarter end 2021 amounted to NOK 32,179 million compared to NOK 31,159 million at first quarter end 2020. The ECL calculation as at 31 March 2021 shows expected credit loss of NOK 4 million for Møre Boligkreditt AS, compared to NOK 7 million in ECL as at 31 March 2020. At first quarter end 2021, the mortgages in the cover pool had an average loan-to-value ratio of 53.9 per cent, calculated as mortgage amount relative to the value of the property used as collateral, compared to 58.6 per cent loan-to-value ratio by first quarter end 2020.
At first quarter end 2021, the company's substitute assets included in the cover pool amounted to NOK 1,960 million, compared to NOK 1,841 million at first quarter end 2020. Net value of financial derivatives included in the cover pool amounted to NOK 633 million at first quarter end 2021, compared to NOK 2,098 million at end of first quarter 2020. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt was 20.0 per cent as at 31 March 2021, compared to 17.9 per cent as at 31 March 2020.
In addition to liquid assets included in the cover pool, Møre Boligkreditt AS’ Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 116 million at 31 March 2021, reporting total LCR of 543 per cent by first quarter end 2021.
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 2021, compared to NOK 2,102 million by end of first quarter 2020. Risk weighted assets amounted to NOK 7,867 million by end of first quarter 2021. Net equity and subordinated loan capital amounted to NOK 1,988 million by end of first quarter 2021. This corresponds to a Common Equity Tier 1 capital ratio of 25.3 per cent. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Outlook
The economic outlook has improved in the recent months. The handling of Covid-19 and the vaccine rollout will be crucial going forward, but there is also some uncertainty related to the vaccines effect on mutated virus together with possible side effects. The most important financial risk factors are increased unemployment, increase in bankruptcies, fall in housing prices and correction in the stock market.
Mainland Norway GDP was down 0.5 per cent in February, and it is also expected that the coming months will be relatively weak.
In March, the national level of unemployment was reported at 4.2 per cent, and 2.8 per cent in the county of Møre og Romsdal. Central eastern parts of Norway report somewhat higher levels of unemployment, with 6.4 per cent in Oslo, due to both higher concentration of service sector employment combined with stricter local Covid-19 restrictions.
Norges Bank kept the key policy rate unchanged at zero in their March 17th meeting but indicated that the policy rate will most likely be raised in the latter half of 2021. Core inflation rose by 3.1 per cent year-over-year in March 2021.
Housing prices increased by 12.5 per cent as a national average the last twelve months. In the county of Møre og Romsdal, the 12 months growth in housing prices was 10.3 per cent by end of March 2021. Housing prices are expected to increase further due to low mortgage interest rates and improving labour market, but at a slower pace.
We expect unemployment levels to decline as the grown population of Norway according to plans all will be offered a Covid-19 vaccine by end of August. Most of the temporarily laid off are likely to come back to work in 2021, but we still expect to see higher unemployment levels going forward than before Covid-19.
The long-term financial implications of the virus are difficult to predict, but the Board believes that the low level of unemployment in the county together with the low interest rate level 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 2021
28 April 2021
THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chairman
ELISABETH BLOMVIK
GEIR TORE HJELLE
SANDRA MYHRE HELSETH
OLE ANDRE KJERSTAD, Managing Director