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.
Second quarter results
The financial statements of Møre Boligkreditt AS show a pre-tax profit of NOK 59 million in the second quarter of 2020, compared to NOK 63 million in the second quarter 2019. Net interest income amounts to NOK 69 million, compared to NOK 77 million in the same quarter last year. Tighter lending margins due to expedited reductions in lending rates following key policy rate decisions in March and May explains the decrease in net interest income. Funding costs was also reduced following the reduction in the 3 month NIBOR rate, but with delayed effect due to the 3 month interest fixing interval on outstanding covered bonds. Costs amounts to NOK 14 million in the second quarter of 2020, compared to NOK 13 million in the corresponding quarter in 2019.
Calculations of expected credit loss (ECL) for Møre Boligkreditt AS is unchanged in the second quarter 2020 compared to a reduction in ECL with NOK 1 million in the corresponding quarter in 2019.
Net change in value of debt securities in second quarter 2020 is positive with NOK 4 million, compared to negative with NOK 2 million in the corresponding quarter of 2019.
Møre Boligkreditt AS acquired mortgages in the amount of NOK 4,940 million from Sparebanken Møre in the second quarter of 2020. Net loans to and receivables from customers increased by NOK 2,856 million in the second quarter of 2020. No bond loans matured in the second quarter of 2020. One existing bond loan was increased with NOK 500 million in the second quarter of 2020, and one new 5.25-year bond loan of NOK 3.0 billion was placed in the market.
Profit after tax amounts to NOK 46 million in the second quarter of 2020, compared to NOK 50 million in the corresponding quarter 2019. Taxes amounts to NOK 13 million in the second quarter of 2020, the same amount as in the corresponding quarter in 2019.
Half year end results
By half year end 2020 the financial statements show a pre-tax profit of NOK 120 million, compared to NOK 124 million by half year end 2019. Net interest income amounts to NOK 150 million by half year end 2020, compared to NOK 146 million by end of same period last year. Costs in the period ending 30 June 2020 amounts to NOK 26 million, compared with NOK 23 million for the corresponding period 2019.
Net losses in value of debt securities issued and related derivatives is NOK 1 million at half year end 2020, the same amount as at half year end 2019.
Profit after tax amounts to NOK 94 million in the first six months of 2020, compared to NOK 97 million in the corresponding period in 2019. Taxes amounts to NOK 26 million in the first six months of 2020 compared to NOK 27 million in the first six months of 2019.
Changes in value of basis swap spreads are charged to other comprehensive income (OCI) with NOK 0 million after tax by half year end 2020, compared to being added with NOK 1 million by half year end 2019.
Financial position
Møre Boligkreditt AS has thirteen bond loans outstanding at 30 June 2020 with total debt securities issued of NOK 27,438 million, compared to twelve bond loans and NOK 22,371 million outstanding at 30 June 2019.
Total assets at half year end 2020 amounts to NOK 33,282 million compared to NOK 25,851 million at half year end 2019. Net lending amounts to NOK 28,736 million at half year end 2020, compared to NOK 24,993 million at half year end 2019. ECL model calculations as at 30 June 2020 shows expected credit loss of NOK 6.5 million for Møre Boligkreditt AS, compared with NOK 12.7 million as at 30 June 2019.
At half year end 2020, the mortgages in the cover pool has an average loan-to-value ratio of 57 per cent, calculated as mortgage amount relative to the value of the property used as collateral.
At half year end 2020, substitute assets and derivatives included in the cover pool amounts to NOK 3,585 million, compared to NOK 597 million at half year end 2019. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt is 16.1 per cent as at 30 June 2020, compared to 13.2 per cent as at 30 June 2019.
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounts to NOK 106 million at 30 June 2020, reporting total LCR of 477 per cent by half year 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 amounts to NOK 2,144 million by end of half year 2020, compared to NOK 2,148 million by end of half year 2019. Risk weighted assets amounts to NOK 7,030 million by end of half year 2020. Net equity and subordinated loan capital amounts to NOK 2,001 million by end of half year 2020, compared to NOK 2,011 million by end of half year 2019. This corresponds to a Common Equity Tier 1 capital ratio of 28.5 per cent as at 30 June 2020. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Outlook
The Norwegian economy contracted sharply as a consequence of the outbreak of the COVID-19 virus, causing great turmoil in capital markets. The extensive measures to combat the outbreak announced by the Norwegian government have slowly been lifted as the reports of new cases in Norway suggests that the spreading of Covid-19 virus have successfully been contained.
The steep increase in unemployment in March and April as a consequence of the measures taken to fight the virus is reversing. In June, national level of unemployment was reported at 4.8 per cent, and 4.1 per cent in the county of Møre og Romsdal. Central eastern parts of Norway report higher levels of unemployment, with 6.8 per cent in Oslo, due to higher concentration of services sectors combined with a more severe outbreak of Covid-19.
Norges Bank reduced the key policy rate from 0.25 per cent to zero on May 7th, and published a policy rate path in June, indicating that the policy rate would rise from the second half of 2022. Norges Bank have continued introducing liquidity to the market through the offering of F-loans with maturities of up to 12 months.
Housing prices increased by 1.0 per cent seasonally adjusted in June 2020 and was up 3.5 per cent as a national average last 12 months. House prices are expected to increase further due to gradual lifting of Covid-19 restrictions, low mortgage interest rates and improving labour market. Should the strong housing price increase persist, together with a continued increase in the debt-to-income ratio, we might see a reversal of the easing of the mortgage loan regulations already in the third quarter this year.
We expect unemployment levels both on national levels and in the county of Møre og Romsdal to be further reduced. Most of the temporarily laid off are likely to come back to work as restrictions are eased, but we expect to see higher unemployment levels going forward than before Covid-19.
The long-term financial implications of the Covid-19 virus are still 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, 30 June 2020
12 August 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