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 79 million in the second quarter of 2021, compared to NOK 59 million in the second quarter of 2020. Net interest income amounts to NOK 90 million, compared to NOK 69 million in the same quarter last year. Costs amounts to NOK 14 million in the second quarter of 2021, same as for the corresponding quarter in 2020.
Calculations of expected credit loss (ECL) for Møre Boligkreditt AS resulted in no expense recognition neither in the second quarter of 2021, nor in the corresponding quarter of 2020.
Net gains from financial instruments in second quarter 2021 is NOK 3 million, compared to NOK 4 million in the corresponding quarter of 2020.
Møre Boligkreditt AS acquired mortgages in the amount of NOK 2,452 million from Sparebanken Møre in the second quarter of 2021. Net loans to and receivables from customers increased by NOK 337 million in the second quarter of 2021. No bond loans matured in the second quarter of 2021, and no new bond loans were placed in the market.
Profit after tax amounts to NOK 62 million in the second quarter of 2021, compared to NOK 46 million in the corresponding quarter of 2020. Taxes amounts to NOK 17 million in the second quarter of 2021, compared to NOK 13 million in the corresponding quarter in 2020.
Half year end results
By half year end 2021 the financial statements show a pre-tax profit of NOK 155 million, compared to NOK 120 million by half year end 2020. Net interest income amounts to NOK 178 million by half year end 2021, compared to NOK 150 million by end of same period last year. Costs in the period ending 30 June 2021 amounts to NOK 27 million, compared with NOK 26 million for the corresponding period in 2020.
Net gains from financial instruments is NOK 4 million at half year end 2021, compared to a loss of NOK 1 million at half year end 2020.
Profit after tax amounts to NOK 121 million in the first six months of 2021, compared to NOK 94 million in the corresponding period in 2020. Taxes amounts to NOK 34 million in the first six months of 2021 compared to NOK 26 million in the first six months of 2020.
Changes in value of basis swap spreads are charged to other comprehensive income (OCI) with NOK 9 million after tax by half year end 2021, compared to no change in value by half year end 2020.
Financial position
Møre Boligkreditt AS has thirteen bond loans outstanding at 30 June 2021 with total debt securities issued of NOK 26,408 million, compared to thirteen bond loans and NOK 27,438 million outstanding at 30 June 2020.
Total assets at half year end 2021 amounts to NOK 32,465 million compared to NOK 33,282 million at half year end 2020. Net lending amounts to NOK 29,535 million at half year end 2021, compared to NOK 28,736 million at half year end 2020. ECL model calculations as at 30 June 2021 shows expected credit loss of NOK 4.8 million for Møre Boligkreditt AS, compared with NOK 6.5 million as at 30 June 2020.
At half year end 2021, the mortgages in the cover pool has an average loan-to-value ratio of 53 per cent, calculated as mortgage amount relative to the value of the property used as collateral.
At half year end 2021, substitute assets and derivatives included in the cover pool amounts to NOK 2,472 million, compared to NOK 3,585 million at half year end 2020. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt is 20.4 per cent as at 30 June 2021, compared to 16.1 per cent as at 30 June 2020.
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounts to NOK 116 million at 30 June 2021, reporting total LCR of 521 per cent by half year 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 amounts to NOK 2,162 million by end of half year 2021, compared to NOK 2,144 million by end of half year 2020. Risk weighted assets amounts to NOK 7,930 million by end of half year 2021. Net equity and subordinated loan capital amounts to NOK 1,984 million by end of half year 2021, compared to NOK 2,001 million by end of half year 2020. This corresponds to a Common Equity Tier 1 capital ratio of 25.0 per cent as at 30 June 2021. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
A capital reduction of up to NOK 500,000,000 was approved by the Norwegian FSA 11 June 2021. The Norwegian register of business enterprises was notified 15 June 2021, triggering a six week creditor notice period. The six week creditor notice period ended 27 July 2021 without any creditors objecting. The approved capital reduction of up to NOK 500,000,000 will be completed in the third quarter of 2021. The calculated effect on CET1 of the capital reduction is 6.3 per cent.
Outlook
The economic outlook has continued improving in the last quarter. The handling of Covid-19 and the effectiveness in the vaccine rollout will be important going forward, and there is still some uncertainty related to the vaccine’s effect on mutated virus together with any possible side effects. The most important financial risk factors are still related to the possibility of increased unemployment, increase in bankruptcies, fall in housing prices and a correction in the stock market.
Seasonally adjusted volume growth for GDP mainland Norway was up 1.8 per cent in May 2021 according to Statistics Norway, and projected change to GDP from 2020 to 2021 is 3.1 per cent.
In June, the national level of registered unemployment was reported at 2.9 per cent, and 2.4 per cent in the county of Møre og Romsdal. Central eastern parts of Norway still report somewhat higher levels of unemployment, with 4.0 per cent in Oslo, due to both higher concentration of service sector employment combined with stricter and longer lasting local Covid-19 restrictions.
Norges Bank kept the key policy rate unchanged at zero in their meeting in June, but the rate path was lifted. Norges Bank tilts towards faster normalisation indicating that the policy rate most likely will be hiked with 0.25 percentage point each quarter until June 2022, to 1 per cent, starting in September 2021. Furthermore, the Ministry of Finance decided to hike the countercyclical buffer from 1 per cent to 1.5 per cent effective from 30 June 2022.
Housing prices increased by 10.1 per cent as a national average the last twelve months by end of June 2021. Growth in housing prices are expected to slow down due to expectations of increase in mortgage interest rates.
We expect unemployment levels to further decline as the grown population of Norway according to plans all will be offered a Covid-19 vaccine by end of October. Most of the temporarily laid off are likely to come back to work in 2021, but we expect to see unemployment levels slightly higher than before Covid-19.
The Board believes that the low level of unemployment in the county together with the still 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, 30 June 2021
11 August 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