Interim 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. Figures in brackets refer to the corresponding period last year.

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 42 million in the second quarter of 2022 (NOK 79 million). Net interest income amounts to NOK 65 million (NOK 90 million) and costs ended at NOK 14 million (NOK 14 million).

The quarterly accounts were charged NOK 4 million in losses on loans (NOK 0 million). In the second quarter NOK 5 million in losses from financial instruments is charged, compared to NOK 3 million gained in the corresponding quarter of 2021.

Profit after tax in the second quarter amounts to NOK 32 million (NOK 62 million).

Net loans to and receivables from customers decreased by NOK 2,280 million in the second quarter of 2022. One bond loan of EUR 250 million matured in the second quarter of 2022, and one existing NOK denominated bond loan was increased with NOK 2,300 million.

Half year end results
By half year end 2022 the financial statements show a pre-tax profit of NOK 107 million (NOK 155 million). Net interest income amounts to NOK 141 million by half year end 2022 (NOK 178 million). Costs in the period ending 30 June 2022 amounts to NOK 27 million (NOK 27 million). Net losses from financial instruments is NOK 2 million at half year end 2022, compared to net gain of NOK 4 million at half year end 2021.

Taxes amounts to NOK 24 million in the first six months of 2022 (NOK 34 million), and profit after tax amounts to NOK 83 million in the first six months of 2022 (NOK 121 million).

Changes in value of basis swap spreads are added to other comprehensive income (OCI) with NOK 25 million after tax by half year end 2022, compared to being charged with NOK 9 million at half year end 2021.

Financial position
Møre Boligkreditt AS has eleven bond loans outstanding at 30 June 2022 with total debt securities issued of NOK 24,262 million (NOK 26,408 million). Møre Boligkreditt AS reported Net Stable Funding Ratio (NSFR) of 116 per cent as at 30 June 2022.

Total assets at half year end 2022 amounted to NOK 29,824 million (NOK 32,465 million). The ECL calculation 30 June 2022 shows expected credit losses of NOK 9 million for Møre Boligkreditt AS (NOK 5 million).

At half year end 2022, the average loan-to-value ratio is 50 per cent, calculated as mortgage amount relative to the value of the property used as collateral (53 per cent).

The company's substitute assets included in the cover pool amounts to NOK 1,484 million at end-June 2022 (NOK 1,704 million). Net value of financial derivatives included in the cover pool amounts to NOK 263 million (NOK 768 million). Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt is 20.3 per cent as at 30 June 2022 (20.4 per cent).

In addition to liquid assets included in the cover pool, Møre Boligkreditt AS’ Liquidity Coverage Ratio (LCR) eligible assets amounts to NOK 131 million as of 30 June 2022, reporting total LCR of 532 per cent by second quarter end 2022.

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 1,658 million by half year end 2022 (NOK 2,162 million). Risk weighted assets amounts to NOK 7,212 million (NOK 7,930 million). Net equity and subordinated loan capital amounts to NOK 1,495 million (NOK 1,984). This corresponds to a Common Equity Tier 1 capital ratio of 20.7 per cent as at 30 June 2022. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.

Regulatory changes
The EU Banking Package was implemented into Norwegian law and entered into force on 1 June 2022. The requirement to only report Net Stable Funding Ratio (NSFR) was replaced with a binding NSFR requirement of 100 per cent minimum.

The Covered Bonds Directive has been incorporated into the EEA Agreement and the Norwegian Ministry of Finance has decided that the new rules should enter into force in Norway 8 July 2022, the same date as in the EU. No major changes are required to the Norwegian covered bonds framework as result of the EU Directive.

Outlook
The war in Ukraine has contributed to increased uncertainty and upward pressure on commodity prices, including oil and gas and thus generating additional income to the Norwegian economy. Unemployment is low, and the tight labour market puts upward pressure on wages and prices.

The inflation level is high, the annual CPI rate in Norway in June of 2022 was 6.3 per cent. Adjusted for tax changes and excluding energy products the CPI was 3.6 per cent and, still well above Norges Bank’s aim to stabilize inflation around 2 per cent. Norges Bank delivered a rate-hike of 0.5 percentage points to a policy rate of 1.25 per cent in June. The published policy rate path indicates a further string of hikes, and a policy rate of 3 per cent by the end of 2023.

In June 2022, the national level of unemployment was reported at 1.6 per cent, and 1.5 per cent in the county of Møre og Romsdal.

Twelve-months national growth in household loan debt is declining and reported at 4.7 per cent by May 2022. National housing prices rose 0.3 per cent in June, seasonally adjusted, and 6.3 per cent last 12 months. Housing prices are expected to stay at present levels or increase at a slower pace going forward. Growth in household debt is also expected to continue dampen due to the increase in mortgage interest rate levels.

Assuming the global economy avoid long-term negative effects from the war in Ukraine, we expect unemployment levels, both on national level and in the county of Møre og Romsdal, to stay low.

The Board believes that despite the increase in interest rates on mortgages, the low level of unemployment and still high disposable household income, will contribute to further mortgage loan growth in Sparebanken Møre. This mortgage growth will position Møre Boligkreditt AS to further acquire mortgage loan portfolios from Sparebanken Møre and increase the volume of outstanding bond loans from Møre Boligkreditt AS.

Ålesund, 30 June 2022
10 August 2022

THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chair
ELISABETH BLOMVIK
KRISTIAN TAFJORD
SANDRA MYHRE HELSETH

OLE ANDRE KJERSTAD, Managing Director