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.
Third quarter results
The financial statements of Møre Boligkreditt AS show a pre-tax profit of NOK 56 million in third quarter 2017, compared to NOK 54 million in third quarter 2016. Net interest income amounted to NOK 68 million, compared to NOK 61 million in third quarter last year. Costs amounted to NOK 9 million in third quarter 2017, compared with NOK 8 million in the corresponding quarter in 2016. Net change in value of securities and related derivatives was negative with NOK 3 million in third quarter 2017, compared to positive with NOK 1 million in third quarter 2016.
Møre Boligkreditt AS has not established losses or impairment for individual losses in third quarter 2017, nor made any changes to the collective impairment. Profit after tax amounted to NOK 42 million in third quarter 2017, compared to NOK 41 million in the corresponding quarter 2016.
Møre Boligkreditt AS acquired mortgages from Sparebanken Møre also in the third quarter of 2017, and net lending increased by NOK 303 million.
In third quarter 2017 one bond loan with outstanding volume of SEK 700 million matured, and Møre Boligkreditt AS made new tap issues in two existing bond loans with a total volume of NOK 1 000 million.
Third quarter end results
By third quarter end 2017 the financial statements show a profit before tax of NOK 144 million, compared to NOK 164 million by third quarter end 2016. Net interest income amounted to NOK 186 million by third quarter end 2017, compared to NOK 183 million by third quarter end last year. Costs in the period ending 30 September 2017 amounted to NOK 28 million, compared with NOK 25 million for the corresponding period in 2016.
Profit after tax amounted to NOK 108 million by third quarter end 2017, compared to NOK 123 million by third quarter end 2016. Tax amounted to NOK 36 million in the first nine months of 2017, compared to NOK 41 million the first nine months of 2016.
Møre Boligkreditt AS had ten covered bond loans outstanding at 30 September 2017 with a total bond loan debt of NOK 18 692 million, compared to eleven covered bond loans with NOK 15 805 million outstanding at 30 September 2016.
Total assets at third quarter end 2017 amounted to NOK 21 518 million compared to NOK 18 817 million at third quarter end 2016. Net lending amounted to NOK 20 838 million at third quarter end 2017, compared with NOK 18 005 million at third quarter end 2016. At end of third quarter 2017, the mortgages in the cover pool had an average loan-to-value ratio of 56 per cent, calculated as mortgage amount relative to the value of the property used as collateral.
At third quarter end 2017, the company's substitute assets included in the cover pool amounted to NOK 311 million, compared to NOK 20 million at third quarter end 2016. Over-collateralisation, calculated as the value of the coverpool relative to the value of outstanding covered bond loan debt was 12.9 per cent as at 30 September 2017, compared to 15.2 per cent as at 30 September 2016.
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 50 million at 30 September 2017, reporting total LCR of 175 per cent by third quarter end 2017.
Rating
The rating agency Moody's has assigned Aaa-rating to all covered bonds issued by Møre Boligkreditt AS.
Capital strength
Paid in equity and other equity amounted to NOK 1 611 million by end of third quarter 2017, compared to NOK 1 476 million by end of third quarter 2016. Risk weighted assets amounted to NOK 9 099 million by end of third quarter 2017. Net equity and subordinated loan capital amounted to NOK 1 466 million by the end of third quarter 2017, compared to NOK 1 315 million by end of third quarter 2016. This corresponds to a capital adequacy/core capital ratio of 16.1 per cent. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Outlook
The oil related part of the Norwegian economy has experienced a slowdown also in 2017. A strong household sector due to record low interest rates, low unemployment levels, together with a solid public sector has however kept the production levels high in several other sectors. The weak NOK is positive for the competiveness of the export industry and the tourist industry.
We will probably see the same development with selective growth also in the coming quarters.
Should the Norwegian economy be hit harder than expected, monetary and fiscal policy will be moved in an even more expansive direction. The development of house prices, together with growth in debt, is the most important risk factors to Norwegian households. Important risk factors going forward are also the oil price development, macro-economic growth in export markets and the NOK exchange rate.
The combined activity of businesses located in Møre og Romsdal county remains high despite the decline in the petroleum related industries, and unemployment is declining. The registered unemployment rate in the county of Møre og Romsdal was 2.5 per cent in September 2017, the same as national average levels. We expect unemployment in the county to stay around national average levels.
Retail lending growth in Sparebanken Møre Group is 7.8 per cent the last twelve months, but in line with signs of weaker national growth in household debt, we also see the Group retail lending growth rate slowing down somewhat for the remainder of 2017.
The Board believes that despite the slowdown of the economy, both in Norway and in the county of Møre og Romsdal, the low interest rates and high disposable household income will contribute to further mortgage loan growth in Sparebanken Møre. This mortgage growth will position Møre Boligkreditt AS to acquire further mortgage loan portfolios from the parent bank, and further increase the volume of outstanding bond loans from Møre Boligkreditt AS.
Ålesund, 30 September 2017
18 October 2017
THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chairman
BRITT IREN TØSSE AANDAL
ELISABETH BLOMVIK
GEIR TORE HJELLE
SANDRA MYHRE HELSETH
OLE KJERSTAD, Managing Director