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.
Third quarter results
The financial statements of Møre Boligkreditt AS show a pre-tax profit of NOK 82 million in the third quarter of 2019, compared to NOK 58 million in the third quarter of 2018. Net interest income amounts to NOK 80 million, compared to NOK 66 million in the same quarter last year. Costs amount to NOK 10 million in the third quarter of 2019, compared to NOK 11 million in the corresponding quarter in 2018.
Calculations of expected credit loss (ECL) for Møre Boligkreditt AS resulted in a reduction of impairments of NOK 10 million in the third quarter 2019 compared to a reduction of NOK 2 million in the corresponding quarter in 2018.
Net change in value of debt securities in third quarter 2019 is positive with NOK 1 million equal to the corresponding quarter in 2018.
Møre Boligkreditt AS did not purchase mortgage portfolios from Sparebanken Møre in the third quarter of 2019. Net loans to and receivables from customers was reduced by NOK 1,732 million in the third quarter of 2019. In the third quarter of 2019, no bond loans matured. One existing bond loan was tapped with NOK 500 million to new outstanding volume of NOK 3,000 million.
Profit after tax amounts to NOK 64 million in the third quarter of 2019, compared to NOK 44 million in the corresponding quarter 2018. Taxes amount to NOK 18 million in the third quarter of 2019 compared to NOK 14 million in the corresponding quarter in 2018.
Third quarter end results
By end of third quarter 2019, the financial statements show a pre-tax profit of NOK 206 million, compared to NOK 173 million by third quarter end 2018. Net interest income amounts to NOK 226 million by third quarter end 2019, compared to NOK 204 million by end of same period last year. Costs in the period ending 30 September 2019 amount to NOK 33 million, compared with NOK 32 million for the corresponding period 2018.
No change in value of debt securities issued and related derivatives at third quarter end 2019, equal to the corresponding quarter in 2018.
Profit after tax amounts to NOK 161 million in the first nine months of 2019, compared to NOK 133 million in the corresponding period in 2018. Taxes amount to NOK 45 million by end of third quarter of 2019 compared to NOK 40 million in the corresponding period of 2018.
Basis swap spreads are added to other comprehensive income (OCI) with NOK 1 million after tax by third quarter end 2019, compared to being charged with NOK 8 million by third quarter end 2018.
Financial position
Møre Boligkreditt AS has twelve bond loans outstanding at 30 September 2019 with total debt securities issued of NOK 22,988 million, compared to eleven bond loans and NOK 21,018 million outstanding at 30 September 2018.
Total assets at third quarter end 2019 amount to NOK 25,511 million compared to NOK 23,980 million at third quarter end 2018. Net lending amounts to NOK 23,261 million at third quarter end 2019, compared to NOK 22,335 million at third quarter end 2018. ECL model calculations as at 30 September 2019 show expected credit loss of NOK 3 million for Møre Boligkreditt AS, compared with NOK 13 million as at 30 September 2018.
At third quarter end 2019, the mortgages in the cover pool have an average loan-to-value ratio of 58 per cent, calculated as mortgage amount relative to the value of the property used as collateral. At third quarter end 2019, the company's substitute assets included in the cover pool amount to NOK 1,196 million, compared to NOK 1,307 million at third quarter end 2018. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt is 7.3 per cent as at 30 September 2019, compared to 11.8 per cent as at 30 September 2018.
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amount to NOK 80 million at 30 September 2019, reporting total LCR of 392 per cent by third quarter end 2019.
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 amount to NOK 2,212 million by end of third quarter 2019, compared to NOK 1,732 million by end of third quarter 2018. Risk-weighted assets amount to NOK 9,990 million by end of third quarter 2019. Net equity and subordinated loan capital amount to NOK 2,006 million by end of third quarter 2019, compared to NOK 1,575 million by end of third quarter 2018. This corresponds to a Common Equity Tier 1 capital ratio of 20.1 per cent as at 30 September 2019. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Outlook
A strong household sector due to the still low interest rate level, low unemployment levels, together with a solid public sector has kept Norwegian production levels high. The weak NOK is positive for the competitiveness of the export industry and the tourist industry.
The Norwegian key policy rate was announced raised by 0.25 percentage points to 1.50 per cent 19 September 2019, followed by announcements of mortgage interest rate hikes from banks operating in the Norwegian mortgage market. The development of housing prices, together with the growth in debt, are the most important risk factors to Norwegian households. Important risk factors going forward are also the oil price development, macroeconomic growth in export markets, the concern for a global trade war and the NOK exchange rate.
The combined activity of businesses located in the county of Møre og Romsdal remains high. The registered unemployment rate in the county of Møre og Romsdal is 2.0 per cent in September 2019, below the Norwegian national average of 2.2 per cent. We expect the unemployment rate in the county to remain around the national average level also going forward.
Retail lending in Sparebanken Møre Group increased with 5.8 per cent the last twelve months.
The Board believes that the low level of unemployment, still low interest rate level on mortgages 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 mortgage loan portfolios from Sparebanken Møre and increase the volume of outstanding bond loans from Møre Boligkreditt AS.
Ålesund, 30 September 2019
23 October 2019
THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chairman
BRITT IREN TØSSE AANDAL
ELISABETH BLOMVIK
GEIR TORE HJELLE
SANDRA MYHRE HELSETH
OLE ANDRE KJERSTAD, Managing Director