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 90 million in the third quarter of 2020, compared to NOK 82 million in the third quarter of 2019. Net interest income amounts to NOK 100 million, compared to NOK 80 million in the same quarter last year. Costs amounts to NOK 11 million in the third quarter of 2020, compared to NOK 10 million in the corresponding quarter in 2019.
Expected credit loss (ECL) for Møre Boligkreditt AS is reduced with NOK 1 million in the third quarter of 2020 compared to a reduction in ECL with NOK 10 million in the corresponding quarter in 2019.
Net change in value of debt securities in the third quarter of 2020 is negative with NOK 1 million, compared to positive with NOK 1 million in the corresponding quarter of 2019.
Net loans to and receivables from customers was reduced with NOK 2,012 million in the third quarter of 2020. One bond loan matured in the third quarter of 2020, and one new private placement bond loan of EUR 30 million was placed.
Profit after tax amounts to NOK 70 million in the third quarter of 2020, compared to NOK 64 million in the corresponding quarter in 2019. Taxes amounts to NOK 20 million in the third quarter of 2020, compared to NOK 18 million in the corresponding quarter in 2019.
Third quarter end results
By third quarter end 2020 the financial statements show a pre-tax profit of NOK 210 million, compared to NOK 206 million by third quarter end 2019. Net interest income amounts to NOK 250 million by third quarter end 2020, compared to NOK 226 million by end of same period last year. Costs in the period ending 30 September 2020 amounts to NOK 37 million, compared with NOK 33 million for the corresponding period in 2019.
Net losses in value of debt securities issued and related derivatives is NOK 2 million at third quarter end 2020, compared to no losses by end of third quarter 2019.
Profit after tax amounts to NOK 164 million in the first nine months of 2020, compared to NOK 161 million in the corresponding period of 2019. Taxes amounts to NOK 46 million in the first nine months of 2020 compared to NOK 45 million in the first nine months of 2019.
Changes in value of basis swap spreads are charged to other comprehensive income (OCI) with NOK 6 million after tax by third quarter end in 2020, compared to being added with NOK 1 million by third quarter end in 2019.
Financial position
Møre Boligkreditt AS has thirteen bond loans outstanding at 30 September 2020 with total debt securities issued of NOK 24,871 million, compared to NOK 22,988 million outstanding at 30 September 2019.
Total assets at third quarter end 2020 amounts to NOK 30,871 million compared to NOK 25,511 million at third quarter end 2019. Net lending amounts to NOK 26,724 million at third quarter end 2020, compared to NOK 23,261 million at third quarter end 2019. ECL model calculations as at 30 September 2020 show expected credit loss of NOK 5 million for Møre Boligkreditt AS, compared with NOK 3 million as at 30 September 2019.
At third quarter end 2020, the mortgages in the cover pool have 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 third quarter end 2020, substitute assets and derivatives included in the cover pool amount to NOK 2,620 million, compared to NOK 1,898 million at third quarter end 2019. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt is 16.2 per cent as at 30 September 2020, compared to 7.3 per cent as at 30 September 2019.
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounts to NOK 529 million at 30 September 2020, reporting total LCR of 158 per cent by the end of third quarter 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 2,208 million by end of third quarter 2020, compared to NOK 2,212 million by end of third quarter 2019. Risk weighted assets amounts to NOK 6,709 million by end of third quarter 2020. Net equity and subordinated loan capital amounts to NOK 2,001 million by end of third quarter 2020, compared to NOK 2,006 million by end of third quarter 2019. This corresponds to a Common Equity Tier 1 capital ratio of 29.8 per cent as at 30 September 2020. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Outlook
Mainland Norway GDP growth of 0.6 percent in August is in line with The Department of Finance forecast of a 3.1 percent decline in 2020, followed by a 4.4 percent growth in 2021. Although we still see reports of new Covid-19 cases in Norway, the extensive measures to combat the virus outbreak have slowly been lifted, and development so far suggest that the virus have been contained.
The steep increase in unemployment in March and April, a direct consequence of the measures taken to fight the virus, is reversing. In September, national level of unemployment was reported down to 3.7 per cent, and 3.1 per cent in the county of Møre og Romsdal. Central eastern parts of Norway report somewhat higher levels of unemployment, with 4.8 per cent in Oslo, due to both higher concentration of service sector employment combined with a higher number of Covid-19 cases.
Norges Bank kept the key policy rate at zero in their last meeting, September the 24th. Core inflation fell by 0.4 percentage points in September to 3.3 percent year-over-year, and is expected to fall further and also below inflation target of 2 percent during 2021. The published rate path indicates the first hike in policy rate of 0.25 percentage points in the second half of 2022.
Housing prices increased by 1.3 per cent seasonally adjusted in September 2020 and was up 5.8 per cent as a national average the 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. Reversal of the March Covid-19 easing in the mortgage loan regulations from 1st of October 2020 is likely to lead to a lower growth in house prices the coming quarters.
We expect unemployment levels both on national levels and in the county of Møre og Romsdal to further decline but at a more moderate pace. Most of the temporarily laid off are likely to come back to work, but we still expect to see higher unemployment levels going forward than before Covid-19.
The long-term financial implications of the virus are difficult to predict, but the Board believes that the efforts to minimise the potential negative consequences of the outbreak have been successful, and that the financial implications for Møre Boligkreditt AS have not been significant.
Ålesund, 30 September 2020
21 October 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