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.
Fourth quarter results
The financial statements of Møre Boligkreditt AS show a pre tax profit of NOK 69 million in fourth quarter 2017, compared to NOK 44 million in fourth quarter 2016. Net interest income amounted to NOK 75 million, compared to NOK 59 million in fourth quarter last year. Costs amounted to NOK 10 million in fourth quarter 2017, compared with NOK 8 million in the corresponding quarter in 2016.
Møre Boligkreditt AS has not established losses or impairment for individual losses in fourth quarter 2017. Møre Boligkreditt AS has reversed NOK 3 million in collective impairments in fourth quarter 2017. Profit after tax amounted to NOK 57 million in fourth quarter 2017, compared to NOK 33 million in the corresponding quarter 2016.
Møre Boligkreditt AS acquired mortgages from Sparebanken Møre also in the fourth quarter of 2017, and net lending increased by NOK 321 million.
In fourth quarter 2017 no outstanding bond loans matured, and no new bond loan was issued by Møre Boligkreditt AS.
Fourth quarter end results
By fourth quarter end 2017 the financial statements show a profit before tax of NOK 213 million, compared to NOK 208 million by fourth quarter end 2016. Net interest income amounted to NOK 261 million by fourth quarter end 2017, compared to NOK 242 million by fourth quarter end 2016. Costs in the period ending 31 December 2017 amounted to NOK 38 million, compared with NOK 33 million for the corresponding period in 2016.
The amount allocated for collective impairments was NOK 2 million at fourth quarter end 2017 compared to NOK 5 million at fourth quarter end 2016. Profit after tax amounted to NOK 165 million by fourth quarter end 2017, compared to NOK 156 million by fourth quarter end 2016. Tax amounted to NOK 48 million in 2017, compared to NOK 52 million in 2016.
Møre Boligkreditt AS had ten covered bond loans outstanding at 31 December 2017 with a total bond loan debt of NOK 18 823 million, compared to twelve covered bond loans with NOK 18 265 million outstanding at 31 December 2016.
Total assets at fourth quarter end 2017 amounted to NOK 21 748 million compared to NOK 20 972 million at fourth quarter end 2016. Net lending amounted to NOK 21 162 million at fourth quarter end 2017, compared with NOK 19 810 million at fourth quarter end 2016. At end of fourth quarter 2017, the mortgages in the cover pool had 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 fourth quarter end 2017, the company's substitute assets included in the cover pool amounted to NOK 85 million, compared to NOK 743 million at fourth quarter end 2016. Over-collateralisation, calculated as the value of the coverpool relative to the value of outstanding covered bond loan debt was 13.3 per cent as at 31 December 2017, compared to 12.4 per cent as at 31 December 2016.
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 60 million at 31 December 2017, reporting total LCR of 295 per cent by fourth 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 retained earnings amounted to NOK 1 667 million by end of fourth quarter 2017, compared to NOK 1 509 million by end of fourth quarter 2016. Risk weighted assets amounted to NOK 8 936 million by end of fourth quarter 2017. Net equity and subordinated loan capital amounted to NOK 1 476 million by the end of fourth quarter 2017, compared to NOK 1 313 million by end of fourth quarter 2016. This corresponds to a capital adequacy/core capital ratio of 16.5 per cent. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Effect of transition to IFRS 9
The company’s equity will be charged with NOK 15 million after tax as a consequence of increased impairments due to implementation of IFRS 9.
The implementation of IFRS 9 will have no effect on Møre Boligkreditt AS’ common equity tier 1 capital as expected loss according to the capital adequacy requirements already exceeds the company’s calculated ECL according to IFRS 9.
Further information is given in Note 1.
Outlook
The oil related part of the Norwegian economy 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 have however kept the production levels high in several other sectors. The weak NOK is positive for the competitiveness of the export industry and the tourist industry. We will probably see the same development with selective growth also in the coming quarters.
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, macroeconomic growth in export markets and the NOK exchange rate. Should the Norwegian economy experience a negative development, monetary and fiscal policy can be moved in an even more expansive direction.
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 2.4 per cent in December 2017, which is the same unemployment level as the Norwegian national average. We expect unemployment in the county to stay around national average levels.
Retail lending growth in Sparebanken Møre Group was 7.2 per cent in 2017, but in line with signs of weaker national growth in household debt, we also expect to see the Sparebanken Møre Group retail lending growth rate slowing down somewhat in the coming quarters.
The Board believes that the reduction in unemployment, 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, 31 December 2017
24 January 2018
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