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 58 million in fourth quarter 2018, compared to NOK 69 million in fourth quarter 2017. Net interest income amounted to NOK 70 million, compared to NOK 75 million in the same quarter last year. Costs amounted to NOK 10 million in fourth quarter 2018, equal to costs in the corresponding quarter in 2017.
The calculation of expected loss (ECL) for Møre Boligkreditt AS resulted in an increase of impairments of NOK 1 million in the fourth quarter 2018 compared with a reduction of NOK 3 million in the corresponding quarter in 2017. Profit after tax amounted to NOK 42 million in fourth quarter 2018, compared to NOK 57 million in the corresponding quarter 2017.
The transition from IAS 39 to IFRS 9 from 1 January 2018 impacts the company's accounting for basis swap spreads. Basis swap spreads are charged to OCI with NOK 5 million after tax in fourth quarter 2018.
Møre Boligkreditt AS acquired mortgages from Sparebanken Møre in fourth quarter of 2018, and net mortgage volume increased by NOK 1,080 million in the quarter. One covered bond loan of NOK 1,000 million was issued in forth quarter 2018. No bond loans matured in fourth quarter 2018.
Fourth quarter end results
By fourth quarter end 2018 the financial statements show a profit before tax of NOK 230 million, compared to NOK 213 million by fourth quarter end 2017. Net interest income amounted to NOK 274 million by fourth quarter end 2018, compared to NOK 261 million by end of same period last year. Costs in the period ending 31 December 2018 amounted to NOK 42 million, compared with NOK 38 million for the corresponding period 2017.
Net loss in value of debt securities issued and related derivatives in 2018 was NOK 1 million, compared to net loss of NOK 14 million including basis swap spreads in 2017. Basis swap spreads are charged to OCI with NOK 17 million (before tax) as at 31 December 2018.
Profit after tax amounted to NOK 174 million by fourth quarter end 2018 compared to NOK 165 million by fourth quarter end 2017. Tax amounted to NOK 56 million in 2018 compared to NOK 48 million in 2017.
Møre Boligkreditt AS had twelve bond loans outstanding at 31 December 2018 with a total bond loan debt of NOK 22,384 million, compared to ten bond loans with NOK 18,823 million outstanding at 31 December 2017.
Total assets at fourth quarter end 2018 amounted to NOK 25,554 million compared to NOK 21,748 million at fourth quarter end 2017. Net lending increased by NOK 2,247 million in 2018 and amounted to NOK 23,409 million at fourth quarter end 2018, compared with NOK 21,162 million at fourth quarter end 2017. The ECL calculation as at 31 December 2018 shows expected credit loss of NOK 15 million for Møre Boligkreditt AS, compared with NOK 2 million allocated for collective impairment as at 31 December 2017. At fourth quarter end 2018, the mortgages in the cover pool had an average loan-to-value ratio of 58.1 per cent, calculated as mortgage amount relative to the value of the property used as collateral.
At fourth quarter end 2018, the company's substitute assets included in the cover pool amounted to NOK 1,902 million, compared to NOK 520 million at fourth quarter end 2017. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt was 11.1 per cent as at 31 December 2018, compared to 13.3 per cent as at 31 December 2017.
Møre Boligkreditt AS’ liquidity portfolio consisting of Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 60 million at 31 December 2018, reporting total LCR of 325 per cent by fourth quarter end 2018.
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 amounted to NOK 1,767 million by end of fourth quarter 2018, compared to NOK 1,667 million by end of fourth quarter 2017. Risk weighted assets amounted to NOK 9,970 million by end of fourth quarter 2018. Net equity and subordinated loan capital amounted to NOK 1,567 million by end of fourth quarter 2018, compared to NOK 1,476 million by end of fourth quarter 2017. This corresponds to a Common Equity Tier 1 capital ratio of 15.7 per cent. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Outlook
A strong household sector due to record low interest rates, low unemployment levels, together with a solid public sector has kept Norwegian production levels high. The still weak NOK is positive for the competitiveness of the export industry and the tourist industry.
The development of house prices, together with growth in debt, are the most important risk factors to Norwegian households. The Norwegian key policy rate was announced unchanged at 0.75 percentage points 14 December 2018. Inflation is just above Norges Bank’s target of 2 per cent and stand at 2.1 per cent year-over-year by December 2018. This will support Norges Bank’s current rate path, and we believe the first of two hikes in the policy rate in 2019 will be announced in March. Important risk factors going forward are also the oil price development, macroeconomic growth in export markets, the growing 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 despite recent years decline in the petroleum related industries. The registered unemployment rate in the county of Møre og Romsdal is 2.3 per cent in December 2018, at the same level as the Norwegian national average. We expect unemployment level in the county around national average levels.
Annual retail lending growth in the Sparebanken Møre Group was 5.3 per cent in 2018. The Board believes that the low level of unemployment, still 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 2018
23 January 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