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 84 million in fourth quarter 2020, compared to NOK 65 million in fourth quarter 2019. Net interest income amounted to NOK 95 million, compared to NOK 82 million in the same quarter last year. Costs amounted to NOK 12 million in fourth quarter 2020, the same amount as in the corresponding quarter 2019.
The calculation of expected credit loss (ECL) for Møre Boligkreditt AS resulted in a decrease of impairments of NOK 1 million in the fourth quarter 2020 compared to an increase of NOK 1 million in the corresponding quarter in 2019.
Profit after tax amounted to NOK 66 million in fourth quarter 2020, compared to NOK 61 million in the corresponding quarter 2019. Basis swap spreads are added to OCI with NOK 8 million after tax in fourth quarter 2020, compared to NOK 1 million added in fourth quarter 2019.
Møre Boligkreditt AS acquired mortgages from Sparebanken Møre in fourth quarter of 2020, and net mortgage volume increased by NOK 2,317 million in the quarter. One bond loan of EUR 30 million matured, and no new covered bond volume was issued in fourth quarter 2020.
Fourth quarter end results
By fourth quarter end 2020 the financial statements show a profit before tax of NOK 294 million, compared to NOK 271 million by fourth quarter end 2019. Net interest income amounted to NOK 345 million by fourth quarter end 2020, compared to NOK 308 million by end of same period last year. Costs in the period ending 31 December 2020 amounted to NOK 49 million, compared to NOK 45 million for the corresponding period 2019.
Net losses from financial instruments in 2020 was NOK 1 million, compared to net loss of NOK 4 million in 2019. Basis swap spreads are added to OCI with NOK 2 million after tax as at 31 December 2020, compared to NOK 2 million by fourth quarter end 2019.
Profit after tax amounted to NOK 230 million by fourth quarter end 2020 compared to NOK 222 million by fourth quarter end 2019. Tax amounted to NOK 64 million in 2020 compared to NOK 49 million in 2019.
Møre Boligkreditt AS had twelve bond loans outstanding at 31 December 2020 with a total bond loan debt of NOK 23,991 million, compared to thirteen bond loans with NOK 23,062 million outstanding at 31 December 2019. Total assets at fourth quarter end 2020 amounted to NOK 31,783 million compared to NOK 27,749 million at fourth quarter end 2019. Møre Boligkreditt AS reported Net Stable Funding Ratio (NSFR) of 100.8 per cent as at 31 December 2020.
Net mortgage lending to customers increased by NOK 3,386 million in 2020 and amounted to NOK 29,041 million at fourth quarter end 2020, compared to NOK 25,655 million at fourth quarter end 2019. The ECL calculation as at 31 December 2020 shows expected credit loss of NOK 4 million for Møre Boligkreditt AS, compared to NOK 3 million in ECL as at 31 December 2019.
At fourth quarter end 2020, the mortgages in the cover pool had an average loan-to-value ratio of 56.6 per cent, calculated as mortgage amount relative to the value of the property used as collateral, compared to 59.3 per cent loan-to-value ratio by fourth quarter end 2019. At fourth quarter end 2020, the company's substitute assets included in the cover pool amounted to NOK 903 million, compared to NOK 988 million at fourth quarter end 2019. Net value of financial derivatives included in the cover pool amounted to NOK 1,100 million at fourth quarter end 2020, compared to NOK 544 million at end of fourth quarter 2019. Over-collateralisation, calculated as the value of the cover pool relative to the value of outstanding covered bond loan debt was 27.9 per cent as at 31 December 2020, compared to 15.8 per cent as at 31 December 2019. In addition to liquid assets included in the cover pool, Møre Boligkreditt AS’ Liquidity Coverage Ratio (LCR) eligible assets amounted to NOK 116 million at 31 December 2020, reporting total LCR of 566 per cent by fourth quarter end 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 amounted to NOK 2,282 million by end of fourth quarter 2020, compared to NOK 2,274 million by end of fourth quarter 2019. Risk weighted assets amounted to NOK 7,824 million by end of fourth quarter 2020. Net equity and subordinated loan capital amounted to NOK 1,996 million by end of fourth quarter 2020. This corresponds to a Common Equity Tier 1 capital ratio of 25.5 per cent. Møre Boligkreditt AS uses internal rating based (IRB) models to calculate capital requirements for credit risk.
Outlook
Mainland Norway GDP was down 0.9 per cent in November, year-over-year, which is a milder setback than Norges Banks expectation of a 1.6 per cent drop. Although we still see reports of new Covid-19 cases in Norway, the effects of the vaccination program is likely to gradually wound down the strict measures taken to contain the virus.
In December, the national level of unemployment was reported at 3.8 per cent, and 2.9 per cent in the county of Møre og Romsdal. Central eastern parts of Norway report somewhat higher levels of unemployment, with 5.7 per cent in Oslo, due to both higher concentration of service sector employment combined with stricter local Covid-19 restrictions.
Norges Bank kept the key policy rate unchanged at zero in their last meeting, January 20th 2021. Core inflation rose by 0.1 percentage point in December to 3.0 per cent year-over-year, which is below inflation projections. Core inflation is expected to fall below target of 2 per cent by mid-2021. The published policy rate path indicates a hike of 0.25 percentage points in first quarter of 2022.
Housing prices increased by 8.7 per cent as a national average in 2020. In the county of Møre og Romsdal, the 12 months growth in housing prices was 9.7 per cent by end of 2020. Housing prices are expected to increase further due to low mortgage interest rates and improving labour market, but at a slower pace.
We expect unemployment levels, both on national level and in the county of Møre og Romsdal, to further decline, but at a more moderate pace. It is expected that the entire grown population of Norway will be offered a Covid-19 vaccine in the first half of 2021. Most of the temporarily laid off are likely to come back to work in 2021, 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. The financial implications for Møre Boligkreditt AS, as consequence of Covid-19 measures, have not been significant.
Ålesund, 31 December 2020
11 February 2021
THE BOARD OF DIRECTORS OF MØRE BOLIGKREDITT AS
KJETIL HAUGE, Chairman
ELISABETH BLOMVIK
GEIR TORE HJELLE
SANDRA MYHRE HELSETH
OLE ANDRE KJERSTAD, Managing Director