Q22024

Sparebanken Sør Boligkreditt AS is a wholly owned subsidiary of Sparebanken Sør. The company is licensed by the Financial Supervisory Authority of Norway to operate as a mortgage company and issue covered bonds, and is a part of Sparebanken Sør’s long-term financial strategy. All shares are owned by Sparebanken Sør and the financial statements are consolidated into the financial statements of the Sparebanken Sør Group.

The cover pool consists of secured mortgages, substitute assets in interest-bearing securities and financial derivatives. The mortgages are granted by Sparebanken Sør and later taken on by Sparebanken Sør Boligkreditt AS. The secured mortgages meet the requirements established by the company for inclusion in the company’s cover pool. One important requirement is that any outstanding loan balance taken on by the company must not exceed 80 percent of the mortgaged property’s market value at the date of acquisition.

At the end of Q2 2024, Sparebanken Sør Boligkreditt AS had taken on a mortgage loan portfolio totalling NOK 59 374 million, transferred from Sparebanken Sør, of which NOK 59 069 million was included in the qualified cover pool. Corresponding figures at the end of Q2 2023 were NOK 52 445 million and NOK 52 130 million respectively.

The portfolio of bonds and certificates totalled NOK 3 068 million at the end of Q2 2024, of which NOK 1 990 million was included in the cover pool. Corresponding figures at the end of Q2 2023 were NOK 3 839 million and NOK 3 365 million respectively.

Sparebanken Sør Boligkreditt AS has issued covered bonds totalling NOK 53 769 million, compared to NOK 50 426 million at the same time in 2023. The company has achieved diversified funding by issuing covered bonds outside the Norwegian bond market.

The financial statement of Sparebanken Sør Boligkreditt AS shows a profit after tax of NOK 179.0 million at the end of Q2 2024, compared to NOK 177.1 million in 2023.

The company had net interest income of NOK 302.5 million, compared to NOK 239.6 million in 2023.

Net income from financial instruments totalled minus NOK 9.7 million, compared to NOK 23.9 million in 2023. The reduction is mainly related to income from hedging.

The company has issued covered bonds in Euros under the EMTCN (European Medium Term Covered Note) program. In order to control interest and currency exposure, the company has established swap arrangements (basis swaps), to convert foreign currency into NOK. The impact on earnings related to changes in the value of the basis swap, affected the income from financial instruments by NOK 0 million and other comprehensive income by minus NOK 26.2 million at the end of Q2 2024. Assuming that the covered bonds in foreign currency are held to maturity, the total change in fair value is equal to zero. The accounting effects will therefore be reversed over time.

Operating expenses were NOK 57.6 million at the end of Q2 2024, compared to NOK 52.9 million in the same period in 2023.

Tax expenses were NOK 52.1 million at the end of Q2 2024. Corresponding figures at the end of Q2 2023 were NOK 40.6 million respectively.

Total assets as at 30.06.2024 were NOK 65 528 million, of which net loans to customers represented NOK 59 346 million. At the same time in 2023 total assets were NOK 59 055 million, of which net loans to customers were NOK 52 427 million. The loan portfolio has been financed through the issuance of bonds totalling NOK 53 769 million, and by equity and loans from Sparebanken Sør. At the end of Q2 2024, the company had a total paid-in capital of NOK 2 975 million, of which NOK 2 475 million was share capital and NOK 500 million was related to share premiums.

Sparebanken Sør Boligkreditt AS has an overdraft facility of NOK 6 000 million with Sparebanken Sør for operational purposes that, as at 30.06.2024, was drawn down by NOK 5 458 million.

At the end of Q2 2024, the net subordinated capital in the company was NOK 4 779 million, compared to NOK 4 441 million at the same time in 2023. This corresponds to a common equity tier 1 capital ratio/tier 1 capital ratio/total capital ratio of 19.3 percent ( 20.7 percent in 2023), while regulatory minimums requirements constitute 14.0 percent, 15.5 percent and 17.5 percent respectively. The capital adequacy ratio has been calculated based on the standard method in the Basel II - regulations. The Board of Directors considers the company’s solidity and risk-bearing ability to be good. The company’s Leverage Ratio was 7.0 percent at the end of Q2 2024.

As a licensed mortgage company, Sparebanken Sør Boligkreditt AS is subject to a number of acts, regulations, recommendations and regulatory provisions. The objective of the company is to finance lending activities through the issuance of covered bonds with a high rating. This means that Sparebanken Sør Boligkreditt AS strives to maintain risk at a low level. The company emphasizes identifying, measuring and controlling risk elements in such a way that the market has high confidence in the company and that bonds issued by the company have a high rating.

The company’s credit strategy and policy constitute a framework, which includes lending regulations and loan-to-value requirements for any loan taken on by the company. The Board of Directors considers the overall quality of the lending portfolio to be very good and the credit risk is considered low.

The company’s mortgage lending to customers is in Norwegian kroner (NOK) at both floating and fixed interest rates. Financing is based on both floating and fixed interest rate bonds in NOK and EUR. Foreign currency debt is swapped into NOK and liabilities established at fixed rates are swapped into floating rates. Accounting for foreign currency debt and debt at fixed interest rates, complies with the rules for hedge accounting. The Board of Directors considers the overall market risk to be low.

The company issues covered bonds with the opportunity to extend the maturities by up to 12 months, given an approval by the FSA. In addition, financing needs are met by using equity and credit facilities with Sparebanken Sør. The Board of Directors considers the company’s liquidity risk to be low.

As at 30.06.2024 the company had a liquidity portfolio in addition to substitute assets, and was compliant with the liquidity requirements imposed on financial institutions, with a LCR total ratio of 348.3 percent and LCR EUR ratio > 100 percent. As at 30.06.2024 the mortgages in the cover pool had an average loan-to-value of 52.6 percent. Long term financing was well diversified and the NSFR ratio was reported at 123.4 percent. Over-collateralization was 17.1 percent, and given a stress test on assets prices of 30 percent, the OC was above the legislative OC level of 5 percent. The Board of Directors considers the company`s liquidity risk to be low.

A Loan Service Agreement and Management Service Agreement that have been established with Sparebanken Sør, encompass the supply of all necessary services for the operation of the company, and the Board of Directors considers the company’s operational risk to be low.

Sparebanken Sør Group has a Green and Sustainability Bond Framework in place, under which Sparebanken Sør Boligkreditt AS has issued green covered bonds. The proceeds are allocated to a mortgage portfolio, financing energy-efficient residential buildings in Norway. The bond framework, which is aligned with ICMA Green Bond Principles, was last updated in Q1 2022.

Covered bonds issued by Sparebanken Sør Boligkreditt AS in NOK and EUR have been given an Aaa rating by Moody’s. Sparebanken Sør Boligkreditt AS has since June 2023 been assigned an A1/Prime-1 issuer rating by Moody`s, in line with ratings assigned by Moody`s on the parent bank.

Growth in the Norwegian economy has been slow by the end of 2023 and into this year. Despite weak economic growth the registered unemployment is low. Growth in household consumption and housing investments are negatively affected by higher interest rates.

In June 2024 the consumer price index was 2.6 percent higher than the price level a year ago, and was affected by somewhat lower import prices. The targeted inflation level of the Norwegian Central Bank, is 2 percent. In order to curb inflation, the key policy rate in Norway has been raised to 4.5 percent over a short period of time, from 0 in September 2021. The key policy rate is now expected to remain at the same level during the autumn this year.

Norwegian house price inflation was low in 2023. A low level of unemployment and low construction activity leading to a limited offer of new buildings to the market, have so far in 2024 dampened the pressure on house prices.

Despite geopolitical turmoil in 2024 Sparebanken Sør Boligkreditt AS has had ample access to wholesale funding both from the domestic as well as from the bond market abroad. A new benchmark covered bond in Norwegian Kroner was issued in April 2024 to favorable conditions.

The Board of Directors anticipates the company’s business to continue to be satisfactory going forward. Sparebanken Sør Boligkreditt AS is well-positioned to further acquire loans from Sparebanken Sør, and issue covered bonds towards investors in Norway and abroad.

Events of major significance to the accounts have not occurred after the balance sheet date.