Cover pool statistics are reported on quarterly and made available on our website with a target publishing date before the end of the month following calendar quarter-end. We make the information available in both pdf and excel formats and call the reports "Investor Reports", which also contain details on all covered bonds outstanding and a line-by-line listing of all holdings in our liquidity portfolio.
All mortgage loans in the cover pool are currently variable rate. Variable rate means that SpareBank 1 Boligkreditt has the right to change the interest rate we charge customers at any time, after observing a six weeks notice period that a rate change is coming.
The variable rate is expressed as a mortgage interest rate to the customers, for example 4%. Interest rates on variable mortgages, which make up typically 90% of all Norwegian residential mortgages and 100% of SpareBank 1 Boligkreditt mortgages, may be changed at a lenders discretion after a six week customer notification period. This gives banks a great deal of flexibility with regards to passing through costs to their customers, however, mortgage lending takes place in a competitive environment and it is efficient and low-cost for customers to switch banks. Because of the variable rate environment banks are obligated to stress test mortgage applications for higher rates in the future.
Generally in Norway the banks' regulator has asked banks to observe limits of loan-to-value when granting mortgage loans. The limits are 85% for repayment mortgages and 70% for mortgages without a specific agreement about when repayments need to occur. For all mortgage loans which are to qualify for covered bond issuance the limit is 75% loan-to-value, as enshrined in the regulations to the covered bond legislation.
SpareBank 1 Boligkreditt is a covered bond issuer, regulated as a mortgage credit institution, and as such is subject to the same capitalization requirements as for all banks (as well as all otther banking regulations through Basel III and CRD IV). Boligkreditt acquires the mortgage loans from its parent banks in the SpareBank 1 Alliance on a 'true sale' basis. When a parent bank sells mortgages to Boligkreditt, a sufficent amount of capital is required from the selling bank. In addition, the parent banks continue to have an obligation to pay in additional capital should this become necessary, for example if there would be a deterioration in exsiting capital levels at the covered bond issuer; the commitment is joint and several for all the 15 member banks of the SpareBank 1 Alliance.
Cover pool quality is very high. Boligkreditt has never experienced a loss on a mortgage, nor has there been any issues in the cover pool with regards to arrears levels or foreclosures since the start of operations in 2007. Arrears up to two months are typically limited to a couple of basis points of the mortgage portfolio.
The SpareBank 1 Alliance was founded amongst the large regional savings banks in Norway in 1996. The objective was to cooperate in a number of areas and achieve economies of scale. The most important result of this was the founding of a central group entity which manages and develops central competencies (i.e. payment systems, risk management, IT systems) and product development (insurance, savings and other banking products) in common for all of the banks. All SpareBank 1 banks also share a common superbrand, SpareBank 1, in the Norwegian market and has become a 'household brand name' over the years. The continuing decision to remain independent is rooted in the overall very good financial and other results from the cooperation within the Alliance, and the strength of the local anchoring that each bank represent in its regional market.
The typical mortgage is a 25 year repayment mortgage, this product is approximately 75-80% of the overall market with the remaining share a flexible loan product (interest only or flexible repayment arrangement - these loans may be maximum 70% LTV at origination). For our cover pool the criteria is 70% maximum LTV for repayment mortgages and 60% for flexible loans.
Maximum 30% of the outstanding covered bonds may mature in any one 12 month period. In EUR the typical issue tenor is 5 to 10 years, in USD 3 to 7 years and in NOK from 5 years and to longer tenors, whereby floating rate dominates in NOK up to the 7 year maturity.
With only variable rate mortgages denominated in NOK on the asset side, all liabilities are swapped into NOK on a 3 month floating rate basis. This is done with interest rate and currency swap executed simultaneously with the issuance of a bond in the market (which is not a NOK denominated floating rate bond).