4th Quarterly Report 2022

Statement of the board

SpareBank 1 Boligkreditt’s purpose

SpareBank 1 Boligkreditt AS (‘Boligkreditt’, ‘SpaBol’, or ‘The Company’) is a specialized covered bond issuer. It is regulated as a credit institution and licensed by the Norwegian Financial Supervisory Authority (Finanstilsynet) and is operating according to the legislation for covered bonds in Norway1.

The purpose of the Company is solely to provide funding for its owner banks by buying qualifying residential mortgage loans from them with a loan-to-value (“LTV”) of up to 75 per cent and financing these through the issuance of covered bonds 2.

The Company, which is based in Stavanger, Norway, is owned by banks throughout Norway and which are all members of the SpareBank 1 Alliance.  The Company pays the net interest margin earned on mortgages to its owner banks, with deductions for its funding and operating costs. This margin is accounted for as commissions to owner banks, which are obligated to maintain the Company’s equity capitalization at or above regulatory requirements.

The Company, which is based in Stavanger, Norway, is owned by banks throughout Norway and which are all members of the SpareBank 1 Alliance.  The Company pays the net interest margin earned on mortgages to its owner banks, with deductions for its funding and operating costs. This margin is accounted for as commissions to owner banks, which are obligated to maintain the Company’s equity capitalization at or above regulatory requirements.

The Company’s issuances of covered bonds mainly take place under the EUR 35 billion Global Medium Term Covered Note Programme (GMTCN Programme).  This Programme was updated on April 26, 2022 and is available on the Company's home page: https://spabol.sparebank1.no.

Moody’s Ratings Service evaluate the credit quality of the issuances under the GMTCN Programme.  The issued covered bonds are rated Aaa. 

[1] The covered bond legislation in Norway is from July 2022 incorporates the Directive (EU) 2019/2162

[2] The limit for instalment mortgages is 75 per cent, while mortgages which have no scheduled repayment structure are limited to 60 per cent.  There is a regulatory minimum amortization requirement of 2.5 per cent annually for new mortgages with a LTV at 60 per cent or above. 

Cover pool and outstanding covered bonds 3

SpareBank 1 Boligkreditt’s cover pool consists of residential mortgages and liquid, highly rated assets as well as derivatives hedging liabilities in a foreign currency and/or at fixed rates.  The chart below illustrates the balances as of December 31, 2022. The balances are based on a new nominal principle introduced from the 3rd quarter 2022 where bonds (covered bonds issued as well as bonds held within liquid assets) are presented at par.  This means that derivatives hedging these instruments, tailored at the time of issuance to exactly transform a bond’s fixed annual coupon to a NOK 3-month floating rate basis over the whole tenor of a bond, are effectively incorporated within the nominal values of the bonds. 

[3] The source is the cover pool asset liability test for overcollateralization as of December 31, 2022 (also included as a note to the financial statements). 

The amount of liquid assets varies over time and the variation is solely a result of the Issuer’s liquidity risk management (and regulatory requirements), whereby upcoming redemptions are refinanced prior to the maturity of outstanding bonds (minimum 180 days) with bond proceeds invested as liquid assets. Liquid assets are covered bonds with a triple-A rating, SSA or government bonds with a triple-A rating, or short-term cash deposits and repos (please see the cover pool statistical reports on spabol.no for details on the composition of liquid assets).

Derivatives are used solely to hedge currency and interest rate risk. They are tailored to exactly match the cash flows related to the bonds they hedge, for the full duration of the bond. Swap counterparties are subject to certain rating criteria and are in all cases banks other than the Company’s owner banks. Counterparties post collateral to Boligkreditt for its swap exposures. 

The table below provides an overview of the residential mortgages in the cover pool, as well as the overcollateralization. 


Residential mortgages key figures

Key Figures Q4 2022 Q3 2022 Q2 2022 Q1 2022 Q4 2021
Weighted Average Current LTV (%) 49.2 % 48.3 % 48.3 % 50.0 % 51.0 %
Weighted Average Original LTV (%) 60.1 % 60.2 % 60.2 % 60.1 % 59.9 %
Average Loan Balance (NOK) 1,702,210 1,680,036 1,646,872 1,624,097 1,593,078
Number of Mortgages in Pool 148,328 145,739 144,086 141,872 139,495
Pct. of non first-lien mortgages 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %
Overcollateralization 105.3 % 5.3 % 5.4 % 5.6 % 5.7 %


Key developments fourth quarter 2022

NOK issuance of 15.02 billion took place during the fourth quarter, for a total of NOK 37.22 billion issued during all of 2022, a record. SpaBol also issued an inaugural CHF 210 million covered bond and EUR 3.5 bn during the year. Credit spreads on covered bonds have generally widened over 2022 in EUR and NOK, along with the broader market. NOK levels have retracted some during the 4th quarter, and this enticed additional substantial issuance from SpaBol and other Norwegian covered bond issuers into the first weeks of 2023.   

The residential mortgage lending volume which SpaBol finances grew by 3.1 per cent in the 4th quarter and the growth totaled 13.5 per cent during all of 2022, which is strong growth. The volume of mortgages financed grew significantly above the underlying growth in mortgage lending among the SpareBank 1 banks, as the banks utilized covered bond funding more than from other sources during the year. The financed mortgage volume stands at NOK 253 billion at the end of the fourth quarter. 

Norway has implemented the EU’s harmonization directive for covered bonds, as well as changes to Article 129 in CRR (Capital Requirement Regulation).  These changes became effective in July 2022.  SpaBol will issue European Covered Bonds (Premium) forthwith.  Of note is an increase in the regulatory overcollateralization requirement for cover pools to 5 per cent from 2.5 per cent prior.  The Issuer has a 5.3 per cent overcollateralization as of December 31, 2022.  Substantial additional cover pool reserves – qualified mortgages – are however available on the balance sheets of SpaBol’s issuer banks. 

Accounts as per 31.12.2022

The accounts have been prepared in accordance with the International Reporting Standards (IFRS) as adopted by the EU and published by the International Reporting Standards Board (IASB). 

The Board views the accounts as presented to be a true representation of SpareBank 1 Boligkreditt’s operations and financial position as of the end of Q4 2022.  Numbers in brackets refer to the corresponding period last year for comparison. 

The total balance sheet at December 31, 2022 amounted to 288 (258) billion kroner. The main reason behind this increase is growth in the financed volume of mortgages of NOK 253 billion vs. NOK 223 billion a year earlier. 

The Company had in 2022 net interest income of NOK 1.644 (2.344) million, which includes both mortgage interest and interest income from liquid assets. The decrease, despite a higher volume of mortgages on the balance sheet, is mainly due to a reduced mortgage net lending margin. This happens because the 3-month NIBOR rate, which is the funding basis for covered bonds, has increased faster and by more than the variable mortgage rate over the year.  Mortgage rate increases must by law be delayed by 6 weeks (8 weeks from 2023) before becoming effective after announcement. All of the Company’s mortgages are at a variable rate and Boligkreditt has the right to set and change the variable rate on its mortgage loans, but will in practice always defer to the SpareBank 1 bank which originated the loan for this decision. Banks set and change their variable mortgage rates in competition with other banks and are often guided by changes in the central bank policy rate when doing so. Commission expense to SpareBank 1 banks, which are the payments of most of the net interest margin to the Issuer’s loan originating owner banks, show a corresponding decrease. 

The cost of operations for 2022 was NOK 44.3 (38.9) million. The majority of operating costs are for expenses related to the Company’s bond issuances, IT operations as well as personnel related expense.  

IFRS 9 loan loss provisions increased by NOK 16.5 million (decreased by 15) to NOK 31.5 million. No actual loan losses have occurred. Credit spread widening on the Company’s bonds held in its liquidity portfolio produced unrealized valuation losses during the period, mainly during the first half of the year. These, along with increased loan loss provisions and temporary mark to market losses on the floating NOK leg of swaps hedging fixed rate issued covered bonds in EUR and NOK is the main reason for a reduced operating result of NOK 45.8 million (131.5) before tax.  This operating result includes no deduction for scheduled interest payments to Additional Tier 1 bondholders, which are classified as distribution to equity capital.   

The Company’s own liquid assets were approximately NOK 30.3 (23.9) billion as of the end of the fourth quarter 2022.  The volume of Boligkreditt’s liquid assets is rules driven.  Liquid assets are cash and highly rated, highly liquid bonds being held as a function of refinancing the Company’s upcoming bond maturities at least six months ahead of expected maturities.  The volume of liquid assets is, at a minimum, managed to meet the 180-day minimum liquidity rule in the EU covered bond harmonization directive.  


Risk Aspects

SpareBank 1 Boligkreditt, as a licensed and regulated covered bond issuer, is subject to strict rules regarding its exposure to credit, market, and liquidity risks. This fact, and the aim of the maintenance of the Moody’s Aaa rating, means that the Company is subject to low levels of risk and places strong emphasis on risk control.

Credit Risk is defined as the risk that losses can occur as a consequence of that customers and others not having the ability or willingness to meet their obligations to SpareBank 1 Boligkreditt. Because the Company buys residential mortgages within 75% of the value of the objects on which the mortgages are secured, the Board of Directors concludes that the credit risk is lower than for Norwegian banks in general.

Market risk is defined as the risk of losses due to changes in market rates, i.e. interest rates, exchange rates and the prices of financial instruments. SpareBank 1 Boligkreditt issues a materially larger share of covered bonds in currencies other than its operational currency NOK. However, all borrowing and investments in a foreign currency, as well as such with a fixed rate, have been hedged by financial currency- and/or interest rate swap agreements. Some natural hedging may occur with EUR assets matching EUR liabilities.   The collective cash flow therefore matches borrowing in Norwegian kroner with floating rate conditions (NIBOR 3 months).  The Company receives cash collateral from its counterparties in derivative agreements. 

The bonds held in the Company’s liquidity portfolio are mainly Nordic covered bonds and German supra sovereign and agencies (agencies guaranteed by the German government) with a triple-A rating from Fitch, Moody's or S&P.  These bonds are held on a 3 month basis either as FRNs or as swapped fixed rate bonds. Deposits are placed in banks with a minimum rating of A/A2.  Cash is also placed in reverse repos with approved counterparty banks, with AAA rated securities as collateral.

The Company had as of December 31, 2022 only moderate interest rate risk, and small amounts of currency risk.

Liquidity risk is defined as the risk that the Company is not able to meet its obligations at maturity or to finance the purchase of loans at normal terms and conditions. Liquidity risk is managed based upon a liquidity strategy approved by the Board of Directors. According to the strategy, SpareBank 1 Boligkreditt AS shall maintain a liquidity reserve with a minimum size equal to or more than all debt maturities within the next 6 months. The Board of Directors views SpareBank 1 Boligkreditt AS’s liquidity situation as good.

Operational risk is defined as risk of loss due to error or neglect in transaction execution, weakness in the internal control, or information technology systems breakdowns or malfunction. Reputational, legal, ethical and competency risks are also elements of operational risk. The risk is assessed by the Board of Directors to be moderate.

The Company spends much time identifying, measuring, managing and following up on central areas of risk in such a way that this contributes to meeting its strategic goals. The notes 24 through 28 in the 2021 annual accounts provide further information. 


Macroeconomic development and outlook 4

There is an expectation of lower growth in 2023, after several interest rate increases (which started at the end of 2021). While Statistics Norway is the source for the below forecast, other sources see a shallow recession in 2023. Private consumption is seen as vulnerable, as is business investment, after energy price and interest rate increases.  Household real income growth was negative in 2022 and is also expected negative in 2023, although CPI growth for 2023 overall is expected below the 5.8 per cent increase in 2022.  Unemployment is expected a little higher in 2023.

With high energy prices, weighing on business’ growth outlook and thus employment levels, Norway’s current account surplus to GDP as an energy exporter, is particularly high, at nearly 28 per cent in 2022. Oil and gas investments are expected to increase significantly from 2023 onwards, due to the increased demand from Europe.
Housing investment (construction) has, with the exception of 2019, delivered negative GDP contributions from 2018 through 2022, and is expected negative in 2023, as mortgage interest rates are expected towards or around 5 per cent for variable mortgage loans.  The housing market price index appreciated by 1.5 per cent overall in 2022, though the 2nd half saw a correction of 6.7 per cent (July-December). Several analysts are expecting a low single digit contraction in 2023, but within a broader range of possible outcomes.  In response to increased market rates, mortgage lending regulations where relaxed somewhat from January 2023; most importantly the interest stress test requires banks to add 3 per centage points to the offered rate to stress the mortgage loan applicant’s repayment ability (reduced from 5 per cent).

Summarized for a few macroeconomic indicators, the recent data and forecast for the next period are as follows:


Recent data and forecast (per cent) 2019 2020 2021 2022 2023
Mainland GDP growth 2.3 -2.8 4.1 3.8 1.2
Private consumption growth 1.0 -6.2 4.5 6.8 0.8
Investments growth 9.5 -4.1 -1.2 4.7 0.3
Unemployment rate 3.9 4.7 4.4 3.3 3.7
CPI growth 2.2 1.3 3.5 5.8 4.9
Annual wage growth 3.5 3.1 3.5 3.8 4.4
Current account surplus to GDP 3.8 1.1 13.5 27.8 18.4

Source: Statistics Norway (SSB) December 9, 2022

[4] Macroeconomic projections have been sourced from Statistics Norway as of December 9, 2022.


Future Prospects of the Company

The Company has a portfolio of residential mortgage loans with an average loan to value (LTV) around 50 per cent, and no loans are in default.  The maximum allowable level for a mortgage in a cover pool is 75 per cent LTV, with amounts above that level not being eligible as a cover pool asset.  

SpareBank 1 Boligkreditt’s residential mortgage portfolio is well diversified, albeit weighted towards the eastern, central and northern regions in Norway. Mortgage loans in the cover pool are very granular (average size of 1.7 million kroner). The banks in the SpareBank 1 Alliance are required to keep reserves of eligible (i.e. cover pool pre-qualified) mortgages in order to provide replacement assets should this become necessary (i.e. if residential price declines increase LTVs above the eligibility limit for mortgages in the pool). Such reserves in the banks are tested regularly to verify that a 30 per cent decline in market real estate prices leaves each member bank with sufficient qualifying reserves for replenishing the cover pool.
The Board of Directors views Boligkreditt as well capitalized with a capital coverage ratio of 22.2 per cent against a total requirement, including all buffers, of 17.0 per cent (Pillar 1) plus 0.9 per cent (Pillar 2).  The countercyclical buffer capital requirement increased to 2.0 per cent as of December 31, 2022 and will further increase to 2.5 per cent as of March 31, 2022. 

Total equity Tier 1 capital is 19.9 per cent against a requirement, including buffers, of 15.9 per cent. Common equity capital was 18.4 per cent against a requirement, including all buffers, of 14.4 per cent. It is the Company’s policy to maintain capital ratios slightly above the regulatory requirements (a management buffer). When required, additional common equity is paid in by the owner banks in the regular course of business, usually in connection with increases in transferred mortgage volume. Additional Tier 1 and Tier 2 capital is raised in the Norwegian domestic capital market.   

The Board of Directors views prospects for the Company to continue to be good and stable, despite the changed macroeconomic forecasts towards lower growth ahead.  This is based on several elements: a strict qualifying process for loans to become part of the cover pool (bank lending practices, mortgage lending regulations and cover pool qualification requirements), a high degree of diversification and granularity of the mortgages in the pool, as well as the robustness of the Norwegian economy, including the strong financial resources available to the Norwegian state.  The Board also bases this conclusion on the low average LTV of the mortgage portfolio, no defaults or loans in arrears, and a strong history and institutional framework in Norway for mortgage loan performance.

* * *

THE Board of Directors affirms its conviction that the financial accounts present a correct and complete picture of the Company’s operations and financial position at the end of the fourth quarter 2022. The financial accounts including notes are produced under the assumption of a going concern. 


Stavanger, February 10, 2023
The Board of Directors of SpareBank 1 Boligkreditt AS

Bengt Olsen

/s/ Bengt Olsen

Geir-Egil Bolstad

/s/ Geir-Egil Bolstad

Trond Søraas

/s/ Trond Søraas

Steinar Enge

/s/ Steinar Enge

Heidi C. Aas Larsen

/s/ Heidi C. Aas Larsen

Merete N Kristiansen

/s/ Merete N Kristiansen

Knut Oscar Fleten

/s/ Knut Oscar Fleten

- Statement of the members of the board and the chief executive officer

The Board and the chief executive officer have today reviewed and approved the financial accounts as of December 31, 2022 for SpareBank 1 Boligkreditt AS.  The accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the EU. 

To the best knowledge of the Board and the chief executive officer the accounts have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole as of December 31, 2022.

The Board of Directors and the chief executive officer declare to the best of their knowledge that the annual report gives a true and fair view of the development and performance of the business of the Company, as well as a description of the principal risks and uncertainties facing the Company. 


Stavanger, February 10, 2023

/s/ Bengt Olsen

/s/ Geir-Egil Bolstad

/s/ Trond Søraas

/s/ Heidi C. Aas Larsen

/s/ Merete N Kristiansen

/s/ Knut Oscar Fleten

/s/ Steinar Enge

/s/ Arve Austestad
Managing Director