SR-Boligkreditt. Investor Presentation. Cover Pool per 31 March 2016

Transcription

1 SR-Boligkreditt Investor Presentation Cover Pool per 31 March 2016

2 Disclaimer This presentation contains forward-looking statements that reflect management s current views with respect to certain future events and potential financial performance. Although SR-Boligkreditt believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forwardlooking statements as a result of various factors. Important factors that may cause such a difference for SR-Boligkreditt include, but are not limited to: (i) the macroeconomic development, (ii) change in the competitive climate, (iii) change in the regulatory environment and other government actions and (iv) change in interest rate and foreign exchange rate levels. This presentation does not imply that SR-Boligkreditt has undertaken to revise these forward-looking statements, beyond what is required by applicable law or applicable stock exchange regulations if and when circumstances arise that will lead to changes compared to the date when these statements were provided.

3 Agenda SpareBank 1 SR-Bank SR-Boligkreditt AS Cover Pool The Norwegian economy The Norwegian mortgage market Appendix 3

4 The leading financial group in the southwest of Norway 1 Rogaland Population Market share 37% Year of establishment 1839 Market strategy Market leader Unemployment rate 4.7%* 2 Hordaland 2 Population Market share 6% Year of establishment 2006 Market strategy Entry/growth Unemployment rate 3.5%* 3 Agder Population Market share 9% Year of establishment 2002 Market strategy Growth Unemployment rate 4.1%* Source: Nav, SSB and SpareBank 1 SR-Bank * Figures as at

5 SRBANK has broad financial activities Divisions of SpareBank 1 SR-Bank ASA Capital Markets Number of man-years : 34 Retail Market Number of man-years : 468 Corporate Market Number of man-years : 163 Administration & Support Number of man-years : 207 Fully owned companies Number of man-years : 197 Number of man-years : 14 Number of man-years : 31 Number of man-years : 79 Number of man-years : 1 Key areas: Leading real estate broker Key areas: Asset management Key areas: Leasing Key areas: Accounting Advisory Key areas: Covered Bond Funding Partly owned companies SpareBank 1 Gruppen AS (19.5%) BN Bank ASA (23.5%) SpareBank 1 Boligkreditt AS (16,7%) SpareBank 1 Næringskreditt AS (26,8%) SpareBank 1 Kredittkort (18,1%) Holding company for the SpareBank 1 - Alliance Commercial bank located in Oslo and Trondheim Covered bond company (mortgages) Covered bond company (commercial real estate) Credit card company located in Trondheim 5

6 SpareBank 1 Alliance: Strong benefits in economies of scale Owners of the alliance All credit decisions are made at the local banks Economies of scale related to expenses, IT solutions, marketing and branding Samspar 19,5% 19,5% 19,5% 19,5% 11,0% 9,6% 1,4% Products, commissions, dividends Sales, loan portfolios, capital Companies directly owned by SR-Bank SpareBank 1 Gruppen AS BN Bank (23,5%) Bank 1 Oslo Akershus (4,8%) SpareBank 1 kredittkort (18,1%) SpareBank 1 Life insurance (100%) SpareBank 1 Nonlife insurance (100%) ODIN Asset Management (100%) SpareBank 1 Boligkreditt (16,7%) SpareBank 1 Næringskreditt (26,8%) SpareBank 1 Mobilbetaling (19,7%) Collection (100%) SpareBank 1 Factoring (100%) Banking Cooperation 6

7 Key figures quarterly development Return on equity CET 1 capital ratio 12,7% 10,8% 9,3% 10,6% 9,0% 12,1% 12,3% 12,2% 13,3% 13,4% Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Cost/income ratio Earnings per share (NOK) 42,5% 47,3% 42,3% 43,6% 1,94 1,69 1,47 1,73 1,51 35,5% Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 7

8 Income statement Group Income Statement (MNOK) Q1 16 Q4 15 Q3 15 Q2 15 Q1 15 Net interest income Net commission and other income Net income on investment securities Total income Total operating expenses Operating profit before losses Impairment losses on loans and guarantees Operating profit before tax Tax expense Net profit

9 Key figures Q1 16 Q4 15 Q3 15 Q2 15 Q1 15 Return on equity after tax (%) 9,0 10,6 9,3 10,8 12,7 Net interest margin (%) 1,44 1,40 1,39 1,44 1,45 Impairment losses on loans and guarantees in % of gross loans 0,39 0,50 0,25 0,12 0,25 -incl. covered bond companies 0,33 0,42 0,21 0,10 0,20 Non-performing and other problem commitments in % of gross loans 1,10 0,90 0,68 0,78 0,81 -incl. covered bond companies 0,92 0,76 0,56 0,64 0,66 Cost to income ratio 43,6 35,5 42,3 47,3 42,5 Annual growth in loans to customers, gross incl. covered bond companies (%) 2,9 5,4 7,4 7,6 7,3 Annual growth in deposits from customers (%) 1,2 9,8 9,5 11,1 15,5 Total assets (BNOK) 194,8 192,0 191,5 181,9 176,9 Portfolio of loans in covered bond companies (BNOK) 28,8 28,7 31,0 31,2 34,1 Risk weighted assets (BNOK) 118,5 119,1 122,4 120,4 117,6 Liquidity Coverage Ratio (LCR) (%) Earnings per share (NOK) 1,51 1,73 1,47 1,69 1,94 Book value per share (NOK) 67,68 66,14 64,02 62,56 62,40 Number of shares issued (million) 255,8 255,8 255,8 255,8 255,8 9

10 Net interest income incl. commission from covered bond companies Other income Net income on investment securities Total operating expenses Impairment losses on loans and guarantees Change in profit

11 MNOK Consolidated income profile Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Net interest income Commission income from covered bond companies Profit before tax from covered bond companies Net commission and other income 11

12 Lending and deposit margins Lending margins 2,92% 2,90% 2,89% 2,80% 2,66% 2,59% 2,59% 2,58% 2,65% 2,20% 2,08% 1,97% 1,95% 1,95% 1,64% 1,61% 1,56% 1,46% Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Corporate market Retail market Deposit margins -0,21% 0,11% -0,47% -0,50% -0,45% -0,25% -0,47% -0,18% -0,46% -0,05% -0,49% -0,38% -0,25% -0,06% -0,48% -0,79% -0,64% -0,55% Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Corporate market Retail market 12 Definition: Average customer interest rate against 3-month moving average for 3-month NIBOR. Lending margins include loan portfolio in covered bond companies

13 MNOK MNOK Lending volume and 12 months growth Corporate Market (incl. Capital Markets) ,8% 13,8% 12,5% 5,6% 7,1% 0,7% 1,4% 2,5% 3,0% Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q % 10% 5% 0% Volume Growth % Retail Market % ,9% 4,8% 3,8% 4,1% 4,6% 4,7% 5,2% 4,6% 3,1% 10% 5% 0 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 0% Volume Growth % Figures incl. loan portfolio in covered bond companies 13

14 Loan portfolio as at Gross loans as at 31 March 2016 amount to NOK billion compared with NOK billion at the same time the year before. 12-month growth in loans of 2.9%. Loans to retail customers (incl. covered bond company) account for 62.5% of total loans. Agriculture / forestry / fishing Industry, Power/water supply and construction Retail trade, hotels and restaurants Shipping Offshore/Oil and gas Real estate Service industry Pub. mgm., financial services and others Other Retail customers SB1 Boligkreditt SB1 Næringskreditt 2,8 % 2,8 % 3,7 % 3,6 1,4 % 1,5 % 2,1 % 2,0 % 5,5 % 6,2 % 4,6 % 4,3 1,3 % 1,2 % 0,4 % 0,4 % 0,3 % 0,3 15,5 % 15,1 % 18,7 % 15,3 % 43,7 % 47,2 % 0,0 % 10,0 % 20,0 % 30,0 % 40,0 % 50,0 % Loans before individual write-downs, nominal amounts. Sector allocation in accordance with the standard categories from Statistics Norway. 14

15 Loan to value ratio on home mortgage loans The proportion of loans with a loan-tovalue ratio of less than 85% is high. 90.1% of the exposure is within 85% of the assessed value of collateral. Market value on real estate is slightly declining in Rogaland. This has lead to a small decrease in the proportion of loans within 70% LTV. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 66,5% 64,5% 24,2% 25,6% 5,9% 6,3% 3,4% 3,6% Below 70 % % % Above 100 % In a total-distributed loan to value ratio, the entire loan is allocated to one and the same interval. The figures include the loan portfolio in the covered bond company (SpareBank 1 Boligkreditt AS and SR-Boligkreditt AS). 15

16 Impairment losses on loans/ Non-performing and doubtful commitments Impairment losses on loans Non-performing and doubtful commitments 0,50% 0,39% 0,25% 0,20% 0,12% 0,10% 0,25% 0,21% 0,42% ,33% 0,81% 0,78% 0,68% 0,66% 0,64% 0,56% 548 0,90% 0,76% 943 1,10% 0,92% Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Collective impairment losses on loans, MNOK Individual impairment losses on loans, MNOK Loss ratio in % of average gross loans Loss ratio in % of average gross loans incl. from covered bond companies Doubtful commitments, MNOK Non-performing loans, MNOK Non-performing and doubtful commitments in % of gross loans Non-performing and doubtful commitments in % of gross loans incl. from covered bond companies 16

17 Stronger capital ratios SpareBank 1 SR-Bank is compliant with capital requirements as at % SpareBank 1 SR-Bank received IRB Advanced approval for the corporate market portfolio in the first quarter of % 14% 12% 14,5% 15,2% 13,0% 12,9% 16,8% 14,3% The use of different risk weights in the Nordic countries makes comparisons of actual financial strength difficult. The Basel I floor is also practised differently. 10% 8% 6% 4% 11,2% 12,1% 13,4% Leverage ratio is 6.4% as at SpareBank 1 SR-Bank exceeds the levels being discussed internationally. 2% 0% CET 1 capital ratio Tier 1 capital ratio Capital ratio Due to transitional rules, the minimum capital adequacy requirements cannot be reduced below 80 per cent of the corresponding figure calculated according to the Basel I regulations. 17

18 Common Equity Tier 1 being strengthened in line with stricter regulatory requirements New capital requirements entail a need to continue increasing common equity tier 1 capital going forward. Norges Bank has decided that the countercyclical buffer will increase to 1.5% from 30 of June In addition, the Norwegian FSA will during the 2016 determining an individual Pilar 2- requirements that will be added on the regulatory minimum requirements for CET 1. 16,00% 14,00% 12,00% 10,00% 8,00% 6,00% 4,00% ROE 11,2% 8,3% ROE 12,4% 10,0% ROE 14,0% ROE 14,2% 11,1% 11,5% ROE 10,8% ROE 9,0% 13,3% 13,4% 11,5-13,5% 2,0% 1,5% 3,0% 2,5% 16,00% 14,00% SIFI 12,00% Countercyclical buffer 10,00% Systemic risk buffer 8,00% 6,00% Capital conservation buffer 4,00% SpareBank 1 SR-Bank is not defined as a systemically important financial institution (SIFI). 2,00% 0,00% 4,5% 2,00% The regulatory minimum requirements 0,00% To meet regulatory and market requirements for solvency, the target CET 1 level is minimum 14.0% in 2016 and 14.5% during The target expected to be reached through good profitability and retained earnings combined with limited growth in risk-weighted assets. CET 1 capital ratio * Countercyclical buffer is 1% as at 31 December

19 Increasing CET 1 well prepered to reach capital requirements Guiding 2016 Stronger common equity tier 1 in 2015 IRB Advanced approval for the corporate market portfolio Changed pension scheme Good profitability Moderate growth Capital efficiency Moderate dividend Guiding % 14% 12% 10% 8% 6% 4% 2% 0% 11,5% - 0,7% 0,7% 0,3% 0,1% 1,7% - 0,3% 13,3% 0,1% 0,2% 1,0% 14,6% Good profitability: Target 11% return on equity Marginal decline in risk-weighted assets (RWA) Runoff of BN Bank s corporate portfolio Moderate dividend 19

20 20 Financial targets and estimates for 2016

21 Agenda SpareBank 1 SR-Bank SR-Boligkreditt AS Cover Pool The Norwegian economy The Norwegian mortgage market Appendix 21

22 Support activities Overview SR-Boligkreditt is a wholly owned subsidiary of SpareBank 1 SR-Bank and a dedicated covered bond company. Its objective is to purchase mortgages and to finance these by issuing covered bonds. Loans are transferred to SR-Boligkreditt as true sale on a non-recourse basis. Approval from the Norwegian FSA to report capital according to IRB methods. Rated Aaa by Moody s - TPI leeway of 4 notches. - Minimum OC-requirement 0.5 % - The minimum level of over-collateralization is set at 2 % in SR-Boligkreditt's Covered Bond Programme. FSA appointed investigator: PricewaterhouseCoopers. Functions of SR-Boligkreditt Agreements with SR-Bank Revolving credit facility agreement cover payment obligations under Covered Bonds, including derivative contracts, for a rolling 12 month period Underwriting Mortgage acquisition Funding Core activities Liquidity Management Asset Management Loan servicing Overdraft facility payment of purchased loans funding drawings under flexi-loans paying operational expenses funding other working capital needs SR-Bank, regulated in SLA. SR-Boligkreditt Transfer and servicing agreement Service level agreements 22

23 Eligibility criteria Type of properties Primary residential property in Norway (including detached houses, terraced houses, apartments and cooperative housing units). The mortgage property shall not be "buy-to-let". No holiday homes. Collateral First priority mortgages. Max LTV 70 % or less at the time of transfer (max 60 % for flexible loans/revolving credits). The valuation of the mortgage property must be no less than 24 months old and carried out by an independent third party. Quarterly valuation from independent 3 rd party. Credit criteria No adverse credit history the previous year. Probability of default max 2.50 %. Type of products Amortizing loans (straight line or annuity). Flexible loans/revolving credits. No fixed rate loans. Loan volume A maximum loan volume per customer of NOK 12 million (~ 1.3 million). 23

24 Risk Management Liquidity risk SR-Boligkreditt shall ensure that the payment flows from the Cover Pool enables it to meet its payment obligations towards the Covered Bond holders and derivatives counterparties at all times. Liquidity reserves, committed loan facilities and other cash inflows shall as a minimum cover maturities and other cash outflows over the next 6 months. Interest rate risk SR-Boligkreditt shall not have a net interest rate exposure (exposure assets - exposure debt) in excess of 3 % of total capital. The potential for gain / loss is calculated from a parallel shift of the yield curve by 1 percentage point. Currency risk Maximum aggregate currency position shall not exceed 3% of total capital. Overcollateralization The level of over-collateralization shall equal the minimum requirement from Moody's with a minimum buffer of 50 basis points. The minimum level of over-collateralization is set at 2 % in SR-Boligkreditt's Covered Bond Programme. 24

25 Funding The purpose of establishing SR-Boligkreditt is to optimize funding mix and eliminate possible limitations due to regulatory limits on large exposures. Stands out compared to Norwegian savings banks when it comes to geographic diversification of funding. Issuer / Ticker Coupon Amount Maturity ISIN Senior unsecured: SR-Bank / SRBANK 3.500% EUR500mn 21-April-2016 XS SR-Bank / SRBANK 3.500% EUR500mn 27-March-2017 XS SR-Bank / SRBANK 2.000% EUR500mn 14-May-2018 XS SR-Bank / SRBANK 2.125% EUR500mn 27-February-2019 XS SR-Bank / SRBANK 2.125% EUR500mn 03-February-2020 XS SR-Bank / SRBANK 2.125% EUR750mn 14-April-2021' XS Covered bonds: SR-BOL / SRBANK 0.500% EUR500mn 28-September-2020 XS SR-BOL / SRBANK 0.750% EUR500mn 18-January-2023 XS

26 BNOK Funding plans SR-Boligkreditt intends to be a regular issuer in the euro market. 8,0 Maturity profile Issuance activity split between the domestic and the international markets. 7,0 6,0 SR-Boligkreditt will establish a curve in the EUR market in a similar fashion to what has been achieved in the EUR Senior Unsecured market in the last years. SR-Boligkreditt issues bonds with soft bullet, 12 months extension, in line with other Norwegian issuers. 5,0 4,0 3,0 2,0 1,0 EMTN NOK 0,0 26

27 Agenda SpareBank 1 SR-Bank SR-Boligkreditt AS Cover Pool The Norwegian economy The Norwegian mortgage market Appendix 27

28 Strong credit quality Realized losses: 0 Foreclosed mortgages: 0 0 % Loan performance Mortgages in arrears (>90 days): 0 Performing loans Delinquent loans (arrears 31 to 90 days) 100 % Gross non performing loans (arrears 90 days +) 28

29 Cover Pool characteristics Assets / Status 100 % first lien mortgages on Norwegian private residential properties 100 % performing loans Cover Pool NOK 16.1 bn: Residential mortgages 15.5 bn (96.5 %), Deposits 0.6 bn (3.5 %) Loans and rate loans at a weighted average interest rate of 2.5 % Average loan balance Weighted average original LTV Weighted average current LTV Weighted average seasoning Weighted average remaining term Principal payment frequency Rate Type OC level OC - level if house price drop 20 % % 51.6 % 81 months 266 months Repayment 86.1 %, Flexible 13.9 % 100 % floating rate loans 13.6 % 9.4 % 29

30 Cover Pool characteristics Current LTV Repayment type 30% 25% 20% 15% 10% 24,7 % 16,7 % 20,6 % 26,7 % 11,1 % 13 % Amortizing Non-amortizing 5% 0% 0,1 % 0,0 % 0-40 % % % % 70-80% % 100 % + 87 % Seasoning (number of months) Remaining legal term of loan (no. of months) 20% 15% 10% 5% 0% 5,9 % 11,5 % 5,8 % 5,3 % 6,0 % 7,3 % 6,8 % 12,8 % 12,3 % 10,1 % 16,1 % 50% 40% 30% 20% 10% 0% 1,2 % 4,7 % 6,0 % 5,6 % 9,0 % 38,7 % 17,4 % 10,8 % 4,2 % 2,3 % 0,1 % 30

31 Cover Pool characteristics Pool notional 10 largest borrowers (% of cover pool) 40% 36,0 % 0,10% 30% 20% 10% 0% 13,8 % 27,8 % 18,1 % 4,3 % 0,0 % 0,08% 0,05% 0,03% 0,00% By geography By property type 3 % 2 % 4 % 12 % 7 % 76 % Aust-Agder Vest-Agder Rogaland Hordaland Other 5 % 14 % 77 % Detached House Semi Detached House Apartment Apartment in housing cooperatives 31

32 Agenda SpareBank 1 SR-Bank SR-Boligkreditt AS Cover Pool The Norwegian economy The Norwegian mortgage market Appendix 32

33 Norwegian economy: Key takeaways Expected global economic growth of 3.2 % in 2016, Norway 1.0 %. Norwegian economy supported by a weaker exchange rate, low interest rates, solid government finances and a flexible economy. Norwegian unemployment rate moderate and employment is stable. Oil investments are expected to be reduced in 2016, but to remain at a fairly high level. Infrastructure projects, increase in public spending and healthy activity in house building help to ensure good conditions for the region's business and population growth. SR-Bank expects stable to slightly declining house prices going forward and still strong competition for new home mortgage customers

34 Norwegian economy: Key economic indicators Economic Indicators (%) E 2016P 2017P GDP mainland, annual change (%) Household consumption, annual change (%) Public consumption, annual change (%) Investment mainland, annual change (%)* Investment public sector Investment offshore oil and gas, annual change (%) Oil price, USD/bbl (SR-Bank estimate 2016 and 2017) Inflation rate (CPI) % month NIBOR % Mortgage rate % Household savings ratio Unemployment rate HH sector real disposable income, annual change (%) Current account surplus, share of GDP (%) Gov. budget surplus, share of GDP (%) Sovereign Wealth Fund, share of GDP (%) Sources: Statistics Norway as of March 8, 2016, NBIM, Ministry of Finance * Business, housing and public sector 34

35 Norwegian economy: Overview Norwegian GDP decomposed, % GDP mainland Norway (Annual change %) 10% 8% 6% 25% 42% 4% 2% 24% 0% Household final consumption expenditure Final consumption expenditure of general and local government Gross fixed capital formation (GFCF) Net exports -2% -4% Source: Statistics Norway 35 35

36 The Norwegian economy correlates with the global economy 7% 6% 5% 4% 3% 2% 1% 0% % -2% The World Economy, annual change Oil price, real, USD/bbl Mainland Norway, annual change Source IMF, EIA, SSB og SpareBank 1 SR-Bank (projections for 2016 og 2017) 36 36

37 Petroleum and the Norwegian economy Oil and natural gas export close to 50% of total exports 70% 60% 50% 40% 30% 20% 10% 0% Petroleum: Share of goods export Demand from the petroleum sector, share (%) of GDP mainland Oil and natural gas, share of goods export Oil, share of goods export Natural gas, share of goods export Share (%) of GDP mainland Projection Source: Stastics Norway Source: Ministry of Finance, 8 October

38 Billion NOK Reduced petroleum activity Lower investments, whereas operating expenditures are stable Petroleum activity on the Norwegian Continental Shelf levelled out in 2014 following several years of growth. Total activity expected to be reduced 10% this year following 12% decline last year. Investments reduced 16% last year and are expected to be reduced by 10% this year. Operating expenditures (opex), which are important for the region, are stable. Opex are expected to be reduced somewhat in Investments Opex Exploration Decommision Other Total Source: Norwegian Petroleum Directorate 38

39 Unemployment has increased, but remains moderate 6 Unemployment (registered, per cent) Vest-Agder Rogaland Hordaland Norway Source: NAV

40 2000K4 2001K4 2002K4 2003K4 2004K4 2005K4 2006K4 2007K4 2008K4 2009K4 2010K4 2011K4 2012K4 2013K4 2014K4 2015K1 2015K2 2015K3 2015K4 Employees Stable employment Employment Vest-Agder Rogaland 12 Hordaland Source: Statistics Norway 40

41 Stable house prices in Rogaland last 3 years House prices, NOK per square meter, average Vest-Agder Rogaland Hordaland Norway Oslo - Source: Finn.no, Eiendom Norge and Eiendomsverdi 41

42 Weak NOK increases competitiveness 11 Foreign exchange rate Norwegian labour costs¹ relative to trading partners' labour costs. Index. 1995= (2016 projection) NOK per USD NOK per EURO Measured in domestic currency Measured in common currency Source: Thomson Reuters Datastream Source: Central Bank of Norway 42

43 Norwegian economy - exports Trade balance NOK Billion Export NOK Billion Import Export Trade balance Mainland export Petroleum export Total export Source: Statistics Norway 43

44 Norwegian economy, government finances and the sovereign wealth fund Cash flow from the petroleum sector (taxes, ownership) is channeled into the sovereign wealth fund Fiscal spending rule is 4% of the fund, but has been less than that latest years flexibility to spend more if needed Structural non oil deficit and 4% of the Government Pension Fund Global (GPFG). Constant 2016 prices. In billions of NOK The sovereign wealth fund and GDP. NOK Billion The Government pension fund global Norwegian GDP 2015 Source: Central Bank of Norway 44

45 Agenda SpareBank 1 SR-Bank SR-Boligkreditt AS Cover Pool The Norwegian economy The Norwegian mortgage market Appendix 45

46 Norwegian housing and mortgage market Key characteristics Market Home Ownership Total mortgage market approx NOK 2,500 billion (approx USD 320bn, 285bn) Banks and credit institutions are the dominant supplier of mortgages with over 90% market share Typical maturity years and repayment mortgages No sub-prime market 80% of households owner occupied (little buy to let) Amongst the highest home ownership in the world Household credit growth rate (12 month growth rate) Social Security Personal Liability Regulation Interest Payments Tax Incentives Generous unemployment benefits Unemployment benefit represents ca 60% of final salary for 104 weeks Borrowers are personally liable for their debt, also for outstanding debt post foreclosure and forced sale Swift foreclosure regime upon non-payment Individual borrowers have tight relationship with their lenders Transparent information about borrowers Max Loan to value: 85% (75% legal limit for Cover Pool) Non-amortizing loans: max 70% LTV 5% mortgage interest rate increase as stress test 90-95% of mortgages are variable rate Interest rates can be reset at the lender s discretion, by giving the debtor 6 weeks notice 27% of interest paid is tax deductible (equal to the basic rate of tax) Low effective real estate tax (lower net worth tax on real estate than financial assets) Norwegian mortgages (by dwelling type) 46 Source: Statistics Norway for household credit growth and mortgage split

47 Nominal and real house price development Index of house prices, Norway, monthly (Jan 2005 = 100) 47 Source: Eiendomsverdi

48 Aggregate household debt burden All household debts included in the statistic, question of international comparability. 250 Household debt ratio. Percent of disposable income. Projections for High home ownership (mortgage debt rather than rent commitments). 200 Generous benefits (pensions, healthcare, education, childcare, maternity, unemployment). Income growth over the last decades has far outpaced the cost of necessities in the time period shown Household savings rate is high: debt reduction possible. 0 Debt ratio Source: Central Bank of Norway 48

49 Debt servicing Share of net disposable income (after tax and cost of necessities) required to service a 85% LTV repayment mortgage over 25 years (green line). Average mortgage servicing payments (principal and interest) Average after-tax, after-necessities income for households with 2 adults and 2 children. Based on Median house prices for Norway (excl. apartments). Source: Statistics Norway, Eiendomsverdi 49

50 jan.06 jan.07 jan.08 jan.09 jan.10 jan.11 jan.12 jan.13 jan.14 jan.15 jan.16 jan. 09 jul. 09 jan. 10 jul. 10 jan. 11 jul. 11 jan. 12 jul. 12 jan. 13 jul. 13 jan. 14 jul. 14 jan. 15 jul. 15 jan. 16 jan.06 jan.07 jan.08 jan.09 jan.10 jan.11 jan.12 jan.13 jan.14 jan.15 jan.16 Residential market Norway Number of flats/houses for sale Number of days to sell a house/flat Completed houses/flats Population Change and Completed Housing Units Completed units 12 month average 50 Source: Eiendomsverdi and Statistics Norway

51 New regulations from the Ministry of Finance The Ministry of Finance adopted on 15 June 2015 a new regulation on requirements for residential mortgage loans. The regulation is based on current guidelines from the Financial Services Authority. The aim of the regulation is to contribute to a sustainable development in the residential mortgage market. The regulation takes effect from 1 July Requirements for residential mortgage loans: Borrowers to be stress tested for an interest rate of 5 %. Cap on the loan-to-value ratio on residential mortgage loans at 85 % Require 2.5 % amortization on all mortgages > 70 % LTV. To ensure that lenders are able to offer loans to creditworthy borrowers, the regulation allows for 10 % of the volume of a lender s approved loans per quarter to be loans that do not meet the regulatory requirements for debt-servicing capacity, loan-to-value ratio or repayments. To ensure competition in the market for residential mortgage loans, loans that are moved from one bank to another, are not counted in the 10 percent quota. The regulation will be continuously evaluated in the light of regional developments in the housing market, household borrowing, and the impact on competition between lenders. The regulation will cease to have effect on 31 December 2016, unless an assessment shows the need for the regulation to be extended. 51

52 Agenda SpareBank 1 SR-Bank SR-Boligkreditt AS Cover Pool The Norwegian economy The Norwegian mortgage market Appendix 52

53 Norwegian legal framework for Covered Bonds Specialist banking principle Only specialised institutions whose articles of association comply with prescribed mandatory requirements may issue covered bonds. LTV limits 75% for residential mortgages. 60% for commercial mortgages. Assets The Cover Pool may consist of mortgaged real estate assets, public sector loans and substitute assets (max 20% of Cover Pool, 30% with the Norwegian FSA approval). Matching requirement Value of the Cover Pool shall at all times exceed the value of the covered bonds with a preferential claim on the pool. NPV principle applied to all assets and liabilities. Special supervision The Norwegian FSA appoints an independent inspector who regularly (at least every three months) supervises the matching requirement of the Cover Pool and the Cover Pool registry. The inspector submits annual reports of observations and assessments to the Norwegian FSA. Overcollateralisation Liquidity requirement Voluntary over-collateralisation is part of the pool and is bankruptcy remote. Cash flow from the Cover Pool shall at all times suffice to cover payments on the covered bonds and payments to counterparties under related derivatives agreements. A liquidity reserve needs to be established which shall be included in the Cover Pool. Currency risk The credit institution must establish reasonable and conservative limits. SR-Boligkreditt will fully hedge currency risk. Interest rate risk Interest rate risk must be analysed (rate curve shifts and twists). SR-Boligkreditt will hedge interest rate risk on its bonds to 3 month NIBOR. Issuer insolvency Bankruptcy Administrator tasked with preserving the value of the Cover Pool, maintain law & regulations, ensure timely payment to covered bond investors and derivatives counterparties. Must inform covered bond investors about any material decisions. If timely payments can no longer be ensured, a halt to payments is introduced. All covered bond investors have preferential pari passu claim, must be consulted on material points. 53

54 Comparison of Covered Bond Jurisdictions Country Max LTVs Special Banking Principle NPV Asset Liability Matching Freq. Of Coverage Calculation Legally required O/C Derivatives Pledged to Pool Separate Administrator in Insolvency Voluntary O/C protected in Bankruptcy Norway Resi: 75 % CRE: 60 % Sweden Resi: 75 % CRE: 60 % Finland Resi: 70 % CRE: 60 % Germany Resi: 60 % CRE: 60 % Yes Yes Daily No Yes Yes Yes No Yes Daily No Yes Yes Yes No Yes Daily Contractual Yes Yes Yes No Yes Daily 5 % Yes Yes Yes Spain Resi: 80 % CRE: 60 % No No Daily CH 25 %/ CT 43 % Yes Yes Yes France Resi: 80 % CRE: 60 % Yes No Daily 5 % Yes Yes Yes Netherlands Resi: 80 % No No Monthly 5 % Yes Yes Yes Italy Resi: 80 % CRE: 60 % No Yes Six months No Yes No Yes UK Resi: 80 % No Not relevant Not relevant Contractual Yes Yes Yes 54 Sources: Euroweek and The Cover

55 Norwegian Economy international context Unemployment rates 15% 10% 5% 0% Denmark Norway Sweden United States Euro area GDP growth rates 10% 5% 0% -5% -10% Denmark Norway (mainland) Sweden United States Euro Area 55 Source: OECD Economic Outlook no.96 and Statistics Norway

56 Contact details Dag Hjelle, CEO SR-Boligkreditt AS Morten Forgaard Direct line: Mobile: Bjørn Endre Oftedal Lene Vaaland Direct line: Mobile: Address: Bjergsted Terrasse 1 Postboks Stavanger Web-site: 56