Nordea Kredit Realkreditaktieselskab – Year-end Report 2012 - Company announcement no 10, 2013
Nordea Kredit Realkreditaktieselskab today presented the attached Year-end Report 2012 with the following key points:
- Profit for the year before tax was DKK 938m (DKK 1,009m).
- Lending was up DKK 17bn, bringing total lending to DKK 358bn at end-2012 (DKK 341bn).
- Continued positive trend in market share.
- Net loan losses of DKK 491m (DKK 284m). Accumulated loan losses corresponded to 0.12% (0.09%) of the loan portfolio. The quality of the loan portfolio is still considered satisfactory.
- The auction of adjustable-rate mortgages at end-2012 yet again resulted in record-low interest rates.
- Based on the advice provided, around 15% of borrowers with very short-term adjustable-rate mortgages chose to refinance into mortgages with interest reset for example every three or five years or into fixed-rate mortgages.
- All bonds in issue still have the highest ratings.
Stephan Ghisler-Solvang, Chief Press Officer, telephone +45 33 33 45 56.
Nordea Kredit Realkreditaktieselskab
PO Box 850
DK-0900 Copenhagen C
Tel +45 33 33 36 36
Fax +45 33 33 36 37
Year-end Report 2012
Nordea Kredit Realkreditaktieselskab
[For table see PDF]
Comments to the year-end result
Nordea Kredit posted a profit after tax of DKK 703m in 2012 compared with DKK 756m the year before.
Income from administration and reserve fees increased by 26% to DKK 2,268m (2011: DKK 1,807m) due to continued lending growth as well as the introduction of higher administration and reserve fees in January 2012.
The return on investment was negative at DKK 239m net versus a gain of DKK 220m in 2011. The return on investment includes all interest income and the net result from items at fair value relating to cash investments as well as interest expenses relating to Nordea Kredit’s funding facilities. The negative net return in 2012 was attributable to the rising cost of capital to maintain the high rating as well as the falling level of interest rates which led to negative rates on cash investments in the second half of 2012.
Fee and commission income increased by DKK 140m, whereas Fee and commission expense was up DKK 110m driven by a higher level of activity.
IT expenses were down in 2012, whereas expenses for the handling of non-performing loans and repossessed properties increased. Total staff costs and administrative expenses were reduced to DKK 228m (DKK 236m). The cost/income ratio improved to 14% (16%).
Net loan losses amounted to DKK 491m (DKK 284m) and total losses realised amounted to DKK 324m (DKK 83m). The increase in provisions and losses should be viewed in light of the persistent weakness of the property market and loss risks to a greater extent than previously being identified on loans where the parent company’s loss guarantee has expired. The provisioning requirement is mainly attributable to loans to personal customers and involves considerable geographical variations.
Comments on the balance sheet
Total assets increased by DKK 20bn in 2012 to DKK 407bn (DKK 387bn).
Loans to credit institutions and central banks amounted to DKK 47bn (DKK 40bn). The increase was mainly due to greater cash deposits with the parent company.
Loans and receivables at fair value increased DKK 17bn to DKK 358bn (DKK 341bn).
At the end of 2012 total lending at nominal value after loan losses amounted to DKK 349bn (DKK 335bn). Year-round residences and holiday homes accounted for DKK 239bn (DKK 230bn), agricultural properties for DKK 45bn (DKK 43bn) and other commercial properties for DKK 65bn (DKK 62bn).
At year-end lending for year-round residences and holiday homes accounted for 68% (69%) of the total loan portfolio.
Accumulated loan losses amounted to DKK 437m at the end of 2012 (DKK 297m), corresponding to 0.12% (0.09%) of the loan portfolio. The quality of the loan portfolio is still considered satisfactory. Of the total accumulated loan losses of DKK 437m at the end of 2012, provisions for collectively assessed loans accounted for DKK 34m (DKK 50m).
At end-2012 loss guarantees from Nordea Bank comprised loans totalling DKK 292bn (DKK 265bn). Of this amount guarantees covered a total of DKK 82bn (DKK 73bn).
At the beginning of 2013 the 3.5-month arrears rate for year-round residences and holiday homes (the September 2012 payment date) was 0.29% (0.34%), a decline of 0.05% point since the beginning of 2012.
Nordea Kredit’s share of the overall mortgage market in Denmark is still growing. At 31 December 2012 the market share was 14.2% (13.9%). For year-round residences and holiday homes the market share was 16.8% (16.4%).
Assets in temporary possession consisted of a total of 65 (131) repossessed properties by the end of 2012 at a value of DKK 44m (DKK 235m). The reduction in the portfolio of repossessed properties is the result of targeted efforts.
Deposits by credit institutions and central banks were down DKK 15bn to DKK 49bn (DKK 64bn) due to reduced drawings on credit facilities with Nordea Bank.
Bonds in issue at fair value totalled DKK 336bn (DKK 303bn) after offsetting the portfolio of own bonds. The increase was attributable to bond issuance as a result of the growth in lending.
Equity was DKK 16.5bn at the end of 2012 compared with DKK 15.8bn at the end of 2011, the increase reflecting transfer of the profit for the year. The Board of Directors will propose to the Annual General Meeting that no dividend should be paid for 2012.
At the end of 2012 the risk-weighted assets of Nordea Kredit amounted to DKK 87.9bn (DKK 82.2bn). The change compared with 2011 is mainly due to increased lending volumes.
The tier 1 capital ratio and the total capital ratio were both 16.2% at end-2012 (17.4%).
Refinancing of adjustable-rate mortgages
At the auction in November 2012 bonds equivalent to DKK 77bn were sold. Compared with the December 2011 auction when bonds equivalent to DKK 98bn were sold, this reflects a decline of 21%. The decline is due to Nordea Kredit’s scheduling of auctions over the year. For example, at the refinancing at the end of 2011, around 6,000 of Nordea Kredit’s customers chose to change the future refinancing date to 1 October.
Based on the advice provided, around 15% of borrowers with very short-term adjustable-rate mortgages chose to refinance into mortgages with interest reset for example every three or five years or into fixed-rate mortgages.
Yet again the auction resulted in record-low interest rates. For 30-year annuity loans in Danish kroner with annual reset the interest rate for 2013 was set at 0.45% (1.06% in 2012). At the auction the interest rate on a comparable loan in euros was set at 0.49% (1.02% in 2012).
At end-2012 Nordea Kredit had originated adjustable-rate mortgages with refinancing on 1 April for a total of DKK 30bn (DKK 20bn) and with refinancing on 1 October for a total of DKK 50bn (DKK 25bn).
Outlook for 2013
Compared with 2012, which was characterised by very high prepayment activity, the overall level of activity is likely to be lower.
A new fee structure was implemented from 1 January 2013 to better reflect the risk and the cost of capital associated with the various loan to value ratios and loan types. The revised fee structure was introduced in response to the coming EU regulation which will change the framework for financial services companies. Nordea Kredit must adjust to these changes in good time in line with all other institutions in the sector. At the same time it is necessary to support financial stability in society and thus reassure customers and investors.
With the new fee structure, the trend from the fourth quarter of 2012 is likely to continue, with customers increasingly switching out of very short-term adjustable-rate mortgages into mortgages with interest reset for example every three or five years or into fixed-rate mortgages. Customers are also expected to increasingly prefer loans with amortisation.
Nordea Kredit expects continued growth in its market share.
This Year-end Report has not been subject to audit or review by the auditors.
The Annual Report for 2012 will be published on 15 February 2013 and the report will be available on nordeakredit.dk and nordea.dk.
Copenhagen, 30 January 2013
Lars Bank Jørgensen
Chief Executive Officer
Deputy Chief Executive Officer
[For table see PDF]
Balance sheet at 31 December
[For table see PDF]