Results in line with expectations
The volume of the Fund 's loan prepayments continues to increase
- The Housing Financing Fund's operating surplus amounted to ISK 1,474 million during the period
- Streamlining measures in recent years have now been fully realized and new projects are on schedule
- The equity ratio is 9.11% and has not been higher since the establishment of the Fund
- Loans in arrears are 2.0%, compared to 2.1% at the end of 2017
- The implementation of IFRS 9 and the increased quality of the loan portfolio affect the results of the period
The Housing Financing Fund's Interim Financial Statements in the first six months of 2018 were confirmed by the Fund's Board of Directors today. The operating surplus for the period amounted to ISK 1,474 million. The Fund's equity ratio is now 9.11%, which is the highest since the Housing Financing Fund was founded. The Fund's long-term goal is to exceed 5.0%. The Housing Financing Fund's equity at the end of the period is ISK 24,502 million, as compared to ISK 24,894 million at 31 December 2017. The total assets of the Fund amount to ISK 751 billion and total liabilities amount to ISK 727 billion.
The number of prepayments on the Fund's old loans continues to increase. The board and the government have focused on finding solutions that reduce the state's risk due to the impact of prepayments on the Housing Financing Fund's future performance and are examining how to improve the management of the loan portfolio to reduce the imbalance of assets and liabilities of the Fund. The Minister of Social Affairs and Equal Opportunities has requested nominations and intends to appoint a task force on how the government can reduce the Treasury's risk due to prepayments.
Operations of the Fund
Interest income contribution in the amount of ISK 299 million, due from the Treasury to compensate for the loss of interest income during the period as a result of the principal reduction of inflation-indexed housing mortgages, cf. Act no. 35/2014, has not been recognized in the Interim Financial Statements as an agreement has not yet been reached regarding the payments of the compensation. Net interest income is therefore lower by that amount.
Operating expenses for the period amounted to ISK 959 million, an increase of 13.7% compared with the same period the year before due to the Fund's take-over of the management of housing benefits. The operation of housing benefits is financed by the state budget. The number of positions increased by 15 in total due to the housing benefits. The Housing Financing Fund has paid ISK 81 million during the period for the operations of other state institutions, i.e. the Debtor's Ombudsman and the Financial Supervisory Authority, or the equivalent of 17% of the other operating expenses of the Fund.
Considerable improvements have been made to the Housing Financing Fund in recent years, and its activities have been adapted to its declining activity in the credit market. The Fund's operating expenses have fallen by 66% from 2013 at the price level of each year. This optimization has been achieved despite the fact that the Fund is now involved in many new projects. Among other things, it now handles most of the total public housing support, engages in extensive analytical and information services, and has a broad role in housing policy.
Prepayments of the Fund's loans affect net interest income
At the end of the period, the Fund's loans amounted to ISK 463 billion, decreasing by ISK 37 billion since the beginning of the year. The main challenges in the Fund's operations relate to prepayments of older loans that have had a growing negative impact on its net interest income. As a larger proportion of the Fund's assets are outside the loan portfolio, the balance between assets and liabilities of the Fund decreases, which negatively affects its performance, especially in the longer term. However, the Fund has accumulated liquid assets in order to meet the cash flows of outstanding debt in the foreseeable future.
The Fund's equity ratio is well above current capital requirements. Assets outside of the loan portfolio at the end of the period amounted to 37% of total assets, or a total of ISK 276 billion. Assets and liabilities are settled consistently under terms but have a maturity until 2044 which is the final maturity date of debt.
Development of arrears and quality of loan portfolio
Loans in arrears now account for 2.0% of total loans, and were 2.1% at the end of 2017. At the end of the period, funds invested in appropriated properties amounted to ISK 5,541, decreasing by ISK 1,090 million between periods. The Fund owned 333 properties at the end of the period and 99 properties were sold during the period. Loans in arrears amounted to ISK 6,700 million at claim value, of which ISK 1,923 million are overdue. The impairment provision amounted to ISK 6,622 million at the end of the period, decreasing by 296 million since the end of the previous year. Approximately 98% of the book value of the Housing Financing Fund's loan portfolio lies within 90% of the real estate valuation at the end of the period. Housing prices have risen in excess of prices during the period, and defaults have decreased significantly, which has improved the collateral position of the loan portfolio.
Housing Financing Fund will be Housing Agency Fund
The role of the Housing Financing Fund was changed by the newly convened parliament session under Act no. 65/2018. Following these changes, the Fund will be a government control mechanism in housing affairs. Also proposed is to change the name of the Fund in the near future to the Housing Agency Fund in line with its current role. In recent years, the Fund's activities have evolved from being a traditional credit institution to being a government agency focusing on policy formulation in housing affairs. The role of the Housing Financing Fund will now be comparable to the role of the sister institutions: Husbanken Fund in Norway and the ARA in Finland. These institutions are responsible for implementing government policies in housing affairs, planning and analysis as well as managing comprehensive housing support, including housing benefits, grants and loans to individuals, municipalities and companies.
Further information may be obtained from Hermann Jónasson, CEO and Rut Hreinsdóttir, Managing Director of Operations, tel. +354 569 6900.
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