A decision has been made to separate the activities of the Housing Financing Fund. A new housing agency established to take over the Fund's activities as an authority in the field of housing affairs will be separated from former lending activities.
- The results of the Housing Financing Fund's operations are negative in the amount of ISK 313 million
- The equity ratio is now 8.9%, while the statutory minimum is 5%
- The activities of the Housing Financing Fund will be separated and the government will be involved in the financial management of former lending activities
- The Housing Financing Fund establishes Leigufélagið Bríet to manage the Fund's real estate properties
The Housing Financing Fund's Financial Statements for the year 2018 were approved by the Fund's Board of Directors today. The operating results for the year were negative by ISK 313 million. The Fund's equity ratio is now 8.9%, while the Fund's long-term goal is to have a ratio of more than 5.0%. HFF's equity at the end of 2018 was ISK 22,083 million compared to ISK 23,608 million as of December 31, 2017. The Fund's total assets are ISK 746 billion and total liabilities amount to ISK 724 billion.
Fund's operations
Net interest income during the year was negative by ISK 1,486 million compared to positive net interest income amounting to ISK 1,698 million during the year 2017. Operating expenses for the year amounted to ISK 1,935 million, increasing by 13% compared to the year 2017. Increased operating expenses can be attributed to new projects involving the management of housing benefits, financed by the fiscal budget. The number of full-time equivalent positions increased by 15 during the year as a result of the take-over of new projects from the Directorate of Labor. The Housing Financing Fund made payments amounting to ISK 121 million to the operations of other government agencies, the Debtor's Ombudsman, and the Financial Supervisory Authority or the equivalent of 15% of other operating expenses of the Fund.
The proportion of interest-bearing assets outside the loan portfolio increases due to increased prepayments
At the end of the year, the Fund's loans amounted to ISK 427 billion, decreasing by ISK 73 billion since 2017. The decrease in the loan portfolio is the result of significant prepayments of loans. Prepayments from customers are due to the increase in the participation of banks and pension funds in the credit market. Assets outside the loan portfolio, including liquid assets, increased during the period and are now ISK 311 billion. The main challenges in managing assets outside the loan portfolio are interest and inflation risk and the size of the portfolio. Evidently, it is important to note that the yield on the bond market has generally declined, which has had a negative impact on the return on assets outside the loan portfolio.
In response to the impact of increased prepayments on the Housing Financing Fund, the Government approved, at a meeting on Tuesday, the motion by Ásmundur Einar Daðason, the Minister of Social Affairs and Children, to separate the activities of the Fund. This entails that the Fund's principal activities be separated from activities involving the financial management of its former loan portfolio. The need to address the impact on the Housing Financing Fund has been apparent since 2012, when the Fund ceased providing general lending to the public for housing purchases. Furthermore, the EFTA Surveillance Authority's (ESA) reached the verdict that the loans conflicted with the rules of the EEA Agreement. A task force, appointed last September, that has been deliberating on the development of the Fund's position concluded with this proposal to the Minister. The implementation of the legal separation involves separating the activities of the Fund undertaken by the new housing agency from the former activities of the Housing Financing Fund so that the Fund's balance sheet will remain unchanged, with the exception that social loans will be part of the new Housing Agency, which then issues bonds as consideration to the former Fund.
The role of the Housing Financing Fund has changed dramatically in response to the changes in the Housing Act, and today the Fund is the institution that carries out the implementation of housing affairs in Iceland. The Fund conducts policy formulation and research on the housing market, oversees public housing support, and grants social housing loans. Following the separation of the activities, an effective housing institution will play a key role in the housing market. It carries out the implementation and co-ordination of housing affairs throughout the country, as well as being a powerful partner to municipalities in the country in connection with their housing planning. The Housing Financing Fund recently established an independent subsidiary, Leigufélagið Bríet, to manage the operations and leasing of properties owned by the Fund.
Development of arrears and quality of the loan portfolio
Loans in arrears now amount to 1.8% of total loans, compared to 2.1% at year-end 2017. Improved economic conditions during the past year, as well as more efficient collection processes, have reduced credit risk. The provision for loan losses amounted to ISK 7,051 million at the end of the year, decreasing by ISK 134 million from the beginning of the year. About 98.5% of the book value of the Fund's loan portfolio was less than 90% of the official property valuation at the end of the period.
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Further information please contact Hermann Jónasson, CEO, tel. 354 569 6900.
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