Foreword
Stability and Steady Course in an Increasingly Uncertain Time
The battle against the rampant inflation in the wake of the COVID-19 pandemic seems to have been won for now, however a recent increase shows that the embers might not be completely extinguished and that there is considerable uncertainty both domestically and internationally. The change of power in the USA and the prospects of a trade war could lead to another round of price increases and significant uncertainty. Our role is to offer the municipal sector stable and long-term financing, regardless of how the world around us develops.
KBN’s lending increased in total by NOK 16 billion in 2024, equivalent to 4.5%. The total debt growth in the municipal sector was NOK 51 billion in 2024, equivalent to 8%. This represents higher growth in borrowing than was expected for 2024 but should be seen in the context of significant increases in prices for goods and services related to the investments that were financed. Some larger municipalities have significantly increased their borrowing and contributed to such strong overall growth. KBN’s objective is to maintain a stable share of the market for lending to municipalities and county authorities over time. At the end of 2024, KBN had loans outstanding to 356 of Norway’s 357 municipalities, all its county authorities, and Longyearbyen Community Council.
Along with rapid growth in costs and declining tax revenues, higher interest rates have created a more challenging economic situation for many of KBN's customers, which has been much discussed in 2024. The need for investments remains large and debt growth is expected to remain at a high level in the coming years, but probably somewhat down from the particularly high level in 2024. The overhang of overdue maintenance requirements and essential improvements in standards will continue to contribute to growth in investment spending, especially in the areas of health and care, water and wastewater, and public transport. At KBN, we aim to contribute to economic sustainability and good financial management in the municipal sector by offering insights and through customer dialogue and credit assessments related to borrowing. We consider this need to grow as uncertainty increases.
KBN also has a strategic goal of remaining a leader in green finance and contributing to the municipal sector's transition to a low-emission society. We are pleased to say that 2024 was a very strong year in this regard. The growth in our green lending portfolio accounted for more than 80 percent of the total lending growth for the year. Our total green lending portfolio amounted to NOK 66 billion at the end of the year, equivalent to 17.8 percent of the total lending portfolio. Seventeen new municipalities and two county municipalities received green loans from KBN in 2024, meaning that a total of 165 municipalities and county municipalities have at least one green loan from KBN.
International uncertainty has increased over the past year. The Ukrainians are still heroically defending their country against Russia's invasion, now in its fourth year. The Gaza war is not over, although there is a fragile ceasefire. In last year's foreword, I suggested that a possible change of power in the USA could mean that Europe must be prepared to play a larger role going forward to prevent a European democracy from falling, and much suggests that this is coming true. The new American administration has also created uncertainty around trade. “America first," whether it is expressed in the form of tariffs with countermeasures from trading partners, the USA withdrawing from various forms of international cooperation, or drastic measures allegedly to streamline and reduce costs (DOGE), contributes to uncertainty. The geopolitical developments at the beginning of 2025 have led to increased uncertainty around stock prices, exchange rates, inflation, and interest rates, but the financial markets are still functioning well. As of this writing, the S&P 500 has fallen over six percent since Trump was inaugurated as president on January 21, while the Eurostoxx 50 is up nearly five percent in the same period. US interest rates are largely unchanged. Gold, considered a safe asset in turbulent times, is up 8.4 percent.
We are in a period where climate transition and work on diversity, inclusion, and equality have faced tougher conditions. It is important to stand firm and not be fooled by the "anti-woke" trend, a job that must be done by responsible countries and businesses. The focus should be on real measures that contribute, rather than symbolic actions. Again, Europe must lead the way and take responsibility for creating a sustainable future, also for those who come after us. It is important to keep a cool head, stay the course, and not be thrown off balance. As the British say – keep calm and carry on.
In this context, it is important to stick to facts and knowledge. Misinformation and disinformation are ranked as the greatest short-term risk by the World Economic Forum. The rise of fake news has been particularly prominent in various social media, owned and controlled by a handful of individuals and companies. At the beginning of 2024, KBN made a strategic decision to shift the use of advertising funds from social media to traditional media with editorial responsibility subject to ethical guidelines, partly because the latter is our most important defense against a media reality consisting of "alternative facts" and disinformation.
At KBN, we will continue to request that climate-, environment- and nature-related considerations are considered and emphasize suppliers' work on diversity, inclusion, and equality in our procurement. This is simply a matter of better risk management and long-term value creation. 2024 was the warmest year ever recorded, and the last ten years top the list of the warmest years in recorded history. The need for resolute collective action increases year by year, and here too, continued and strengthened European cooperation will be important. The municipal sector also needs restructuring related to the demographic challenge and based on a challenging economic situation. KBN will continue to work to facilitate the transition in local communities.
The EU's framework for sustainability reporting, CSRD, is being rolled out, but in light of geopolitical developments and the need to increase productivity in the EU, a simplification package (Omnibus) has now been presented. The EU has realized that the focus on regulation and reporting should be reduced in favor of productivity improvement, real transformation, and upgrading. If the proposal is adopted unchanged, KBN will be exempt from reporting obligations, however the annual report for 2024 still contains a transition report that largely meets the requirements, based on the strategic ambition to be a leader in green finance.
KBN will continue to uphold true democratic values and contribute to our customers and society as a whole developing in a positive and sustainable direction, both economically, socially, and environmentally. We stand firmly on what we consider to be the right side of history and hope others follow suit.