Annual Report 2024

The Board of Directors of KBN is the company’s highest governing body and is responsible, through the CEO, for ensuring that the company’s activities are soundly organised. The Board of Directors has three committees: the Risk Management Committee, the Audit Committee and the Remuneration Committee.

The management team at KBN forms the CEO’s collegiate group for the day-to-day management of KBN. All material decisions are taken following discussion by the management team.

KBN is organised as a limited liability company that is 100% owned by the Norwegian state. The Ministry of Local Government and Regional Development manages the state’s ownership of KBN. KBN has no subsidiaries.

Regarding the objective and company-specific purpose of the state’s ownership of KBN, the Norwegian government’s white paper "A greener and more active state ownership" (Report to Storting No. 6 (2022-2023)) states that:

"The state is the owner of Kommunalbanken in order to offer stable, long-term and efficient financing of the local government sector. The state’s aim as owner is to achieve the highest possible return over time subject to the limits of sustainability".

The state has set out six general rationales for state ownership. For KBN, the following rationale applies:

“Facilitating sustainable restructuring and increased value creation”

Through its ownership, the state helps counter barriers and market weaknesses that hinder sustainable transition and value creation in the Norwegian economy by ensuring that the local-government sector throughout the country receives specially adapted financing.

KBN’s Articles of Association state that its objective is “to provide loans to municipalities, county authorities, intermunicipal companies and other companies that carry out local government tasks against either a municipal guarantee, a government guarantee, or other satisfactory security. The Company can also undertake other tasks appropriate to the Company’s business.”

KBN finances its lending activities by raising debt funding from capital markets around the world. Its business model and strategy are based on KBN operating with a low level of risk while also having the ability to provide loans regardless of economic conditions. KBN is committed to helping to ensure that the local government sector’s high creditworthiness is reflected in the lowest possible borrowing costs for the sector. KBN will operate with a target of having a credit rating that is in line with the rating of Norway (AAA). In order for it to be able to fulfil its role, KBN has a target of having a strong market position.

KBN seeks to fulfil the Board of Directors’ target of return on equity without infringing the restrictions on its activities laid down in its Articles of Association. In order to achieve this, KBN works systematically on optimising the structure of its balance sheet and on increasing the efficiency of its use of capital. KBN’s operating model/business model is illustrated below.

Figure: KBNs operating model

KBN’s organisational structure is intended to ensure it adapts effectively to changes in customers’ expectations, to contribute to robust decision-making, and to be characterised by the existence of clear responsibilities within the framework of its owner’s expectations and regulatory requirements.

Jannicke Trumpy Granquist has been the CEO of KBN since 2020.

Figure: Governing bodies in KBN

The General Meeting (the Norwegian state acting through the Ministry of Local Government and Regional Development) elects the Board of Directors as well as the members and deputy members of the Nomination Committee and Supervisory Board and the company’s auditor. The General Meeting approves the annual accounts and annual report, including the allocation of profit and coverage of losses, and the payment of dividends. The General Meeting also sets the remuneration of the members of the Board of Directors, the company’s auditor and the members of the Supervisory Board. The General Meeting considers the guidelines for the remuneration of senior executives and the salary report.

The Supervisory Board’s role is set out in KBN’s Articles of Association. It is tasked with ensuring that the company’s objectives are promoted in accordance with the law, its Articles of Association and the resolutions passed by the General Meeting. The Supervisory Board is also required to provide a statement to the General Meeting on the annual accounts and the allocation of profit and coverage of losses proposed by the Board of Directors, as well as to give its opinion on matters that concern the company, and in this regard it shall have a particular focus on the company’s role in society and corporate social responsibility. The Supervisory Board shall be composed of as broad a range of members as possible.

The Board of Directors has both managerial and supervisory responsibility for KBN and is required to ensure that its activities are soundly organised and, to the extent required, to draw up plans and budgets and overall guidelines for its activities. The Board of Directors must also keep itself informed of KBN’s financial position and ensure that its activities and asset management are subject to adequate control. The Board of Directors is required to supervise the day-to-day management of KBN and its activities in general, to monitor and manage KBN’s overall risk exposure and capital needs, and to assess whether its governance and control arrangements are adapted to KBN’s level of risk and the scope of its activities. The Board committees that advise on and prepare issues for the Board’s consideration are elected by and from amongst the Board’s own members.

• The Risk Management Committee carries out preparatory work to facilitate the Board of Directors’ consideration of risk, the company’s risk appetite, ICAAP, ILAAP and the recovery plan, and in connection with this it assesses the outcomes of scenarios and stress tests as well as assessing whether the pricing proposed for any new products and services is sound from the perspective of KBN’s risk appetite. The Committee also reviews internal audit’s annual plan and reports that relate to the risk management area, as well as risk reports produced for the Board of Directors, and conducts preparatory work to facilitate the Board’s monitoring of whether its risk management guidelines are being followed.
• The Audit Committee’s main focus relates to financial reporting, sustainability reporting and control. The Committee is tasked with helping the Board to ensure that there is proper control of the reporting and the reporting process, and carrying out preparatory work to facilitate the Board’s monitoring. The committee assesses the effectiveness of KBN’s internal control and risk management systems in relation to financial reporting and sustainability reporting, assesses the effectiveness of the company’s internal audit in relation to financial reporting and sustainability reporting, and assesses and monitors the external auditor’s independence, particularly the extent to which services other than auditing are provided in accordance with the regulations. The Committee is also required to monitor matters that the Financial Supervision Authority of Norway has drawn attention to in its routine supervision of KBN or in letters to the Board, and which are relevant to financial reporting and sustainability reporting. The Committee is also responsible for carrying out preparatory work for the company’s election of its external auditor.
• The Remuneration Committee prepares all matters related to the company’s remuneration scheme that are to be considered by the Board of Directors, including the company's arrangements for variable salary, guidelines for the benefits received by senior executives, and evaluates the remuneration of the CEO. The Committee also considers the salary report and guidelines for the remuneration of senior executives, which are submitted to the General Meeting.

The Chief Executive Officer (CEO) of KBN has the authority to take decisions on all matters relating to the operation of KBN that are not required by any act of law or official regulation or the Board of Directors’ guidelines to be considered by the Board. The CEO can make decisions regarding any such matters if mandated to do so by the Board of Directors. The CEO can delegate his/her decision-making authority to KBN’s department heads subject to the delegated authority arrangements and guidelines issued by the Board. The CEO is responsible for ensuring that KBN’s activities are operated in accordance with the strategy, plans, budgets and risk appetite framework produced by the Board. The CEO shall ensure that there is proper internal control through effective operational and control routines. The CEO determines the responsibilities and areas of authority of the department heads in the form of job specifications and delegated authority arrangements.

The Management Team comprises the senior executives of KBN, and is made up of the department heads and assists the CEO of KBN with the day-to-day management of KBN. There are committees and special fora with their own internal regulations that function as advisory bodies for the CEO, with whom the authority to make decisions lies.

• The Credit Committee’s overall function is to carry out the mandate issued by the Board of Directors in its guidelines, including the lending framework, and to assist the CEO in managing KBN’s credit risk.
• The Finance Committee’s function is to provide advice and opinions on decisions that relate to matters of principle and to matters of material significance related to the capital markets area, including financial risk management. The Finance Committee also provides recommendations regarding new products (New Product Approval Process, NPAP).
• The Regulatory Committee’s overall function is to provide advice to ensure that KBN identifies at an early stage regulatory matters that will affect its achievement of its objectives.

The department heads report to the CEO and are responsible for assisting the CEO with the day-to-day management of KBN, as well as for the organisation and day-to-day operation of their own departments. Their job specifications define their specific responsibilities and the authority delegated to their position. Their general responsibilities include executing KBN’s strategies and plans in accordance with the law and official regulations and KBN’s guidelines, as well as for carrying out internal control. Their special responsibilities relate to their departments’ tasks. Department heads can set procedures within their area of responsibility. Department heads who are responsible for staff functions can, if mandated by the CEO, produce procedures in their specialist field that apply across KBN’s departments following consideration of such procedures by the management team.

Corporate governance at KBN is an interaction between the processes and structures that are used to manage KBN, including its organisation, internal regulations and controls. KBN is managed through its defined overall objectives, its strategy, the assessment and determination of its risk appetite framework, and annual assessments and plans such as long-term financial forecasts, capital adequacy plans, operating plans and budgets.

The Board of Directors sets KBN’s overall objectives, strategy and risk appetite framework and approves its annual plans and budgets. KBN’s risk appetite framework is operationalised through the setting of limits on the types and scope of the risk to which it can be exposed. The Board of Directors sets general guidelines and risk strategies, and the CEO sets supplementary guidelines. There are also instructions, delegated authority arrangements, mandates, process descriptions, procedures etc. These governance documents guide how KBN’s activities are to be organised in order for it to fulfil its owner’s purpose in owning KBN.

Figure: Corporate governance at KBN

The Norwegian Corporate Governance Board (NCGB) published a new edition of the Norwegian Code of Practice for Corporate Governance in 2021. The change that is particularly relevant for KBN is the recommendation that companies should create value for shareholders in a sustainable manner (Section 2).

The overview below details KBN’s compliance with the recommendations of the Norwegian Code of Practice for Corporate Governance (the "Code of Practice"). KBN’s deviations from the Code of Practice are the consequence of the special provisions for government-owned limited liability companies contained in the Norwegian Limited Liability Companies Act.

1. Implementation and reporting on corporate governance
   Some deviation from the Code of Practice.

KBN complies with the Code of Practice’s recommendations to the extent permitted by the legislation that applies to government-owned limited liability companies and the regulations that result from authorisation to operate as a credit institution. The areas in which KBN deviates from the Code of Practice’s recommendations primarily relate to the fact that some provisions are not suited to KBN due to its state ownership.

See also section Business model and operating model and KBN about us.

1. Business
   No deviation from the Code of Practice.

KBN’s objective is set out in its Articles of Association and is to provide loans to the local government sector. KBN’s Articles of Association are publicly available. The Board of Directors considers and approves each year KBN’s three-year rolling strategy, its main priorities (OKR) for its implementation of its strategy and its capital adequacy plan, as well as its risk appetite and risk limits. The Board has adopted guidelines on ethical conduct, anti-money laundering and corruption, a document that defines KBN’s expectations of its suppliers, and guidelines on sustainability, which include guidelines for diversity and equality.

KBN’s Guidelines for Sustainability are intended to ensure that KBN creates value in a manner that takes into account financial, social and environmental sustainability and that we have clear ambitions for work on diversity and equality.

See also section Sustainability and KBN about us, and also KBN Sustainability.

1. Equity and dividends
   Some deviation from the Code of Practice.

The Board of Directors assesses KBN’s capital adequacy situation on a continual basis in the light of the purpose behind the state’s ownership and the company’s objectives, strategy and risk profile, as well as in relation to the requirements and expectations of the Financial Supervisory Authority of Norway and other supervisory authorities. KBN seeks to meet its owner’s target for it to achieve the highest possible return over time subject to the limits on its activities contained in its Articles of Association. Since 2023, the state has had a long-term expectation for KBN to pay around 55% of its core earnings after tax in dividend, subject to maintaining a satisfactory capital adequacy. The long-term expectation for KBN’s dividend applies to a period of 4-5 years.

Consent from the Norwegian Parliament must be obtained for changes to be made to the state’s ownership interest in KBN (purchases and sales of shares) and for decisions regarding capital injections that involve the state paying out funds.

1. Equal treatment of shareholders
   No deviation from the Code of Practice.

The Norwegian state owns 100% of KBN, and KBN follows the Code of Practice within the framework of its state ownership.

1. Shares and negotiability
   Deviation from the Code of Practice.

Under KBN’s Articles of Association, the state’s shares can be assigned to municipalities, county authorities, intermunicipal companies and municipal pension funds. Any such assignment shall be carried out in accordance with the company’s aim of maintaining the highest possible creditworthiness.

1. General meetings
   Some deviation from the Code of Practice.

KBN has only one shareholder. The Norwegian state, acting through the Ministry of Local Government and Regional Development, calls General Meetings, to which the Chair of the Board of Directors, the CEO, the company’s auditor, and the Office of the Auditor General are invited.

1. Nomination Committee
   Some deviation from the Code of Practice.

KBN’s Articles of Association require it to have a Nomination Committee and the Committee consists of up to three members and one deputy member, all of whom are elected by the General Meeting for a term of office of two years. All members and the deputy member are independent of the Board of Directors and senior executives.

No fees are paid to members of the Nomination Committee.

1. Board of directors: composition and independence
   No deviation from the Code of Practice.

The composition of the Board of Directors is broadly-based in order to ensure that the Board can operate independently of any vested interests and that the Board has the necessary experience and expertise to understand KBN’s activities. The suitability of individual members of the Board is assessed at the time the individual is first elected to the Board, and there is a requirement for routine confirmation of suitability thereafter. The Board’s collective suitability is assessed at least annually in accordance with the regulatory requirements for financial institutions.

The General Meeting elects the Board’s members as well as the chair and deputy chair.

The term of office for board members is two years.

1. The work of the Board of Directors
   No deviation from the Code of Practice.

The Board of Directors has issued instructions for its own work and for the CEO. The Board has three committees: the Audit Committee, the Risk Management Committee and the Remuneration Committee.

The Board elects at least three members to its committees each year from among its members, and it appoints the chairs of these committees.

The Board evaluates its performance and expertise annually and shares its evaluation with the Ministry of Local Government and Regional Development in its dialogue meetings.

1. Risk management and internal control
   No deviation from the Code of Practice.

The Board of Directors ensures that KBN has sound internal control and systems for risk management that are appropriate in relation to the nature of KBN’s activities, and this includes ensuring that internal control and risk management are in line with the regulatory requirements for financial institutions and the specific requirements set for KBN by the authorities. The Board regularly reviews KBN’s most important areas of exposure to risk, ensures its risk management is developed continuously, and sets KBN’s risk appetite for different types of risk.
See also KBN’s Pillar 3 Report.

1. Remuneration of the Board of Directors
   No deviation from the Code of Practice.

The remuneration of the Board of Directors reflects its responsibilities, expertise, time commitment and KBN’s complexity. The remuneration of the Board is not linked to KBN’s performance and share options are not granted to Board members.

1. Salaries and other remuneration of executive personnel
   No deviation from the Code of Practice.

The Board of Directors prepares guidelines for the salaries of KBN’s senior executives that are submitted to the General Meeting of KBN. KBN has a variable salary scheme of which all employees are members. The maximum amount any employee can receive under the scheme in any year is 1.5 times the employee’s monthly salary. The amount awarded is based on quantitative criteria defined by the Board.

KBN does not have any exchange-listed equity instruments and does not operate option schemes for its employees. The Board’s statement on the remuneration of senior executives is submitted to the General Meeting.

The salary report for executive personnel in 2024 will be submitted to the Annual General Meeting in 2025. The report will be published following consideration by the Annual General Meeting.

1. Information and communications
   No deviation from the Code of Practice.

The Board of Directors has produced guidelines for the company’s external reporting, as well as guidelines for information management and market conduct. KBN is committed to giving market participants accurate, clear, relevant and up-to-date information. In its activities in the markets for financial instruments, KBN is committed to operating in a manner that does not represent market manipulation.

The Board has decided which individuals shall act as spokespersons on behalf of KBN. KBN has a disaster recovery plan that also includes a separate plan for crisis communication.

Information about KBN is published in Norwegian and English.

1. Take-overs
   Deviation from the Code of Practice.

Consent from the Norwegian parliament must be obtained in the event of changes to the state’s ownership interest in KBN (purchases and sales of shares).

1. Auditor
   No deviation from the Code of Practice.

The company’s auditor is appointed by the General Meeting. The auditor issues an audit report in connection with KBN’s annual accounts. The auditor attends the meetings of the Audit Committee, as well as those Board meetings at which KBN’s annual and quarterly reports are considered.

The Audit Committee assesses the auditor’s independence annually.

The auditor’s fees are set by the General Meeting.