Annual Report 2024

Kommunalbanken AS (hereinafter KBN) is 100% owned by the Norwegian state, with the Ministry of Local Government and Regional Development acting as KBN’s owner, and its business address is in Oslo, Norway. KBN’s role is to provide stable, long-term and efficient debt financing for the local government sector. In 2024 KBN again played an important role as the largest provider of financing to the local government sector in Norway, with growth for the year in its aggregate customer financing³ of NOK 21 billion. Lending represented NOK 16 billion of this amount, while local government sector bonds in its liquidity portfolio represented NOK 5 billion. At the end of 2024, KBN’s market share based on its aggregate customer financing and after adjusting for loans from the Norwegian State Housing Bank was 50.2%⁴, compared to 51.1% at the end of 2023. The loans KBN granted in 2024 financed investment in projects such as schools, health and care facilities, and water and wastewater systems.

KBN seeks to help facilitate the transition to a sustainable economy and greater value creation in the local government sector. It provides green lending products to finance investment in projects with a climate ambition. KBN’s green lending grew by NOK 13 billion in 2024, as compared to an increase of NOK 11 billion in 2023. Green lending represented 18.5% of KBN’s total lending at the end of 2024. Good growth in lending for projects with a climate ambition, efficient operations and a high level of customer satisfaction demonstrate that KBN is fulfilling its role in society successfully.

KBN’s core earnings⁵ were NOK 1,276 million in 2024, as compared to NOK 1,211 million in 2023. Net interest income was NOK 2,253 million in 2024, as compared to NOK 2,105 million in 2023. The main reason for the increase is that money market interest rates were higher in 2024 than in 2023. KBN’s result for the period for 2024 as a whole was a profit of NOK 1,474 million as compared to a profit of NOK 1,432 million in 2023.

KBN’s annualised return on equity in 2024 was 7.4%, compared to 7.9% in 2023. Based on its core earnings, KBN’s annualised return on equity in 2024 was 7.2%, compared to 7.3% in 2023. KBN’s Board of Directors has set a strategic target for its return on equity of minimum 7%. KBN’s return on equity is expected to a large extent to correlate with the level of interest rates in the market.

The white paper on state ownership, “The State’s direct ownership of companies - Greener and more active state ownership” (Report to Storting No. 6 (2022-2023)) places significant importance on sustainable value creation, and on the state being an active and responsible owner with a long-term perspective.

The white paper stipulates that “The state is the owner of Kommunalbanken in order to offer stable, long-term and efficient financing of the local government sector” and that “The state’s aim as owner is to achieve the highest possible return over time subject to the limits of sustainability”. The White paper also states that the state’s rationale for owning KBN is to facilitate the transition to a sustainable economy and greater value creation across Norway. The Board of Directors target for return on equity and the owner’s dividend expectations, as well as the need for KBN to be able to provide loans regardless of market conditions, guide KBN’s financial plans.

The Board of Directors of KBN updates KBN’s strategy every year. In order for KBN to achieve its objectives, the Board of Directors has set the following strategic pillars for the 2025-2027 strategy period:

• THE CUSTOMER’S FIRST CHOICE: Our main aim is for our customers to want to use KBN for long-term financing of investment in welfare.
• STRONG MARKET PARTICIPANT: Through a strong position in the capital markets, nationally and internationally, KBN will ensure Norwegian municipalities and county authorities have access to attractive financing.
• A LEADER IN GREEN FINANCE: KBN will be among the leading financial institutions on green financing solutions and insight that contribute to the transition to a sustainable economy and value creation.
• EXPERTISE AND TECHNOLOGY DRIVEN: The way we work will promote learning, knowledge sharing and the efficient use of technology.

The Board of Directors, working on the basis of KBN’s strategy, approves the strategic objectives prioritised for the strategy period, as well as the ambitions and key results for KBN’s strategic development work that are to be prioritised. KBN uses OKRs (Objectives and Key Results) as the goal management tool for its organisation.

Work on establishing new lending processes and a new lending system were again among the main activities carried out in 2024. This project is expected to be completed in 2025. Completion of this project is important in order to modernise and ensure greater efficiency in the lending process. Extensive work was again carried out in 2024 to further develop the quality of KBN’s data warehouse and its use as a source for KBN’s reports and analysis. Activities were carried out in respect of the implementation of the EU’s new regulation on digital operational resilience in the financial sector (DORA), financing projects within the EU Taxonomy, the development of a model to calculate indirect emissions generated as a result of KBN’s financing, and the further development of KBN’s sustainability reporting in accordance with the CSRD.

In 2024 KBN moved to new offices, and it used the opportunity to work on organisational initiatives that will ensure it is boosted by the new location. Free seating and tailored work facilities (activity-based office) are strengthening the potential for effective collaboration across the organisation.

The Board of Directors confirms, in accordance with Section 4-5 of the Norwegian Accounting Act, that KBN’s ability to continue as a going concern remains unchanged, and that the financial statements for 2024 have been prepared on a going concern basis. The Board of Directors considers that the financial statements and accompanying notes for the year ending 31 December 2024 provide an adequate description of KBN’s financial position at year-end. The annual accounts have been prepared in accordance with International Financial Reporting Standards (IFRS).

The result for the year was a profit of NOK 1,474 million, as compared to a profit of NOK 1,432 million in 2023.

Table: Net Income Results

Net interest income totalled NOK 2,253 million in 2024, as compared to NOK 2,105 million in 2023. In 2024 KBN’s net interest income from its lending activities was positively affected by higher money market interest rates relative to 2023 and by lending growth. KBN’s lending margins were relatively stable throughout 2024. The net interest income from KBN’s liquidity management portfolio generated a modest contribution to KBN’s earnings in 2024, in line with expectations. Fees and commission expenses totalled NOK 125 million in 2024, compared to NOK 126 million in 2023. KBN’s contribution to the Resolution Fund run by the Norwegian Banks’ Guarantee Fund was the largest single cost item in this category, amounting to NOK 79 million in 2024 as compared to NOK 82 million in 2023.

Table: Net gain/(loss) on financial instruments

KBN’s net gain on financial instruments amounted to NOK 157 million in 2024, compared to a net gain of NOK 212 million in 2023. KBN’s net gains/(losses) on financial instruments comprise the sum of the realised and unrealised gains and losses recognised by KBN. There was a net realised gain from market transactions of NOK 110 million in 2024, as compared to a net realised gain of NOK 92 million in 2023. The net unrealised gain on financial instruments in 2024 totalled NOK 47 million as compared to NOK 120 million in 2023.

There was a net unrealised gain on fixed rate lending recognised at fair value and associated hedging contracts amounting to NOK 259 million in 2024, as compared to a net unrealised gain of NOK 101 million in 2023. Credit spreads for Norwegian municipalities and county authorities decreased by approximately 5 basis points over the course of 2024. At the end of 2024, 45% of KBN’s portfolio of fixed lending was carried at fair value with changes in its value recognised in the income statement, as compared to 63% at the end of 2023. KBN introduced hedge accounting for all new fixed rate loans with effect from 1 January 2022. The introduction of hedge accounting for fixed rate lending will, over time, reduce the portfolio of fixed rate loans measured at fair value and accordingly reduce the extent of unrealised gains or losses in the accounts.

There was a net unrealised loss on KBN’s borrowings, not taking into account any changes to its own credit risk, of NOK 190 million in 2024, as compared to a net unrealised gain of NOK 193 million in 2023. In 2023 KBN recognised a realised gain of NOK 101 million from its repurchasing of subordinated loan capital. A net gain of NOK 89 million was recognised for KBN’s liquidity investments in 2024, as compared to net loss of NOK 82 million in 2023. An unrealised loss of NOK 21 million is included in the figure for 2024, as compared to NOK 72 million for 2023.

Table: Total comprehensive income

Total comprehensive income amounted to NOK 1,254 million in 2024, as compared to NOK 1,789 million in 2023. An unrealised loss of NOK 228 million after tax in the fair value of liabilities due to a change in KBN’s own credit risk was attributable to a change in credit spreads in relation to bond debt issued by KBN. The equivalent figure for 2023 was an unrealised gain of NOK 363 million.

KBN’s financial instruments are normally held to maturity and the effects of gains and losses on KBN’s profits reverse either when fluctuations in the market reverse or as instruments approach maturity.

Table: Operating expenses

KBN’s operating expenses totalled NOK 383 million in 2024, as compared to NOK 325 million in 2023. As a result of the financial results reported by KBN for 2023, variable salary payments equivalent to 0.8 times employees’ monthly salaries were accrued in 2024, while variable salary payments equivalent to 1.1 times employee’s monthly salaries were accrued in 2023. Administrative expenses and other operating expenses increased by NOK 33 million from 2023. The increase was due to higher prices, the weakness of the Norwegian krone, a higher level of activity in relation to developing and improving KBN’s operations, and the hiring-in of workers pending appointments. Digitalisation, the further development of KBN’s digital resilience and greater regulatory requirements were contributory factors to the increase in expenses.

KBN’s total assets at 31 December amounted to NOK 568 billion, compared to NOK 522 billion at the end of 2023. The increase was largely due to the weakness of the Norwegian krone and to lending growth.

Table: Capital adequacy – key figures

KBN received the Financial Supervisory Authority of Norway’s (Finanstilsynet’s) decision regarding its Pillar 2 requirement (SREP) on 11 November 2024. The Financial Supervisory Authority of Norway determined that KBN will have a Pillar 2 requirement consisting of 1.7% of the basis for calculation under Pillar 1. KBN’s Pillar 2 requirement has thus decreased by 0.3 percentage points. The Pillar 2 requirement is intended to address risks that the undertaking is exposed to and that are not, or are only partially, covered by the general capital requirements in Pillar 1. The requirement must be satisfied with at least 56.25% common equity Tier 1 capital and at least 75% Tier 1 capital. The decision came into force on 31 December 2024.

KBN’s leverage ratio at the end of 2024 was 3.9%, as compared to the requirement of 3.0%.

KBN’s capital adequacy at the end of 2024 was in excess of the requirements set by the authorities.

Capital adequacy figures are sensitive to large fluctuations in exchange rates, particularly the US dollar / Norwegian krone rate, because these impact the size of KBN’s balance sheet through the conversion into NOK. In addition, changes in the value of KBN’s outstanding currency hedging contracts cause fluctuations in cash collateral, which affects KBN’s capital adequacy key figures. KBN has internal buffers to ensure its capital adequacy does not fall below the regulatory requirements as a result of exchange rate fluctuations.

In 2024 the local government lending market was, as in previous years, dominated by KBN, KLP, and issuers borrowing directly from the capital market. KBN is the biggest provider of loans overall, and is specifically the biggest provider of long-term, instalment-based loans. 2024 again saw strong competition from time to time between the lenders active in the local government market. With sufficient and well-managed lending capacity throughout 2024, KBN ensured that its customers had access to financing throughout the year.

KBN’s lending increased in total by NOK 16 billion in 2024, equivalent to 4.5%. The rate of growth in normal local government sector borrowing was 8.5% in 2024 compared to 7.9% in 2023. Municipalities again increased their borrowing from the Norwegian State Housing Bank in 2024, and these loans are used to make loans to residents under the municipal start-up loans scheme. After correcting for growth in loans from the Norwegian State Housing Bank, the increase in borrowing in 2024 was 8.0% as compared to 7.2% in 2023. The total growth in borrowing in 2024 by municipalities and county authorities that are included in the calculation of KBN's market share was NOK 51 billion. 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 in borrowing in 2024.

KBN saw a good level of demand in 2024 for long-term loans with instalment payments. There was also good demand for fixed rate loans, and this is thought to reflect the favourable market conditions for this type of loan from time to time in 2024. As in previous years the main areas of investment for which loan financing was used were schools, health and care, and water and wastewater. Demand for borrowing varied between different types of municipality. The largest municipalities and county authorities accounted for the largest growth in KBN's lending again in 2024.

At 31 December 2024, KBN’s market share, based on its aggregate customer financing and after adjusting for loans from the Norwegian State Housing Bank, was 50.2%⁶, a decrease from 51.1% at the close of 2023. The decrease was partially due to a high rate of debt growth in the sector, but also the strong level of competition for new loans from time to time in 2024. 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. In addition, a range of municipal and intermunicipal companies and companies with a municipal or county-authority guarantee are loan customers of KBN.

KBN’s total portfolio of green lending for investment in climate and environmentally friendly projects increased by 25.0% in 2024, equivalent to NOK 13 billion for 72 projects. At the end of 2024, 152 municipalities, seven county authorities and a total of 84 other customers had green loans from KBN, and outstanding green lending totalled NOK 68 billion. The environmental impact of these loans is reported annually in KBN’s separate Impact Report. KBN‘s Criteria Document for green lending is updated annually in pace with developments in environmental standards.

88% of KBN’s lending is directly to municipalities (including municipal companies) and county authorities, as shown by the breakdown provided in the chart below. A further 6% of KBN’s lending is to inter-municipal companies, and the remaining 6% of the lending portfolio is made up of loans to borrowers with a variety of organisational types, all of which are guaranteed by municipalities or county authorities, with toll-financed road projects accounting for just over half of this category.

Figure: Analysis of KBN’s outstanding lending in NOK by customer category

A total of 917 customers have outstanding loans from KBN. Figure below shows that 44% of KBN’s customers are municipalities, county authorities or municipal companies, 12% are intermunicipal companies, and 44% are customers with a municipal or county authority guarantee.

Figure: Analysis of the number of customers by customer category

KBN did not experience any default or payment problems with customers in 2024.

KBN’s AAA/Aaa credit ratings ensure it has stable access to funding on favourable terms, which benefits the local government sector. KBN pursues a diversified funding strategy that ensures it has a broad investor base and low refinancing risk. New long-term borrowings amounted to NOK 92 billion in 2024, as compared to NOK 77 billion in 2023. KBN enjoyed good access to funding from the capital markets throughout 2024.

Europe, the USA and Asia are KBN’s most important markets for funding. KBN issued bonds in 8 currencies in both 2024 and 2023. KBN achieved a good currency diversification for its funding over the course of 2024, and the proportion of new borrowing that was denominated in US dollars was maintained at around 55%. In 2024 KBN issued three USD benchmark bonds totalling USD 4.25 billion. KBN attracted a high level of interest from investors, and all its benchmark bonds were significantly oversubscribed. In addition, KBN experienced good interest from investors in euros, British pounds and Australian dollars.

KBN is one of the most active Norwegian issuers of green bonds and is one of the leading participants in the development of green finance in the Nordic region. KBN’s green bonds finance its loans to customers for their green projects. KBN’s Green Bond Framework was updated in 2024, and develops further the earlier 2021 framework which it replaces. The updated framework has been subjected to an independent third-party assessment by S&P Global Ratings/CICERO, and received an overall rating of ’Medium Green’. KBN issued five green bonds in 2024 with a total nominal value equivalent to USD 2 billion.

KBN’s total outstanding bonds and other borrowings increased in 2024 from NOK 438 billion to NOK 482 billion⁷. Some of the increase in total borrowing measured in Norwegian kroner was due to the weakness of the krone through 2024.

KBN’s policy is to operate with cash and cash equivalents that match its capital requirements, including growth in lending to the local government sector, for the subsequent 12 months at all times. KBN’s liquidity portfolio is held primarily in securities issued by states, multinational institutions and regions. KBN also invests in covered bonds. KBN’s liquidity portfolio is managed according to an investment strategy that is low risk in terms of both credit risk and market risk. A large proportion of KBN’s liquidity portfolio investments are denominated in foreign currencies, meaning that fluctuations in the NOK exchange rate lead to fluctuations in KBN’s liquidity reserves when translated into NOK terms. The value of the liquidity portfolio at the end of 2024 was NOK 140 billion⁸, as compared to NOK 115 billion at the end of 2023. At the end of 2024, KBN’s overall Liquidity Coverage Ratio (LCR) and its LCR for NOK were 236% and 97% respectively. LCR is a measure of liquid assets relative to net payments in a situation of stress in the bond and capital markets for a period of 30 days ahead.

The corporate governance of KBN is based inter alia on the Norwegian Financial Institutions Act, the Limited Liability Companies Act, the Accounting Act, the Norwegian Government’s white paper on state ownership, and the Norwegian Code of Practice for Corporate Governance issued by the Norwegian Corporate Governance Board (NCGB). For more information, see the section on corporate governance.

The Board of Directors produces guidelines on the remuneration of senior executives. These guidelines are approved by the Board, and are submitted to the Annual General Meeting for approval whenever there has been a change to the guidelines, and in any case at least every fourth year. The remuneration report that details the salaries and other remuneration received by executive personnel is submitted to the Annual General Meeting for an advisory vote. The report is published on the KBN website at the same time as the Annual Report.

KBN’s Board of Directors issues guidelines on risk management and internal control. The Board determines KBN’s risk appetite framework and ensures that this is within KBN’s risk capacity. The threshold levels for KBN’s risk appetite framework and the need for any adjustments are assessed annually. The Board considers the CEO’s assessment of internal control on a yearly basis.

The purpose of risk management is to ensure that KBN’s management of its assets and liabilities is in accordance with the Board’s guidelines for risk management and internal control and its defined risk appetite framework. Risk assessments are carried out in relation to material risks for all KBN’s business areas at least annually. Stress tests and scenario analysis are used to assess the vulnerability of KBN’s key risk areas. The results of these stress tests are evaluated and considered when determining KBN’s risk appetite and as part of the capital adequacy plan, recovery planning, and the commercial strategy design process.

The Board is regularly informed of KBN’s activities, financial position and earnings situation. The Board routinely considers management’s assessment of risk exposure, compliance and risk events.

Risk management at KBN is established in a structure based on three lines of defence that ensures systematic identification, assessment, monitoring and reporting of risk in all parts of KBN's activities. The first line of defence carries out operational tasks and is responsible for managing and checking that KBN’s activities are carried out within the approved limits and in accordance with internal and external regulations. The second line of defence carries out independent risk and compliance assessments, assesses and validates risk models and produces independent risk and compliance reports. KBN’s second line of defence comprises its risk management and compliance functions. KBN’s third line of defence is provided by the internal auditor (KPMG) and represents the Board’s independent control function.

KBN has arranged directors’ and officers’ liability insurance for the members of the Board of Directors and for the CEO in respect of their potential liability to KBN and third parties. The insurance cover is subject to a limit of NOK 700 million. The lead insurer is Tryg Forsikring NUF.

Capital risk

KBN has a limited risk appetite with regard to capital risk. KBN’s regulatory capital risk is the result of KBN’s commercial direction and the composition of its balance sheet, as well as external matters that affect its capital adequacy requirements. KBN’s financial capital risk is made up of the aggregated risk to which its equity is exposed (risk of loss associated with market risk, credit risk, liquidity risk and operational risk).

KBN has in place a structured process to calculate its capital requirements including the necessary capital buffers to ensure that it maintains a sufficient level of capital in relation to its risk profile.

Credit risk

KBN has a limited risk appetite with regard to its overall exposure to credit risk.

KBN lends exclusively to customers connected to the local government sector, and this means it has a very limited risk of incurring financial losses from its lending activities. This is in part because of the Norwegian Local Government Act, which stipulates that municipalities cannot be declared insolvent. In the event that any municipality runs into financial difficulties or comes under pressure financially, it will be monitored by the state by means of the Register for State Review and Approval of Financial Obligations (ROBEK) system. These factors in practice protect KBN from any losses in relation to accumulated debt and accrued interest.

KBN manages its liquidity through investments in securities with a low credit risk, and it has a limited appetite for credit risk in relation to its liquidity counterparties.

KBN uses financial derivatives to manage the interest rate risk and exchange rate risk associated with its lending and funding activities and its liquidity portfolio investments. The counterparty risk associated with entering into derivative contracts is reduced by the use of central counterparties or other counterparties with a high credit rating, and by exchanging cash collateral on a daily basis.

Liquidity risk

KBN has a very limited risk appetite with regard to liquidity risk. Liquidity risk is managed by means of KBN’s internal liquidity management framework. KBN’s policy is to ensure that it is in a position at all times to meet its liabilities when they fall due without incurring any significant extra costs.

Market risk, including interest rate risk and foreign exchange risk

KBN has a limited risk appetite with regard to market risk, and financial derivatives are used to hedge all significant exposure to interest rate risk and foreign exchange risk. The remaining source of market risk for KBN is principally basis risk, which is the risk of a change in basis spreads between two currencies that affects the value of hedging contracts. Credit spread risk is the risk of changes in the credit spreads on assets.

Operational risk

KBN has a limited risk appetite with regard to operational risk. A uniform and systematic approach to identifying risk is used for managing operational risk, and regular risk assessments are carried out for all material functions. This work forms the basis for decisions regarding how KBN’s resources for risk-reduction activities should be prioritised. Operational risk is subject to continual monitoring and reporting. Compliance risk, i.e. the risk of a breach of compliance with external or internal regulations or guidelines, cyber risk and the risk of money laundering and terrorist financing, represent three sub-types of operational risk that are subject to special reporting. KBN has a very limited risk appetite with regard to compliance risk and the risk of money laundering and terror financing and limited risk appetite for cyber risk.

Environmental, social and governance risk (ESG)

Social and governance risk

KBN acts to reduce its exposure to risk related to social and governance issues in its own activities through sound governance and corporate management, sound risk management and internal control, good working conditions that facilitate diversity and equality, and ethical business conduct.

KBN strives through its follow-up of its customers to create good awareness of the importance of sound routines and procedures for internal control, including avoidance of conflicts of interest, ethical conduct, arrangements for whistle blowing and assessment of the risk of financial criminality, as well as asking questions about each customer's approach to setting requirements for its suppliers and following up their compliance in respect of procurement and the conduct of building and construction projects.

Environmental

KBN is exposed to direct climate-related risk through its own activities to a limited extent, but is indirectly exposed through the local government sector’s exposure to climate-related risk. As mentioned above, the Norwegian Local Government Act states at Section 29-1 that municipalities and county authorities cannot be declared insolvent, and consequently the potential risk of lending losses as a consequence of KBN’s indirect exposure to climate-related risk is very limited. KBN’s direct and indirect exposure to climate-related risk is discussed in more detail in the section on sustainability reporting and in the Task Force on Climate-related Financial Disclosures (TCFD) report, which is published on the KBN website at the same time as its Annual Report.

KBN has only a limited direct exposure to nature-related risk through its own activities, but is indirectly exposed through its lending to the local government sector. The local government sector takes up loans from KBN to finance its investment in buildings, water and wastewater facilities, roads and other infrastructure that can impact nature. Such investments also use raw materials that can have an impact on nature. Norwegian municipalities and county authorities cannot be declared insolvent, and consequently the potential risk of lending losses as a consequence of KBN’s indirect exposure to nature-related risk is very limited.

Environmental, social and governance risk in the liquidity portfolio

KBN has an established strategy for its liquidity portfolio that also takes into account risk related to environmental, social and governance issues, and it has guidelines and systems for regular screening of the liquidity portfolio.

The Board of Directors regards engagement by KBN in continuous dialogue with its major stakeholders as an important means of ensuring that there is a good understanding of its business model and the framework in which it operates. High-quality, open communication is important for maintaining the trust of KBN’s owner, customers, investors and employees, as well as the trust of rating agencies, regulatory authorities and wider society.

KBN’s external communication activities are intended inter alia to help highlight issues that affect its customers, for example changes to their own or to KBN’s framework conditions. Inflation and rising interest rates, green finance and the local government sector’s long-term sustainability in a broad sense were central topics in KBN’s external communication activities in 2024. KBN organised a range of customer seminars and webinars on these topics, among others. The importance of a sustainable approach to debt management by the local government sector was emphasised in the communication activities KBN conducted directly with its customers, including its finance seminars, its digital portfolio management tool (KBN Finans) and its newsletters.

KBN expects all its employees and managers to act in line with KBN’s Code of Conduct. All employees are required to confirm on an annual basis that they have paid proper attention to KBN’s rules and guidelines on ethical conduct, including the Code of Conduct.

A new double materiality analysis was carried out in 2024 in line with the requirements of the EU's Corporate Sustainability Reporting Directive, CSRD.

The EU’s Corporate Sustainability Reporting Directive (CSRD) entered into force in the EU on 31 July 2023. Based on current legislation, Kommunalbanken AS (KBN) will be required to produce a sustainability statement with effect from the 2025 reporting year, with its first mandatory sustainability statement produced in 2026. In 2024, KBN decided to adapt its sustainability reporting to the requirements in the European Sustainability Reporting Standards (ESRS). KBN’s 2024 sustainability statement will not achieve full compliance with the standards, meaning its 2024 sustainability statement will be transitional. On 26 February 2025, the European Commission announced proposed simplifications to CSRD, the CSRD omnibus. If the proposed simplifications are adopted in the EU and subsequently implemented into Norwegian law, Kommunalbanken will no longer be required to report in accordance with CSRD.

KBN's reporting in response to the Norwegian Transparency Act is provided in the Report on due diligence, which is published on KBN’s website.

As a competence-based business, KBN needs to recruit, develop and retain skilled employees across a range of specialist areas in order to fulfil its objectives. KBN needs to adapt continuously to the changes that are being driven by factors such as technology, regulatory requirements and changing customer behaviours, in addition to the requirements and expectations of our owner, other stakeholders and KBN’s employees themselves.

KBN seeks to be an attractive place to work by taking good care of its employees and creating a good working environment, in addition to facilitating their growth and competence development. In addition to following relevant legislation intended to ensure employee rights, KBN works actively to ensure well-being, to maintain and further develop a culture of continuous learning and knowledge sharing, and to increase diversity.

KBN seeks to ensure that employees have high-quality and safe working conditions that are in line with all relevant legislation and regulations. KBN’s report on due diligence and equality statement are published on the KBN website.

The sickness rate was 2.1% in both 2024 and 2023. KBN’s target is for the sickness rate to be below 2.5% over time. There were no work-related accidents in 2024 or 2023.

The Board of Directors of KBN proposes the following allocation of the surplus for the 2024 accounting year: NOK 700 million to be paid in dividend to the owner, NOK 162 million to be paid in interest to Additional Tier 1 capital holders, and NOK 612 million to be transferred to other equity. Dividends are decided by the Annual General Meeting. The proposed dividend is equivalent to 47% of KBN's profit for the year and 55% of its core earnings. The state has 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. Proposed dividends are included in KBN's equity until such time as the dividend is approved by the Annual General Meeting, but are deducted for the purpose of calculations of capital adequacy.

Norges Bank reiterated at its January 2025 monetary policy committee meeting that it expects it will reduce Norway’s key policy rate to 4.25% in March and then to 3.75% by the end of the year. Norges Bank stated that a restrictive monetary policy is still needed to stabilise inflation around the target of 2%. The rate of inflation in Norway increased from January to February and was running at 3.6% at the most recent assessment in March (rate as at February 2025), while core inflation was 3.4%. Norges Bank's interest rate decision at the end of March will depend on further developments in key economic figures, but the increased inflation reduces the likelihood of an interest rate cut.

The rate of growth in mainland Norway’s economy increased in 2024, and this is expected to continue into 2025. Labour market conditions in Norway are tight, with employment at a stable low level. The rate of wage growth, however, is expected to decrease somewhat in 2025.

The outlook for the Norwegian and global economy has improved, but there continues to be a high level of uncertainty. The uncertainty regarding Europe’s relationship with the USA increased significantly in the first weeks of 2025, particularly with regard to security and the financial system. Political uncertainty in the USA, particularly after the election of Trump as president and the consequent changes to the administration, will impact its relationship with Europe. Greater economic nationalism and the policy of ‘America First’ may lead to further tension and uncertainty in the transatlantic relationship. There are particular concerns that the US may introduce higher tariffs on European goods, which could reduce Europe's and Norway's GDP growth and create economic instability. Norway, as a small and open economy, is dependent on a functioning global economic framework. In addition, security policy cooperation appears to be taking a new shape.

Re-arming the Norwegian Armed Forces will require significant resources, including a greater demand for labour. This higher level of demand may lead to challenges in the labour market, particularly in sectors that are already experiencing a shortage of qualified workers. The Norwegian Armed Forces will need more engineers, technicians, logisticians and other specialised personnel, something which may draw labour away from other important industries, such as the building and construction sector, the tech industry and the healthcare sector.

In 2024, credit spreads for local government sector issuers decreased by about 5 basis points and have continued to fall in 2025. The outlook for future changes in the credit spreads for local government sector issuers is uncertain. An expectation that money market rates will fall in 2025 means that it may again be more favourable for KBN’s customers to borrow to finance their investment projects.

At a time of rapid growth in costs and declining tax revenues, higher interest rates have resulted in a more challenging financial situation for many of KBN’s customers. Many municipalities are facing a continuing need for sizeable investment spending and the rate of debt growth is expected to continue to be high in the coming years, but probably somewhat lower than the particularly high level seen 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.

According to Statistics Norway’s population forecasts, the number of people over 80 will double within 15 years. Increased use of welfare technology is expected to make it possible for more people to remain independent and live at home longer. However, the growth in the older population will be so rapid that it will force a radical change in how essential care can be provided. Greater investment spending in the health and care area will contribute to keeping the aggregate level of investment that KBN’s customers will need to carry out at high levels for the years ahead. Statistics Norway's population forecasts anticipate a continuing low birth rate, which indicates a decline in the level of investment in schools and nurseries. The availability of skilled employees is already a significant problem for many municipalities. In the future this will become an increasingly important factor for investment decisions and for how welfare services can be delivered to residents.

Climate change, the transition to a low carbon society and the need to reduce the degradation of nature in relation to land use will place demands on investment decisions through their impact on the location of new buildings, the content and implementation of construction contracts, energy solutions, resource use and choice of materials. A sustainable approach to nature and land use will become increasingly necessary over the years ahead, and will be an ever more important factor in investment decisions by municipalities and county authorities.

In short, the geopolitical events seen at the start of 2025 have led to a high level of uncertainty regarding exchange rates and interest rates and the level of general liquidity, but equity markets, currency markets and bond markets are continuing to function effectively.

KBN has good access to liquidity and will continue to provide its customers with attractive financing for local government sector projects across Norway.

The Board of Directors thanks KBN’s employees for a job well done.

Oslo, 13 March 2025

The Board of Directors and Chief Executive Officer of Kommunalbanken AS