Foreword
Strength Through Cooperation
We stand at a historic crossroads. Four years after Russia’s full-scale invasion of Ukraine, and with a rules based international order creaking at the seams, a new global reality is taking shape. For Europe, Norway, and our municipalities, the consequences are clear: we must strengthen European and Nordic cooperation, uphold our values, and work together to build a safer, greener, and more resilient society, across the country.
By the time the 2025 annual report is published, Ukrainians will have marked the four-year anniversary of the full scale invasion, and twelve years since Russia began its military aggression. The “special operation,” which was intended to culminate in Ukraine’s surrender to the Kremlin within weeks, has resulted in immense and tragic losses, for the invaded nation, but particularly heavy losses for the invader. Putin misjudged the resilience and courage of the Ukrainian people. They fight heroically for their freedom every day, supported economically, politically, and militarily particularly by Europe. Ukraine’s success is vital for Europe’s security, which is threatened by Russia but also challenged by an increasingly unpredictable Western ally. Russian propaganda and American statements portraying Europe as weak and divided have proven false. The recent escalation outside Europe, with new acts of war by Israel and the United States against Iran, marks the next stage in an unfolding development. Steady leadership and collective wisdom in Europe are essential.
Since the inauguration of Trump II last year, the United States has withdrawn from a number of international agreements on climate, health, trade, and energy, in addition to implementing several other political measures promised during the campaign. This has triggered European rearmament, closer intra European cooperation, initiatives to strengthen self sufficiency in key sectors, and the formation of new trade agreements. Mid sized countries like Canada have fundamentally shifted their strategic orientation, entering over the past year into comprehensive strategic partnerships with the EU and signing trade agreements across Asia, Oceania, and South America. The EU is taking similar steps. In January, in what has already become a widely cited speech in Davos, Prime Minister Mark Carney said: “We knew that the narrative of the rules based international order was partly false — that the strongest exempted themselves when convenient, that trade rules were enforced asymmetrically. (…) The powerful have their power. But we also have something: the ability to stop pretending, to acknowledge reality, to build national resilience, and to act together.” This awakening is evident not only among mid sized and smaller countries in Europe, but also within parts of the business community, civil society organizations, and municipalities. There is truth to the saying that every setback brings opportunity, we are waking up from a slumber we did not realize we were in.
Confidence is returning to Europe. The European economy is marginally larger than that of the United States and many times larger than Russia’s. A trade war would harm American companies just as much as European ones, and it appears that the courts are largely restraining the U.S. administration. The economy is performing well across much of Europe, despite the need for restructuring and higher productivity. In The Economist’s ranking of last year’s top performing economies, seven of the top ten were EU member states. Europe is an attractive trading partner globally and has recently concluded major trade agreements with, among others, India and key countries in Latin America. The significant scale up of European defense efforts will strengthen both capabilities and deterrence, even as NATO experiences a higher degree of internal strain than before. Europe is assuming greater responsibility for its own security within NATO, and Canada has become an increasingly important ally.
Norway is one of the largest contributors to Ukraine on a per capita basis, backed by a broad majority in Parliament. Even with the world’s largest state-owned fund behind us, the direct and indirect costs associated with Russia’s war of aggression mean that other areas cannot be prioritized as highly. The municipal sector experienced another financially challenging year in 2025, marked by rising operating costs and interest rate cuts that took longer than expected to materialize. At the same time, the preliminary financial figures from last year show a significant improvement in financial performance, driven by a strong ability to adapt and real growth in revenues compared to 2024. The sector has significant long-term needs for adaptation and restructuring, aligned with the realities of limited labor access and a growing elderly population. KBN contributes analytical insight into economic developments, supporting the sector in maintaining and achieving financial sustainability and healthy local communities. Debt growth in 2025 was lower than expected and significantly below the previous year. This can partly be explained by postponed borrowing in anticipation of lower interest rates. At the start of the year, Norges Bank signaled possible rate cuts contingent on declining inflation. However, inflation remained relatively high, with annual inflation for 2025 at 3.2 percent and core inflation at 3.1 percent. The policy rate was reduced twice during the year, fewer and later cuts than anticipated. Looking ahead, investment needs in the sector will remain substantial, particularly in education, health and care services, and water and wastewater infrastructure.
In 2025, KBN’s total financing grew by NOK 9 billion, or 2.4 percent. The market share based on total customer financing excluding the Norwegian State Housing Bank was 49.7 percent, down from 50.2 percent at the end of 2024. The reduction was due to strong competition for new loans and refinancings, with a shift from long term amortizing loans to shorter- and medium term capital market loans, driven by very low credit spreads. The bank’s core earnings amounted to NOK 1,381 million in 2025, compared with NOK 1,276 million in 2024. Net interest income totaled NOK 2,466 million, up from NOK 2,253 million in 2024. The main driver of the increase was NOK 189 million in interest compensation linked to the outcome of a tax appeal. On 18 December 2025, the Tax Appeals Board ruled in favor of KBN in a case concerning financial instruments for the tax years 2014–2021. The decision results in a reduced taxable income for those years. Consequently, KBN will receive a refund of NOK 1 billion in previously paid taxes, along with corresponding interest compensation.
2025 was the third-warmest year globally since 1850, and the 1.5 degree target may already be breached within this decade, earlier than expected. For mainland Norway, climate change will manifest as more frequent and intense cloudbursts, more flooding, increased landslides, less snow, and more frequent drought. This demands greater knowledge and increased investment in climate adaptation by municipalities. KBN contributes knowledge and facilitates sustainable transition. Our total portfolio of green loans for climate and environmentally sound investments increased by NOK 10 billion in 2025 across 41 different projects. Forty-six percent of municipalities and county authorities now have at least one green loan from KBN, totaling NOK 79 billion, 21 percent of the total loan portfolio. The environmental impacts of these loans are reported annually in KBN’s environmental impact report.
The year we leave behind may have seen the most extensive international shifts since the Cold War. 2026 has begun with American and partly Israeli attacks on two of the world’s largest oil producing nations. Geopolitical tensions, shifting trade relationships, and uncertainty around supply chains have created a more unpredictable economic climate. We cannot yet fully grasp the consequences of the turmoil in the rules based international order; we are in a period of transition, and the future equilibrium remains unclear. Developments suggest that several major powers are increasingly asserting themselves, toward both small and large states. As Carney notes, we must acknowledge reality, strengthen resilience, and deepen our cooperation within Europe and with other liberal democracies, and not least hold fast to our values.
KBN remains steadfast in its mission. We are approaching 100 years as the most important lender to the municipal sector. We will continue to provide stable, efficient, and long-term financing across the entire country, financing that enables transition and fosters healthy local communities — even as the world around us changes rapidly.