Annual Report 2025

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. KBN’s aggregate customer financing⁷ grew by NOK 9 billion in 2025. Lending represented NOK 4 billion of this amount, while local government sector bonds in its liquidity portfolio represented NOK 5 billion. The loans KBN granted financed investment in projects such as schools, health and care facilities, and water and wastewater systems. At the end of 2025, KBN’s market share based on its aggregate customer financing and after adjusting for loans from the Norwegian State Housing Bank was 49.7%⁸, compared to 50.2% at the end of 2024.

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 10 billion in 2025, as compared to an increase of NOK 13 billion in 2024. Green lending represented 21.0% of KBN’s total lending at the end of 2025. Long-term financing for the development of local welfare services, 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 earnings⁹ were NOK 1,381 million in 2025, as compared to NOK 1,276 million in 2024. Net interest income was NOK 2,466 million in 2025, as compared to NOK 2,253 million in 2024. The main reason for the increase was that KBN received NOK 189 million in interest compensation in connection with the outcome of a successful tax appeal. On 18 December 2025 the Norwegian Tax Appeals Committee found in KBN’s favour in respect of a tax appeal relating to financial instruments for the fiscal years 2014-2021. The ruling involves in overall terms a decrease in KBN’s taxable income for the years in question. As a result of this, KBN has received a refund of tax it previously paid totalling NOK 1 billion together with interest compensation. After adjusting for this interest compensation, KBN’s net interest income was NOK 24 million higher in 2025 than in 2024.

In 2025 KBN’s result for the period was a profit of NOK 1,894 million as compared to a profit of NOK 1,474 million in 2024. KBN’s annualised return on equity in 2025 was 9.5%, compared to 7.4% in 2024. Based on its core earnings, KBN’s annualised return on equity in 2025 was 7.6%, compared to 7.2% in 2024. KBN’s Board of Directors has set a strategic target for its return on equity of a minimum of 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 2026-2028 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 during the first year of the period. 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 2025, and the project was completed in June. Completion of this project was important in order to modernise and ensure greater efficiency in the lending process. Extensive work was again carried out in 2025 to further develop the quality of KBN’s data warehouse and its use as a source for KBN’s reports and analysis. Work was also carried out to adapt to the new guidelines on interest rate risk in the banking book (IRRBB)¹⁰.

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 2025 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 2025 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 1,894 million, as compared to a profit of NOK 1,474 million in 2024.

Table: Net Income Results

Net interest income totalled NOK 2,466 million in 2025, as compared to NOK 2,253 million in 2024. In 2025 KBN’s net interest income was positively affected by the interest compensation KBN received in connection with its tax appeal. After adjusting for this, KBN’s net interest income was NOK 24 million higher in 2025 than in 2024. KBN’s lending margins were relatively stable throughout 2025. The net interest income from KBN’s liquidity management portfolio generated a modest contribution to KBN’s earnings in 2025, in line with expectations. Fees and commission expenses totalled NOK 117 million in 2025, compared to NOK 125 million in 2024. 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 75 million in 2025 as compared to NOK 79 million in 2024.

KBN’s net gain on financial instruments amounted to NOK 501 million in 2025, compared to a net gain of NOK 157 million in 2024. 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 32 million in 2025, as compared to a net realised gain of NOK 110 million in 2024. There was a net unrealised gain on financial instruments in 2025 of NOK 469 million as compared to a net gain of NOK 47 million in 2024, which explains the increase in KBN’s net gain on financial instruments relative to 2024.

There was a net unrealised gain on fixed rate lending recognised at fair value and associated hedging contracts amounting to NOK 324 million in 2025, as compared to a net unrealised gain of NOK 259 million in 2024. Credit spreads for Norwegian municipalities and county authorities decreased by approximately 0.19 percentage points over the course of 2025. At the end of 2025, 28% 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 45% at the end of 2024. 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 is, over time, reducing the portfolio of fixed rate loans measured at fair value and is accordingly reducing the extent of unrealised gains or losses in the accounts.

There was a net unrealised gain on KBN’s borrowings, not considered changes in own credit risk, of NOK 7 million in 2025, as compared to a net unrealised loss of NOK 190 million in 2024. A net gain of NOK 170 million was recognised for KBN’s liquidity investments in 2025, as compared to a net gain of NOK 89 million in 2024. Of which the net unrealised gain was NOK 138 million in 2025, as compared to an unrealised loss of NOK 21 million in 2024.

Table: Total comprehensive income

Total comprehensive income amounted to NOK 1,740 million in 2025, as compared to NOK 1,254 million in 2024. Unrealised loss of NOK 224 million in fair value of liabilities due to changes in own credit risk, was attributable to a change in credit spreads in relation to bond debt issued. The equivalent figure for 2024 was an unrealised loss of NOK 305 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.

Operating expenses totalled NOK 437 million in 2025, as compared to NOK 383 million in 2024. The increase was in line with the plans adopted by KBN and was due to a higher level of activity in relation to developing and improving KBN’s operations. As a result of the financial results, variable salary payments equivalent to 1.35 times employees’ monthly salaries were accrued in 2025, while variable salary payments equivalent to 0.82 times employees' monthly salaries were accrued in 2024.

Total assets at 31 December 2025 amounted to NOK 533 billion, compared to NOK 568 billion at the end of 2024. The decrease was largely due to a decrease in the value of balance sheet items in NOK terms, primarily due to the weakening of the US dollar in 2025.

KBN's capital adequacy at the end of 2025 was again in excess of the requirements set by the authorities.

Table: Capital adequacy

KBN received the Financial Supervisory Authority of Norway’s (Finanstilsynet’s) decision regarding its Pillar 2 requirement (SREP) on 3 December 2025. The Financial Supervisory Authority of Norway determined that with effect from 31 December 2025 KBN will have a Pillar 2 requirement consisting of 1.1% of the basis for calculation under Pillar 1. KBN’s Pillar 2 requirement has thus decreased by 0.6 percentage points from the last decision. 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.

KBN’s leverage ratio at the end of 2025 was 4.2%, as compared to the minimum requirement of 3.0%.

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 2025 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. 2025 was again characterized by strong competition amongst the lenders active in the local government market.

KBN’s aggregate customer financing¹¹ increased by NOK 9 billion in 2025, equivalent to 2.4%. The rate of growth in normal local government sector borrowing was 6.3% in 2025 compared to 8.5% in 2024. Municipalities again increased their borrowing from the Norwegian State Housing Bank in 2025, 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 2025 was 5.7% as compared to 8.0% in 2024, which was a somewhat lower rate than was expected for the year.

KBN saw a weak level of demand in 2025 for long-term loans with instalment payments, primarily due to the attractive terms available to municipalities when raising their own financing in the capital markets. 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 long-term loans from KBN was to a greater extent than in previous years from small to medium-sized customers, with Norway’s largest municipalities and county authorities making greater use of market loans. However, in overall terms, the largest growth in KBN's lending in 2025 was again to the largest municipalities and county authorities.

At 31 December 2025, KBN’s market share, based on its aggregate customer financing and after adjusting for loans from the Norwegian State Housing Bank, was 49.7%¹², a decrease from 50.2% at the close of 2024. The decrease was partially due to the high level of competition for new loans and customers refinancing long-term instalment loans with loans with short to medium-term maturities from the capital markets. 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 2025, 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 in 2025 by NOK 10 billion, distributed across 41 projects. At the end of 2025, 163 municipalities, 8 county authorities and a total of 69 other customers had green loans from KBN, and outstanding green lending totalled NOK 79 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.

89% of KBN’s lending is directly to municipalities (including municipal companies) and county authorities, as shown by the breakdown provided in the figure below. A further 6% of KBN’s lending is to intermunicipal companies, and the remaining 5% 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: Share of KBN’s outstanding lending in NOK by customer category

A total of 892 customers have outstanding loans from KBN. Figure below shows that 46% of KBN’s customers are municipalities, county authorities or municipal companies, 12% are intermunicipal companies, and 42% are customers with a municipal or county authority guarantee.

Figure: Share of the number of customers by customer category

KBN did not experience any default or payment problems with customers in 2025.

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 128 billion in 2025, as compared to NOK 92 billion in 2024. KBN enjoyed good access to funding from the capital markets throughout 2025.

Europe, the USA and Asia are KBN’s most important markets for funding. KBN issued bonds in 9 currencies in 2025, as compared to 8 currencies in 2024. KBN achieved good currency diversification for its funding over the course of 2025, and the proportion of new borrowing that was denominated in US dollars decreased to around 52%. In 2025 KBN issued four USD benchmark bonds totalling USD 4.9 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 10 green bonds in 2025 with a total nominal value equivalent to USD 1.2 billion.

KBN’s total outstanding bonds and other borrowings at the end of 2025¹³ were approximately in line with the end of 2024 at NOK 483 billion as compared to NOK 482 billion at the end of 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 2025 was NOK 119 billion9, as compared to NOK 140 billion at the end of 2024. At the end of 2025, KBN’s overall Liquidity Coverage Ratio (LCR) and its LCR for NOK were 228% and 109% 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.

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 external regulations and internal governance documents. 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, the lead insurer for which is RiskPoint. The insurance covers the members of the Board of Directors and the CEO in respect of their potential liability to KBN and third parties.

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 and credit spread risk. Basis risk 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, which are supported by key indicators. 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, cyber risk, IT risk, process risk, personnel risk and other operational risk, and the risk of money laundering and terrorist financing, represent sub-types of operational risk that are subject to special reporting. KBN has a very limited risk appetite with regard to compliance risk and a limited risk appetite for the other categories of operational 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. Inflation and changes in 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 2025. 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.

On 26 February 2025, the European Commission announced a proposal to simplify the Corporate Sustainability Reporting Directive (CSRD). The proposed simplifications would mean that KBN would no longer be required to report in accordance with CSRD.

KBN’s sustainability report sets out KBN’s sustainability work. For 2025, KBN has produced a sustainability report based on the Voluntary Sustainability Reporting Standard for SMEs (VSME). In addition to the data points contained in VSME, KBN has chosen to include further information on topics that it considers to be material on the basis of its double materiality analysis. This analysis was produced in 2024 in accordance with the double materiality requirements in CSRD.

KBN's reporting in accordance with 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 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 equality statement is published on the KBN website.

The sickness rate was 2.5% in 2025 and 2.1% in 2024. KBN’s target is for the sickness rate to be below 2.5% over time. There were no work-related accidents in 2025 or 2024.

The Board of Directors of KBN proposes the following allocation of the surplus for the 2025 accounting year: NOK 760 million to be paid in dividend to the owner, NOK 161 million to be paid in interest to Additional Tier 1 capital holders, and NOK 973 million to be transferred to other equity. Dividends are decided by the Annual General Meeting. The proposed dividend is equivalent to 40% 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.

2025 was characterized by extensive international changes that impacted both global and national frameworks. Geopolitical tensions, shifting trade relations and uncertainty surrounding supply chains created a more unpredictable economic climate. Many countries experienced weaker growth due to trade barriers and higher costs, and this also affected Norway through pressure on prices and greater market volatility.

The global economy grew less strongly than expected, primarily due to heightened trade measures and geopolitical uncertainty. The IMF downgraded its forecast for global growth to 2.8%, reflecting weaker growth in a number of major economies. Higher costs and less willingness to invest impacted a number of markets.

Despite signs of tensions easing in a number of conflict areas, many countries strengthened their preparedness structures. In Norway this resulted in plans for the country to build up and attach greater priority to its defence industry, as well as to a higher level of demand for specialised workers. Over time, this may affect the availability of labour in the local government sector.

At the start of 2025, Norges Bank was of the view that it might be able to reduce the key policy rate if inflation fell. Inflation, however, remained relatively high throughout the year, with the annual rate standing at 3.2% and core inflation at 3.1%. The labour market remained strong, with high employment and stable wage growth. The key policy rate was cut twice in 2025, from 4.5% to 4.0%. Norges Bank’s rate decisions will depend on developments in key economic indicators, but the persistently high inflation reduces the likelihood of further rate cuts.

2025 was again a challenging year financially for the local government sector, and was characterised by increasing operating costs. Growth in tax income and transfers from the state helped the sector improve its room for manoeuvre relative to 2024. The interest rate cuts made by Norges Bank came later in the year than expected, and for most municipalities and county authorities had only a limited impact on their financing costs. The situation highlighted the need for long-term adjustments and restructuring in order to adapt to a future marked by restricted access to labour and a growing number of people over the age of 80. Access to qualified labour is already a significant challenge for many municipalities. Going forward, this will increasingly become a guiding factor in investment decisions and in determining how welfare services are to be provided to the population.

In connection with the 2026 national budget, the Norwegian Parliament adopted the following resolution: “The Norwegian Parliament asks that the government assess whether loans to local authorities should have the same risk weighting as loans to the central government in the capital requirements framework. In this context, the government is also asked to consider whether KBN’s risk weighting should be changed and whether KBN should be given the status of ‘promotional bank’.” Clarification of this matter will be of significance to KBN.

The United States and Israel attacked Iran on 28 February 2026. Beyond its humanitarian toll, the war has led to higher energy prices and increased volatility in financial markets. It remains uncertain how long the conflict will last and what consequences it may have for the international economy.

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

12 March 2026

The Board of Directors and Chief Executive Officer of Kommunalbanken AS