Annual Report 2023

Last year was marked by war, interest rates being increased at record speed in order to overcome galloping inflation, and a further setback for climate change and nature with new temperature records and numerous extreme weather incidents both globally and nationally. The good news is that the interest rate increases seem to have had an effect, and it appears that peak rates have been reached and the first cuts may come in 2024, indicating that we may be heading into calmer waters.

Ukraine has held out against Russia’s invasion heroically for two years. Other conflicts and signs that Ukraine’s supporters are growing weary of the war mean that there is an increased danger that Putin will succeed with his strategy of attrition. The presidential election in the USA this autumn may have major significance for how the war develops. If Donald Trump wins, Europe will have to be prepared to play an even bigger role in preventing the fall of a European democracy, at the same time as the uncertainty associated with the USA’s support for NATO in the event of a change of president would require Europe to significantly upgrade its defence capabilities. This is the backdrop to Norway’s current investment in its armed forces, which is the largest since the Second World War.

Since the Hamas terrorist attack on 7 October last year, Israel has bombed to pieces about 60% of all the buildings in Gaza. Over 30,000 Palestinians and more than 1,200 Israelis have been killed since the start. According to the USA’s Secretary of Defence, over 25,000 of those who have died have been women and children. The World Food Program has stated that Gaza is now experiencing ‘the worst level of child malnutrition anywhere in the world’. The International Court of Justice has concluded that there is a danger of genocide and has opened a case against Israel. Norwegian enterprises are subject not only to the OECD’s guidelines on responsible business conduct but also to the Norwegian Transparency Act, and are therefore legally required to carry out due diligence assessments to ensure that they are not causing or contributing to breaches of human rights.

The situation in Ukraine and in the Middle East, and uncertainty about the economic outlook, have caused long-lasting uncertainty in the fixed income market and high credit spreads for local government sector issuers in the capital markets. It is still uncertain whether credit spreads for such issuers will fall over the course of 2024 or whether they will stabilise at a higher level. This, in combination with the increases in money market rates, has made it more expensive for our customers to finance their investment spending. It is expected that this may affect the overall demand for new financing in the years ahead.

Global warming set another record in 2023, with the highest average temperature ever recorded at 1.48oC above pre-industrial levels, in part as a result of the El Niño weather phenomenon. The Paris goal of limiting global warming to 1.5oC is under pressure. Although the world set a new record for investments in renewable energy in 2023, the level of investment is roughly only one third of that needed to achieve net zero by 2050, according to the Energy Transition Investments Trend 2024. The transition to a sustainable economy is continuing, but it could and should progress more rapidly. Even if the 1.5oC threshold is exceeded, researchers are clear that it is important to limit the increase in the average temperature as much as possible.

In addition there were a number of situations in 2023 where climate and environmental considerations were in conflict, even though there is general agreement that global warming is having a negative impact on nature. The Supreme Court of Norway ruled that the construction of wind farms in the Fosen region will have a material negative impact on reindeer herders who have their grazing areas there. Settlements have now been reached for both the relevant areas. The need for minerals to drive forward the green transition has been used as an argument for commencing seabed mining, as well as to allow the dumping of mining waste in Norwegian fjords.

Norwegian municipalities and county authorities have a key role to play in the work to achieve Norway’s climate targets, preserve nature and adapt to the changing climate. KBN seeks to contribute to this work both by providing green loans for projects that help reduce greenhouse gas emissions, improve energy efficiency and/or deliver adaptation for climate change, and by sharing its knowledge. As part of its knowledge sharing, KBN has produced an inspiration booklet in collaboration with the Norwegian Climate Foundation about how municipalities and county authorities can save and produce energy without impacting nature, and KBN has presented this work in a range of seminars and webinars. Approximately 3,000 copies of the booklet have been printed and sent to municipalities and county authorities that have requested them.

KBN set a new record for its green lending in 2023, which reached over NOK 52.8 billion, equivalent to just over 15% of its overall lending portfolio. 40% of Norway’s municipalities and county authorities now have green loans from KBN, which is something we are very pleased about. In addition, we put in place an agreement for a green loan for what will be Norway’s first school building to be constructed in line with the criteria in the EU Taxonomy. We have even higher ambitions in all these areas in 2024, and will in addition place greater emphasis on nature in our criteria for green loans.

In 2023 we strengthened KBN's role as the largest and most important provider of financing to the local government sector in Norway with growth in lending of NOK 26 billion. At the end of 2023, KBN’s market share was 51.1%, as compared to 49.7% at the end of 2022. KBN’s net interest income increased from NOK 1,866 million in 2022 to NOK 2,105 million in 2023. Good growth in profitable lending products, along with rising interest rates, contributed to the increase in earnings. KBN enjoyed good access to the international capital markets and completed its funding transactions as planned.