Report for 1st quarter 2025

KBN’s net interest income totalled NOK 552 million in the first quarter of 2025, compared to NOK 553 million in the first quarter of 2024. KBN’s aggregate customer financing¹ grew by NOK 4 billion in the first quarter of 2025. The growth in green lending amounted to NOK 6 billion in the first quarter of 2025. Green lending represented 20% of KBN’s total lending portfolio at the end of the first quarter of 2025.

KBN’s core earnings² 292 million in the first quarter of 2025, compared to NOK 308 million in the first quarter of 2024. KBN’s net interest income totalled NOK 552 million in the first quarter of 2025, as compared to NOK 553 million in the corresponding period of 2024. Money market interest rates decreased somewhat in the quarter despite Norges Bank keeping its key policy rate unchanged at its March meeting. Norway’s key policy rate remained at 4.5%, while the money market interest rate at the end of the quarter was 4.57%.

KBN’s result for the accounting period, in the first quarter of 2025, was a profit of NOK 437 million, compared to a profit of NOK 390 million in the same period in 2024. In the first quarter of 2025, KBN recognised a net gain on financial instruments totalling NOK 162 million, as compared to a net gain of NOK 81 million in the first quarter of 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 21 million for the first quarter of 2025, while there was a net realised gain from market transactions of NOK 25 million in the first quarter of 2024. Unrealised gains amounted to NOK 141 million in the first quarter of 2025, compared to unrealised gains of NOK 55 million in the same period in 2024. KBN’s fixed rate lending and associated hedging instruments contributed a net unrealised gain of NOK 53 million in the first quarter of 2025, primarily as a result of a moderate decrease in credit spreads for the local government sector. There was an equivalent net unrealised gain on fixed rate lending and associated hedging instruments of NOK 68 million in the first quarter of 2024. KBN started to apply hedge accounting to all its new fixed rate lending with effect from 1 January 2022. KBN’s introduction of hedge accounting to its fixed rate lending will over time reduce the size of the portfolio of fixed rate loans carried at fair value, and this will reduce the net unrealised gains and losses included in KBN’s earnings. At the end of the first quarter of 2025, 38% of KBN’s portfolio of fixed lending was carried at fair value.

KBN’s liquidity portfolio and associated hedging instruments contributed a net unrealised gain of NOK 21 million for the first quarter of 2025, while KBN's own bonds and associated hedging instruments contributed a net unrealised gain of NOK 67 million to its result from ordinary activities in the same period. KBN’s unrealised gains and losses are expected to reverse, either as market conditions normalise or as the instruments approach maturity.

KBN’s provision for expected credit losses is relatively limited due to the fact that Norwegian municipalities cannot be declared insolvent. KBN’s liquidity management portfolio is also of very high credit quality. KBN increased its provision for expected credit losses by NOK 10 million in the first quarter of 2025. This increase was due to changes to macro parameters that impact the calculation model for expected credit loss.

KBN’s total operating costs for the first quarter of 2025 were NOK 100 million, compared to NOK 96 million in the same period in 2024. The increase in operating costs was primarily due to inflation and the weakness of the Norwegian krone, a higher level of activity in developing and improving KBN's operations, and hiring in temporary employees pending new appointments.

KBN’s annualised return on equity in the first quarter of 2025 was 8.5%, compared to 7.7% in the first quarter of 2024. Based on its core earnings, KBN’s annualised return on equity in the first quarter of 2025 was 6.3%, compared to 6.8% in the first quarter of 2024. The decrease was due to somewhat lower core earnings as well as to an increase in the value of equity. The target set by KBN’s Board of Directors’ for its return on equity for the 2025-2027 strategy period is at least 7%.

KBN’s total comprehensive income in the first quarter of 2025 was NOK 437 million, compared to NOK 318 million in the first quarter of 2024. KBN’s total comprehensive income includes gains and losses on KBN’s own bonds resulting from changes to KBN’s own credit risk. In the first quarter of 2025, there was an unrealised loss after tax from changes to KBN’s own credit risk of NOK -0.5 million, as compared to an unrealised loss after tax of NOK -73 million in the first quarter of 2024.

Table 1: Result for the period and total comprehensive income

KBN’s lending portfolio totalled NOK 374 billion³ at the end of the first quarter of 2025, while aggregate customer financing⁴ totalled NOK 380 billion⁵ at the end of the first quarter. KBN's aggregate customer financing increased by NOK 4 billion in the first quarter of 2025, as compared to an increase of NOK 3 billion in the first quarter of 2024. The main reason for the increase in aggregate customer financing in the first quarter of 2025 was the strong demand for new loans.

KBN’s portfolio of green loans increased by NOK 6 billion in the first quarter of 2025, as compared to NOK 1 billion in the same period in 2024. KBN's green lending in the first quarter of 2025 included green loans for the municipalities of Trondheim, Oslo and Asker. At the end of the first quarter of 2025, KBN’s green lending represented 20% of its overall lending portfolio.

The annual rate of debt growth in the local government sector as at the end of March 2025 was calculated to be 8.6%. After adjusting for borrowing from the Norwegian State Housing Bank, the rate of debt growth was 8.3%. After adjusting for borrowing from the Norwegian State Housing Bank⁶, KBN’s market share based on its aggregate customer financing as at the end of the first quarter of 2025 was 49.6%.

Chart 1: Quarterly growth in aggregate customer financing in billion kroner

Inflation slowed in 2024 and, despite the small uptick seen in Norway in the first three months of 2025, is still approaching the inflation targets of the central banks of many countries across the world, including in Norway. The rate of inflation in Norway was running at 2.6% at the most recent assessment in March, while core inflation was 3.4%. The goal of monetary policy is for the annual rate of growth in the consumer price index to be as close as possible to 2% annual growth.

The change of President in the USA and the associated change in economic policy caused sizeable fluctuations in the fixed income and foreign exchange markets in the first quarter, and there is significantly more uncertainty than usual regarding future growth both nationally and internationally. The US dollar weakened against most currencies in the quarter, including the Norwegian krone. The Euro was relatively stable against the Norwegian krone in the first quarter. Credit spreads on local government and covered bonds decreased somewhat over the quarter.

KBN enjoyed good access to the international capital markets in the first quarter of 2025 and completed all its funding transactions as planned. In the first quarter of 2025, KBN’s new borrowings totalled approximately NOK 60 billion through 25 bond issues in six currencies, as compared to NOK 38 billion in the first quarter of 2024.

KBN continues to enjoy low borrowing costs and good market access thanks to its AAA/Aaa rating.

Chart 2: New borrowings by currency in 2025

KBN’s liquidity portfolio totalled NOK 134 billion⁷ at the end of the first quarter of 2025, as compared to NOK 116 billion at the end of the first quarter of 2024. KBN’s liquidity portfolio is managed with the aim of matching its financing requirements, including lending growth, for the subsequent twelve months, and it is managed on the basis of a low-risk investment strategy.

The liquidity portfolio is largely held in zero-risk-weighted assets that are particularly liquid. Investments denominated in foreign currencies represented 52% of the portfolio at the end of the first quarter of 2025. Fluctuations in the value of the Norwegian krone relative to other currencies will therefore result in fluctuations in the size of the liquidity portfolio in NOK terms.

Table 2: Capital adequacy key figures

KBN’s total assets at the end of the first quarter of 2025 amounted to NOK 556 billion, down from NOK 568 billion at the end of 2024. The decrease from the end of 2024 was primarily due to a decrease in the NOK value of balance sheet assets as a result of currency conversion reflecting the stronger Norwegian krone and the weakness of the American dollar.

KBN’s Pillar 2 capital requirement at the end of the first quarter of 2025 consisted of 1.7% of the basis for calculation under Pillar 1. 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 the first quarter of 2025 was 4.0%, as compared to the requirement of 3.0%.

KBN’s capital adequacy at the end of the first quarter of 2025 was in excess of the requirements set by the authorities.

Capital adequacy figures are sensitive to large fluctuations in exchange rates, particularly the USD-NOK 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 instruments lead to fluctuations in cash collateral that influence KBN’s capital adequacy key figures. KBN has internal buffers that are intended to ensure its capital adequacy does not fall below the regulatory requirements as a result of such exchange rate fluctuations.

KBN has a long-term goal of reducing its own emissions by at least 55% by 2030 compared to the 2019 level. This emissions trajectory implies that KBN’s CO₂e emissions in 2025 should be a maximum of 65% of the 2019 level, which corresponds to approximately 124 tonnes of CO₂e for the year. KBN has calculated that its own CO₂e emissions⁸ in the first quarter of 2025 were 5 tonnes of CO₂e, which is a decrease from 31 tonnes of CO₂e in the first quarter of 2024. The reduction is due to lower energy consumption in new office premises as well as reduced travel activity in the first quarter of 2025.

At its monetary policy committee meeting in March 2025, Norges Bank announced that Norway’s key policy rate will likely be held steady at today’s level for some time. Norges Bank stated that the reason for this is the need to ensure inflation returns to its target of 2% per year within a reasonable time horizon, as it is still slightly above the target. The future path of the policy rate thereafter will depend on economic developments.

There is greater uncertainty than normal and worsening expectations regarding the outlook for the global economy, including due to the effect of changes to the USA’s economic policy.

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

Oslo, 8 May 2025

The Board of Directors and Chief Executive Officer of Kommunalbanken AS