Report for 2nd quarter 2025

KBN’s net interest income totalled NOK 568 million in the second quarter of 2025, compared to NOK 550 million in the second quarter of 2024. KBN’s aggregate customer financing¹ grew by NOK 2 billion in the second quarter of 2025, of which the growth in green lending amounted to NOK 1 billion. Green lending represented 20.1% of KBN’s total lending portfolio at the end of the quarter.

KBN’s core earnings² totalled NOK 305 million in the second quarter of 2025, compared to NOK 330 million in the second quarter of 2024. The decrease in core earnings was due to an increase in KBN’s operating costs in combination with lower realised gains relative to the corresponding period in 2024. KBN’s net interest income totalled NOK 568 million in the second quarter of 2025, as compared to NOK 550 million in the corresponding period of 2024. Norges Bank cut its key policy rate by 0.25 of a percentage point at its June monetary policy committee meeting. The rate now stands at 4.25%, while the money market interest rate at the end of the quarter was 4.34%.

KBN’s result for the accounting period, in the second quarter of 2025, was a profit of NOK 378 million, compared to a profit of NOK 493 million in the same period in 2024. In the second quarter of 2025, KBN recognised a net gain on financial instruments totalling NOK 44 million, as compared to a net gain of NOK 193 million in the second 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 4 million for the second quarter of 2025, while there was a net realised gain from market transactions of NOK 28 million in the second quarter of 2024. Unrealised gains amounted to NOK 40 million in the second quarter of 2025, compared to unrealised gains of NOK 164 million in the same period in 2024. KBN’s fixed rate lending and associated hedging instruments contributed a net unrealised gain of NOK 134 million in the second 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 171 million in the second 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 second quarter of 2025, 32.5% 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 18 million for the second quarter of 2025, while KBN's own bonds and associated hedging instruments contributed a net unrealised loss of NOK 112 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. This is because the Norwegian Local Government Act states that 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 1 million in the second quarter of 2025, bringing the total to NOK 46 million at the end of the quarter.

KBN’s total operating costs for the second quarter of 2025 were NOK 112 million, compared to NOK 88 million in the same period in 2024. This increase was in accordance with the plans adopted by KBN and was primarily due to wage growth, a higher level of activity in developing and improving KBN’s operations, the latter of which has led to increased staffing and hiring in temporary employees pending new appointments.

KBN’s core earnings³ for the first six months of 2025 totalled NOK 597 million, compared to NOK 638 million in the first six months of 2024. KBN’s net interest income in the first six months of 2025 was NOK 1,121 million, as compared to NOK 1,104 million in the first six months of 2024.

KBN’s result for the accounting period in the first six months of 2025 was a profit of NOK 815 million as compared to a profit of NOK 884 million in the first six months of 2024. KBN recognised net gains on financial instruments totalling NOK 206 million in the first six months of 2025, compared with NOK 273 million in the first six months of 2024.

KBN’s total operating costs for the first six months of 2025 were NOK 211 million, compared to NOK 184 million in the first six months of 2024. This increase was in accordance with the plans adopted by KBN and was primarily due to wage growth, a higher level of activity in developing and improving KBN’s operations, the latter of which has led to increased staffing and hiring in temporary employees pending new appointments. KBN’s cost-to-income ratio⁴ for the first six months of 2025 was 19.7%, compared to 16.7% in the first six months of 2024.

KBN’s annualised return on equity in the first six months of 2025 was 7.9%, compared to 8.9% in the same period in 2024. Based on its core earnings, KBN’s annualised return on equity in the second quarter of 2025 was 6.5%, compared to 7.1% in the same period in 2024. The decrease was due to somewhat lower core earnings as well as to an increase in retained earnings. KBN’s annualised return on equity based on its core earnings increased from 6.3% in the first quarter to 6.5% in the first six months of 2025. The return target set by KBN by its Board of Directors for the 2025-2027 period is at least 7%.

KBN’s total comprehensive income in the first six months of 2025 was NOK 919 million, compared to NOK 652 million in the first six months 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. For the first six months of 2025, there was an unrealised gain after tax from changes to KBN’s own credit risk of NOK 104 million, as compared to an unrealised gain after tax of NOK 231 million in the same period in 2024.

Table 1: Result for the period and total comprehensive income

KBN’s lending portfolio totalled NOK 375 billion⁵ at the end of the second quarter of 2025, while aggregate customer financing⁶ totalled NOK 382 billion⁷ at the end of the second quarter of 2025. KBN's aggregate customer financing increased by NOK 2 billion in the second quarter of 2025, as compared to an increase of NOK 3 billion in the second quarter of 2024. The main reason for the reduction in growth in KBN’s aggregate customer financing was the favourable terms available to local government sector borrowers in the capital markets.

KBN’s portfolio of green loans increased by NOK 1 billion in the second quarter of 2025, as compared to NOK 1 billion in the same period in 2024. KBN's green lending in the second quarter of 2025 included green loans for the municipalities of Fredrikstad and Sandefjord. At the end of the second quarter of 2025, KBN’s green lending represented 20.1% of its overall lending portfolio.

The annual rate of debt growth in the local government sector as at the end of June 2025 was calculated to be 8.6%. After adjusting for borrowing from the Norwegian State Housing Bank, the rate of debt growth was 8.1%. After adjusting for borrowing from the Norwegian State Housing Bank, KBN’s market share based on its aggregate customer financing⁸ as at the end of the second quarter of 2025 was 49.9%.

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

The rate of inflation in Norway was running at 3.0% at the most recent assessment in June, while core inflation was 3.1%. 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 half of 2025, and there is significantly more uncertainty than usual regarding future growth both nationally and internationally. The American dollar weakened against most currencies in the quarter, including the Norwegian krone.

The Euro strengthened against the Norwegian krone towards the end of the second 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 six months of 2025 and completed all its funding transactions as planned. KBN’s new borrowings in the first six months of 2025 totalled approximately NOK 103 billion through 40 bond issues in 8 currencies, as compared to NOK 62 billion in the second 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 130 billion⁹ at the end of the second quarter of 2025, as compared to NOK 121 billion at the end of the second 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 57% of the portfolio at the end of the second 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 second quarter of 2025 amounted to NOK 562 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 the strengthening of the Norwegian krone and the weakness of the American dollar.

KBN’s Pillar 2 capital requirement at the end of the second 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.

On 13 May KBN received a letter from the Financial Supervisory Authority of Norway regarding its resolution plan and MREL requirements. The Financial Supervisory Authority of Norway states in the letter that if KBN were to be hit by a crisis, they would assume that the strategy for KBN would be winding-up under public administration, and on this basis no institution-specific resolution plan will be produced, nor will minimum requirements be set for the total amount of own funds and eligible liabilities (MREL) held by KBN. This is the same as for other similar institutions in the EU.

KBN’s leverage ratio at the end of the second quarter of 2025 was 3.9%, as compared to the requirement of 3.0%.

KBN’s capital adequacy at the end of the second 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 is well positioned to achieve this goal. KBN has calculated that its own CO₂e emissions¹⁰ in the first six months of 2025 were 21 tonnes of CO₂e, which is a decrease from 52 tonnes of CO₂e in the same period in 2024. The reduction is due to lower energy consumption in new office premises as well as reduced travel activity in the first six months of 2025.

At its monetary policy committee meeting in June 2025, Norges Bank stated that a restrictive monetary policy was still required, but that the outlook for the coming year indicates lower inflation than previously expected. Norges Bank stated that a cautious normalisation of the policy rate would pave the way for inflation to return to the target of 2% without restricting the economy more than necessary. 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, 7 August 2025

The Board of Directors and Chief Executive Officer of Kommunalbanken AS