Report for 4th quarter 2024

KBN’s net interest income totalled NOK 554 million in the fourth quarter of 2024, compared to NOK 534 million in the fourth quarter of 2023. Profitable growth over the last twelve months together with higher interest rate levels contributed to this increase in KBN’s income from previous year. KBN’s aggregate customer financing grew by NOK 6.7 billion in the fourth quarter of 2024, with green lending accounting for NOK 6.1 billion of this growth. Green lending represented 18.5% of KBN’s total lending at the end of the fourth quarter.

KBN’s core earnings¹ totalled NOK 293 million in the fourth quarter of 2024, compared to NOK 273 million in the fourth quarter of 2023. KBN’s net interest income totalled NOK 554 million in the fourth quarter of 2024, as compared to NOK 534 million in the corresponding period of 2023. Money market interest rates were relatively stable in the quarter. Norges Bank kept its key policy rate unchanged at its December meeting. Norway’s key policy rate remained unchanged at 4.5% throughout 2024.

KBN’s result for the accounting period, in the fourth quarter of 2024, was a profit of NOK 280 million, compared to a profit of NOK 566 million in the same period in 2023. In the fourth quarter of 2024, KBN recognised a net loss on financial instruments totalling NOK 62 million, as compared to a net gain of NOK 338 million in the fourth quarter of 2023. 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 10 million for the fourth quarter of 2024, while there was a net realised gain from market transactions of NOK 1 million in the fourth quarter of 2023. Unrealised losses amounted to NOK 71 million in the fourth quarter of 2024, compared to unrealised gains of NOK 336 million in the same period in 2023. KBN’s fixed rate lending and associated hedging instruments contributed a net unrealised loss of NOK 44 million in the fourth quarter of 2024, primarily as a result of a moderate increase 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 193 million in the fourth quarter of 2023. 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 fourth quarter of 2024, 45% of KBN’s portfolio of fixed lending was carried at fair value.

KBN’s liquidity portfolio and associated hedging instruments contributed a net unrealised loss of NOK 42 million for the fourth quarter of 2024, while KBN's own bonds and associated hedging instruments contributed a net unrealised gain of NOK 15 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 reduced its provision for expected credit losses by NOK 4 million in the fourth quarter of 2024.

KBN’s total operating costs for the fourth quarter of 2024 were NOK 98 million, compared to NOK 87 million in the same period in 2023. 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. Digitalisation, further development of digital robustness and increased regulatory requirements are contributing factors to cost growth.

KBN’s core earnings² for 2024 as a whole totalled NOK 1,276 million, compared to NOK 1,211 million for 2023. KBN’s net interest income in 2024 as a whole was NOK 2,253 million, as compared to NOK 2,105 million in 2023. The increase was primarily due to the average level of interest rates being higher in 2024 than in 2023, as well as lending growth.

KBN’s result for the period for 2024 as a whole was a profit of NOK 1,474 million as compared to a profit of NOK 1,432 million in 2023. KBN recognised net gains on financial instruments totalling NOK 157 million in 2024, compared with NOK 212 million in 2023.

KBN’s total operating costs in 2024 as a whole were NOK 383 million, compared to NOK 325 million in 2023. The increase was 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. Digitalisation, further development of digital robustness and increased regulatory requirements are contributing factors to cost growth. KBN’s cost-to-income ratio³ for 2024 was 17.1%, compared to 15.6% in 2023.

KBN’s annualised return on equity in 2024 was 7.4%, compared to 7.9% in 2023. Based on its core earnings, KBN’s annualised return on equity in 2024 was 7.2%, compared to 7.3% in 2023. The return requirement set for KBN by its owner for the 2022-2024 period is 5.5%.

KBN’s total comprehensive income in 2024 was NOK 1,254 million, compared to NOK 1,789 million in 2023. KBN’s total comprehensive income includes gains and losses on KBN’s own bonds resulting from changes to KBN’s own credit risk. In 2024, there was an unrealised loss from changes to KBN’s own credit risk of NOK 228 million, as compared to an unrealised gain of NOK 363 million in 2023.

Table 1: Result for the period for 2024 and total comprehensive income

KBN’s lending portfolio totalled NOK 370 billion⁴ at the end of the fourth quarter of 2024, while aggregate customer financing⁵ totalled NOK 375 billion⁶ at the end of the fourth quarter. KBN's aggregate customer financing increased by NOK 6.7 billion in the fourth quarter of 2024, as compared to an increase of NOK 12.9 billion in the fourth quarter of 2023. The main reason for the increase in aggregate customer financing in the fourth quarter of 2024 was demand for new loans. The level of demand for new loans was somewhat weaker in the fourth quarter of 2024 compared with the same period in 2023, while there was also a higher level of competition.

KBN continued to experience a good level of growth in its green lending, and its portfolio of green loans increased by NOK 6.1 billion in the fourth quarter of 2024, as compared to NOK 6.2 billion in the same period in 2023. KBN's green lending in the fourth quarter of 2024 included green loans for a water and wastewater project in Oslo and for Bergen Light Rail. At the end of the fourth quarter of 2024, KBN’s green lending represented 18.5% of its overall lending portfolio.

The annual rate of debt growth in the local government sector as at the end of December 2024 was calculated to be 8.5%. After adjusting for borrowing from the Norwegian State Housing Bank, the rate of debt growth was 8.0%. After adjusting for borrowing from the Norwegian State Housing Bank, KBN’s market share based on its aggregate customer financing as at the end of the December 2024 was 50.2%.

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

Inflation slowed in 2024 and is approaching the targets of the central banks of many countries across the world, including in Norway. The market now expects that the rate of inflation will continue to fall and that peak interest rates have now been reached. The rate of inflation in Norway was running at 2.2% at the most recent assessment in January (rate as at December 2024), while core inflation was 2.7%. 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 US dollar and Euro strengthened against the majority of currencies in the fourth quarter of 2024, including the Norwegian krone.

The credit spreads on local government and covered bonds increased through the fourth quarter of 2024. The outlook for future changes in the spreads on local government and covered bonds is uncertain, both in Norway and internationally.

KBN enjoyed good access to the international capital markets in the fourth quarter of 2024 and completed all its funding transactions as planned. In 2024 as a whole, KBN’s new borrowings totalled approximately NOK 92 billion through 38 bond issues in eight currencies, as compared to NOK 77 billion in 2023.

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

Chart 2: New borrowings by currency in 2024

KBN’s liquidity portfolio totalled NOK 140 billion⁷ at the end of the fourth quarter of 2024, as compared to NOK 115 billion at the end of the fourth quarter of 2023. 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 54% of the portfolio at 31 December 2024. 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 fourth quarter of 2024 amounted to NOK 568 billion, up from NOK 522 billion at the end of 2023. The increase was in part due to growth in KBN’s lending, as well as to the weakness of the Norwegian krone leading to an increase in the NOK value of balance sheet assets as a result of currency conversion, and receipts of cash collateral.

KBN received the Financial Authority of Norway’s (Finanstilsynet’s) decision regarding its Pillar 2 requirement (SREP) on 11 November 2024, with the new requirement entering into force on 31 December 2024. The Financial Supervisory Authority of Norway determined that KBN will have a Pillar 2 requirement consisting of 1.7% of the basis for calculation under Pillar 1. KBN’s Pillar 2 requirement has thus decreased by 0.3 percentage points. 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 2023 was 3.9%, as compared to the requirement of 3.0%.

KBN’s capital adequacy at the end of the fourth quarter of 2024 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 2024 should be a maximum of 55% of the 2019 level, which corresponds to approximately 106 tonnes of CO₂e for the year. KBN has calculated that its own CO₂e emissions⁸ in 2024 were 82.5 tonnes of CO₂e, which is a moderate decrease from 111.5 tonnes of CO₂e in 2023, well below and within the target for 2024.

Norges Bank reiterated at its January 2025 monetary policy committee meeting that it expects it will reduce Norway’s key policy rate to 4.25% in March and then to 3.75% by the end of the year. Norges Bank stated that a restrictive monetary policy is still needed to stabilise inflation around the target of 2%. The future path of the policy rate thereafter will depend on economic developments. The outlook for the Norwegian and global economy have improved, but there continues to be a high level of uncertainty, including in relation to the change in American politics in the USA.

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 proposes a dividend for 2024 of NOK 700 million. This represents 47% of KBN’s profit for the period in 2024 and 55% of its core earnings.

Oslo, 13 February 2025

The Board of Directors and Chief Executive Officer of Kommunalbanken AS