KBN well positioned
KBN has continued to see solid global demand across the curve as investors seek exposure to KBN and Norway, given the country’s stable political environment and solid fiscal position. KBN is 100% owned by the Kingdom of Norway.
Funding activity has slowed down since the end of Q1, primarily related to having a strong liquidity position and KBN’s lending portfolio growing by 1.4% for the first six months of 2018, compared to 3.5% in the first six months of 2017.
From a Funding perspective, since the end of Q1, KBN has issued one new Benchmark, a USD 1bn 3-year deal. This was KBN’s 3rd USD benchmark for 2018, following successful trades in the 5-year and 2-year maturity bucket. Other institutional activity has been fairly limited, but KBN did access the Sterling market with a GBP 100m Tap of its outstanding December 2020 line and issued a new USD 500m 16-month Fixed Rate deal over the Summer. Domestically in the NOK market, KBN issued a new 2022 line during Q2 and the current outstanding is NOK1.5bn.
KBN has also been active in the Private Placement market. KBN issued four 30-year Fixed Callable transactions and one Zero Callable transaction into the Asian market, all denominated in EUR. In addition, KBN issued one 10 year plain vanilla note denominated in Polish Zloty, totalling USD 224m equivalent.
KBN 2018 Q2 RESULTS:
SOLID UNDERLYING OPERATIONS AND SATISFYING MARGINS
KBN’s net interest income in the second quarter of 2018 was NOK 465 million as compared to NOK 538 million in the same period in 2017. KBN’s margins have decreased in 2018 in line with our target of providing financing on favourable terms and reflect developments in the market generally.
In the first six months of 2018, KBN’s lending portfolio grew by NOK 3.9 billion or 1.4%, as compared to growth of 3.5% in the first six months of 2017. A review carried out by KBN covering a majority of municipalities’ 2018 investment budgets, points to an expected level of investment in line with 2017. Therefore, KBN expects greater demand for financing from the sector in the second half of the year.
At the end of the second quarter, KBN had a common equity Tier 1 capital adequacy ratio of 17.9% and a leverage ratio of 4.0%.
S&P AAA/A-1+/Stable rating affirmed
On June 28th Standard & Poor’s Rating Services affirmed KBN’s ratings at 'AAA/A-1+'; After Criteria Revision; Off UCO; Outlook Stable.
The stable outlook reflects that, in the near to medium term, KBN's ownership structure and the implicit support from the Norwegian government (AAA/Stable/A-1+) will remain unchanged and that KBN's management will maintain low risk tolerance and continue to contain risks associated with the wholesale-funded nature of its activities, while maintaining very strong liquidity and prudent management practices.
As loan demand from the Municipal sector is expected to be solid for the remainder of 2018, KBN will continue its funding activity looking for opportunities in the public markets in general, while keeping focus on the private placement and retail markets.
Regarding KBN’s benchmark programme, KBN foresees another 1-2 benchmark transactions during 2018 with a maturity focus of 2-5 years. These will be in either EUR or USD and the current expectation is that KBN will look to access the market during Q3. KBN also plans to re-enter the public Green Bond market during the year.
The KBN Funding Team