Treasury operations

KBN's conservative risk profile requires that all interest and currency risk from its lending, liquidity and funding operations are fully hedged. Derivatives are used for hedging purposes only.

KBN holds a liquidity portfolio in order to ensure sufficient liquidity at all times. In accordance with the financial guidelines the portfolio should, over time, equal 12 months net cash requirements allowing for growth in lending. This typically means that the excess liquidity accounts for around 30% of the total balance sheet.

The liquidity portfolio stands at approximately USD 20 billion, and consists of highly rated deposits, bonds and floating rate notes (FRNs) issued by local and regional governments, supranationals, agencies and financial institutions. The minimum rating requirement is A/A2 from S&P and Moody’s.

The liquidity portfolio is managed and optimized within the given credit mandate, financial guidelines and internal strategy. Nearly half of the liquidity portfolio is currently invested in USD and EUR FRNs and bonds, with the remaining spread across a variety of currencies. Investments outside of KBN's base currencies of EUR, NOK and USD, are swapped into one of these currencies on a three month floating basis, to avoid any currency and interest rate risk.

Currently the average duration of the liquidity portfolio is just above one year.

All new counterparties and products are subject to approval by the management credit committee.