Stable operations, very pleasing profit for the year
KBN’s net interest income in 2015 was NOK 1,642 million as compared to NOK 1,515 million in 2014, and margins were strong and stable across its activities throughout the year. KBN’s profit for the year was influenced by unrealized gains on financial instruments, which reversed the losses reported for 2014. Lending grew by 3.0% in 2015, which is in line with 2014.
“We are extremely pleased with the profit for the year for 2015. It is much better than expected despite the turbulent market conditions. Our focus throughout 2015 was on building capital and we achieved this, meaning our lending will again be able to grow in 2016. We are also pleased that the proportion of loans destined for energy and environmentally-friendly projects increased in 2015”, comments Kristine Falkgård, President and CEO of KBN.
More long-term loans
Thanks to its low borrowing costs and efficient operating model, KBN is able to offer the local government sector long-term flexible financing solutions on attractive terms. KBN granted 591 new loans in 2015 totalling NOK 46.8 billion. Total lending to the local government sector at the end of 2015 was NOK 254.4 billion. KBN’s loan portfolio grew by NOK 7.3 billion in 2015, representing an increase of 3.0% relative to 2014. Lending for climate and environment projects increased by 12.0% in 2015. KBN adapted its lending activities in 2015 to the higher capital requirement that it will have to meet from 1 July 2016. KBN granted NOK 20.3 billion in new loans with maturities of over three years in 2015.
“All Norwegian county authorities and 98% of the country’s municipalities have loans from KBN, as do a range of municipal and inter-municipal companies. The market in which KBN operates is very competitive in nature, with direct financing from the certificate loan and bond market increasing. KBN seeks to contribute to prudent financial management at the local government level as part of its corporate social responsibility. We accordingly prioritised loans with longer maturities in 2015”, adds Kristine Falkgård.
Profit for the year ahead of expectations
KBN’s profit for the year was NOK 1,870 million in 2015 as compared to NOK 491 million in 2014. KBN’s margins were strong and stable throughout the year, causing its operating result, its core earnings, to be better than expected.
Net unrealised gains on financial instruments increased profit before tax by NOK 1,116 million in 2015, more than reversing the losses of NOK 734 million seen in 2014. The gains in 2015 were principally due to increased turmoil in international capital markets and the effect of this on credit spreads. As a result of this KBN had unrealised gains on outstanding senior securities issued with lower credit spreads.
Lower funding volume
New long-term borrowings amounted to NOK 68.6 billion in 2015, which is NOK 48.1 billion less than in 2014. The weakening of the Norwegian krone throughout 2015 caused KBN’s liquidity to increase, leaving it with less need to raise new funding in 2015. KBN’s access to funding is well diversified, with KBN borrowing more in the Japanese market than in any other single market in 2015. KBN issued bonds in 11 currencies in 2015, including two benchmark bonds totalling USD 2.0 billion and one USD 500 million green bond specially designated for environmentally friendly investment projects.
KBN’s return on value-adjusted equity was 20.8% in 2015 as compared to 6.1% in 2014. KBN’s equity increased by NOK 3.9 billion in 2015 due to its better-than-expected profit for the year, a share capital increase and an additional Tier 1 capital instrument issue.
Read Annual Report 2015 (external link)