Strong underlying operations
“We once again achieved strong underlying operations and good margins for KBN’s core activities. KBN’s lending margins have been high so far in 2017. This has been necessary in order to ensure KBN will satisfy the new capital requirements that will enter into force on 31 December 2017, and that it now meets the requirement for it to have an unweighted core capital ratio of 3% with effect from 30 June 2017”, comments President & CEO Kristine Falkgård.
KBN’s result for the second quarter of 2017 was a profit of NOK 90 million as compared to a loss of NOK 203 million in the same period last year. The profit for the second quarter was affected by net unrealised losses on financial instruments of NOK 367 million, while net unrealised losses of NOK 697 million were recognised in the same period in 2016. The unrealised losses in the second quarter were principally due to changes in the credit spreads on KBN’s borrowings as well as to changes in the pricing of KBN’s hedging contracts. KBN’s financial instruments are normally held to maturity and the effects of unrealised gains and losses on KBN’s profits reverse either when fluctuations in the market reverse or the instruments reach maturity.
Customers want long-term financing
New disbursements totalled NOK 11.0 billion in the second quarter of 2017, which is approximately in line with the second quarter of 2016. Local government sector debt has grown more slowly in recent years, and is now growing by less than 6% a year. KBN’s lending portfolio has grown by 3.5% since the end of 2016, with loans with longer maturities representing a large proportion of this increase.
“The downward trend in demand for loans with maturities of less than 12 months continued throughout the second quarter, with many customers choosing to refinance shorter maturity loans with longer maturity loans. Following a number of years of strong demand growth, the local government sector’s use of short-term financing has decreased somewhat” comments Kristine Falkgård.
Setting international standards
KBN was somewhat more active in carrying out funding activities in the second quarter of 2017 than in the corresponding period in 2016 due to an increase in funding requirements and the underlying market being more positive. KBN issued bonds totalling NOK 38 billion through 50 issues during the second quarter, compared to approximately NOK 28 billion during the same period in 2016.
In June, KBN was elected to the Executive Committee of the Green Bond Principles (GBP), the leading international standard for green bonds. KBN’s participation is recognition of its status as an early issuer of green bonds and a statement of belief in KBN possessing the expertise needed to help make green bonds more widespread.
“Green bonds may become a very important tool for bringing about the green shift. KBN’s commitment to green bonds ensures that Norway’s municipalities are able to access suitable funding on favourable terms when borrowing to finance environmental projects”, comments Kristine Falkgård.
At the end of the second quarter of 2017, KBN had a common equity Tier 1 capital adequacy ratio of 16.85%.