Strong green lending growth and satisfactory margins
KBN’s result for Q3 was a profit of NOK 125 million, down from NOK 272 million in the same period in 2017. The decrease was due to higher unrealised losses on financial instruments in Q3 2018 than in Q3 2017. KBN’s return on equity based on its core earnings after tax was 10,33%, compared to 8.52% in the same period in 2017.
Solid growth in green lending
KBN’s lending portfolio grew by NOK 2.5 billion or 0.9% in the quarter, compared to a decrease of 0.7% in the same period in 2017. A high level of demand for green loans contributed nearly NOK 1 billion to lending growth in the quarter. Green loans, which are used to finance climate-friendly projects undertaken by the local government sector, grew strongly in the first nine months of 2018, with green lending up 14% over this period.
“We are very pleased with the growth in our green lending. We have worked systematically to encourage Norwegian municipalities to invest in climate-friendly projects, and demand for our green loans, which have lower interest rates, is now increasing more quickly than for our ordinary loans”, comments Kristine Falkgård, President and CEO of KBN.
First kangaroo green bond
KBN finances its lending to the Norwegian local government sector by issuing bonds in the capital markets. The largest single bond KBN issued in Q3 was a five-year green bond in Australian dollars, known as a kangaroo green bond. This was the first green bond issued by a Nordic issuer and was met with great interest from Australian investors. The issue was for a minimum of AUD 250 million but, due to the level of demand from investors, the amount raised was increased to AUD 450 million making it the largest single bond KBN has ever issued in the Australian market.
“This green bond confirms KBN’s position as Norway’s largest and most active issuer of green bonds. Climate change is a global challenge. Our global investors help finance Norwegian local government climate investments”, adds Kristine Falkgård.
Somewhat slower debt growth in the local government sector
KBN’s overall market share increased slightly in Q3 to approximately 47%. The rate of debt growth in the local government sector is slowing. At the end of August, growth in debt over the past twelve months according to Statistics Norway’s credit indicator (K2) stood at 4.7%, compared to 6,5% the previous twelve months. KBN expects the sector’s borrowing requirements to increase in Q4 and its borrowing requirements to ultimately be approximately in line with 2017. Taking into account somewhat higher instalment payments in 2018, this may indicate a somewhat lower rate of debt growth in 2018 than in 2017.
KBN manages its operations to ensure it complies with the regulatory requirements in force at any time. At the end of Q3, KBN had a common equity Tier 1 capital adequacy ratio of 17.2%, a Tier 1 capital adequacy ratio of 20.2%, and a total capital adequacy ratio of 22.9%. KBN’s leverage ratio at 30 September 2018 was 3.9%.