Annual Report 2024KLP Kommunekreditt AS

The Company’s profit before tax gave a return on equity of 7.9 (9.9)¹ per cent.  

Net interest income from the lending and investment portfolios was about 4 per cent lower than in 2023.The change from last year is mainly due to lower lending volume and slightly lower lending margins.  

The results are also affected by higher losses on financial instruments in 2024 than the previous year. This is mainly due to increased buyback costs on the Company’s own debt issuance. The Company makes regular adjustments to reduce its liquidity risk and to meet regulatory requirements with respect to liquidity indicators and capital adequacy. Refinancing of the borrowings then results in a regular need to buy back the Company’s own issuances. In 2024 the profit/loss effect of such buybacks was NOK -10.0 (-6.0) million.  

The Company also had reduced profits from liquidity management as changes in the market value of the Company’s securities resulted in a loss of NOK -0.3 (gain of 3.8) million. The overall negative accounting effect of changes in value on financial instruments was thus higher in 2024 compared to the previous year. See Note 6.  

Operating expenses show a 6.9 per cent decrease compared to the previous year. This is mainly due to lower lending volume in the Company. The Company’s lending is managed by KLP Banken AS, and the operating expenses incurred are regulated in a management agreement with the parent company. Under this agreement, KLP Kommunekreditt AS is charged for its share of the parent company’s costs for the management of public-sector loans, based on volume. Costs are settled monthly. Operating expenses in excess of this are mainly direct costs incurred by the Company for purchases of external services. 

Lending activities in KLP Kommunekreditt AS are primarily based on the sale of new loans directly from the Company. 

Total lending was reduced by 2 per cent in 2024. 91 (91) per cent of the lending volume is at floating interest rates. The rest is fixed interest rate loans.  

In 2024, the Company paid out new loans worth NOK 2.1 (1.1) billion. The lending portfolio comprises direct loans to Norwegian municipalities and county authorities, or to enterprises working for the public sector and receiving unconditional guarantees from municipalities or county authorities. The credit risk in the lending portfolio is considered very low. 

The credit risk associated with lending to municipal and county authorities in Norway is limited to deferral of payment and does not provide for cessation of payment obligations. This is a consequence of the Norwegian Local Government Act, which indemnifies lenders against losses if a local authority is unable to meet its payment obligations. Where payment is deferred, the lender is also secured against losses of accrued interest, late-payment interest and debt collection costs. KLP Kommunekreditt AS has not incurred any credit loss on loans to Norwegian municipalities or county authorities.  

The Company had no non-performing loans more than 90 days past due at the end of 2024. No individual losses were recorded in the financial year. Estimated loss provisions had an effect on profits of NOK 3 (4) thousand in the financial year. For more information on losses and lending, please refer to Note 8.  

KLP makes loans to the public sector from its own balance sheet and through KLP Kommunekreditt AS. Loans are managed by KLP Banken AS.  

KLP Kommunekreditt AS, together with KLP, has a good position in the market for long-term financing of municipalities, county authorities and enterprises working in the public sector.  

Total loans from KLP and KLP Kommunekreditt AS to public-sector borrowers amounted to NOK 93.4 (90.3) billion at the end of 2024, an increase of 3.2 (3.1) billion, or 3.5 (3.6) per cent, in the financial year. For the local government sector overall, the estimated debt growth is 7 per cent in 2024. Loan applications totalling NOK 88.5 (95.0) billion were received in 2024. 

The Company’s liquidity situation is satisfactory, as it’s financing more than covers the liquidity requirement from operations.  

KLP Kommunekreditt AS is subject to strict rules with respect to the assets it may invest in. The portfolio of liquid investments comprises safe securities and deposits in other banks. The securities are certificates and bonds with excellent security, largely covered bonds with an Aaa rating.  

Holdings of cash and cash equivalents have been used to pay out new loans or for redemptions and buybacks of borrowings. 

As new bond issues occur when the terms for them are considered favourable, a need arises to invest surplus liquidity. This liquidity contributes to earnings and provides the flexibility needed to meet the demand for new lending.  

At the end of 2024 the Company had outstanding liquid investments in the form of interest-bearing securities amounting to NOK 3.6 (1.5) billion. Securities are recognised at market value. At the same date, bank deposits amounted to NOK 0.7 (0.6) billion. 

KLP Kommunekreditt AS has established a programme for issuing covered bonds (OMF). 

In the Norwegian market, covered bonds secured in a portfolio of loans to the local government sector amounted to NOK 21.0 (19.4) billion at the end of 2024. New issues in 2024 totalled NOK 6.3 (6.0) billion. Buybacks of previous issues amounted to NOK 5.0 (6.4) billion. No bonds were issued outside Norway. KLP Kommunekreditt AS has achieved the best rating for its borrowing programme.   

The bonds are backed by the Company’s lending activity. Loans to enterprises have to be guaranteed by municipalities or county authorities under the provisions of the Local Government Act, by the Norwegian government or by a bank. The guarantees must be unconditional and cover both repayments and interest.   

The Company’s debt to credit institutions at the end of the year comprised internal financing from KLP Banken AS in the amount of NOK 1.0 (0.7) billion. 

Total assets stood at NOK 23.1 (21.2) billion at the end of 2024. Of this, loans to public-sector borrowers amount to NOK 18.7 (19.0) billion and NOK 4.3 (2.1) billion are liquid investments.  

The Company’s equity and subordinated loan capital, based on the Board of Directors’ proposal for the allocation of the year’s profit, totalled NOK 1,026 (968) million at the end of 2024. Core capital is identical to equity and subordinated loan capital. This gives a capital adequacy and core capital adequacy of 22.7 (22.7) per cent.   

The current capital requirement, including capital buffers, is 14.0 per cent tier 1 capital adequacy and 17.5 per cent capital adequacy. The unweighted tier 1 capital ratio was 4.5 (4.6) per cent, compared with the requirement of 3.0 per cent.  

The risk-weighted balance came to NOK 4.3 (4.1) billion. Capital adequacy is considered to be good.  

The financial statements for KLP Kommunekreditt AS for 2024 show total comprehensive income of NOK 80.0 (88.8) million. The Board of Directors proposes that a group contribution of NOK 78.7 million be paid to KLP with tax effect. NOK 61.4 million will be returned from KLP as a group contribution without any tax effect. Net profit and distributed group contributions will be transferred to other equity. The group contribution will have an accounting effect from the date of the decision. 

The Board of Directors believes that the financial statements provide a true and fair view of the Company’s assets and liabilities, financial position and profit. The conditions for continued operation are present, and this is assumed in the financial statements.  

KLP Kommunekreditt AS prepares its financial statements in accordance with IFRS Accounting Standards, as approved by the EU, with associated interpretations. See Note 2 for further details. 

The rating agencies’ assessments of the Company have a bearing on its borrowing terms. The Company uses Moody’s for credit rating of bonds. All covered bonds issued have an Aaa rating.  

KLP Kommunekreditt AS is subject to KLP Banken’s risk management framework. This is intended to 

ensure that risks are identified, analysed and managed by means of policies, limits, procedures and instructions. 

Separate guidelines have been established for the most important individual risks (liquidity, credit, market, operational and compliance risks) and an overarching risk management policy that includes principles, organisation, frameworks etc. for the bank's overall risk. The guidelines are adopted by the Board and reviewed at least once per year. The policies are of an overarching nature and are complemented by procedures, rules, and instructions determined at the administrative level. 

The Company aims to maintain a low level of operational risk, and to be characterised by a high level of professional competence, sound procedures and efficient operations. 

The Company is included in the KLP Banken Group’s process for assessing and quantifying material risks and calculating its capital and liquidity needs (ICAAP/ILAAP). The assessment of capital needs is forward-looking, and in addition to calculating the need based on the current exposure (and limits), the need is assessed in light of planned growth, decided strategic changes, etc. The Board of Directors of the Company takes an active part in these assessments and, in addition to the capital requirement assessment, determines a desired level for total capital (the capital target).  

The boards of KLP Banken AS, KLP Kommunekreditt AS and KLP Boligkreditt AS have appointed a joint risk committee. The risk committee deals with matters specifically related to risk and has an advisory function to the Board of KLP Kommunekreditt AS.  

The Company’s articles of association and applicable legislation provide guidelines for corporate governance, corporate management and define a clear division of roles between governing bodies and corporate management.  

The Board of Directors sets the policies for the Company’s activities. The Board held six board meetings in 2024. At the end of 2024, the Board comprised two women and two men.  

The Managing Director is in charge of the day-to-day management of the Company in accordance with instructions issued by the Board of Directors.  

For Board members, board liability insurance has been taken out.  This also covers the Managing Director. 

The presentation of the Company’s accounts follows established processes across the KLP Group. The work is split between the Company’s finance function and the Group-wide shared functions. The management submits regular accounting status updates and reports on borrowing decisions to the Board. The Board adopts quarterly and annual accounts. 

The Company follows the KLP Group’s guidelines on gender equality and diversity in the composition of the Board. These provide for an appropriate composition of the Board in terms of age, gender and experience. There have been no deviations from them during the reporting period. 

There are no direct employees in KLP Kommunekreditt AS. The Company’s governance and management are handled by people employed by KLP Banken AS.  

A management agreement has been entered into with KLP Banken AS, covering administration, IT support, finance and risk management, as well as borrowing and liquidity management.  

The Norwegian Transparency Act, which entered into force on 1 July 2022, requires companies to carry out due diligence checks and account for these in their public reporting. For 2024, a Group-wide statement will be prepared pursuant to the Transparency Act for the KLP Group. The statement will be made available by 30 June 2025 under Corporate Social Responsibility - About KLP - KLP.no 

For the 2024 financial year, a Group-wide consolidated sustainability report has been prepared for KLP pursuant to Section 2-3 (4) of the Norwegian Accounting Act. KLP Banken is not currently covered by the reporting requirements as a separate entity, but is part of the Group-wide reporting for Kommunal Landspensjonskasse gjensidig forsikringsselskap, whose registered address is Dronning Eufemias gate 10, 0191 Oslo, Norway. The consolidated sustainability report and auditor’s sign-off can be found at https://www.klp.no/om-klp/finans-og-ir/rapporter-og-presentasjoner.  

The presence of KLP Kommunekreditt AS together with KLP in the market for public loans contributes to competition and so provides the public sector with access to long-term financing on favourable terms. Overall growth in recent years shows that the market position is strong.  

High credit quality in the lending portfolios helps KLP Kommunekreditt AS to obtain the most favourable borrowing terms. Government regulation of banks and financial institutions means that a number of regulatory requirements for capital and liquidity have to be met. This requires constant earnings to enable us to meet such requirements.  

The lending market to the local government sector is still growing, and a large portion of the borrowing is financed in the securities market rather than financial institutions. KLP Kommunekreditt AS is well capitalised and has an advantage as a stable and long-term lender in a market characterised by low risk. General developments in the financial markets will determine the extent to which KLP Kommunekreditt AS can finance its lending activities on terms that provide sufficient profitability for further growth.  

Norwegian municipalities have developed a good and extensive range of services to the public. Tighter economic conditions do not yet appear to have resulted in lower loan growth than what has been normal in recent years. Increased life expectancy, demographics, income growth and climate risk give grounds to expect a sustained high level of investment in the public sector over the next few years. However, the municipalities in the Norwegian Association of Local and Regional Authorities (KS) say in their annual budget survey that they expect to see high levels of investment and debt in 2025, as in 2024.  

Demand for loans for projects that contribute to climate adaptation is likely to increase further in the years ahead.  

The Board of Directors expects that there will still be a need for significant long-term and stable financing beyond what the securities market can offer to public-sector borrowers. KLP Banken’s expertise in local government financing, regardless of the size of its own balance sheet, can be used in its loan management role for KLP. KLP Kommunekreditt AS and KLP as a whole aim to be a key player providing loans for public investments. 

The new Capital Requirements Regulation (CRR3) entered into force in the EU on 1 January 2025, and the Ministry of Finance has decided that the changes will be introduced in Norway when the rules are included in the EEA Agreement. The new rules entail lower capital requirements for mortgage loans for banks that use the standard method to calculate capital requirements, such as the KLP Banken Group. The changes will contribute to more equal competitive conditions between standard method banks and IRB banks. For the KLP Banken Group, the changes will result in an easing of the capital requirement of between NOK 400 and 500 million.  

We hereby declare that, to the best of our knowledge, the annual financial statements for the period from 1 January to 31 December 2024 have been prepared in accordance with applicable accounting standards, and that the information in the financial statements gives a true and fair view of the Company’s assets, liabilities, financial position and overall profit or loss.

We also declare that the Directors’ report provides a true and fair overview of the development, profit or loss and the financial position of the Company, together with a description of the most significant risk and uncertainty factors the Company faces.

The financial statements for KLP Kommunekreditt AS have been prepared in accordance with IFRS Accounting Standards®) as adopted by the EU. The Norwegian Accounting Act and the Regulations concerning annual accounts for banks, mortgage firms and finance companies (the Accounting Regulations) contain individual requirements for additional information which is not required under IFRS Accounting Standards. These supplementary information requirements have been incorporated into the notes to the financial statements. 

The annual accounts have been prepared on the principle of historic cost, with the following exceptions: 

• Financial assets and liabilities (including financial derivatives) are valued at fair value through profit or loss 

• Financial assets and liabilities are valued in accordance with the rules on fair value hedging 

To prepare the accounts in accordance with IFRS Accounting Standards, management must make accounting estimates and approximate valuations. This will affect the value of the company’s assets and liabilities, income and expenses recognised in the financial statements. Actual figures may deviate from estimates used. Areas in which discretionary valuations and estimates of material significance to the company have been used are described in Note 3. 

All amounts are presented in NOK millions without decimals unless stated otherwise. 

The financial statements have been prepared in accordance with the going concern assumption.  

The most important accounting policies relating to financial instruments are described below. 

Cash and bank deposits are defined as receivables from credit institutions without any termination date. The amount does not include receivables from credit institutions that are linked to the purchase and sale of securities in the management of the securities portfolios. The statement of cash flows has been prepared in accordance with the direct method.  

The company’s financial liabilities comprise liabilities to credit institutions and covered bonds issued. 

Tax costs in the income statement comprise tax payable and changes in deferred tax. Tax is recognized in the profit and loss account in the period in which it is incurred. Deferred tax and tax assets are calculated as differences between the accounting and taxation value of assets and liabilities. Deferred tax assets are capitalized to the extent it can be shown probable that the company will have sufficient taxable profit to exploit the tax asset. 

The company is a part of a financial services group and a tax group. Except for the limitations pursuant to the Financial Institutions Act, any tax-related surplus may be passed in its entirety to the parent company and subsidiaries as a group contribution with tax effect. 

Group contributions that are proposed but not approved by the general meeting are classified as equity. When the group contribution is approved, it is reclassified as a liability. The tax effect of the group contribution is included in the calculation of deferred tax until the date of approval. 

The company pays no benefits to employees and is not covered by the rules on financial activity tax. The company’s nominal income tax rate in 2024 is 22 per cent.  

Non-performing exposures are currently monitored by the public-sector loan administration department. There have been no recorded losses on public-sector lending in KLP Kommunekreditt AS at any time. Loans with payments over 30 days past due are followed up by way of dialogue with the public-sector customers, which is believed to be the reason why there have been no cases of default over 90 days in recent years.  

Instruments at this level obtain fair value from listed prices in an active market for identical assets or liabilities to which the entity has access at the reporting date. Examples of instruments in Level 1 are stock market listed securities.

Instruments at this level obtain fair value from observable market data. This includes prices based on identical instruments, but where the instrument does not maintain a high enough trading frequency and is therefore not considered to be traded in an active market, as well as prices based on corresponding assets and price-leading indicators that can be confirmed from market information. Example instruments at Level 2 are fixed-income securities priced on the basis of interest rate paths.

Instruments at Level 3 contain non-observable market data or are traded in markets considered to be inactive. The price is based generally on discrete calculations where the actual fair value may deviate if the instrument were to be traded.

Note 12 discloses the fair value of financial assets and financial liabilities that are recognized at amortized cost and according to the rules on hedge accounting. Financial assets measured at amortized cost and hedge accounting comprise lending to and due to credit institutions, Norwegian municipalities and retail customers. The stated fair value of these assets is determined on terms qualifying for Level 2. Financial liabilities recognized at amortized cost and hedge accounting consist of debt securities issued. The stated fair value of these liabilities is determined by methods qualifying for Level 2.

There have been no transfers between Level 1 and Level 2.

KLP Kommunekreditt AS is a wholly owned subsidiary of KLP Banken AS. The Board of Directors of the Bank has established a risk management framework aimed at ensuring that risks are identified, analyzed and managed based on policies, limits, procedures and instructions. The Board has adopted risk policies covering the key individual risks as well as an overarching risk policy that covers principles, organization, limits etc. for the Bank’s total risk. The risk policies are of an overarching nature and are complemented by procedures, guidelines and instructions laid down at the senior management level. The policies state which departments are responsible for handling the various risks and cover the establishment of a separate risk control function. One purpose of the risk control function is to check that the risk policies and other guidelines for risk management are being followed. This function is carried out by the head of the Risk Management and Compliance Department, which is responsible for preparing periodic risk reports to senior management and the Board as well as reporting on any breaches of policies or guidelines. The Department, which has an independent role in relation to other departments, also has other tasks associated with the Bank’s risk management. The responsibility for the operational direction of the Bank’s liquidity risk and interest rate risk lies with the Finance Department. 

The Board has determined a credit policy that contains overarching guidelines, requirements and limits associated with credit risk. The policy lays down that the bank is to have a low credit risk profile and includes limits on types of lending and principles for organisation and operation of the Company’s lending activity. The policy also includes an overall mandate structure for lending and other counterparty exposure. The mandates are linked to Board-determined limits for a large number of the Company’s individual borrowers and these limits derive from a risk classification in which the individual borrowers are assigned a risk class based on a set of fixed criteria. Furthermore requirements are set for reporting to the Board on usage of the limits.

Credit risk associated with issuers of securities, derivative counterparties and other counterparties in the financial area is also limited by Board-determined limits on individual counterparties. These limits are based on the counterparty’s solvency and other assessments of the counterparties’ creditworthiness.

In processing all new loan applications checks are made on whether the customer’s credit limits are greater than the sum of the loan amounts applied for and current lending. In the credit risk policy described above, requirements are set for reporting to the Board on the use of the limits. Any breach of the limits must be reported to the Company’s Board in any event.

The Company also invests in securities issued by municipalities and county administrations and will in addition have credit risk exposure in the form of “additional collateral”. The additional collateral can amount up to 20 percent of the cover. In accordance with the Company’s internal guidelines the additional collateral may be in the form of deposits in banks satisfying minimum rating requirements as well as covered bonds issued by Norwegian credit enterprises.

KLP Kommunekreditt AS measures maximum exposure as principal and accrued interest. Security in cash or securities is not exchanged, nor are other credit improvements carried out. The table below shows the maximum exposure for KLP Kommunekreditt AS.

The Company has not incurred losses on lending. The company considers all receivables to be satisfactorily secured.

The Company’s lending is in its entirety linked to public-sector financing, so the portfolio has a high concentration towards a single sector. The underlying credit risk from this sector is however so low that it is hardly possible to reduce this concentration without increasing the total risk in the portfolio. The concentration towards the Norwegian public sector is thus considered not to be a risk issue.

KLP Kommunekreditt AS’s largest borrower as at 31 December 2024 was approximately 4.8 per cent of the Company’s total lending.

Interest rate risk is measured as the change in value on a one percentage point change in all interest rates.

The market risk policy comprises the Company’s overarching guidelines, requirements and limits associated with market risk. The policy dictates that the market risk should be minimised so the total market risk is low. It further states that the Company should not actively take positions that expose it to market risk. The policy also sets limits for interest rate risk, both for the total interest rate risk for the indefinite future and for rolling 12-month periods. The risk limits are set to ensure that low market risk profile that has been adopted is adhered to. The operational responsibility for managing the Company’s market risk lies with the Finance Department. The Risk managment and Compliance Department reports the Company’s actual exposure in relation to limits in accordance with guidelines set by the Board.

Interest rate risk arises because the fixed interest periods for the Company’s assets and liabilities are not the same. The gap in the table below shows the difference between assets and liabilities that can be interest-adjusted within the given time intervals. The repricing date shows the time to the next agreed interest adjustment date. Floating-rate loans and deposits, and cash and receivables from credit institutions, fall into the time interval up to one month, while fixed-interest loans, securities and liabilities created on issuance of securities fall into the time interval for which interest adjustment has been agreed.

The Company’s interest rate sensitivity as at 31 December 2024 (2023), measured as value change in the event of one percentage point change in all interest rates, was NOK -8.9 (4.7) million.

The management of KLP Kommunekreditt’s liquidity risk must be viewed in the context of the management of the liquidity risk in the KLP Banken Group. A liquidity policy has been established for the Group containing principles, guidelines, requirements and limits that apply to the management of the liquidity risk. The policy states that the Group is to have a moderate liquidity risk profile and various requirements. The policy contains various requirements and limits to adhere to the desired liquidity risk profile, including targets for deposit cover, limits for refinancing needs for various timeframes and liquidity buffer requirements. The Board has also adopted an emergency plan for financial crises (including liquidity crises) as part of the Bank's recovery plan. In addition to the requirements at Group level, separate specific requirements have been established for KLP Kommunekreditt AS, including requirements for continuously positive cash flows, limits for refinancing requirements and requirements for liquidity reserves and drawing rights. The operational responsibility for managing the Company’s liquidity risk lies with the Finance Department. The Risk Management and Compliance Department reports the Company’s actual exposure in relation to limits in accordance with guidelines set by the Board.

The bank holds deposits and a well-diversified securities portfolio to manage liquidity risk. The securities portfolio consists of securities issued by the government, municipalities, and other LCR-approved 0% risk-weighted assets, as well as covered bonds issued by Norwegian credit institutions. The securities are spread across several counterparties, and the bank also has established credit lines that set limits on large exposures. The bank's securities portfolio is intended to have low credit risk and will consist exclusively of securities rated AA or AAA.

The tables below show the maturity analysis of the Company’s assets and liabilities including stipulated interest rates.