Effective collaboration engenders favourable conditions
Investments by the local government sector continue to be affected by strong population growth and urbanisation, while homes and properties built in the 1960s and 1970s require extensive renovation. Kommuninvest’s development demonstrates that local government authorities are able to join forces to create an effective tool for good financing conditions.
Over the year, the financial prospects for the local government sector weakened. At the same time, the sector’s balance sheet is holding up very well and is possibly stronger than ever. The challenges are accumulating in the operations, with access to skills being one of the growing concerns.
The forecast for future years shows a continued increase in borrowing as a consequence of weaker earnings combined with major investments. Priorities between different investments will gain importance in maintaining a balanced economy.
Demand for financing continues to increase
In our assessment, the sector is able to withstand a period with a lower level of self-financing and increased borrowing, as long as revenues are sufficient to cover operating expenses. As borrowing increases, we should also bear in mind that a substantial body of assets is building up among municipalities, regions and municipal companies.
Kommuninvest’s development has far exceeded our forecasts. Lending growth, which amounted to 15 percent for the year, is the ultimate proof that the Kommuninvest tool works and that, by joining forces, municipalities and regions can achieve better and more efficient funding than they could separately.
Efficiency a constant endeavour
Our core operations entail providing stable and secure financing of our members’ investments under optimal terms. Good cost control is afforded high priority. Accordingly, it is gratifying that the strong growth in business volumes in 2019 was not matched by commensurate cost increases, although investments in digitalisation and continued extensive regulatory requirements continue to drive costs. On the whole, in relation to business volumes, operating expenses continue to decline and the overall strategy to reduce lending margins stands firm.
The trend of an increasing number of Kommuninvest’s members securing, in principle, all of their funding through Kommuninvest underlines our need for uninterrupted access to financing. Over the past year, this has not been a challenge – geopolitical events have passed surprisingly smoothly without any negative impact on capital markets. The central banks contribute with their efforts regarding low/negative interest rates and their strategies in this area.
As part of developing our financing strategy and safeguarding low funding costs in the longterm, a decision was made during the year to include the euro as a strategic funding currency. This means that Kommuninvest’s strategic funding markets will, in the future, include Swedish kronor (SEK), US dollars (USD) and euros (EUR), which are among the world’s most liquid.
Knowledge and simplicity
The knowledge-oriented part of our business, which entails building our customers’ skills and simplifying their everyday lives, represents a small but growing part of the operations. During the year, in collaboration with a leading educational institute, we developed an advanced training programme in local government finance, initially with five municipalities participating. We plan to continue developing the concept.
Making our services easier to use is an important part of our efforts to enhance efficiency. During the year, we introduced a process for signing loan agreements online with the Mobilt BankID application and automated the process for requesting quotations. The services are offered within the framework of KI Finans, a web-based tool for local government financial management with more than 2,000 users. In consultation with customers and members, KI Finans is under continuous development, adding new functions.
For a beneficial and sustainable society
In conclusion, following a year in which issues of sustainability gained increasing focus, it is gratifying to affirm that Kommuninvest’s basic concept and vision are clearly linked to the overarching sustainability efforts of the Swedish local government authorities, including Agenda 2030. To further highlight and promote the transition to a sustainable society, Kommuninvest has joined forces with its members and customers to develop a model for green financing that has become Sweden’s largest and attracted attention worldwide.
I would like to extend my considerable thanks to my colleagues for all of their great achievements over the year.
Kommuninvest i Sverige AB
President & CEO