Important events during the year
New bank sells Kommuninvest bonds
As of 1 January 2019, the number of retailers of Kommuninvest’s Swedish Benchmark Programme increased with the addition of the international bank Barclays.
The addition of Barclays is part of Kommuninvest’s long-term strategy of establishing local government bonds as a liquid part of the Swedish bond market, and is further motivated by increased interest from foreign investors in Kommuninvest’s bonds denominated in SEK.
During 2018, Kommuninvest’s bonds were also included in Nasdaq’s broadest bond index, OMRXALL, and have been approved as collateral with the clearing organisation LCH.
New leverage ratio proposal from the EU
The EU has presented a preliminary proposal for new regulations for “Public Development Credit Institutions”. The proposal entails the required leverage ratio being set at 3 percent and that direct and indirect exposures to the public sector may be deducted when calculating the leverage ratio.
Since, in Kommuninvest’s assessment, all criteria in the proposal for being counted as a public development credit institution are met, Kommuninvest can deduct all lending to members and their companies while meeting the new capital requirement and by a good margin. The proposal is expected to be completed in the first quarter of 2019 and can then come into effect by 1 July 2019 at the earliest, to be ratified at the national level two years later.
New applications for efficient lending
Kommuninvest constantly strives to improve and simplify matters for customers. During the year, several new technical solutions were launched to facilitate opportunities for borrowing from Kommuninvest.
During the spring, KI Prislista was launched, a new application within KI Finans providing price illustrations for the various loan options. A digital quotation request, KI Offert, was introduced after the summer allowing customers to request a loan offer through KI Finans. KI Signera, the latest addition, makes it possible to sign loan agreements with the support of a mobile bank identification application. Additional functions will be developed and launched in 2019.
Lower margin in lending to customers
At the Annual General Meeting in April 2018, the owner directive was amended to enable a price reduction for customers. This entails the Company’s lending margin no longer taking into account fluctuations in unrealised market value and expected loan losses.
Initially, the margin was lowered from 23 basis points to 16.5 and, in December 2018, to 14.5. The price change strengthened the already high lending rate, particularly to members with their own funding programmes. In the long term, however, refunds to members will be lower.
How Kommuninvest helps build welfare
Kommuninvest finances more than half of the Swedish local government sector’s investments in new housing, schools, homes for the elderly, swimming baths and other infrastructure investments.
How we generate sustainable values
Through lending to municipalities and regions, Kommuninvest establishes conditions for the expansion of Swedish welfare, increases the stability of local government finances and contributes to a more sustainable Sweden.
Sustainability Report 2018
Given Kommuninvest’s business concept, vision and position, naturally we volunteer to take responsibility for our impact on society from an economic, environmental and social perspective. Our Sustainability Policy states that this is to be respected throughout the operations, in terms of both direct and indirect impact.
Funding supporting the Paris Agreement and the Sustainable Development Goals
Green Loans permit financing of environmental and climate-related investment projects in Kommuninvest’s member municipalities and regions. At the end of 2018, SEK 39.5 billion in Green loans had been granted for 232 projects and 109 members. These projects and their funding can be linked to nine of the UN’s global Sustainable Development Goals, and all of the overall goals of the Paris Agreement.
Kommuninvest finances the development of Sweden’s local and regional sectors, as well as investments for a sound and sustainable society. The Company and its employees shall adhere to the legislation, regulations and rules applicable to the operations and shall always behave in an ethically correct manner, with transparency, integrity and honesty.
Respect for human rights is a basic prerequisite for being able to generate value within Kommuninvest in the long term. We will work to prevent discrimination, promote diversity and equality, and ensure good working conditions.
Kommuninvest’s environmental work takes into account both the direct environmental impact of the office operations, purchases and services, as well as the indirect environmental impact of the financial operations.
Future local government
Stable and cost-efficient financing remains at the heart of the operations, although external changes bring new conditions for Kommuninvest. The Company’s efforts in four focus areas provide opportunities to respond optimally to these changes.
Kommuninvest strengthens its position
High investment volumes in the local government sector are increasing the need for external loan financing. In 2018, the Swedish local government loan market grew by SEK 36 billion to SEK 637 (601) billion. Kommuninvest continues to strengthen its position, with the Company financing 55 (51) percent of the local government sector’s total debt.
Loans that meet customers’ needs
In 2018, Kommuninvest’s lending grew to SEK 353.9 (308.0) billion. This growth reflects increased investment and funding needs among Sweden’s municipalities and regions. The increase also demonstrates Kommuninvest’s increased competitiveness. At the end of 2018, Kommuninvest had a total of 945 (914) active borrowers.
Significant borrower with highest credit rating
Kommuninvest finances its lending to municipalities and regions by borrowing funds on the Swedish and international capital markets. Demand for low-risk issuers remained good during the year and Kommuninvest was able to meet its funding plans on favourable terms. At the end of the year, total borrowing amounted to SEK 397.4 (339.1) billion.
Liquidity reserve to meet customer needs under all circumstances
To be able to continue providing customers with financing during periods of uncertainty in the financial markets, and to ensure that matured funding can be repaid in a timely manner, Kommuninvest has a liquidity reserve. At the end of the year, the reserve amounted to SEK 47.3 (36.9) billion, equivalent to 13 (12) percent of the lending volume.
Collaboration for greatest-possible membership benefit
Kommuninvest fundamentally believes that its leaders and employees together perform the organisation’s mission and generate benefit for the members. The process of building a strong culture reflecting the Company’s local government values was further developed with the Employee Programme started in 2018.
At the end of 2018, equity in the Company amounted to SEK 7,603.4 (7,610.8) million, following Group contributions of SEK 750.6 (987.5) million paid to the Kommuninvest Cooperative Society. The total capital base was SEK 7,425.2 (6,359.2) million, which gave a total capital ratio of 188.4 (212.4) percent.
Market shares, local government loan financing1
|Funding via Kommuninvest 55 (51) %||55%|
|Bank funding 14 (17) %||14%|
|Funding through proprietary market programmes 31 (32) %||31%|
1) Forecast regarding outstanding funding (figures in brackets refer to actual outstanding funding in accordance with members’ own annual reports as per 31 December 2017)
Lending portfolio by borrower category
|Municipalities* 41 (41) %||41%|
|Municipal housing companies 30 (30) %||30%|
|Other municipal companies 22 (22) %||22%|
|Municipal energy companies 5 (6) %||5%|
|Regions 2 (1) %||2%|
*) Some lending to municipalities is on-lent to municipal companies through municipal internal banks.
Funding portfolio by programme
|Swedish Benchmark Programme 49 (49) %||49%|
|Benchmark funding, other currencies 35 (30) %||35%|
|Green Bonds 5 (4) %||5%|
|Private Placement 4 (6) %||4%|
|ECP, Euro-Commercial Paper Programme 3 (10) %||3%|
|Uridashi 3 (1) %||3%|
|Swedish commercial paper programme 1 (-) %||1%|
|Bank loan 0 (0) %||0%|
|Total assets||Lending|||Equity (right axis)|
Operating profit/loss before tax
|SEK, million||Operating profit before tax||Portion of profit attributable to unrealised changes in market value||Portion of profit attributable to net credit losses|
Multi-year summary, Kommuninvest i Sverige AB
|Balance sheet total, SEK billion||417.2||356.9||361.7||340.6||312.1|
|Lending, SEK billion||355.7||310.1||277.0||254.4||222.8|
|Net profit, SEK, million||586.1||876.0||309.8||561.3||568.4|
|of which, municipalities||277||277||275||272||272|
|of which, regions||11||11||11||8||8|
|Core Tier I capital ratio1, %||188.4||212.4||103.7||44.6||34.6|
|Tier I capital ratio2, %||188.4||212.4||103.7||44.6||34.6|
|Total capital ratio3, %||188.4||212.4||122.1||59.8||49.3|
|Leverage ratio according to CRR4, %||1.75||1.78||1.56||0.87||0.75|
1) Core Tier I capital in relation to total risk exposure.
2) Tier I capital in relation to total risk exposure.
3) Total capital base in relation to total risk exposure.
4) Tier I capital in relation to total assets and commitments (exposures).