Better local government financial management
A process of change focusing on increased benefit for members and customers is in progress. In cooperation with our customers, the objective is to broaden the range of products and services. Digitalising the business represents both a prerequisite and a challenge and, at the same time, operating expenses should be restricted. In this process, nurturing members’ substantial confidence in the operations is essential.
Municipalities’ and regions’ favourable financial results in recent years have helped reduce the need to finance major investments stemming from population growth, urbanisation and the increase in older and younger inhabitants through loans. Despite high investment levels, local government debt is therefore growing at a lower rate than previously. In relation to GDP, debt is low and clearly manageable. However, the sector’s skills supply challenge is of concern from both an operational and expense perspective.
Increasingly important tool
Today, many municipalities and regions rely heavily on Kommuninvest for their financing, and borrow more from Kommuninvest than ever before. For my colleagues and myself, this fills us with both pride and humility.
At the end of the year, lending exceeded SEK 350 billion, partly as an effect of the members’ decision regarding a new pricing strategy. Quoted lending rates have been cut, meaning, in the long term, that Kommuninvest’s net profit and refunds will gradually decrease. A high level of customer satisfaction is probably also contributing to Kommuninvest being selected over other funding alternatives.
Cost control and efficiency
Maintaining good cost control is a particular priority, as operating expenses have risen sharply over the past ten years, mainly as a consequence of increased official reporting requirements. In 2018, however, the increase in expense was marginal. In relation to lending volume, the Company’s operating expenses over the year decreased to 5.7 (6.5) basis points, excluding the resolution fee. We work extensively on efficiency in our core lending and funding processes and are pleased that our international funding is functioning so well in terms of accessibility and pricing. This was significant in 2018, when five major benchmark programmes denominated in USD were implemented with favourable results. Areas to continue working on with regard to funding include the Swedish market and strategic currency diversification. Kommuninvest’s increasing responsibility for the financing of the local government sector adds weight to these issues.
The mission is changing
Today, modern technology enables development of product and service offerings in completely new ways. At Kommuninvest, we are working to fully automate the lending process. Over the year, price lists updated in real time were introduced on the website, as well as a bid application linked directly to the business system. Loan agreements entered into by customers can now be signed digitally.
When time for analysis and follow–up can be freed up on both sides, relations with customers and members will change, for our part imposing demands on both skills reinforcement and development. This is such an important issue that Skills is one of our four focus areas, in addition to Customers, Efficiency and Digitalisation.
Towards the right conditions
It is now apparent that institutions such as Kommuninvest will be recognised as Public Development Credit Institutions (PDCIs) in future EU regulations. This will, to a greater extent, afford us appropriate conditions and more reasonable capital requirements, which is, of course, welcome. At the same time, it can be noted that no corresponding change has occurred with regard to requirements on our reporting to government authorities, which is challenging since it drives up expenses.
Development alongside customers
In my view, Kommuninvest has continued to develop well, in line with its vision of being the world’s best organisation for local government financial management. We nonetheless perceive several areas for improvement that need to be addressed to meet the legitimate expectations of the members.With the insight that the trust of our members is our foremost asset, my employees and I will continue seeking to develop and streamline the operations, in close cooperation with members and customers. Kommuninvest shall provide the best support in streamlining and improving municipalities and regions’ financial management processes.
Kommuninvest i Sverige AB
President and CEO