Liquidity reserve to meet customer needs under all circumstances
To safeguard the Company’s capacity to meet its commitments even in periods of stress in the financial markets, Kommuninvest maintains a liquidity reserve. Over the year, the Company demonstrated favourable liquidity preparedness, with all internal and statutory requirements being complied with by a good margin despite the market concerns associated with the corona pandemic. The reserve consists of short-term investments with high credit ratings. At year-end, the reserve amounted to SEK 59.6 (44.7) billion, equivalent to 14 (11) percent of the lending volume.
Reserve with high credit quality and low risk
The starting point for the Company’s liquidity strategy is good matching of assets and liabilities. The Company also maintains a liquidity reserve, the purpose of which is to safeguard commitments during periods of extreme financial stress. The scale of the liquidity reserve is adapted according to funding maturities, for example, and external factors, such as exchange and interest rate fluctuations. In accordance with the Company’s strategy, the liquidity reserve shall be invested short-term, with the average maturity not exceeding 12 months. Individual investments may have a maturity of up to 39 months. Accordingly, the Company’s liquidity reserve is purposefully designed to ensure preparedness under turbulent market conditions, similar to those that have characterised 2020.
Focusing on effective and prudent asset management
In 2020, asset management activities were characterised by a liquidity reserve comprising highly tradable assets of superior credit quality. Direct investments are made mainly in securities issued by sovereigns or central banks, multilateral development banks and subsidised lenders1. At the end of 2020, 95 (84) percent of the reserve was invested in securities with the highest possible creditworthiness. Also, 75 (70) percent consisted of investments in securities issued by issuers in Sweden.
1) Subsidised lenders refers to issuers of securities where exposures are treated as exposures to the national government in accordance with the CRR regulations. Among others, these include the Company’s neighbour organisations in the other Nordic countries.
Investment rules for the liquidity reserve
• The liquidity reserve may have a maximum average maturity of 12 months
• The maximum maturity of individual investments is 39 months.
Kommuninvest is a municipal cooperation for efficient and sustainable financing of housing, infrastructure, schools, hospitals etc. Together, we get better loan terms than each one individually. Since its inception in 1986, the Kommuninvest collaboration has helped lower the local government sector’s borrowing costs by many billion kronor. Currently, 292 municipalities and regions are members of this voluntary cooperation. With total assets in excess of SEK 525 billion, Kommuninvest is the largest lender to the local government sector and the sixth largest credit institution in Sweden. The head office is located in Örebro.