The corona pandemic

In 2020, Kommuninvest did not encounter any significant problems in coping with the corona pandemic and its consequences. Access to the capital market remained favourable throughout. The liquidity and capital situation has been strong. The digital  approach, applied fully or in part, has worked well. Should developments worsen ahead, this approach can be maintained.

Over the year, the corona pandemic has left a harsh and clear mark on all development globally. To counter the first wave of contagion in the spring, strict rules and restrictions were introduced. This led to sharp falls in GDP and rising unemployment. During the summer and early autumn, a relatively strong economic recovery took hold. This slowed, however, when a second wave of contagion took hold from October onwards and was met with the necessary countermeasures. In many countries, mass vaccinations commenced towards the end of 2020 and in early 2021. Much suggests that this will gradually limit contagion, allowing the economic recovery to regain impetus.

From early March, the uncertainty surrounding the pandemic caused substantial turbulence in the financial markets. Stock prices fell and interest rates rose. The turbulence lasted through March and April, after which the markets functioned more normally. Since mid-April, most of the world’s stock market indices have risen noticeably. Several important policy rates have returned to roughly the levels noted before the pandemic. During the autumn, the market trend was relatively normal.

Governments and central banks have taken rigorous measures to limit the negative effects. In Kommuninvest’s strategic funding markets – USD, EUR and SEK – the Federal Reserve, the European Central Bank and the Riksbank have all pursued highly active monetary policies, including extensive purchasing of bonds for example. Major financial policy efforts have been undertaken in the US, the EU and Sweden.

Kommuninvest did not encounter any significant problems in coping with the corona pandemic and its consequences. All parts of the operations functioned well over the year.

On 18 March, the organisation was placed on high alert. This level, entailing more frequent meetings and internal reporting, for example, remained in effect at the end of the year. At the same time, Kommuninvest switched to virtually fully digital operation. The Annual General Meeting of the Society in April was held in digital format. Webinars became a core component of our communications. In September and October, when the contagion was weaker, a return to working from the office was initiated. This was put on hold when the second wave of contagion hit. Even working digitally, operations have progressed with full capacity.

Lending volumes rose rapidly in early March. In the stressed market situation at the time, the pressure from municipalities and regions reached a high level, with increasing demand for new loans and for existing loans to be extended. Some of them increased their funding from Kommuninvest because they were unable to raise funds independently at reasonable prices. Others chose to review and expand their funding within the framework of their liquidity planning. Towards the end of April, volumes began to return to normal levels. Since the second half of May, lending to Kommuninvest’s customers has been at normal levels.

In its funding operations, Kommuninvest has retained favourable access to the capital market throughout. During the worst of the turbulence, the choice was made to issue securities only in the Swedish market, as the price difference between the markets was unusually large.

At the end of April, Kommuninvest returned to the USD market. Over the year, five issues were completed under the USD programme. The first funding forecast for 2020 was SEK 140–160 billion. This was revised upwards in April, given the large lending volumes, and was then revised downwards in both June and October to reflect a lower lending rate. The total funding raised over the year was SEK 131 billion.

In turn, this contributed to the large item for negative unrealised changes in market value that burdened the year’s operating profit.

In the currency market, the SEK strengthened from May onwards against the USD. This meant that opening unrealised gains from currency swaps, which Kommuninvest uses to hedge currency risks in its USD financing, decreased as the contracts approached maturity.

In two stages, on 16 March and 27 April, Kommuninvest established a new issue procedure under which funding in the Swedish market is arranged through weekly auctions. The purpose was, in part, to provide conditions for the Riksbank to buy Kommuninvest bonds through QE programmes. The main purpose, however, was to improve the functioning of the market by improving transparency. The change was received favourably by Kommuninvest’s investors in the Swedish market.

Kommuninvest did not need to utilise any provisions in its liquidity management during the year. The basic requirement in the legislation is referred to as “LCR 30”. Kommuninvest applies its own requirement level, “LCR 90”, which entails having means accessible to manage for at least 90 days in an extremely stressed market situation. This level has been maintained without difficulty.

The capital situation is also strong. In April, the Annual General Meeting of the Society adopted a plan to gradually build up capital until 2024. Both internal and statutory capital requirements must always be met by a good margin. This provides a capital situation that should suffice well, even in the light of the corona pandemic, for the scenarios that could transpire. At the end of the year, a new share issue was in progress, in which the Society is buying shares in the Company, which immediately improves the capital situation.

One problem accompanying the pandemic was that many local government authorities were too small to be able to buy protective equipment at acceptable prices. For this reason, SALAR, the coordination office of the County Administrative Boards, Region Stockholm, Region Skåne, Region Västra Götaland, the City of Stockholm, the City of Gothenburg, the City of Malmö and the Municipality of Uppsala commissioned SKL Kommentus Inköpscentral (SALAR’s centralised purchasing service) to make large-scale joint purchases on the local government authorities’ behalf. To realise this, Kommuninvest established an opportunity to borrow funds of up to SEK 500 million interest free. The Cities of Stockholm, Gothenburg and Malmö, as well as the Municipality of Uppsala acted as guarantors for this loan. The loan is actually outside the scope of Kommuninvest’s business model, but was deemed a reasonable effort to contribute at a critical stage. SKL Kommentus Inköpscentral did not avail itself of this loan opportunity in 2020.

In June, to strengthen the analysis of how the corona pandemic is impacting the municipalities and regions, Kommuninvest set up the independent expert group “Welfare Economists”. During the autumn, the group produced two reports that have broadened Kommun­invest’s knowledge base and that were received well among municipalities and regions.

Overall, Kommuninvest is very well equipped to deal with the ongoing developments stemming from the coronavirus. It must be possible to maintain stability even if the situation were to worsen.