Kommunalbanken AS

Kommunalbanken AS, a Norwegian state instrument

Kommunalbanken AS is a government agency jointly owned by the Kingdom of Norway (80%) and the local government sector in Norway (20%) through the National Local Government Pension Fund, KLP. Kommunalbanken is defined as a state instrument with a clear public policy mandate of providing low cost funding to Norwegian municipalities and promoting competition in the market for municipal loans, thereby facilitating the efficient provision of public services in Norway.
 
Kommunalbanken is required to limit its operations to the territory of Norway and may only lend to Norwegian local governments, counties, inter-municipal companies and other entities that carry out ordinary local government tasks against a municipal guarantee, government guarantee or other satisfactory security.
 
Evolution
Kommunalbanken was established 1926 as a state administrative body, called Norges Kommunalbank (NKB). On July 16, 1999, Norges Kommunalbank was reorganised as a government agency and was renamed Kommunalbanken AS. The reorganisation aimed at providing the agency with greater operational flexibility.
 
Since 1999, Kommunalbanken has shown solid balance sheet growth, becoming the largest credit provider to local authorities, with a market share of approximately 40%. Furthermore, 95% of Norway's municipalities and counties have taken out loans with Kommunalbanken.
 
Norway is today arguably one of the world's wealthiest economies with the second highest GDP per capita in the world. Due to its large budget surpluses, Norway does not issue debt in the international capital markets. Kommunalbanken is the closest proxy to Norwegian sovereign risk available, representing both Norway as the owner and the Norwegian public sector as the agency's assets. Kommunalbanken offers investors a rare and unique opportunity to gain exposure to the Norwegian sovereign and public sector.
 
Public policy mandate
As a local government funding agency, Kommunalbanken, serves an important public policy role. By offering low cost financing and promoting competition in the market for municipal loans, Kommunalbanken facilitates the efficient provision of public services. Kommunalbanken passes the benefit of its strong rating on to the Norwegian local government sector and in limiting local government interest expenses, indirectly reduces pressure on the local tax bill and the amount of direct central government transfers to the local governments.
 
Governance
The Norwegian central government exercises control of the management of Kommunalbanken through the governance agreements set out in its Articles of Association.
 
Lending
With a market share of approximately 40%, Kommunalbanken is the largest lender to the Norwegian local government sector with over 95% of Norway's municipalities and counties having loans with the institution. The largest share of both approved and disbursed loans are for projects in the health and social sector and primary and secondary education.

Funding
Kommunalbanken funds its operations through the capital markets, and does so with an increasingly international focus. In 2005, more than 95% of funding was raised outside Norway through more than 400 individual transactions in 13 different currencies.
 
In order to meet its funding objective, Kommunalbanken has established a 'four pillar' funding strategy:
 
I. Benchmark issuance -  Further strengthen Kommunalbanken's presence in the market as a recurrent, high quality benchmark borrower by the issuance of 1-2 annual strategic benchmark transactions.

II. Institutional niche markets - Kommunalbanken will continue to nurture its presence in smaller public markets of strategic importance.
 
III. Private placements - Maintain Kommunalbanken's position as one of the largest and most flexible issuers of structured notes by offering a wide variety of currencies and formats.
 
IV. Retail issuance - Continue to develop Kommunalbanken as a household name among retail investors in Europe and Asia.

Kommunalbanken (www.kommunalbanken.no)

Financial information, in English