Kommuninvest interim report 2017: High level of municipal investments drive demand for credit

The Swedish local government debt office, Kommuninvest i Sverige AB, increased its lending volumes by 7 (5) percent during the first six months, according to its interim report. Kommuninvest has also strengthened equity to SEK 6.9 (6.5) billion. Operating profit for the first six months was SEK 523.7 (14.0) million. At 30 June 2017, lending amounted to SEK 297 (277) billion.

1 January to 30 June 2017 in review

• Strong population growth, urbanisation and demographic changes is affecting investment needs and borrowing needs in the local government sector. Kommuninvest’s lending rose to SEK 296,600.0 (276,982.1) million.
• Kommuninvest is the largest lender to Swedish municipalities and county councils/regions, and the position has strengthened somewhat. Kommuninvest estimates its share of the local government sector’s total borrowing to be 49 (48) percent at the end of the period.
• Operating profit was SEK 523.7 (14.0) million. Operating profit has been affected by unrealised changes in market value amounting to SEK 230.1 million (negative SEK 257.7 million).
• During the reporting period, the share capital rose by SEK 682.9 (1,490.7) million through new issues. This reflects the ambitions of Kommuninvest Cooperative Society to meet forthcoming regulatory requirements regarding leverage ratio from 2018.
• The balance sheet total was SEK 383,980.7 (361,725.4) million and net interest income was SEK 424.4 (372.7) million.
• Kommuninvest meets all of the requirements regarding risk-weighted capital adequacy. The core Tier 1 capital ratio was 141.1 (103.7) percent, the Tier 1 capital ratio was 1 (103.7) percent and the total capital ratio 163.4 (122.1) percent. Total equity increased to SEK 6,929.4 (6,514.0) million.
• The leverage ratio, calculated according to the EU Capital Requirement Regulation CRR, was 1.65 (1.56) percent. Including the subordinated loan issued to Kommuninvest Cooperative Society, the leverage ratio was 1.91 (1.84) percent.[1] The target is a capitalisation corresponding to a 1.5 percent leverage ratio, with preparedness for higher levels.
• Membership in the Kommuninvest Cooperative Society rose by two new members during the period. As of 30 June 2017, the Society had 288 (286) members, of which 277 (275) municipalities and 11 (11) county councils/regions.

[1] The loan terms for the subordinated loan are such that the loan is not eligible for inclusion as Tier 1 capital according to CRR. Kommuninvest intends to replace the existing subordinated loan with a new one or with another capital form that is eligible for inclusion as Tier 1 capital well in advance of year-end 2017.

Comments by Tomas Werngren, President and CEO

– Strong growth in Swedish municipalities and county councils/regions continues to drive investments and funding needs. Despite historically high surpluses, good economic management is still of the highest priority for the sector. Kommuninvest’s lending growth and the capital support from owners show that they value the Kommuninvest cooperation.