War in Ukraine – little effect on KBN
Russia's invasion of Ukraine is an assault on freedom, human rights and democracy, and is a serious breach of international law. Our thoughts go out first and foremost to the people who are now exposed to great suffering and loss. KBN's activities are little affected, and KBN is well prepared for turbulence in the financial markets.
Severe sanctions
Severe sanctions have been implemented against Russia, aimed particularly at the Russian economy, financial system, companies and certain individuals. Norway has aligned itself with the EU's sanctions, and has resolved that the State Pension Fund Global (the 'Oil Fund') will sell all the fund's investments in Russian securities. The rating agencies have downgraded Russian government debt to one rung above insolvency, and there is uncertainty over whether Russia will be able to meet its payment obligations on borrowing as they fall due in the future. KBN is monitoring sanctions against individuals and companies, but these are not expected to have a direct effect on KBN.
Well prepared for market turbulence
The war has also caused turbulence in the international financial markets. KBN is affected by currency fluctuations through the exchange of collateral for derivatives contracts, but this is well taken care of by KBN's liquidity management. The fluctuations have been less pronounced than at the start of the coronavirus pandemic in 2020. The Russian economy is relatively small, and KBN does not hold any Russian or Ukrainian securities and does not use any Russian or Ukrainian banks as counterparties. KBN operates with liquidity reserves that match its capital requirements, including growth in lending to the local government sector, for the subsequent 12 months at all times, and one reason for this policy is to be prepared for external shocks.
There has been an increase in credit spreads both internationally and in Norway. Three-month NIBOR has increased somewhat more than expected over the last two weeks.
Increased attention to cyber security
KBN is paying a great deal of attention to the increased threat level for cyber security, and is in close contact with its suppliers. KBN's employees and other staff are kept aware of the danger of cyber attacks and the precautions they should take in this respect.
Russia is a neighbouring country to Norway, and there is a long history of trade, cultural exchange and other interaction between businesses and municipalities in Norway and Russian businesses and people. For many Norwegian municipalities, contacts with Russia have represented an important contributor to business and their economy, but this will now disappear as a consequence of Putin's war of aggression.