Annual Report 2025

The Board of Directors of KBN is the company’s highest governing body and is responsible, through the CEO, for ensuring that the company’s activities are soundly organised. The Board of Directors has three committees: the Risk Management Committee, the Audit Committee and the Remuneration Committee.

KBN is organised as a limited liability company that is 100% owned by the Norwegian state. The Ministry of Local Government and Regional Development manages the state’s ownership of KBN. KBN has no subsidiaries.

Regarding the objective and company-specific purpose of the state’s ownership of KBN, the Norwegian government’s white paper "A greener and more active state ownership" (Report to Storting No. 6 (2022-2023)) states that:

"The state is the owner of Kommunalbanken in order to offer stable, long-term and efficient financing of the local government sector. The state’s aim as owner is to achieve the highest possible return over time subject to the limits of sustainability".

The state has set out six general rationales for state ownership. For KBN, the following rationale applies:

“Facilitating sustainable restructuring and increased value creation”

Through its ownership, the state helps counter barriers and market weaknesses that hinder sustainable transition and value creation in the Norwegian economy by ensuring that the local-government sector throughout the country receives specially adapted financing.

KBN’s Articles of Association state that its objective is “to provide loans to municipalities, county authorities, intermunicipal companies and other companies that carry out local government tasks against either a municipal guarantee, a government guarantee, or other satisfactory security. The Company can also undertake other tasks appropriate to the Company’s business.”

KBN finances its lending activities by raising debt funding from capital markets around the world. Its business model and strategy are based on KBN operating with a low level of risk while also having the ability to provide loans regardless of economic conditions. KBN is committed to helping to ensure that the local government sector’s high creditworthiness is reflected in the lowest possible borrowing costs for the sector. KBN will operate with a target of having a credit rating that is in line with the rating of Norway (AAA). In order for it to be able to fulfil its role, KBN has a target of having a strong market position.

The Board of Directors sets the company’s target for return on equity and administration works to achieve this target without infringing the restrictions on its activities laid down in its Articles of Association. In order to achieve this, KBN works systematically on optimising the structure of its balance sheet and on increasing the efficiency of its use of capital. KBN’s operating model/business model is illustrated below.

Figure: KBNs operating model

KBN’s organisational structure is intended to ensure it adapts effectively to changes in customers’ expectations, to contribute to robust decision-making, and to be characterised by the existence of clear responsibilities within the framework of its owner’s expectations and regulatory requirements.

The General Meeting (the Norwegian state acting through the Ministry of Local Government and Regional Development) elects the Board of Directors as well as the members and deputy members of the Nomination Committee and Supervisory Board and the company’s auditor. The General Meeting approves the annual accounts and annual report, including the allocation of profit and coverage of losses, and the payment of dividends. The General Meeting also sets the remuneration of the members of the Board of Directors, the company’s auditor and the members of the Supervisory Board. The General Meeting considers the guidelines for the remuneration of senior executives and the salary report.

The Supervisory Board’s role is set out in KBN’s Articles of Association. It is tasked with ensuring that the company’s objectives are promoted in accordance with the law, its Articles of Association and the resolutions passed by the General Meeting. The Supervisory Board is also required to provide a statement to the General Meeting on the annual accounts and the allocation of profit and coverage of losses proposed by the Board of Directors, as well as to give its opinion on matters that concern the company, and in this regard it shall have a particular focus on the company’s role in society and corporate social responsibility. The Supervisory Board shall be composed of as broad a range of members as possible.

The Board of Directors has both managerial and supervisory responsibility for KBN and is required to ensure that its activities are soundly organised and, to the extent required, to draw up plans and budgets and overall guidelines for its activities. The Board of Directors must also keep itself informed of KBN’s financial position and ensure that its activities and asset management are subject to adequate control. The Board of Directors is required to supervise the day-to-day management of KBN and its activities in general, to monitor and manage KBN’s overall risk exposure and capital needs, and to assess whether its governance and control arrangements are adapted to KBN’s level of risk and the scope of its activities. The Board committees that advise on and prepare issues for the Board’s consideration are elected by and from amongst the Board’s own members.

• The Risk Management Committee carries out preparatory work to facilitate the Board of Directors’ consideration of risk, the company’s risk appetite, ICAAP, ILAAP and the recovery plan, and in connection with this it assesses the outcomes of scenarios and stress tests as well as assessing whether the pricing proposed for any new products and services is sound from the perspective of KBN’s risk appetite. The Committee also reviews internal audit’s annual plan and reports that relate to the risk management area, as well as risk reports produced for the Board of Directors, and conducts preparatory work to facilitate the Board’s monitoring of whether its risk management guidelines are being followed.
• The Audit Committee’s main focus relates to financial reporting, sustainability reporting and control. The Committee is tasked with helping the Board to ensure that there is proper control of the reporting and the reporting process, and carrying out preparatory work to facilitate the Board’s monitoring. The committee assesses the effectiveness of KBN’s internal control and risk management systems in relation to financial reporting and sustainability reporting, assesses the effectiveness of the company’s internal audit in relation to financial reporting and sustainability reporting, and assesses and monitors the external auditor’s independence, particularly the extent to which services other than auditing are provided in accordance with the regulations. The Committee is also required to monitor matters that the Financial Supervision Authority of Norway has drawn attention to in its routine supervision of KBN or in letters to the Board, and which are relevant to financial reporting and sustainability reporting. The Committee is also responsible for carrying out preparatory work for the company’s election of its external auditor.
• The Remuneration Committee prepares all matters related to the company’s remuneration scheme that are to be considered by the Board of Directors, including the company's arrangements for variable salary, guidelines for the benefits received by senior executives, and evaluates the remuneration of the CEO. The Committee also considers the salary report and guidelines for the remuneration of senior executives, which are submitted to the General Meeting.

The Chief Executive Officer (CEO) of KBN has the authority to take decisions on all matters relating to the operation of KBN that are not required by any act of law or official regulation or the Board of Directors’ guidelines to be considered by the Board. The CEO can make decisions regarding any such matters if mandated to do so by the Board of Directors. The CEO can delegate his/her decision-making authority to KBN’s department heads subject to the delegated authority arrangements and guidelines issued by the Board. The CEO is responsible for ensuring that KBN’s activities are operated in accordance with the strategy, plans, budgets and risk appetite framework produced by the Board. The CEO shall ensure that there is proper internal control through effective operational and control routines. The CEO determines the responsibilities and areas of authority of the department heads in the form of job specifications and delegated authority arrangements.

The Management Team comprises the senior executives of KBN, and is made up of the department heads and assists the CEO of KBN with the day-to-day management of KBN.

There are committees and special fora with their own internal regulations that function as advisory bodies for the CEO, with whom the authority to make decisions lies.

• The Credit Committee’s overall function is to carry out the mandate issued by the Board of Directors in its guidelines, including the lending framework, and to assist the CEO in managing KBN’s credit risk.
• The Finance Committee’s function is to provide advice and opinions on decisions that relate to matters of principle and to matters of material significance related to the capital markets area, including financial risk management. The Finance Committee also provides recommendations regarding new products (New Product Approval Process, NPAP).
• The Regulatory Committee’s overall function is to provide advice to ensure that KBN identifies at an early stage regulatory matters that will affect its achievement of its objectives.

The department heads report to the CEO and are responsible for assisting the CEO with the day-to-day management of KBN, as well as for the organisation and day-to-day operation of their own departments. Their job specifications define their specific responsibilities and the authority delegated to their position. Their general responsibilities include executing KBN’s strategies and plans in accordance with the law and official regulations and KBN’s guidelines, as well as for carrying out internal control. Their special responsibilities relate to their departments’ tasks. Department heads can set procedures within their area of responsibility. Department heads who are responsible for staff functions can, if mandated by the CEO, produce procedures in their specialist field that apply across KBN’s departments following consideration of such procedures by the management team.

Corporate governance at KBN is an interaction between the processes and structures that are used to manage KBN, including its organisation, internal regulations and controls. KBN is managed through its defined overall objectives, its strategy, the assessment and determination of its risk appetite framework, and annual assessments and plans such as long-term financial forecasts, capital adequacy plans, operating plans and budgets.

The Board of Directors sets KBN’s overall objectives, strategy and risk appetite framework and approves its annual plans and budgets. KBN’s risk appetite framework is operationalised through the setting of limits on the types and scope of the risk to which it can be exposed. The Board of Directors sets general guidelines and risk strategies, and the CEO sets supplementary guidelines. There are also instructions, delegated authority arrangements, mandates, process descriptions, procedures etc. These governance documents guide how KBN’s activities are to be organised in order for it to fulfil its owner’s purpose in owning KBN.

Figure: Corporate governance at KBN

The Norwegian Corporate Governance Board (NCGB) published a new edition of the Norwegian Code of Practice for Corporate Governance in 2025. The change that is particularly relevant for KBN is the recommendation that companies should create value for shareholders in a sustainable manner (Section 2).

The overview below details KBN’s compliance with the recommendations of the Norwegian Code of Practice for Corporate Governance (the "Code of Practice"). KBN’s deviations from the Code of Practice are the consequence of the special provisions for government-owned limited liability companies contained in the Norwegian Limited Liability Companies Act.

1. Implementation and reporting on corporate governance
   Some deviation from the Code of Practice.

KBN complies with the Code of Practice’s recommendations to the extent permitted by the legislation that applies to government-owned limited liability companies and the regulations that result from authorisation to operate as a credit institution. The areas in which KBN deviates from the Code of Practice’s recommendations primarily relate to the fact that some provisions are not suited to KBN due to its state ownership.

See also section Business model and operating model and KBN about us.

1. Business
   No deviation from the Code of Practice.

KBN’s objective is set out in its Articles of Association and is to provide loans to the local government sector. KBN’s Articles of Association are publicly available. The Board of Directors considers and approves each year KBN’s three-year rolling strategy, its main priorities (OKR) for its implementation of its strategy and its capital adequacy plan, as well as its risk appetite and risk limits. The Board has adopted guidelines on ethical conduct, anti-money laundering and corruption, a document that defines KBN’s expectations of its suppliers, and guidelines on sustainability, which include guidelines for diversity and equality.

KBN’s Guidelines for Sustainability are intended to ensure that KBN creates value in a manner that takes into account financial, social and environmental sustainability and that we have clear ambitions for work on diversity and equality.

See also section Sustainability and KBN about us, and also KBN Sustainability.

1. Equity and dividends
   Some deviation from the Code of Practice.

The Board of Directors assesses KBN’s capital adequacy situation on a continual basis in the light of the purpose behind the state’s ownership and the company’s objectives, strategy and risk profile, as well as in relation to the requirements and expectations of the Financial Supervisory Authority of Norway and other supervisory authorities. KBN seeks to meet its owner’s target for it to achieve the highest possible return over time subject to the limits on its activities contained in its Articles of Association. Since 2023, the state has had a long-term expectation for KBN to pay around 55% of its core earnings after tax in dividend, subject to maintaining a satisfactory capital adequacy. The long-term expectation for KBN’s dividend applies to a period of 4-5 years.

Consent from the Norwegian Parliament must be obtained for changes to be made to the state’s ownership interest in KBN (purchases and sales of shares) and for decisions regarding capital injections that involve the state paying out funds.

1. Equal treatment of shareholders
   No deviation from the Code of Practice.

The Norwegian state owns 100% of KBN, and KBN follows the Code of Practice within the framework of its state ownership.

1. Shares and negotiability
   Deviation from the Code of Practice.

Under KBN’s Articles of Association, the state’s shares can be assigned to municipalities, county authorities, intermunicipal companies and municipal pension funds. Any such assignment shall be carried out in accordance with the company’s aim of maintaining the highest possible creditworthiness.

1. General meetings
   Some deviation from the Code of Practice.

KBN has only one shareholder. The Norwegian state, acting through the Ministry of Local Government and Regional Development, calls General Meetings, to which the Chair of the Board of Directors, the CEO, the company’s auditor, and the Office of the Auditor General are invited.

1. Nomination Committee
   Some deviation from the Code of Practice.

KBN’s Articles of Association require it to have a Nomination Committee and the Committee consists of up to three members and one deputy member, all of whom are elected by the General Meeting for a term of office of two years. All members and the deputy member are independent of the Board of Directors and senior executives.

No fees are paid to members of the Nomination Committee.

The composition of the Board of Directors is broadly-based in order to ensure that the Board can operate independently of any vested interests and that the Board has the necessary experience and expertise to understand KBN’s activities. The suitability of individual members of the Board is assessed at the time the individual is first elected to the Board, and there is a requirement for routine confirmation of suitability thereafter. The Board’s collective suitability is assessed at least annually in accordance with the regulatory requirements for financial institutions.

The General Meeting elects the Board’s members as well as the chair.

The term of office for board members is two years.

1. The work of the Board of Directors
   No deviation from the Code of Practice.

The Board of Directors has issued instructions for its own work and for the CEO. The Board has three committees: the Audit Committee, the Risk Management Committee and the Remuneration Committee.

The Board elects at least three members to its committees each year from among its members, and it appoints the chairs of these committees.

The Board evaluates its performance and expertise annually and shares its evaluation with the Ministry of Local Government and Regional Development in its dialogue meetings.

1. Risk management and internal control
   No deviation from the Code of Practice.

The Board of Directors ensures that KBN has sound internal control and systems for risk management that are appropriate in relation to the nature of KBN’s activities, and this includes ensuring that internal control and risk management are in line with the regulatory requirements for financial institutions and the specific requirements set for KBN by the authorities. The Board regularly reviews KBN’s most important areas of exposure to risk, ensures its risk management is developed continuously, and sets KBN’s risk appetite for different types of risk.

See also KBN’s Pillar 3 Report.

1. Remuneration of the Board of Directors
   No deviation from the Code of Practice.

The remuneration of the Board of Directors reflects its responsibilities, expertise, time commitment and KBN’s complexity. The remuneration of the Board is not linked to KBN’s performance and share options are not granted to Board members.

1. Salaries and other remuneration of executive personnel
   No deviation from the Code of Practice.

The Board of Directors prepares guidelines for the salaries of KBN’s senior executives that are submitted to the General Meeting of KBN. KBN has a variable salary scheme of which all employees are members. The maximum amount any employee can receive under the scheme in any year is 1.5 times the employee’s monthly salary. The amount awarded is based on quantitative criteria defined by the Board.

KBN does not have any exchange-listed equity instruments and does not operate option schemes for its employees. The Board’s statement on the remuneration of senior executives is submitted to the General Meeting.

The salary report for executive personnel in 2025 will be submitted to the Annual General Meeting in 2026. The report will be published following consideration by the Annual General Meeting.

1. Information and communications
   No deviation from the Code of Practice.

The Board of Directors has produced guidelines for the company’s external reporting, as well as guidelines for information management and market conduct. KBN is committed to giving market participants accurate, clear, relevant and up-to-date information. In its activities in the markets for financial instruments, KBN is committed to operating in a manner that does not represent market manipulation.

The Board has decided which individuals shall act as spokespersons on behalf of KBN. KBN has a disaster recovery plan that also includes a separate plan for crisis communication.

Information about KBN is published in Norwegian and English.

1. Take-overs
   Deviation from the Code of Practice.

Consent from the Norwegian parliament must be obtained in the event of changes to the state’s ownership interest in KBN (purchases and sales of shares).

1. Auditor
   No deviation from the Code of Practice.

The company’s auditor is appointed by the General Meeting. The auditor issues an audit report in connection with KBN’s annual accounts. The auditor attends the meetings of the Audit Committee, as well as those Board meetings at which KBN’s annual and quarterly reports are considered.

The Audit Committee assesses the auditor’s independence annually.

The auditor’s fees are set by the General Meeting.

Reporting entity

KBN is a Norwegian limited company providing loans to counties, municipalities, intermunicipal companies and other companies with municipal guarantee that carry out tasks at a municipal level. KBN ’s registered office is located in Filipstad Brygge 1, Oslo. KBN is wholly owned by the Norwegian state through the Ministry of Local Government and Districts.

Basis of preparation

The financial statements have been prepared in accordance with IFRS® Accounting Standards as adopted by the EU. The accounting is based on the historical cost principle, except for financial assets and liabilities measured at fair value.

Functional currency and presentation currency

The company's functional and presentation currency is Norwegian Kroner (NOK). Balance sheet items in foreign currency are translated into Norwegian Kroner using the exchange rate on the balance sheet date. Income statement items in foreign currency are translated into Norwegian Kroner using the exchange rate at the transaction date. Effects from the translation of the principal amount of non-derivative interest-bearing instruments in foreign currency and on accrued interest and fees, are presented net in the income statement. Corresponding changes in fair value from currency derivatives used as hedging instruments in the economic hedging of the mentioned currency exposure are presented net along with translation differences from the hedged item.

Significant estimates and accounting judgements

The preparation of financial statements in accordance with IFRS requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, and revenues and expenses. Estimates and judgments are based on historical experience and expectations about future developments. The key estimates and assessments in the financial statements include:

Measurement at Fair Value

The fair value of financial instruments not traded in an active market or lacking readily available quoted prices on the balance sheet date is determined using valuation models. When inputs into valuation models cannot be directly derived from observable market data, management makes assessments and uses assumptions related to credit risk and liquidity risk in financial instruments. Although judgmental assessments and assumptions are largely based on actual market conditions on the balance sheet date, they may introduce uncertainty into the recognised amounts. Management exercises particular judgment in valuing instruments measured at fair value in Level 3 of the fair value hierarchy, as detailed in note 9.

Financial instruments

RECOGNITION AND DERECOGNITION

Recognition of financial assets and derivatives occurs when the entity becomes a party to the contractual provisions of the instrument, i.e., at the contract inception. Recognition of financial liabilities occurs at the settlement date. The recognised amount for financial assets and liabilities not classified at fair value through profit or loss also includes transaction costs directly attributable to the acquisition. When the requirements for hedge accounting with fair value hedging are met, KBN will recognise the cumulative fair value change of the financial liability (the hedged item) from the inception of the contract.

Financial assets and derivatives are derecognised when the contractual rights to cash flows expire or are transferred, and substantially all the risks and rewards of ownership are transferred. Financial liabilities are derecognised when the obligation specified in the contract is fulfilled, cancelled, or expires. In the case of repurchasing issued bonds, the financial liability is derecognised at the settlement date.

CLASSIFICATION AND MEASUREMENT

Classification of financial instruments takes place at initial recognition and determines the subsequent measurement of the carrying amount. Classification of financial instruments is determined by the characteristics of the financial instrument and by the business model for the management of financial assets. Detailed principles of classification and measurement are presented in note 8 together with tabular statements of the instruments.

FAIR VALUE OF FINANCIAL INSTRUMENTS

All assets and liabilities, which are not measured at amortised cost, are measured at fair value with changes in fair value recognised in the income statement or in statement of comprehensive income. Fair value is the market-based price that would have been obtained selling an asset or paying to transfer a liability in a well-arranged transaction between market participants at the time of measurement. Fair value is the achieved price under the current market conditions, regardless of whether the price is directly observable or estimated using a valuation method.

Financial instruments are categorised into the fair value hierarchy, where the level of classification (levels 1, 2 or 3) is based on the observability of the input that is significant to the fair value measurement. See note 9 for accounting principles on fair value measurement.

PRESENTATION OF FINANCIAL ASSETS AND LIABILITIES

General master netting agreements for financial derivatives do not meet the conditions for offsetting, and all financial derivatives are presented gross in the balance sheet. Cash received or provided as collateral for derivative exposure, which grant the right of offset in the event of bankruptcy also do not meet the conditions for offsetting under IAS 32 and is presented gross in the balance sheet as liabilities to or receivables from credit institutions. Combined repurchase and resale agreements where the terms of the GMRA agreement (Global Master Repurchase Agreement) trigger an offsetting obligation under IAS 32 are presented net in the balance sheet. See note 20 for details on financial assets and financial liabilities subject to offsetting.

All financial derivatives are measured at fair value through profit or loss and are classified as assets when the value is positive and as liabilities when the value is negative.

For issued liabilities that are designated as measured at Fair Value Option (FVO), the part of changes in fair value that is attributable to changes in KBN ’s own credit risk will be recognised in other comprehensive income in the statement of comprehensive income. The remaining part of the value changes is recognised in the income statement.

EXPECTED CREDIT LOSS

Provision for expected credit loss is recognised for all financial assets that are measured at amortised cost. Expected credit loss is based on the instrument’s/loan’s exposure at default, probability of default and loss at default, all estimated at the reporting date. Expected credit loss for instruments where credit risk has not increased significantly since initial recognition, is calculated based on the probability of default within the next 12 months. For instruments where credit risk has increased significantly since initial recognition, the expected credit loss is calculated based on a probability of default during the full lifetime of the asset. See note 14 Expected credit loss for accounting principles on measuring expected credit loss.

Hedge accounting

The bank uses interest rate and cross currency swaps to financially hedge interest rate and currency risk in assets and liabilities. KBN applies IFRS 9 for hedge accounting. When a hedge relationship fulfils the criteria for hedge accounting and is designated as such, it is accounted for as a fair value hedge. The hedged items are classified as measured at amortised cost. The accounting principles for hedge accounting are described in detail in note 11 together with the financial information.

Principles of revenue recognition and cost allocation

Interest income for assets and liabilities measured at amortised cost, is recognised in the income statement using the effective interest method. For items measured at fair value, including interest rate derivatives, interest is recognised as it accrues, either as income or expense. Changes in the value of derivatives resulting from accrued or incurred interest are presented as interest income/cost, as the derivatives are used in economic hedging. Interest income/costs from financial derivatives included in hedge accounting are presented together with corresponding interest income/costs from the hedged item.

Unrealised gains and losses on financial instruments at fair value and value changes attributable to the hedged risk on hedged items under hedge accounting, are recognised in the income statement as net gain/(loss) on financial instruments.

Fees and commission expenses are recognised as expenses in the period when the service is provided.

Fixed assets

Fixed assets are measured at acquisition cost with the deduction of accumulated depreciation and write-downs. Depreciation is calculated by using a linear method over the estimated useful life, where the disposal value of the assets is assumed to be zero.

Intangible assets

Intangible assets are measured at acquisition cost and consist of IT systems. Acquisition cost is depreciated over its useful life. If the annual impairment test indicates that assets are impaired, the value of the assets is written down, and the difference between the carrying amount and the recoverable amount is recognised in profit or loss.

Pensions

The bank ’s pension scheme is a defined contribution pension scheme. This means that the bank is paying a fixed percentage deposit as savings to each employee ’s pension account, depending on the size of the employee’s salary. Employees who were 55 or older at the time of transition to the defined contribution pension scheme on 1 January 2018, remain in the former defined benefit pension scheme. The defined contribution pension scheme is expensed on an ongoing basis.

Leases

Leases are being accounted for according to IFRS 16 Leases. Depreciation for leased assets (“right-to-use-assets”) are recognised in the income statement, at the same time as interest costs on the lease obligation. Repayment of the lease obligation ’s principal and interest portion, are classified as financing activities in the cash flow statement.

Taxes

Taxes are recognised in the income statement as they accrue. The income tax is based on profit before tax, other comprehensive income before tax, and on interest expense on additional Tier 1 capital that is recognised in the Statement of changes in equity. Temporary and permanent differences are adjusted for in the year's tax base when current taxes are calculated. Deferred tax liabilities and deferred tax assets are calculated on the basis of temporary differences between the accounting and tax values at year end. The nominal tax rate is used for calculation. Tax-increasing and tax-reducing differences within the same period are offset. Income tax consists of current taxes (tax on the taxable profit or loss for the year), changes in net deferred tax and adjustment to taxes payable for previous years.

The company is subject to financial tax. The tax rate is 25%.

The Company’s equity consists of share capital, additional Tier 1 capital that fulfils the requirements of equity, and other retained earnings. Dividends are classified as equity until approved by the Annual General Meeting. The additional Tier 1 capital is measured at cost and paid interest is subtracted from other equity.

Segment information

The company has only one operating segment. There is thus no segment information beyond the note information provided on lending to customers and the business as a whole, including information on the geographical distribution of lending, commercial paper and bonds and income from various categories of financial instruments.

Statement of cash flows

The cash flow statement is prepared using the direct method and presents cash flows by category. Cash flows from derivatives are classified as either interest received or interest paid, while cash flows from the exchange of principal on derivatives are reported on the line net (increase)/decrease in financial derivatives. Some derivatives involve periodic settlements of currency on the nominal amount, and these inflows or outflows are also recorded on the net (payment)/disbursement financial derivatives line. Cash flows from realised and unrealised foreign exchange gains/losses are reported on adjustment of exchange rate changes. Cash and cash equivalents include cash on hand, receivables, and payables with credit institutions with no notice period.

Implementation of new accounting standards as well as amended standards and interpretations

KBN has not implemented new standards in 2025. There has been no significant change in accounting principles throughout the year.

From 1 January 2027, IFRS 18 Presentation and Disclosure in Financial Statements will replace IAS 1 Presentation of Financial Statements. This will affect the presentation and disclosures in notes in the income statement by introducing new defined categories: operating, investing and financing, to financingThis will ensure a more consistent structure. Information on Management-Defined Performance Measures (MPMs) will be required to be included in the financial statements and is different from Alternative Performance Measures (APMs). The assessment of the implications of IFRS 18 and the related implementation work has been started.

For further information about remuneration to senior executives see the remuneration report for 2025 published at KBNs website.

(Amounts in NOK 1 000)

The company is obliged to have an occupational pension scheme in accordance with the Mandatory Occupational Pensions Act. The company has a pension scheme that meets the requirements of this Act.

KBN have a defined contribution pension scheme at Storebrand Livsforsikring AS. The contribution pension scheme has contribution rates of 7% for salaries 0-7.1 times the National Insurance basic amount (G) and 18% for salaries between 7.1 G and 12 G. The scheme includes the option for the Advanced Pension Plan (AFP) in the private sector associated with the common scheme. Associated insurance coverages are part of the scheme and include disability pension with child supplement without individual policy accumulation, child pension, and group life insurance/death benefits. The contribution scheme applies to all employees, except those who were 55 years or older as of 1 January 2018, and employees who were partially disabled or incapacitated with the right to sick pay at the time of the establishment of the contribution pension schemes. These individuals are covered by the previous scheme with KLP, which, with 30 years of accrual, grants the right to age-adjusted retirement pension at 66% of the pensionable salary at the time of retirement. The scheme also includes disability and survivor pensions as well as agreed-upon early retirement. The assets in the pension scheme are placed in a collective portfolio and cannot be specified in terms of asset classes. KBN had an operational pension scheme for salaries exceeding 12G that was closed in 2011.

Pension costs and pension liabilities for the defined benefit scheme include payroll tax and are assessed at the present value of future pension obligations accrued as of the balance sheet date. Pension obligations are calculated based on linear accrual, considering assumptions about discount rates, future salary adjustments, pensions, and benefits from the National Insurance, as well as assumptions about mortality and voluntary turnover. The period's pension cost consists of the sum of the period's accrual, interest cost on the calculated liability, and administrative costs. Changes in prior periods' pension accruals (plan amendments) are recognised in the period's results when the pension plan changes. The period's net pension cost is recognised under salary and administrative expenses. Changes in pension liabilities and assets in defined benefit schemes due to changes and variations in calculation assumptions (changes in financial and actuarial assumptions) are presented in the statement of comprehensive income as other comprehensive income. For the defined contribution scheme, payroll tax is presented as such in Note 4 Salary and administrative expenses and are therefore not included in the pension costs below.

KBN has used preferential bonds (OMF) in the Norwegian market as a basis for determining the discount rate for 2025 and 2024. Actuarial assumptions are based on commonly used assumptions regarding demographic factors.

(Amounts in NOK 1 000 000)

In December 2025, the Tax Appeals Committee issued a favourable decision to KBN in a tax appeal concerning the tax treatment and timing of recognition of financial instruments. KBN had previously received decisions to amend tax assessments for the income years 2014–2021. These amendments related to the timing and tax treatment of financial instruments, and parts of the decisions were appealed.

The favourable decision means that income previously considered taxable will instead be classified as debt for tax purposes, resulting in an overall reduction in taxable income for prior years. As a consequence, KBN has received a refund of NOK 1 billion in previously overpaid taxes, together with interest compensation of NOK 189 million. The interest compensation is classified as other interest income. See Note 1 for a specification of interest income.

The deferred tax asset on the balance sheet has been reduced by NOK 1 billion in 2025, as the tax treatment now aligns with KBNs accounting treatment for the relevant financial instruments. Historically, the KBNs financial statements have been aligned with the tax authorities’ decisions and positions.

(Amounts in NOK 1 000 000)

KBN has one lease agreement that is covered by IFRS 16 Leases. The agreement applies to the lease of office space in Filipstad Brygge 1. The right-of-use-asset is presented in the statement of financial position as other assets, while the lease obligation is presented as other liabilities. See Note 16 for further information.

Accounting policies for classification and measurement

Classification of financial instruments are carried out at initial recognition and determines the subsequent measurement of the carrying amount. Classification of financial instruments is determined by the characteristics of the financial instrument and by the business model for the management of financial assets.

Financial assets measured at amortised cost

KBN’s business model for loans to customers and commercial paper and bonds is to “hold to collect contractual cash flows”. When the assets’ cash flows only consist of principal and interest payments, and instruments with mainly offsetting value changes are not present, the assets are measured at amortised cost. New loans to customers and commercial paper and bonds are subject to an assessment of whether the cash flows of the asset are only repayment, principal or interest payments. If this is not the case, the asset shall be classified as measured at fair value. KBN’s PT and NIBOR loans are measured at amortised cost. Commercial paper and bonds without related financial derivatives are also measured at amortised cost, as well as deposits from credit institutions (cash deposits, money market deposits and cash collateral pledged) and other money market deposits, not hedged with a derivative contract. Other money market deposits are deposits to non-financial institutions. Measurement of amortised cost is performed using the effective interest rate method.

Hedge accounting may apply to assets classified as measured at amortised cost. When fair value hedge accounting is applied, the value change that is attributable to the hedged risk is recognised as part of the carrying amount with the hedged item, and in the income statement as net gain/(loss) on financial instruments.

Financial assets designated at fair value through profit or loss (FVO)

If the risk in selected commercial paper and bonds, loans to customers with fixed interest rate and money-market deposits (both to financial and non-financial institutions) is hedged with a derivative contract, these financial assets are designated at fair value through profit or loss at initial recognition, in to achieve similar treatment as related derivative contracts which are measured at fair value. This leads to a reduction in measurement inconsistency between commercial paper, bonds and loans to customers on one hand, and financial derivatives on the other hand. Hedge accounting for fixed-rate loans to customers has been applied sine 2022.

Financial liabilities measured at amortised cost

Debt securities issued in the form of benchmark loans and certain loans from institutional investors - issued in public capital markets, are classified as financial liabilities measured at amortised cost and are measured at amortised cost using the effective interest rate method. The same applies to floating-rate bonds issued in U.S. dollars or Euros, due to credit institutions (received cash collateral or loans in the money market), as well as commercial papers issued. A portion of these financial liabilities is designated as hedged items and is subject to fair value hedge accounting rules. The hedged risk is limited to interest rate risk for liabilities in USD, EUR, and NOK. Changes in value attributable to the hedged risk in the bond are recognised under debt securities issued, and accounted for in the income statement under net gain/(loss) on financial instruments.

Financial liabilities designated at fair value through profit or loss (FVO)

Debt securities issued that are not measured to amortised cost, are designated as at fair value through profit or loss at initial recognition. This to achieve similar treatment as related derivative contracts, which are measured at fair value. This leads to a reduction in measurement inconsistency between debt securities issued on one hand and financial derivatives on the other hand. For debt securities issued that are measured at fair value, the part of changes in fair value of liabilities that is attributable to changes in KBN’s own credit risk is recognised in other comprehensive income in the statement of comprehensive income. The remaining part of the change in fair value is recognised in the income statement. Note 9 provides additional information about financial assets at fair value through profit or loss (FVO).

Financial derivatives

Financial derivatives are classified as at fair value through profit and loss, with the exception of contracts designated as hedging instruments in fair value hedges. All financial derivatives are measured at fair value through profit or loss and are presented as assets when the value is positive, and as liabilities when the value is negative.

The accumulated principal of the debt as of December 31, 2025, including commercial paper issued, debt securities issued and subordinated loan capital, amounts to NOK 494 billion against a book value of NOK 489 billion.

(Amounts in NOK 1 000 000)

(Amounts in NOK 1 000 000)

Accounting principles for measuring financial instruments at fair value

Financial instruments are categorised into the fair value hierarchy, where the level of categorisation (Levels 1, 2 or 3) is based on the following.

Level 1

For securities traded in an active market with frequent market observations, quoted prices on the reporting date are used in the measurement of fair value. The bank uses quoted prices provided by international vendors, and they are classified as level 1-inputs when they represent actual market transactions for the instrument.

Level 2

For financial instruments without available quoted prices in an active market, KBN will either use quoted prices of similar instruments in active markets, where possible, or valuation techniques where significant inputs are based on observable market data. level 2-inputs might include:

• observable interest rate yield curves, basis swap spreads, FX-rates, equity indices, commodity indices and volatilities
• quoted prices and credit spreads at the reporting date for similar instruments issued by the same issuer but with a different tenor, so that an adjustment for maturity is necessary
• quoted prices and credit spreads at the reporting date for similar instruments issued by the same issuer but denominated in a different currency, so that an adjustment for basis swap spread is necessary
• actual market transactions in identical instruments before or after the reporting date, so that an adjustment for events between the date of transaction and the reporting date is necessary
• more liquid instruments issued by the same issuer with identical maturity, but an adjustment for liquidity risk is necessary
• prices on potential new issues in similar instruments from the same issuer

Level 3

Level 3 is relevant for financial instruments that are not traded in an active market and fair value is determined using valuation techniques where significant input is based on unobservable data.

The same type of input might be used to determine the fair value of commercial paper and bonds classified as level 2 and level 3, however, the significance of adjustments of market data and to what extent the adjustment is done based on observable data, determines the categorisation. Other inputs used in determination of fair value might include:

• indicative prices and estimates for similar instruments provided by other market participants
• market indices, both bond and credit default swap indices, for similar instruments
• non-binding price quotes from different sources
• historical or implied volatilities

Fair value disclosures

For financial instruments categorised in the fair value hierarchy at multiple periods, a reconciliation of movements between the levels is done at the end of each reporting period. The valuation technique used to determine fair value of financial instruments categorised in level 2 or level 3, is determined based on the instruments’ features. Fair value of financial instruments without embedded option-elements is determined using the discounted cash flows method, where discount rates are derived from the relevant observable money market interest rates with the addition of a credit surcharge. When such factors cannot be reliably observed at a reporting date, management may make assumptions and use estimates when determining the fair value. Fair value of financial instruments with embedded option-elements is determined using both discounting and option pricing models with observable market data and estimates as inputs. The most significant unobservable input used in the valuation in level 3, comprises the credit premium for financial instruments that are not traded in an active market.

Information about fair value

Assets and liabilities measured at fair value are in the above tables categorised in the three levels as described in the accounting principles above.

All changes in fair value of financial instruments adjust the carrying amounts of assets and liabilities and are recognised in either the income statement as net unrealised gain/(loss) on financial instruments or in the statement of comprehensive income as change in fair value of liabilities due to changes in own credit risk under other comprehensive income.

KBN has established policies and guidelines for valuation that describe principles for fair value measurement of financial instruments. The main principles are that fair value should be measured at the value the asset may be sold for or the liability repurchased/transferred for, and that observable data shall be used to the extent possible in the valuation. Quality assurance should be undertaken against alternative sources. The guidelines also set out the frequency of valuation for different instrument types, and procedures for control of fair value.

Loans to customers

Level 2

Level 2 includes fixed rate loans to customers granted before 1 January 2022. Fixed rate loans to customers are granted on individual level and are not traded in an active market. Hence, observable market prices are not available after initial recognition. Fair value of such loans is estimated based on discounting future cash flows using discount rates derived from observable money market rates and observable credit spreads for Norwegian municipalities at the reporting date. Fixed rate loans with an amortisation schedule are valued adding a discretionary spread to cover liquidity premium, but this does not constitute a significant part of the input data in the valuation.

Commercial paper and bonds

Level 1

Determination of fair value based on quoted prices in an active market with many buyers and sellers gives a fair value estimate with the lowest degree of valuation uncertainty (level 1). Level 1 inputs for commercial paper and bonds include quoted prices provided by international vendors, which represent actual transactions in an active market. Such third-party prices are also partially used within level 2, but where the price is not considered to reflect sufficient liquidity to allocate the position to level 1.

Level 2 and 3

The fair value of commercial paper and bonds where quoted prices are not sufficiently available on the reporting date, is determined using the discounted cash flow method where discount rates are derived from observable money market interest rate yield curves (parts of level 2 and level 3). Discount rates are adjusted for the issuers credit and liquidity risk to as large a degree as possible, based on observable market data. When applying credit/liquidity adjustments to discount rates, the assets are grouped based on the issuer’s credit rating, currency, time to maturity, underlying exposure and geographic location. All investments are allocated to their respective levels on each reporting date. Unobservable credit spreads are used to some extent when there is little or no market activity for the security in concern, or equivalent securities. When these are material for the valuation, the security is allocated to level 3, which reflects significant valuation uncertainty.

Debt securities issued.

The bond debt is divided into three main groups based on the type of borrowing product and the corresponding loan documentation used. The three groups are loans in public niche markets, private placement loans, and retail loans. The first two groups are public (listed) syndicated loans in various currencies, where the issuance size constitutes the primary difference between the two groups.

Level 1

For quoted loans in public niche markets, quoted prices exist in an active market and these are considered to belong to level 1 with limited valuation uncertainty.

Level 2

For other loans in public niche markets, there are partially listed prices, but the activity and liquidity are somewhat low, so they are considered to belong to level 2, with some valuation uncertainty. A discounted cash flow model is used in the valuation, where inputs include market interest rates, listed prices, and prices of comparable instruments adjusted for differences in maturity, size, and currency. Prices of new issuances are also used as an important indicator in the valuation, and the bank obtains non-binding price quotations from brokers.

Level 3

The second group comprised of private placement loans where the loan terms are specially adapted for a single investor. The final main group is retail loans, i.e. loans sold to non-professional investors. Bonds in these two groups are not listed and normally not traded in the secondary market and are, to a large extent, structured products with option elements that are linked to stock prices, equity indices, FX rates or commodity prices. Quoted prices are hence not available for the security, and unobservable inputs are used to a significant degree in the valuation. These loans are therefore allocated to level 3 in the fair value hierarchy, and thus are characterised by significant valuation uncertainty. The choice of valuation techniques and inputs depends on the structure and terms of each loan. For all bonds in these groups, fair value is determined by using the discounted cash flow method. Inputs are current interest rate yield curves and credit spreads that are estimated from price indications to brokers at the Company’s information channels. Credit spreads are for these groups regarded as an unobservable input, and hence an estimate. For structured bonds with option elements, option pricing models are used in addition to determine expected cashflows. These models use interest rates, FX-rates, stock prices, equity indices and implicit or historical volatilities as inputs.

Financial derivatives

All financial derivatives are unlisted over-the-counter-contractscountercontracts used in economic hedges of interest rate and currency risk, and other market risks for debt securities. Derivatives are used for all portfolios, including securing interest for fixed-rate loans. For basis swaps (USD-NOK, USD-EUR and EUR-NOK), FRAs and interest rate swaps and cross currency swaps without option elements, fair value is determined by using the discounted cash flow method. Discount rates are derived from observable basis swap spreads and swap interest rates. Hence, these contracts are allocated to Level 2, with considerable market activity for new contracts and relevant market parameters. Cross-currency swaps and interest rate swaps which are economic hedges of debt securities issued with option elements, are valued using discounted cash flow method and option pricing. These are classified as Level 3 due to significant use of unobservable inputs.

KBN analyses the fair value and the value changes at the end of the reporting period, including the basis for the development in fair values.

Transfers to and from level 3 primarily result from changes in the availability of observable inputs to valuation methods during the period, as well as new issuances classified within level 3. In 2025, net debt of NOK 2.0 bn. were transferred from level 1 to level 2, and net assets of NOK 0.3 bn. was transferred from level 1 to level 2, and net assets of NOK 0.3 bn. was transferred from level 2 to level 1.

Effects from the currency conversion of principal amounts from non-derivative interest-bearing instruments in foreign currency and from interest and fees, are presented net in the income statement. Corresponding changes in fair value from currency derivatives used as hedging instruments in the economic hedging of the mentioned currency exposure, are presented net along with FX differences from the hedged item.

Net unrealised fair value changes for loans to customers, commercial paper issued, debt securities issued as well as subordinated loans are included in the income statement in net gain/(loss) on financial instruments, with the exception of unrealised fair value changes to debt securities issued due to a change in own credit risk. Unrealised fair value changes to debt securities issued due to a change in own credit risk are included in the statement of comprehensive income as other comprehensive income.

Description of significant unobservable data used in valuation, within level 3

In cases where there is very little or no market activity for the relevant instrument, the valuation relies significantly on estimates as input in the model. The most significant estimate includes a spread to the relevant yield curve. For debt securities issued, the spread includes liquidity risk, own credit risk, and market risk in the relevant currency market. For commercial paper and bonds valued using a model, the spread includes liquidity risk, issuer credit risk, and market risk in the relevant currency market. Other unobservable inputs include volatilities within option pricing models, where relevant. Beyond this, the parameters used in valuing instruments with option elements are primarily observable. Bonds with option elements are hedged one-to-one with financial derivatives where the option element is offsetting, thus eliminating exposure from the option element.

The total credit spread and thus the yield curves are sensitive to changes in underlying components. Changes in credit spread, liquidity risk, or market risk in the relevant currency market will therefore affect the fair value of the instrument. See the sensitivity analysis in the following table for the impact of a 10 basis points increase in the discount rate.

Sensitivity analysis level 3

For debt securities issued as well as subordinated loan capital, changes attributed to an increased credit spread will result in recognising the unrealised gain in other comprehensive income in the statement of comprehensive income. Changes attributable to increased money market interest rate will result in the unrealised gain being recognised in the income statement.

Level 3 unrealised gain/(loss) in the period

Amounts in the column unrealised fair value changes in the table above are included in net gain/(loss) on financial instruments in the income statement, and in other comprehensive income in the statement of comprehensive income.

(Amounts in NOK 1 000 000)

Accounting principles for hedge accounting

KBN uses fair value hedge accounting for selected economic hedges of interest rate risk according to IFRS 9 of debt securities issued, commercial paper and bonds and loans to customers. Fair value hedging is applied when the economic hedging meets the requirements for the use of fair value hedge accounting. The hedge relationship is documented at designation, including the goals and strategy for the risk management of the hedge relationship. The documentation includes identification of the hedge relationship, description of hedged risk (interest rate risk) and a prospective effectiveness test. Hedge effectiveness is measured on an on-going basis. Any ineffective part of the hedge is recognised in the income statement. Hedging instruments are measured at fair value through profit or loss, and carrying amounts are adjusted accordingly. The value change of the hedged items that is attributable to the hedged risk (interest rate risk), is recognised as part of the carrying amount of the item and in the income statement as net gain/(loss) on financial instruments.

Ineffectiveness occurs due to changes in market rates in the floating leg of the hedging instrument, the use of different interest rate curves for discounting the hedging instrument and where the hedge is not 1:1.

Recognised value changes are a result of changes in underlying risk factors, hence the hedged risk (secured inefficiency).

Maturity profile of financial instruments in fair value hedge.