ANNUAL REPORT 2015 Kommunalbanken Norway BJØRNSLETTA SCHOOL Bjørnsletta is a primary and lower secondary school with a multipurpose facilities hall. It is the first school building in Oslo municipality built according to the passive house standard satisfying environmental requirements. In many ways the school sets the future building standard for schools. To the city PHOTO: Tove Lauluten of Oslo KBN is a substantial source of financing. TABLE OF CONTENTS

Key figures...... 5

CEO’s foreword...... 6

We finance welfare services...... 10

Funding from around the world...... 12

The Norwegian local government sector from an investment perspective...... 16

An update on Norwegian economy...... 18

Reporting on corporate social responsibility ...... 20

The Board of Directors’ Annual Report 2015 ...... 26

The Board of Directors...... 36

Financial statements 2015...... 39

Control Committee’s and Supervisory Board’s statements...... 73

Auditor’s report...... 74

Articles of Association...... 75

Governing bodies ...... 77

Organisation...... 78 in 2015 % Long-term 309 than Other 8 citizenship Norwegian funding transactions funding transactions kr Cost efficient Cost age Mean ATTRACTIVE TERMS ATTRACTIVE 42 The KBN staff The FINANCING SOLUTIONS ON ON SOLUTIONS FINANCING

Stable ... OFFERING LONG-TERM FLEXIBLE FLEXIBLE LONG-TERM OFFERING ... % women Share of Share 46

% - Care Homes Care of Norwegian of Norwegian municipalities KBN are customers 98 institution Nurseries Norway’s third third Norway’s largest financial largest kroner we manage we kroner KBN’s operations cost cost operations KBN’s tion for every hundred hundred every tion for three øre in administra øre three Roads

FUNDING FROM FROM FUNDING

STATE OWNED AGENCY AGENCY OWNED STATE AROUND THE WORLD... THE AROUND

Highest Highest since 1927 since Schools new loans new in granted 2015 591 AAA possible rating possible WITH COST EFFECTIVE OBJECTIVES EFFECTIVE COST WITH Owned by the State the State Owned by HIGHLIGHTS 2015 HIGHLIGHTS

ANNUAL REPORT 2015 / PAGE 4 ANNUAL REPORT / PAGE 5 673 491 2014 1 753 8 336 1 515 1 026 42 680 6.13 % 0.12 % 0.26 % 247 116 155 305 116 739 108 080 391 285 455 466 12.26 % 14.53 % 12.26 % 12.82 % 2015 2 979 1 870 1 642 1 043 2 583 46 757 68 644 12 202 0.42 % 0.23 % 15.09 % 254 421 146 611 110 604 400 894 449 361 20.84 % 18.81 % 16.53 % 11.70 % 2 2 2 2 3 3 3 1 Total capital adequacy ratio Total Tier 1 capital adequacy ratio Tier 1 capital adequacy ratio Common equity Total borrowings Total New long-term borrowings debt Repurchase of own Redemptions New disbursements Outstanding loans Return on equity after tax Return on equity after tax (core earnings) Return on assets after tax Return on assets after tax (core earnings) Net interest income Core earnings Profit before tax year Profit for the 1 Profit after tax adjusted for unrealised gain/(loss) on financial instruments after tax after on financial instruments gain/(loss) for unrealised tax adjusted after 1 Profit assets equity and average of average as percentage on assets on equity and return 2 Annualised return 3 Principal amounts KEY FIGURES KEY TOTAL ASSETS TOTAL EQUITY BORROWINGS LENDING LIQUIDITY PORTFOLIO RESULTS (Amounts in NOK 1 000 000) (Amounts in NOK ------

More and more countries in Europe Kristine Falkgård Kristine & CEO President sector – can borrow more cheaply. sector – can borrow more cheaply. the local government sector as attractive sector as attractive the local government led to the borrowingThis has borrowers. market for municipalities and county authorities ever becoming dominated since the financial crisis by publicly-ow ned specialist institutions with sectoral In order to differen policy mandates. exclusively this type of lender that tiate loans to the local governmentprovides sector from traditional banks in regula tory the authorities terms, in countries such as Finland and the Netherlands opted to define their institutions have sector lend to the local government that Just like KBN, ‘promotional banks’. as 100%banks are promotional such by the authoritiespublically owned in and their len countries, their respective ding activities are therefore deemed to be public sector self-financing activities according to the European Commissi regulatory interpretation that adap on’s for such banks are not affectedtations state by the prohibition against unlawful banks of promotional The status aid. means such institutions are subject to and the result is different regulation, their customers – the local government consists of extremely safe borrowers. safe borrowers. consists of extremely subject to the same are we However, even banks, as commercial regulations a completely different though they have means and puzzling is This riskprofile. differs from in this respect Norway that other countriesmany in Europe. are as elsewhere in the world as well setting up specialised lending instituti sectorons for the local government because of its need for access to finan cing on stable and reasonable terms. return own and requirements Banks’ the equity requirements set by the aut horities traditional banks no mean that longer regard low-margin customers in ------We finance the welfare finance the services the that We A sound profit is important to KBN Despite financial turmoil, both in Despite financial turmoil, KBN is committed to prudent finan local government sector is legally requi sector local government and our customer group red to provide, expected profit in 2015. This shows This shows expected profit in 2015. well. our model works that its capacity to meet the local building future borrowing sector’s government At a time when the requirements. banking sector is facing higher capi build strong profits tal requirements, Another KBN needs. the equity that be for us to reduce alternative would the extent of our lending considerably. needs of the In view of the investment in the future, sector local government this is not a viable course of action. markets are an important supplement to an instrument such as of the state to they expose municipalities but KBN, Short-maturitygreater refinancing risk. and to be refinanced often, loans have canchanges in the liquidity situation make borrowers vulnerable to turmoil half In the second in the capital markets. on certificatespreads the 2015 of loans sectorissued by the local government widened sharply and quickly. world, the of rest the and Norway KBN recorded a much better than invests in KBN, and means municipali in KBN, invests the welfare servicesties can deliver that they are legally required to provide. the municipal level cial management at as part of our corporate social respon long- reason that It is for this sibility. The term loans are our main product. maturity of a loan should be reasonably similar to the lifetime of the investment More and more municipali it finances. ties and county authorities are choosing to use the capital markets to finance The capital some of their investments. forward the time when the state’s oil state’s the when time the forward money are less than the oil revenues spent as partBudget. of the National we manoeuvre, With less room for task is to KBN’s smarter. need to work sector isensure the local government able to access financing when it needs This ena possible cost. lowest the it at the best possi to deliver bles the state ble welfare services the amount it for ------

Putting all these factors together, it isPutting all these factors together, Municipal reform is coming. In 2016 Municipal reform is coming. is in the Norway At the same time, Norway’s population continues to continues population Norway’s The rate of growth forecast for theThe rate CEO’S FOREWORD CEO’S the fallthe in the oil price has brought room to manoeuvre financially and monetaryand where economic policy used to counteract the effe are actively At the same time, cts of tougher times. clear that the local government sector the local government clear that sizeable invest will continue to have Fortunately ment needs in the future. in a country live has significant that we environmental gains, getting there will getting gains, environmental require significant investment. authorities start to take shape. process of becoming a low-carbon Although this will bring great society. local government sector will fall sector local government into will see a new map fea place and we turing municipalities and county fewer increases the more Norwegians there all live. are and the longer we of the structurethe main features of the that the flow of refugees to Norway of refugees to Norway the flow that will require significant resources in the servicesThe need for welfare future. «#7million» to draw attention to how to how attention «#7million» to draw there will be in scar Norwegians many also the was 2015 cely a generation. in which it really became clear year other European countries. In 2015 the other European countries. of Norwegian Enter Confederation priseannual conferenceits called divide in the Norwegian economy is economy divide in the Norwegian increasingly clear. of mostgrow than that more quickly industries. At the same time, the wea At the same time, industries. ker Norwegian krone has given a boost The to traditional export industries. Norwegian economy has been revi economy Norwegian oil priceThe low has had a sed down. on petroleum-related impact negative are now signs that we are entering we signs that are now need to pre and we choppier waters, pare for changes ahead. civil disobedience, the graffiti artistcivil disobedience, had With a few notable point. made a valid has the outlook for Norway exceptions, There been stable so far this century. read some graffitisome read let capital white in ters apartment on an block in Oslo. committed an act of Despite having “The future is not what it once was” it once was” “The future is not what capital position. This is crucial to KBN’s ability to be a long-term be a long-term ability to KBN’s is crucial to This capital position. sector. government local the Norwegian partner to KBN ended 2015 with a sound profit and a significantly improved improved and a significantly profit with a sound 2015 KBN ended

ANNUAL REPORT 2015 / PAGE 6 ANNUAL REPORT / PAGE 7

THE BERGEN LIGHT RAIL Since 2010 KBN has helped finance the light rail’s three construction stages. The rail, the climate friendly backbone of Bergen’s public transport system, has replaced heavy bus lines tempting more inhabitants to leave the car at home.

PHOTO: Paul Sigve Amundsen ------, the local , KOMMUNAL RAPPORT KOMMUNAL more borrowings will also be able to a more professional finance operate and will accordingly make function, greater demands on their sources even adapted KBN has always of financing. its activities in pace with changes in respon sector’s the local government This will sibilities and requirements. continue to be the case in the future. population growth due to greaterpopulation life high birth a relatively rate expectancy, The of immigration. and a high level period in to 2050 will see an increase proportionthe the in people older of the change in However, population. the age composition of the popula than in some tion will be less dramatic countries Even in southern Europe. the change will make it necessary so, increase to municipalities most for spending on care for their investment the elderly. newspaper, sector’s government 428 reports 200 of Norway’s that negoti in involved were municipalities regarding their future structureations The government’s the end of 2015. at is for the municipal reform objective larger and more robust will create that by the to be approved municipalities before the ele Norwegian Parliament Larger municipa ction due in 2017. lities with wider responsibilities will requi greater investment also have with Larger municipalities rements. - - sector’s sector’s continued THE FACTORS DRIVING FACTORS THE THE LOCAL GOVERNMENT LOCAL THE caused by changes in policy. The caused by changes in policy. is composition of Norway population The country is experiencing changing. aims to respond to its customers’ aims to respond to its customers’ and so it also offers loan requirements, shorterwith products maturities that require more frequent refinancing. growth borrowing in local government are the direct result of the significant continues to that scale of investment of be required to expand the provision welfare services in response to demo a backlog of main graphic changes, the effect of tenance requirements, and new requirements change, climate choose instead to arrangeto instead choose financing with much shorter maturities and no which they then instalment payments, KBN at maturity. refinance in full investments are by their nature long are by their nature investments this kind of that KBN believes term. financed on a should be investment Instalment loans with long-term basis. long maturities are therefore KBN’s Some municipalities core product. providing long-term financing. long-term providing In a world of continuing social change, climate social change, of continuing In a world the local government reforms, change and requirement a continuing will face sector financed spending investment new for ahead. KBN is in the years borrowing by history its 88-year continuing to committed by sector government of supporting the local - - - - - benefit reasons for

SMALL AND LARGE PROJECTS AT LARGE AND SMALL AT PROJECTS NOTICE. SHORT KBN IS ABLE TO OFFER FINANCING OFFER TO ABLE IS KBN BOTH FOR TERMS REASONABLE ON

SERVICES WE FINANCE WELFARE WELFARE FINANCE WE SECONDLY, ALL BORROWERS ALL SECONDLY, THERE ARE TWO MAIN TWO ARE THERE is that they represent the same low risk, they represent the same low is that and accordingly KBN offers the same and other termsinterest rate and con ditions to large and small municipalities. from under 1,000 residents to large hundred tho municipalities with several all local what However, usand residents. in common borrowersgovernment have terms for both small and large projects Norwegian municipa shortat notice. ranginglities vary considerably in size, from the same attractive interest rate. As interest rate. from the same attractive inone of the largest funding operations KBN AAA rating, and with its Norway is able to offer financing on reasonable ding with no instalment payments for ding with no instalment payments easilycan changes and years, 10 to up the life of a loan. be made over the specific requirements of each bor KBN can offer loans for periods rower. inclu from three months to 40 years, which loans from KBN are an attractive are an attractive KBN from loans which source of funding for local government offerto able is KBN Firstly, borrowers. flexible financing structured to meet

ANNUAL REPORT 2015 / PAGE 10 ANNUAL REPORT / PAGE 11 the tall ship’s restoration was financed financed was restoration the tall ship’s KBN. loans from through THE TALL SHIP THE TALL SØRLANDET oldest Sørlandet» is the world’s «SS long 65 meter The tall ship. working offering built in 1927 was three-master then tens Since maritime skill training. received have of thousands of youths the ship. on board their training a secondary the tall ship offers Today years During two school education. will visit 22 countries the students for the same time preparing while at post-secondary the best into entrance in the world. and colleges universities requirements, regulatory new Owing to Fullriggeren Sørlandet Fullriggeren PHOTO: PHOTO: Non-Japan Asia 8% Americas 4% 2% Australia 2% Zealand New 1% Middle East Japan 49% 19% Europe USA 15% USA by investor geography investor by TOTAL BORROWING 2015 BORROWING TOTAL and international investors. and international investors. capital markets for climate-friendly choices for Norwegian investment - BRL 3% INR 2% NZD 4% USD 46% 7% AUD 35% JPY Other 3% by currencies by TOTAL BORROWING 2015 BORROWING TOTAL

of 10-year bonds, and its ambition and its ambition bonds, of 10-year is to issue greena regu bonds on KBN lar basis in the years ahead. green listed two bonds on the Oslo stock exchange list for green bonds In so doing KBN hopes to in 2015. of the contribute to the development KBN brings together the borrowing the borrowing together KBN brings local Norwegian of the entire requirements able and is accordingly sector, government and important major investors access to gives This the world. around capital markets priced reasonably to KBN good access interest low ensures funding, which in turn its customers. for rates ------

AROUND THE WORLD THE AROUND FUNDING FROMFUNDING GREEN BONDS GREEN 2015 with a USD 500 million issue 2015 with a USD 500 million issue became the first Norwegian issuer of green bonds with a USD 500 million KBN carried bonds. issue of 3-year out its second green bond issue in 2010. In the first couple of years, In the firstyears, couple of 2010. green funding targeted Japa KBN’s the through investors private nese In 2013 KBN Uridashi market. KBN has raised green funding since KBN has historically raised most of its US dollars yen, funding in Japanese and a range of other currencies. types of investors - everything from types of investors central banks through to prinational investors. vate dent on market conditions in any dent on market conditions in any funding KBN’s particular market. program spreads its activities across different all continents and between In order to be a stable source of finan of source stable a be to order In sector, cing for the local government KBN needs to ensure it is not depen demand for KBN’s bonds and ensu bonds demand for KBN’s funding low KBN achieves res that costs. markets. Its highest possible credit Its highest possible credit markets. and Moody’s from (Aaa/AAA) rating strong creates Standard & Poor’s ment sector is raised by issuing ment sector is raised by issuing securities in the capital markets. KBN is currentlyNor the largest in the international wegian borrower KBN differs from banks in that it differsKBN it that in banks from All the money does not take deposits. KBN lends out to the local govern

ANNUAL REPORT 2015 / PAGE 12 ANNUAL REPORT / PAGE 13 Oslo Børs PFOTO: PFOTO: the Oslo stock exchange list for green bonds. green for list exchange the Oslo stock contributeIn so doing KBN is seeking to of the capital markets the development to for choices investment climate-friendly for investors. and international Norwegian GREEN STOCK EXCHANGE GREEN STOCK bonds on green its two KBN listed In 2015 Torunn Brånå Torunn

ANNUAL REPORT 2015 / PAGE 14 FOTO: ANNUAL REPORT / PAGE 15 recent inhabitants moved into the municipality’s into inhabitants moved recent The kindergarten. building: Ødegården recent most but it the street, from brick building looks stark the future solutions bringing the building of contains and of warmth source closer: The steps considerable water- Through in the ground. well is an energy cooling system, ventilation and a balanced borne floor heating in the building. is distributed the energy ØDEGÅRDEN KINDERGARTEN most municipality’s some of Oppegård year Last - - - - interest income (l.a) income interest pension Debt (excluding of as a proportion liabilities) revenue (l.a) operating of as a proportion Investment (r.a) revenue operating as a propor expense Interest (r.a) revenue tion of operating Operating expenses as a expenses Operating of operating proportion (l.a) revenue and inter expenses Operating as a proportion expense est and revenue of operating 10 % 8 % 6 % 4 % 2 % 0 % 20 % 18 % 16 % 14 % 12 % Because local government in Norway Norway in government local Because acting through the Ministry of Local This and Modernisation. Government means municipalities are extremely unlikely to experience in difficulties KBN has not meeting their liabilities. incurredlending a single loss on its any sector at to the local government it has been time in the 90 years that It is consequently diffi in existence. risk. of level actual the estimate to cult the is that however, can be said, What risk is extremely of missed payments comparable to that and on a level low, with the safest of govern associated ment bonds. supervision authoritiesstate by the 2014 - - - - 2013 2012 2011 2010 Source: Statistics Norway Statistics Source: 2009 The Local Government Act sti The Local Government this limited primarily to delivering such as edu central welfare services, nurseries and care homes. cation, municipalities cannot that pulates and if insolvent, declare themselves experiences municipality any financial difficulties this is addressed by run deficit under close ning a budgeted receive as partreceive of one of the richest Municipalities countries in the world. to comply with strictbudgetary, have accounting and borrowing require by the which are regulated ments, There are also Act. Local Government municipalities requirements for what with can finance through borrowing, regardless of economic cycles and are subject and are cycles of economic regardless guidelines on borrowing. strict to With the funding it receives as part of one of the as part receives the funding it With Norwegian the world, in the countries richest is characterised sector local government an investment risk from low as extremely the municipalities have Norwegian perspective. downturns with economic cope to resilience financing stable access able to are as they - - - 2008 2007 KEY FINANCIAL METRICS FOR NORWEGIAN MUNICIPALITIES, 2004-2014. 2004-2014. MUNICIPALITIES, NORWEGIAN FOR METRICS FINANCIAL KEY 2006 2005

2004

0 % 0 20 % 40 % 80 % 60 % AN INVESTMENT PERSPECTIVE INVESTMENT AN GOVERNMENT SECTOR FROM SECTOR GOVERNMENT THE NORWEGIAN LOCAL NORWEGIAN THE spective thanks to the funding they thanks spective IS SAFE FOR INVESTORS INVESTORS FOR IS SAFE Norwegian municipalities are extre per riskmely low from an investment and wastewater projects, roads, cultural roads, projects, and wastewater activities and nurseries. SECTOR GOVERNMENT THE LOCAL cipalities’ ability to invest in and deliver and in invest to ability cipalities’ importantas such objectives welfare water health and care services, schools, far offinances the on impact little had sector. the Norwegian local government financing, of In its role as a provider KBN contributes to Norwegian muni The economic slowdown resulting from resulting slowdown economic The the fall in the oil price therefore so has 100 % 120 % 20 40 60 80 100 120

ANNUAL REPORT 2015 / PAGE 16 ANNUAL REPORT / PAGE 17 ------AND COUNTIES AND responsible for welfare services services welfare for responsible services, such as health and care and transport education, infrastructure. • Municipalities and counties central strict subject to are regulation control, government and supervision. • Municipalities and counties themselves cannot declare insolvent. • Norway is divided into 19 • is divided into Norway which are (fylker), counties 428 municipalities split up into (kommuner). municipalities are • Many than half small. More relatively home are the municipalities (287) 12 people. than 5,000 fewer to 50,000 over municipalities have residents. of the local revenue total • The was in 2015 sector government NOK 400 billion, up slightly over 2014. from terms 2.2% in real sector local government • The one fifth approximately employs workforce. of Norway’s is sector local government • The The Norwegian government has has government The Norwegian NORWEGIAN MUNICIPALITIES MUNICIPALITIES NORWEGIAN slightly under 20% of workers cur 20% of workers slightly under in Norway. rently employed a municipal reformlaunched process introducing gre of with the objective of authority delegation faci and ater muni of stronger the creation litating currently more has Norway cipalities. centralised control comprehensive authoritiesof local government than other European is the case in many has been a trend over There countries. years for this centralised control many while more detailed, to become ever have the same time municipalities at responsi more significantly on taken The govern services. bility for welfare reformsmunicipal will enable ment’s and respon it to transfer more power The purpose sibility to municipalities. of this is to make municipalities more able to meet individual challenges and to promote more efficient resource municipalities can furtuse so that the range of servicesher develop they offer. The article is written by Menon Business Kommunalbanken. Economics for ------The local government sector is The local government Municipalities represent the part represent the Municipalities of in the local government sector were were sector in the local government 2014. to relative in 2015 stable of Consulting Association The in of Norway Engineers’ ‘State is a there that found report 2015’ backlog in significant investment the local government to relation In view stocks. building sector’s that expectation the and this of will continue population Norway’s grounds are there strongly, grow to by investment that believe to will sector the local government going forwards. grow to continue The level of investment by the the by of investment level The is high as sector local government and of its revenue, a proportion in real has increased investment Net years. two the last over terms the local government by investment approximately to amounted sector in 2015, revenue 14% of the sector’s six in the first with investment higher than in the same months 1.7% numbers Employee period in 2014. ORGANISATION STRUCTURE OF STRUCTURE ORGANISATION MUNICIPALITIES NORWEGIAN cant proportion services of welfare and the areas for which in Norway, it is responsible are steadily increas public key finance Municipalities ing. welfare schemes such as nurseries, primary primary schools, healthcare The serviceselderly. the for care and sector is therefore local government and in terms a sizeable employer, numbers for accounts employee of largely managed by the revenue allo the revenue largely managed by sets the Norwegian Parliament cation and Budget, in the National each year the respon that has to ensure the state to municipalities sibilities delegated the resources they are consistent with scope of existing The available. have means that legislationregulation and respon municipalities are themselves balance sible for ensuring an effective resource use and servicebetween pro alloca subject to the revenue duction, available. tion they have a signifi responsible for delivering public administration that is responsi that public administration care of the population’s ble for taking of acti The level level. a local needs at sector is vity in the local government ------DEVELOPMENTS IN THE LOCAL GOVERNMENT ECONOMY GOVERNMENT LOCAL THE IN DEVELOPMENTS In addition, as the third largest finan In addition, increased at approximately the the approximately at increased has grown as its revenue same rate growth Further revenue time. over with going forwards, is expected this helping the local government its service develop to sector further. offering in revenue. According to the the to According in revenue. local the 2016, for Budget National grew revenue sector’s government NOK 9 billion or 2.2% by terms in real be to expected is Revenue 2015. in higher again in real billion NOK 7.3 of activity level The in 2016. terms has sector in the local government revenues. revenues. of of their proportion In terms local GDP, mainland Norway have revenues sector government in recent stable been relatively of activity has and the level years, in line with increases increased Norwegian local government government local Norwegian seen annual authorities have 2.6% a around by grow revenue 2005 between terms in real year is partly due to This and 2014. which growth, population strong tax government local increased has losses as a consequence of loans issued Nor in sector government local the to can consequently be regarded as way In other terms, virtually non-existent. there are few safer areas in which to invest. buffer between the local government the local government between buffer credi borrowing KBN’s and sector’s This redu tors in the capital markets. ces the risk with the Norwe associated gian sector from an local government further, even perspective investment and the risk of a third party incurring cial institution in Norway by total Norway cial institution in KBN has been judged to be of assets, importancesystemic and Norway in additional strictis therefore subject to KBN’s capital adequacy requirements. observanceadequacycapital these of requirements serves as an additional by the economic slowdown. So far the slowdown. by the economic for the been compensated sector has tax receipts cau reduction in income through unemployment higher by sed the direct transfers for in the provided Budget. National is largely a sheltered sector, with direct with sheltered sector, is largely a transfers forming from the state appro the of its revenues, 60% ximately so farsector has little affected been - - - - player include merchant shipping, include merchant player fisheries. and metal production a is at in Norway Unemployment and Statistics level, and stable low unemploy that reports Norway 2.5% of the ment has averaged 10 years. the last over workforce of populati has a high rate Norway of principally as a result on growth, immigration. Norway is a small, open economy is a small, open economy Norway population with a highly educated resources. natural and extensive is cha economy Norwegian The stability, long-term by racterised has one of the highest and Norway GDP per person in the world. Fund - Pension Government The the as known Global, commonly a stable Oil Fund, has generated and years, many for return positive budget surplus, the government including the Oil Fund, is in excess of 10% of GDP. the largest far is by oil sector The but a diverse in Norway, industry Nor the gives structure industrial than one more economy wegian in which on. Industries stand leg to is a significant global Norway THE NORWEGIAN ECONOMY NORWEGIAN THE weakening significantly. This benefits more more This benefits significantly. weakening such as seafood industries export traditional and manufacturing. The divide in Norway between the mainland between divide in Norway The and petroleum- on the one hand economy on the other became industries related oil low The in 2015. pronounced increasingly impact on petroleum- a negative had price the same time at but industries, related krone the Norwegian to contributed DIFFERENCES UNEMPLOYMENT IS INCREASING, INCREASING, IS UNEMPLOYMENT GEOGRAPHIC SIZEABLE WITH BUT with the number of unemployed, with the number of unemployed, a large that the figures indicate proportion quickly find a new job. industries, particularly industries, along the Aust-Agder coast from the county of in the south of the country to the county of Møre og Romsdal in the The unemployment north west. in other partsrate has of Norway and stable, remained relatively in Oslo and Northerninland, has actually unemployment Norway, of those who have Many fallen. lost their jobs are highly educated to other who are attractive workers If one compares the industries. number of redundancies and lay-offs The unemployment rate in Norway Norway in rate unemployment The moving increased slightly in 2015, of 2.8% in 2014 to from an average Although unemployment 3% in 2015. it continues to be has increased, than level a significantly lower at is the case for most of Norway’s The geographical trading partners. are now differences within Norway The rising becoming pronounced. is principally rate unemployment due to redundancies and lay-offs in the petroleum sector and related - - -

Moderate global economic growth global economic growth Moderate

ECONOMY AN UPDATE ON NORWEGIAN ON UPDATE AN than before. ling because of this, while more while more ling because of this, diversified regions are home to that traditional industries are finding mar ket conditions to be more favourable years, it is now the petroleum-domi it is now years, industriesnated are struggling. that The Southern and Eastern Norway regions particularly are now strugg and a low oil price and a low acted as a drag on in 2015. economic growth in Norway In contrast to the trend in recent economists are forecasting an upturn from the end of 2016 continuing throughout 2017. the expectation that there will be that the expectation mainland the in investment higher and many going forwards, economy public finances, and expansive fiscal and expansive public finances, and monetary policy will lessen the Higher exports from effects. negative traditional industries are also creating in 2015, the outlook is not entirely in 2015, is The Norwegian economy bleak. characterised strong by the country’s economic performance in 2015 was with growth lower disappointing, Yet, higher. and unemployment performancedespite the weaker seen However, due to the central However, importance of the petroleum industry overall Norway’s to the economy,

ANNUAL REPORT 2015 / PAGE 18 ANNUAL REPORT / PAGE 19 ------4.2 1.7 2.0 3.0 2.8 7.1 1.5 3.5 0.6 5.0 2.4 0.7 5.4 1.8 1.5 2.8 2.2 8.0 2.3 2.6 1.6 3.4 2.0 -2.7 2015 2016 OUTLOOK is increasing demand for more traditi demand for more is increasing onal export and services goods from krone Norwegian the With Norway. going forwards, weak likely to remain tra more that reason to expect there is ditional exports to grow will continue strongly. adapta is The Norwegian economy and is characterised coun by the ble, More finances. public robust try’s monetary and fiscal expansive policy the economy has already provided and this policy with some stimulus, pursued actively will continue to be in traditi The increase in the future. onal exports expecta is also creating of investment tions for a higher level For mainland economy. in Norway’s expe Norway these reasons Statistics to improve cts the economic situation with stron the end of 2016, towards ger growth and a modest in activity decrease in unemployment. - - - - - WEAK KRONE INCREASING KRONE WEAK EXPORTS TRADITIONAL GROWTH IN CONSUMPTION IN GROWTH countries from the are also benefiting there As a result of this, oil price. low will help real disposable household household disposable help real will which will incomes to growin 2016, consumption growth in stimulate Norway. priceoil low The Nor the caused has and this has wegian krone to weaken, traditional to impetus positive given One example of this export industries. of fish exports the value is that incre particularly in 2015, markedly ased Oil-importing to European countries. Consumption showed continued continued Consumption showed less albeit somewhat growth in 2015, strongly during the second half of the indicators of consu However, year. and are fallen, mer confidence have as during same level the the at now in conjunction This, financial crisis. means growth, real wage with lower there are grounds the to think that of consumption growth will be rate for the but going forwards, slower moment it is only in the areas aro consumption has that und Stavanger cost of borrowing The low slowed. lead to residential propertylead to residential prices growing forwards, less strongly going will work interest rates real lower but will direction and in the opposite posi continued generate potentially pricegrowth. tive Percentage change from previous year. year. previous change from Percentage - - - KEY MACROECONOMIC INDICATORS FOR 2015 AND FORECASTS FOR 2016. 2016. FOR FORECASTS AND 2015 FOR INDICATORS MACROECONOMIC KEY (level as a percentage, Norwegian Labour and Welfare Administration) Labour and Welfare Norwegian as a percentage, (level Source: Statistics Norway and the Norwegian Labour and Welfare Administration Labour and Welfare and the Norwegian Norway Statistics Source: Unemployment rate rate Unemployment Index Price Consumer of GDP) surplus (percentage account Current Exports gas Crude oil and natural goods Traditional GDP GDP - Mainland Norway Private consumption Private Public consumption formation capital fixed Gross Mainland Norway RISING IN NORWAY , BUT FALLING IN FALLING BUT , NORWAY IN RISING STAVANGER RESIDENTIAL PROPERTYRESIDENTIAL PRICES are seeing weak or negative growth growth or negative are seeing weak Pricesin residential property prices. in 2015. 5% in Stavanger fell by over for expectations lower Households’ and their the Norwegian economy personal own will potentially finances more centralised, and this is coinci more centralised, construction ding with a low in rate of the areas where demand for many is putting This highest. is the housing pressure on pricesupward in most In contrast, metropolitan regions. regions the petroleum-dominated prices bet rose in Oslo by a full 10% December 2014 and December ween partlyThis was due to activity 2015. increasing duringlevels this period, also to underlying structural but Norway’s trends across the country. rapidly becoming is now population Residential propertyprices increa in in Norway sed by 5% on average Norwegian The divide in the 2015. is also affecting residential economy property Residential price growth. those losing their jobs are economic their jobs are economic those losing migrants are choosing to return who This to their country of origin. losses job the of effect reduces the rate. on the unemployment This is benefitting other industries other industries This is benefitting their access to a improving since it is skilled workforce. highly productive, proportion a significant of Also, ------The White Paper on Ownership White Paper The activities are limited to office KBN’s social responsibility report. The Nor social responsibility report. also expects state-owned wegian state “report work on their companies to to corporate relating social responsi including significant challen bility, and indicators of goal objectives ges, achievement”. 2013- 27, No. (White Paper Policy 2014) sets out the corporate social responsibility reporting duties of sta companies in more detail, te-owned sta expecting Government the with infor companies to provide te-owned to four key thema in relation mation environment, and climate areas: tic and worker employee human rights, anti-corruption. and rights, in central Oslo. located operations stipulates that corporate social that stipulates responsibility reporting is the respon sibility of the Board of Directors and signed confirmation the that provided the annual to in relation by the Board report also applies to the corporate - Gender balance, manager recruitment, manager recruitment, Gender balance, anti-discrimination discrimination, General principles for ethical conduct, secondary conflicts of interest, bullying, harassment, with customers relationships and employment, money laundering, information, inside suppliers, giftscorruption, reporting, and other whistleblowing, personal substance abuse. trading, benefits, Area covered: Money laundering The International Capital Market (ICMA) Green Bond Association’s Principles the The Municipality of Hurdal, Sustainable Valley Festival International (TI) Transparency The Zero Emission Resource (ZERO) Organisation Approved by Approved CEO The Board of Directors The Board of Directors KBN presented its strategy and its strategy presented KBN COLLABORATION PARTNERS COLLABORATION PRIORITY AREAS • • • • The Norwegian Accounting Act own work in relation to 2015. The to 2015. in relation work own results of this self-assessment led to the Board setting corporate social responsibility as one of four priority long-term strategy. areas in KBN’s plans for further in the corpo work area to its social responsibility rate 2016 plan for KBN’s in 2015. owner is to further and structure develop dialogue on corporate social KBN’s responsibility with its most important stakeholders. KBN recognises its responsibility to to its responsibility KBN recognises social development sustainable to contribute operating by creation value and long-term pays that way responsible in a its business ethical environmental, to attention proper and social issues. - - - Approved 2015 2015 2011/2014

Corporate social responsibility was Corporate social responsibility was The Board of DirectorsKBN of

SOCIAL RESPONSIBILITYSOCIAL REPORTING ON CORPORATE CORPORATE ON REPORTING STAKEHOLDERS part of the Board’s assessment of its part of the Board’s its owner, the authorities, investors investors authorities, the owner, its and its employees. themes considered as one of several sented. The analysis was used to map to used was analysis The sented. most important stakeholders, KBN’s identified as its customers, which were holder analysis in 2013 in which all who are managers and employees responsible for continuous dialogue repre stakeholders were with KBN’s KBN carriedthorough stake out a responsibility report and ensures that This all important topics are covered. and targets associated the includes which are revised annually. measures, importance. corporate social KBN’s approves KBN bases its corporate social respon sibility reporting legal on the relevant expectations its owner’s requirements, and an analysis of which areas are of KBN’S APPROVED GUIDELINES FOR CORPORATE SOCIAL RESPONSIBILITY SOCIAL CORPORATE FOR GUIDELINES APPROVED KBN’S Equality Guidelines Code of Conduct Supplementary Money Laundering Guidelines and General Diversity Document

ANNUAL REPORT 2015 / PAGE 20 ANNUAL REPORT / PAGE 21 ------The table below presents the mea The table below KBN’s Board of DirectorsBoard appro KBN’s in a targeted and syste KBN works Employees and managers pro were Employees employees In addition to the above, PERFORMANCE SOCIETY, DIVERSITY EQUALITY AND SOCIETY, ETHICAL CONDUCT AND ANTI- AND CONDUCT ETHICAL CORRUPTION objective is to achieve a good gender is to achieve objective and within all all levels balance at gender balance with an overall units, target of 40%. as sures and targets for 2015 as well information on the extent to which the targets. KBN achieved and implemented new guidelines to money laundering. in relation furt for 2016 is to objective KBN’s the ethical conduct and her develop anti-corruption area by strengthening Transparency with its collaboration International. general guidelines on diversity ved The Board is and equality in 2015. explicit targets and of the view that to promote diversity work systematic an attractive and equality help create environment and a working workplace cre to greater value is conducive that for KBN. ation on diversity and equality way matic and is fol across the organisation, up on its targets with specific lowing measures in its activity plans for 2016. promote diversity and equ to Its work partfundamental a is ality recruits of its develop itment of new employees, managersof ment employees, and KBN’s and its succession planning. is Eco-Lighthouse certified, and is and certified, is Eco-Lighthouse Green member of the also a control Punkt Norge) (Grønn Dot Norway recycling scheme. in ethical issues vided with training raise awareness in 2015 in order to An standards. and ensure high ethical ethics program run was for employees Exter during course the of the year. speakersnal riskthe on focused of corruption local government in the financial crimefinance in the sector, KBN’s and briberysector, in Norway. part also took employees in a half-day on identifying situations workshop chain of throughout the entire value there might activities in which KBN’s be a risk of corruption and money The ethics program con laundering. cluded with an e-learning course on personal benefits. with regular dilemma provided were to ethi training sessions in relation KBN also produced cal problems. ------. This . CICERO KBN prepares an annual environ KBN is aware of its responsibilities KBN is aware KBN’s activities do not have any any have activities do not KBN’s The framework for KBN’s green KBN’s for framework The KBN became the firstKBN became Norwegian provided by Klimaløftet, which is the by Klimaløftet, provided campaign for governmental national KBN change. on climate awareness in relation to procurement, and stri to procurement, in relation goods and services to select ves with the smallest possible impact on the The pro and environment. climate suppliers are portion that of KBN’s certifiedenvironmentally continued to intend and we to increase in 2015, increase this further in 2016. its per which details mental report, formance to a range of in relation The presentation established criteria. of performance measures is based on for companies calculator the climate recording and monitoring of energy a unique consumption provides opportunity to control and reduce Measu energy consumption. KBN’s been introduced for recycling res have as sys as well reduction, and waste consumption, energy reduce to tems and these will continue to operate. management is a prioritySound waste is and measures to ensure food waste in implemented were out separated sor a achieving now KBN with 2015, of 76.2%. ting rate tion to assure investors that when their that tion to assure investors funds are lent to our customers they are used for climate-friendly invest ment projects. adverse effect on the external environ ment other than the effect of normal business travel. and office operations good provide office premises KBN’s opportunities for efficient energy use for energy rating ‘C’ and scored a is Energy consumption efficiency. of sensorsmonitored by a network for Detailed cooling and heating. power, issue of 10-year bonds. Both issues Both issues bonds. issue of 10-year listed on the Oslo stock exchange were KBN list for green bonds in 2015. raise the profile hopes this will help choices of climate-friendly investment and internationalamong Norwegian investors. bonds is assessed by the start revised at was framework KBN plans to be a regular of 2016. issuer of green future bonds in the in order to finance municipal climate and also projects, and energy-related reportingintends to provide informa Organisation (ZERO) at Zerokon at (ZERO) Organisation annual the organisation’s feransen, conference. KBN issuer of green in 2013. bonds carried out its second green bond USD 500 million issue in 2015 with a ------Climate and environment Climate Ethical conduct and anti-corruption and equality diversity Society, Our objective is not for the lower rate rate is not for the lower Our objective KBN offers lending pro a separate CLIMATE AND ENVIRONMENT AND CLIMATE of KBN’s customer magazine, KBN customer magazine, of KBN’s particularand dialog, was attention the edition to projects that in devoted In qualified for the rate. green floating breakfast co-organised a we addition, policyseminar on local government with the Zero Emission Resource and distributed information on the greenannual the lending product at and Water conferences of Norwegian Invest Management Norway. Waste projects ment in energy and climate sector was by the local government also a theme of the last edition in 2015 procurement departments need to be green that loans are an option. aware campaigns publicity ran several We advertising the green interest floating incre have and 2015, in product rate visibility on our ased the product’s participated stands with We website. investors in 2016. investors have to be a bonus for projects that be to it for but planned, been already a tool considered during the design muni this, achieve to order In phase. finance departments and cipalities’ ked systematically in 2015 on asses ked systematically its greensing whether to strengthen As a result of this lending program. green are keen to offer a new, we work product to muni interest rate floating our environ cipalities and to improve reportingimpact mental for activities lities to undertake climate-friendly ‘green flo The projects. investment is product this on rate’ interest ating ordinary floating KBN’s than lower portfolio of green KBN’s loans rate. increased from NOK 10.7 billion to KBN wor NOK 12.2 billion in 2015. rence in relation to climate change and to climate rence in relation Issuing green bonds the environment. green funding for and providing pro jects represent an increasingly impor core activities. tant part of KBN’s duct designed to encourage municipa KBN’s carbon footprint is limited. carbon footprint is limited. KBN’s poten limited consequently is There emissions and KBN’s tial to improve due However, energy consumption. lending activities to our funding and diffe to make a positioned are well we rity areas for KBN’s corporate social rity areas for KBN’s efforts responsibility would for 2015 be as follows: • • • KBN’s corporate social responsibility KBN’s priority and are based on its size areas Board The activities. its of nature the of Directors the prio that decided Talks by external speakers (corruption Talks local government in the Norwegian financial crime in the banking sector, internationally and and finance sector, in Norway). completed a 88% of KBN employees special e-learning program on ethical issues. where areas identified areas All business potentially be exposed to KBN may corruption and money laundering. KBN co-organised a breakfast seminar the local government on how with ZERO sector can contribute to the green shift. also one of the sponsorsKBN was of a sustainability conference in Hurdal at which it also had a stand and distributed information material. KBN carried out a USD 500 million issue greenof 10-year bonds. listed on the Oslo green bonds were KBN’s stock exchange list for green bonds. The 2015 ethics program and several talks The 2015 ethics program and several addressed anti-corruption and money laundering. KBN has altered its guidelines on measures against money laundering and its procedures for carrying out checks on customers. International Transparency Material from an internal used in was on workshop corruption. status Achievement Proportion of lending portfolio represented by green loans increased from 4.3% to 4.8% in 2015. The advertising for the green budget increased in product interest rate floating 2015. KBN started more closely with the to work in 2015. foundation environmental ZERO Achievement status Achievement ethics programThe 2015 carried was out, of: which consisted • • • reportingSystematic introduced. that survey revealed The 2015 employee the proportion who think of employees increased from KBN abides by its values 64% in 2014 to 66% in 2015. Individual performance targets in relation been defined for all have to values employees. - - New green bond issue in 2015. More advertising for the green product. interest rate floating important least two Attend at conferences. Norwegian climate more closely with Work holds that an organisation which the climate, conferences at and sustainable the environment topics. are central development the risk of corruption in central processes. business Report on anti-corruption and money launderingefforts in activity report submitted to Board. Measure green loan Market KBN’s product. communication platforms. communication vision. Raise profile of KBN’s for all employ hand-out Separate corporate ees explaining KBN’s values. Run an anti-corruption for all day KBN employees. Further KBN’s develop collaboration with Transparency International. on mapping Continue work Emphasise KBN’s Code of Emphasise KBN’s Conduct in the introductory program for new employees. crite as separate Introduce values employees. ria for evaluating on digital values Highlight KBN’s Measure with talks and a Ethics month all employees. for workshop self-reportingSystematic of gifts/ or received. other benefits given - - Proportionfunding of portfolio represented by green bonds. Marketing activities to increase visibility green of KBN’s interest rate floating product. Participation in conferences and seminars. Target indicator Target Proportion of lending portfolio represented by green loans. sible and engaging. Individual comp liance with these as a KBN values employee. Familiarity with Familiarity Code of Conduct by as revealed questionnaires. The proportion of who think employees KBN abides by its respon open, values: Target indicator Target Number of participants at workshop. AREA 2: CLIMATE AND ENVIRONMENT AND CLIMATE 2: AREA AREA 1: ETHICAL CONDUCT AND ANTI-CORRUPTION AND CONDUCT ETHICAL 1: AREA Issue green bonds. Increase knowledge Increase knowledge surrounding KBN’s green interest floating product. rate friendly investments friendly investments by municipalities. Target interest rate Separate product for climate- minimise the risk of KBN being linked to corruption. Increase awareness Increase awareness of corruption and and values into the and values organisation. Continue work to Continue work vision integrate KBN’s Train managers and Train in ethical employees issues. Target

ANNUAL REPORT 2015 / PAGE 22 ANNUAL REPORT / PAGE 23 - - succession planning. a must have From 2016 all employees personalextension of is an action plan that Each action plan must activity plan. KBN’s contain a personal plan for development the employee. including its corporate social responsibility, including its corporate social responsibility, Measures to communi than is desirable. of and raise the level strategy KBN’s cate were including a new intranet, awareness, implemented. on diversity and equality work The Board’s is expressed through its general guidelines and the measures included in its 2016 activity plans. a gender balance The guidelines stipulate requirement of 40% across KBN as a whole and set this as an ambition for all units and The guidelines also prescribe further levels. to in relation requirements to be followed personal and recruitment, development succession planning. and remuneration, The proportion KBN in at of women CEO and executive 44%; Board 2015 was: 3 management Level management 43%; 8% of employees 46%. all employees 33%; do not hold Norwegian citizenship and come from a total of six different countries. program will support Talent The KBN during the three phases of employees 2) manager 1) recruitment, employment: and 3) development and employee KBN again achieved Eco-Lighthouse Eco-Lighthouse achieved KBN again certification in 2015. suppliers The proportion that of KBN’s certification environmental increased have in 2015. sorting waste 76.2% was rate KBN’s of a food waste the introduction following sorting scheme. installed Video conferencing equipment Increasing usage and used regularly. financial KBN’s soon depends on how counterparties equivalent acquire equipment. status Achievement management selected the executive KBN’s criteria for the type of projects KBN can with in the corporate social become involved invi were All employees responsibility area. ted to propose specific organisations. has started not complete was but Work so a project in the by the end of 2015, corporate social responsibility area will be chosen in 2016. that survey revealed The 2015 employee strategy, of KBN’s awareness less there was plans. a personal to have All employees plan. development of employees from non-Nordic of employees backgrounds. Gender balance target of 40% for and on of management all levels bodies. all governing diversity and equal Ensure quality, duringtreatment recruitment process. Specific measures identified and 2016 activity included in KBN’s Maintain or increase proportion Measure Set up a project in the corporate social responsibility area in 2015. Renew KBN’s Eco-Lighthouse Eco-Lighthouse Renew KBN’s certification. as described in 2015 Targets report. environmental employees from non- employees Nordic backgrounds. Gender distribution management at and on KBN’s level bodies. governing Proportion of its measurement criteria. indicator Target Information from the survey. employee As KBN is As KBN is Eco-Lighthouse it certified, separate produces a environmental report in year each which it describes its performance on - AREA 3: SOCIETY, DIVERSITY EQUALITY AND SOCIETY, 3: AREA Have strategies and Have measures in place in order to recruit, and retain develop talented employees. avoid discrimination avoid on the basis of con such as siderations ethnic background, functional disability or gender. Have a strategy and a strategy Have measures in place to increase diversity among employees and managers and of KBN’s corporate of KBN’s social responsibility externally KBN and at itself. Target Increase awareness Environmentally Environmentally friendly at operations KBN. ANNUAL REPORT 2015 / PAGE 24 ANNUAL REPORT / PAGE 25 ------KBN had total assets at 31 Decem KBN had total assets at total primaryKBN’s 31 capital at Total operating expenses in 2015 expenses operating Total LENDING 1 capital adequacy ratio was 16.53%, 16.53%, 1 capital adequacy was ratio 18.81%. was and the total capital ratio KBN granted 591 new loans in 2015 len Total totalling NOK 46.8 billion. sector ding to the local government NOK 254.4 the end of 2015 was at loan portfolio grew KBN’s by billion. representing NOK 7.3 billion in 2015, with migrating to a new finance sys to relates mainly half other The tem. with an increase in costs associated numbers requi which was employee red as a consequence of various regu a as status KBN’s latory requirements, systemically important financial insti and increased requirements tution, to internalrelated repor control and expen operating Total activities. ting ses represented 0.03% of total assets in 2015. as billion 449.4 NOK of 2015 ber compared to NOK 455.5 billion at The decrease is 31 December 2014. due to a reduction in the size of the liquidity portfolio the end of towards 2015. NOK 12,950 December 2015 was NOK 10,385 million of which million, Tier 1 capital. is total common equity Tier 1 capital consists of share KBN’s retained earnings and additio capital, The common equ Tier 1 capital. nal 31 Tier 1 capital adequacyat ratio ity Tier the 15.09%, December 2015 was KBN’s own bonds and selling securi own KBN’s ties held in the liquidity portfolio) as totalled NOK 6 million in 2015, compared to NOK 39 million in 2014. NOK 151 million as compa were red to NOK 123 million in 2014. is increase the half Approximately due to non-recurring costs associated ------Net trading income (from market Net unrealised gains on financial Profit for the year was NOK 1,870 year Profit for the The Norwegian state, represented represented The Norwegian state, ANNUAL ACCOUNTS ACCOUNTS ANNUAL dit spreads. dit spreads. transactions such as repurchasing investments in the liquidity portfolio investments throughout 2015. stable were instruments increased profit before In tax by NOK 1,116 million in 2015. net unrealised losses on finan 2014, cial instruments reduced profit before The gains in tax by NOK 734 million. principally 2015 were due to increa sed turmoil in international capital markets and the effect of this on cre As a result of this KBN dit spreads. outstanding on gains unrealised has cre senior securities issued with lower and accompanying notes for the year notes for the year and accompanying an ending 31 December 2015 provide finan descriptionadequate of KBN’s The annual year-end. cial position at been prepared in acco accounts have rdance with International Financial Reporting Standards (IFRS). million in 2015 as compared to NOK Net interest 491 million in 2014. income in 2015 totalled NOK 1,642 as compared to NOK 1,515 million, The margins on million in 2014. lending portfolioand on its KBN’s ment and Modernisation, is the sole is the sole ment and Modernisation, registered KBN’s of KBN. owner office is in Oslo. Directorsof Board The confirms, in accordance with Section 3-3a of the that Act, Norwegian Accounting as a going ability to continue KBN’s and that concern remains unchanged, 2015) (for statements financial the con going a on prepared been have The Board of Directors cern basis. considers the financial statements that by the Ministry Local Govern of ------

KBN had total assets of NOK 449.4 KBN is Norway’s third largest finan KBN is Norway’s KBN listed two green KBN listed two bonds on the KBN’s equity increased by NOK equity increased KBN’s Profit for the year was NOK 1,870 year Profit for the NOK 155.3 billion at the end of 2014. NOK 155.3 billion at 254.4 billion. Its liquidity portfolioIts liquidity billion. 254.4 is primarily in foreign denominated 31 December 2015 and at currencies, from down NOK 146.6 billion, was billion at 31 December 2015 and its billion at loans to Norwegian municipalities and county authorities totalled NOK was introduced with effect from July was with this increasing to 2% from 2015, 1 July 2016. DNB and Nordea were classified as were DNB and Nordea systemically important financial insti tutions in 2014 and a special additio requirement of 1% nal capital buffer investors. investors. KBN, cial institution by total assets. seeking to contribute to the develop ment of the capital markets for cli choices mate-friendlyinvestment for Norwegian and international Oslo stock exchange list for greenOslo stock In so doing KBN is bonds in 2015. 3.9 billion in 2015 due to its bet due to billion in 2015 3.9 year, the for profit ter-than-expected a share capital increase and an addi instrumentTier 1 capital issue. tional tax was 20.8% as compared to 6.1% tax was in 2014. by unrealised losses of NOK 734 mil lion incurred to give in 2014 reversing million in NOK 1,116 gain of a total return on equity after KBN’s 2015. income was stable and satisfactory, stable and satisfactory, income was KBN’s 2014. with line in was and influenced also was year the for profit increased by 12.0% in 2015. increased by 12.0% in 2015. million in 2015 as compared to NOK Net interest 491 million in 2014. KBN’s lending grew by 3.0% in 2015, grewlending 2015, in 3.0% by KBN’s Lending which is in line with 2014. projects and environment for climate

ANNUAL REPORT 2015 2015 REPORT ANNUAL THE BOARD OF DIRECTORS’ DIRECTORS’ OF BOARD THE new loans totalling NOK 46.8 billion in 2015. NOK 46.8 totalling loans new base, KBN is able to offer the local government sector long-term long-term sector the local government offer KBN is able to base, 591 granted terms. KBN attractive on financing solutions flexible partner to the local government sector and its financing of local and its financing sector the local government partner to and efficient operating costs borrowing its low to Thanks welfare. Kommunalbanken Norway’s (KBN’s) vision is to be a long-term be a long-term vision is to (KBN’s) Norway’s Kommunalbanken

ANNUAL REPORT 2015 / PAGE 26 ANNUAL REPORT / PAGE 27 ------Counties 10% Counties Municipally owned 20% companies Municipalities 70% LOAN VOLUME 2015 VOLUME LOAN by type of borrower by KBN is market-oriented and pro Credit spreads in the capital markets short-term debt issued by Norwegian municipalities and county authorities. can be regarded These developments incre strong the of consequence a as a shortase over period in the of time of outstanding short-termvolume certificate loans issued by the local sector. government GREEN LENDING AND GREEN FUNDING KBN is committed to helping Nor their wegian municipalities achieve It therefore offers targets. climate greena separate interest floating product specifically to finance rate maturity of the sector’s total debt will total debt maturity of the sector’s Approximately time. over decrease local government 20% of outstanding and this in 2016, mature debt will The more proportion increasing. is uses short-termthe sector financing, to imbalan the more it is vulnerable in the supply and demand ces between capital markets. financing flexible vides long-term, customers’ its to adapted solutions KBN’s demands and requirements. of aim is to contribute to the provision simple financing solutions but robust management to debt responsible and borrowing patterns ensure the sector’s are financially sustainable. and the effect of this widened in 2015, debt securitieson local government seen particularly was in the second for major reason One of the year. half the turmoilthis was in the financial which affec markets internationally, ted borrowersthe capital markets, in Mar and elsewhere. both in Norway ked and sharp occasi increases were onally seen in the credit spreads on ------Q4 2015 Q3 2015 Q2 2015 The increasing use of capital mar As in previous years, KBN experien As in previous years, Act states The Public Procurement To ensure good customer relations, ensure good customer relations, To such contracts in 2015. THE LENDING MARKET is The market in which KBN operates with direct in nature, very competitive financing from the certificate loan and bond market increasing. the time to ket financing implies that solution will meet customers’ increa solution will meet customers’ sing reporting requirements and will offer better support for financial management. losses No 2015. in losses loan no ced resulting from defaults or problems 2016. are expected in with payment municipalities must put out key that KBN tender. to contracts banking assists municipalities with putting out servicepayment contracts to tender as a neutral party seven and negotiated KBN held a range of customer mee KBN held a range tings and regional seminars on topical government to local themes related borrowers KBN provides financing. provide which tools electronic with informafinancial real-time to access to access direct internet, the on tion portfolioloan own municipality’s each administra loan a and website its via can municipalities tion solution that use as a tool for liability management. the functionality on improving Work and user-friendlinesstools of these launch the with started was 2015, in new The due to take place in 2016. companies with municipal guarantees with municipal guarantees companies Lending to toll end of 2015. by the NOK increased by road companies projects in 2015 due to new 2.7 billion being started and to back-end finan finalised projects. cing for already Q1 2015 ------Q4 2014 (amounts in NOK billion) LENDING GROWTH 2014- 2015 2014- LENDING GROWTH Q3 2014 Q2 2014 Q1 2014 1 KBN had granted loans total Demographic changes, govern Demographic changes, All Norwegian county authorities county All Norwegian KBN adapted its lending activities its lending activities KBN adapted 7 2 3 5 6 8 4 0 -1 -2 -5 -3 -4 tion of the new loans made in 2015 nur used for schools, ultimately were waste homes and water, care series, (WWS) projects. sanitation and water ling NOK 27.8 billion to toll road high investment requirements. These requirements. high investment factors caused borrowing by the sector appro to continue to grow in 2015 at previous in as same rate the ximately Borrowingsector grew by the by years. which is slightly lower 7.7% in 2015, A large propor than in previous years. their size, thereby ensuring all muni their size, equal access to compe cipalities have financing terms. titive maintenance a and initiatives ment backlog are contributing to the local sector continuing to have government companies have loans from KBN. loans from KBN. companies have Loans to limited liability companies require municipal or county guaran principally in the formtees, of an unconditional guarantee of payment. KBN offers interest rate the same terms to all its borrowers regardless of ased in 2015. muni 428 country’s the of 98% and as Longyearbyen as well cipalities, had loans from KBN Local Council, range a addition, In 2015. of end the at of municipal and inter-municipal in 2015 to the higher capital requi capital higher the to 2015 in to meet from it will have rement that partAs of its liquidity 1 July 2016. KBN management sheet balance and holds a limited portfolio of short-term portfolioThe size of this decre bonds. an increase of 3.0% relative to 2014. to 2014. of 3.0% relative an increase was sector the for share market KBN’s to compared as 45%, approximately 47.5% in 2014. 8 6 4 2 0 -4 -2 ------. The . 2 Chan «are to pro According to KBN’s Articles of According to KBN’s determines the state As owner, ­ owner of the state’s The objective 2 Prop. 1 S(2015-2016) i.e. the National the National i.e. 1 S(2015-2016) 2 Prop. The objectives set for KBN state set for KBN state The objectives bodies are organi governing KBN’s ment sector, and at the same time the and at ment sector, KBN is to target a satisfactory return on paid in capital for the state financing of municipal welfare invest welfare municipal of financing terms, the same interest rate ments with of the loan or the of the size independent of the This is an expression municipality. function and sectoral-policy institution’s corporate social of KBN’s is the core responsibility.» its objectives Association, coun vide loans to local governments, intermunicipal companies and other ties, carrycompanies that out local govern either a municipal ment tasks against or government guarantee, guarantee, Company The satisfactoryother security. can also undertake other tasks appropri business». to the Company’s ate Association Articles of ges to KBN’s Annual General are decided by the the by approved be must and Meeting Financial SupervisoryAuthority of (Finanstilsynet). Norway the size of capital structure, KBN’s dividends paid and the target capital return for KBN. ­ ship of KBN is to facilitate the availa bility of financing for the local govern Articles of Association. The Board Association. Articles of Supervisorythe Directors, of Board are ele and the Control Committee Annual General Meeting. cted by the SupervisoryThe that oversees Board are pursued in acco objectives KBN’s Articles KBN’s rdance with the law, resolutions and any Association of 1 (2015-2016) No. Budget Proposition target return is set in the National with period, Budget for a three-year the return for the 2016-2018 period 8%. been set at having its important that functions include ensuringfinance the markets used to sector are effi the local government effects of for any compensating cient, market deficiencies and ensuring that access to finan municipalities have when market turmoilcing even redu in the capi ces the capacity available KBN offers long-term tal markets. cost-efficient financing for municipal with the same welfare investments termsinterest rate regardless of the and size of the loan or municipality, secto this is an expression of KBN’s ral-policy function. sed in accordance with the provisions of the Norwegian Public Limited Lia Act and the Finan bility Companies as KBN’s as well Act, cial Enterprises ------, the Govern , 1 1 Diverse and Value-Creating Owner­ and Value-Creating 1 Diverse In the State Ownershipthe State In Report long-term«KBN offers cost-efficient The liquidity portfolioThe managed is KBN’s liquidity portfolio is primarilyKBN’s KBN’s total borrowings increased KBN’s CORPORATE GOVERNANCE CORPORATE LIQUIDITY MANAGEMENT ship (White Paper No. 27 2013-2014) 27 No. Paper ship (White cture. KBN is organised as a limited cture. by the 100%-owned liability company White Paper In its Norwegian state. on Ownership Policy ‘Category 3’ ment classified KBN as a an entity with which is to say entity, and other spe commercial objectives define that cifically defined objectives ownership the purpose of the state’s of it. sectoral-policy function KBN’s 2014, is described as follows: reserves are invested in fixed income in fixed reserves are invested regi securitiesgovernments, by issued develop multilateral onal authorities, ment banks and financial institutions as as well high credit ratings have that KBN had a liquidity bonds. in covered the (LCR) of 1,418% at ratio coverage end of 2015. Norwegian the with complies KBN Code of Practice for Corporate Gover are relevant nance in those areas that and ownership struto its organisation the continued weakening of the Nor the continued weakening of the value wegian krone in 2015, the liquidity portfolio 31 December at down NOK 146.6 billion, 2015 was the end of from NOK 155.3 billion at 2014. target reflects KBN’s that in a way liquidity reservesof having sufficient at it to meet its obligations to allow Excess liquidity is managed all times. strategy investment an to according risk low is in termsthat of both credit liquidity risk KBN’s and market risk. in 2015 from NOK 391.3 billion to in 2015 from NOK NOK 400.9 billion. In line with its current financial poli KBN holds cash and cash equiva cies, its net capital all times to lents equal at subsequent 12requirements for the growthmonths with lending taken into KBN is able that This means account. meet all its obligati to situation in any the next 12 months without ons over to raise additional funds. having Following held in foreign currencies. funding is well diversified, with KBN with KBN diversified, well funding is mar borrowing more in the Japanese single market. other any ket than in bonds in 11 currenciesKBN issued benchmark including two in 2015, USD 2.0 billion. bonds totalling ------KBN pursuesKBN funding diversified a In 2015 Oslo stock exchange There is increasing demand globally is increasing demand There FUNDING to raise funding. KBN’s access to KBN’s to raise funding. 68.6 billion in 2015, which is NOK 68.6 billion in 2015, KBN’s 48.1 billion less than in 2014. satisfactoryliquidity was throughout need had less therefore it and 2015, strategy that ensures it has good mar that strategy borrowing terms favourable ket access, long- New base. investor broad a and term borrowings amounted to NOK government sector and KBN’s low low KBN’s and sector government financial risk. term state ownership, its sectoral-po its termownership, state licy role as an instrument of the state, the low position, solid fiscal Norway’s risk local of lending to the Norwegian KBN has the highest possible credit high cre KBN’s AAA/Aaa. of ratings ditworthinesslong- its of result a is for Norwegian and international investors. KBN is seeking to contribute to the of the capital markets for development choices climate-friendly investment the world to launch a separate list for to launch a separate the world green KBN listed two green bonds. list exchange stock Oslo the on bonds In so doing for green bonds in 2015. green bonds. became the first in stock exchange include a specific measure of the car the of measure specific a include KBN bon footprint of each project. will also include emission reduction information when reportingour on KBN’s policy framework for green for policy framework KBN’s its green KBN will develop lending. to going forward lending framework finance climate-friendly investments, finance climate-friendly investments, the Center for International Climate Research – Oslo and Environmental assesses independently (CICERO) program green and again issued In order to reassure bonds in 2015. greenbonds KBN’s that investors for socially-responsible investments investments socially-responsible for benefit the climate. and projects that greenKBN has its own borrowing public transport of pro are examples the jects financed using green floating product in 2015. interest rate outstanding loans in this categoryoutstanding loans in was in the Investment NOK 12.2 billion. energy reduction measu WWS area, the use of res and a drive to increase lending destined for climate-friendlylending destined for 12.0% in 2015, projects increased by of volume the end of 2015 the and at 0.1% lower than the ordinary 0.1% lower floating used for projects asso and can be rate and climate with municipalities’ ciated The proportion of plans. energy action investment in climate projects. The projects. in climate investment is product offers that rate an interest

ANNUAL REPORT 2015 / PAGE 28 ANNUAL REPORT / PAGE 29 - - - - -

auditor External Third line of defence Third Internal auditor Internal Supervisory Board Control Committee Control Control and verification Control The Remuneration Committee’s role Committee’s The Remuneration The Board of Directors is regularly is to help role Audit Committee’s The The Risk Management Committee’s is to prepare issues related to remunera is to prepare issues related Its overall tion and to advise the Board. function is to independently assess the policies and limits relating to KBN’s to KBN’s limits relating policies and The Board of activities. operational Directorspoliciesproduced also has on internal and considers control the assessment of internal management’s basis. a yearly control on financial activities, informed of KBN’s The earningsand position situation. Board considers the management’s assessment of risk and adverse events with this formingon a quarterly basis, an integral activity part of KBN’s reporting processes. the Board of Directors monitor finan cial reporting the systems and oversee for internal control and audit by pre paring to these areas and issues related advising the Board on them. of Directorsis to help the Board role of level overall the manage and oversee riskpreparing by KBN at rela issues ted to this area and advising the Board risk The Board sets KBN’s accordingly. limits quantitative defines and appetite for the various of risk types in the poli cies it sets. - - - Reporting Reporting Reporting Recommendations Recommendations Recommendations Second line of defence Second Remuneration Committee Remuneration Finance Committee Finance KBN GOVERNING BODIES GOVERNING KBN RISK MANAGEMENT AND INTERNAL AND MANAGEMENT RISK CONTROL The purpose of risk is to management KBN manages its assets ensure that as and liabilities responsibly as well maintaining the highest possible cre Directorsof Board The has rating. dit established a risk appetite and risk tole for KBN and within rance framework sets financial policies this framework including and risk limits each year, The Board of Directors produces a guidelines on proposed and statement executi of senior the remuneration General Meeting. Annual for the ves informationand statement The on paid to each senior the remuneration in Note 6 of are provided executive on page financial statements KBN’s 50 in this annual report. compliance. OF DIRECTORS’ THE BOARD ON EXECUTIVE STATEMENT REMUNERATION Norwegian Capital Requirements Requirements Capital Norwegian Supportand Staff The Regulations. department responsible for internal is Head The compliance. control and has a direct reportingof Compliance Board CEO and also to the line to the of Directors for material breaches of Risk management and compliance ------

President & CEO President Department heads Board of Directors Board Risk Committee

Annual General Meeting Annual General Credit Committee Credit Guidelines Authorisations Decisions Articles of Association Authorisations Decisions Articles of Association Decisions First line of defence First Operational functions Operational Audit Committee Audit The CEO is responsible for running The Board of Directors is respon accordance with Section 47.3 of the the Board of Directors and approved the Board of Directors and approved The Risk by the Supervisory Board. Management department has overall responsibility for risk at management The Chief Risk Officer reports KBN. direct repor has a but to the CEO, ting line to the Board of Directors in amongst its own members, namely the namely the members, amongst its own the Risk Manage Audit Committee, and the Remunera ment Committee, tion Committee. basis in acco KBN on a day-to-day issued by rdance with the mandate the CEO, decisions on borrowing decisions and the CEO, authorising borrowing aut delegated the internalappointing and hority, The Board of Directors has auditor. prepare that set up three committees and whose cases for its consideration membersfrom are elected by and trol Committee’s role is to supervise trol Committee’s work including the activities, KBN’s of the Board of Directors. of KBN’s sible for the management which includes appointing activities, for the mandate approving the CEO, made, and it also appoints a state-aut and made, horised to act as public accountant for mandate the approves auditor and The Con Committee. the Control ------«shall work sys work «shall . With a market share for . Ethical conduct and anti-corruption and the environment Climate and equality diversity Society, KBN has carried out various marke Managers and employees received received Managers and employees KBN worked on producing its own on producing its own KBN worked The starting point for reporting on ETHICS AND CORPORATE SOCIAL CORPORATE AND ETHICS RESPONSIBILITY te-owned companies te-owned corporate their fulfil to tematically social responsibility» welfare serviceswas will be financed of a panel discussion also the theme Arendalsuka the at KBN hosted that main The 2015. August in conference KBN for the events target audience to custo in addition arranged was, key lending products, mers for KBN’s consultants, members parliament, of and the official authorities. to highligh view a with initiatives ting leading financial ting its position as a local government for the institution visibility Increasing KBN’s sector. in digital a prioritymedia was area purposeThe to of this was in 2015. KBN has of contact the level improve increase the with its target audiences, of understandinglevel of the role KBN traf and to drive more in society, plays The number of users website. fic to its to increased in 2015 website of KBN’s than 50,000. 100,000 from fewer Principle 10 of the Government’s 27 on Ownership No. White Paper sta that (2013-2014) states Policy is an analysis of which areas are of to priori KBN decided importance. on areas for its work tise the following corporate social responsibility in 2015: • • • issues throug on ethical training seminarsthrough 2015 hout a and loans to the local government sector loans to the local government impor an KBN plays around 45%, of to is role KBN’s society. in role tant be a long-term financing partner to county authorities and municipalities, municipal companies in order to help their welfare objectives. them achieve long-termbe a has KBN partner, To to conduct itself responsibly and help to promote sustainable development for the benefit of society as a whole. corporatefor its guidelines social These will in 2015. responsibility work in 2016 in connection be approved with a thorough review of its efforts Corporateand reporting in the area. is being social responsibility work work strategy into KBN’s designed its acti and the process for developing as this will ensure corporate vity plans, social responsibility becomes an inte gral ordinary part activities. of KBN’s KBN corporate social responsibility at ------is managed by good KBN held its annual conference in It is important to ensure KBN’s It is important to ensure KBN’s KBN aims to help identify issues Operational riskOperational KBN’s counterpartyKBN’s is con exposure CORPORATE COMMUNICATIONS AND COMMUNICATIONS CORPORATE RELATIONS PUBLIC April 2015, the theme of which was the theme of which was April 2015, future How the future of welfare. activities are well understood, as this understood, activities are well increases its ability to function effecti recruit and to vely skilled employees. closely with a range of KBN works in the local government organisations in discussions con sector and is active cerning important local government KBN arranged a num finance issues. ber of specialist conferences and semi some independently and nars in 2015, some in partnership with other parties in the local government work that sector. on ownership in White Paper No. 27 No. White Paper on ownership in Value-Cre (2013–2014) «Diverse and and this forms Ownership», ating part for expectations Government’s the of KBN. constitute potential obstacles to that purposeits or that to achieve its ability represent challenges to its customers’ In 2015 KBN particularly interests. emphasised the importance of a pru dent approach to borrowing by the in its external sector local government communications. of operational risk of operational and adverse events by quarterly activity and risk reports, reportsmonthly adverse event and annual assessments of internal control. The Board of Directorsregu regards high-quality contact with KBN’s lar, the authorities and customers, owner, other stakeholders as an important means of ensuring KBN opera that The tes in the best possible manner. has expressed its policyGovernment produced by the Risk Managementproduced by the Risk of DirectorsThe Board is department. counterpartiesinformed of KBN’s by the activity reports mar and extended it receives. that ket updates consists of which internal control, ensuring separa is an adequate there and operational tion of duties between there are docu that control functions, controls, processes and work mented criticalto in relation functions that and there is a sufficient number of employ The of expertise. high level with a ees Board of Directors is kept informed Hedging are entered into transactions and currency interest rate risk, to avoid low is only willing to accept and KBN credit risk to counterparties in relation transactions. to derivatives with daily reportstinually monitored, ------are in the lending portfolio is Interest rate riskInterest rate and currency risk The Board has a very limited risk Credit risk Risk management and internalRisk management and con The Board of Directors draws up of DirectorsThe Board draws and liabilities is balanced at all times. all times. and liabilities is balanced at liquidity coverage ratio requirements. ratio liquidity coverage managed by ensuring the risk that assets exposure arising from KBN’s maturities permitted. Furthermore,maturitiespermitted. withdesigned is management liquidity an emphasis on compliance with capi including tal adequacy requirements, portfolio is subject to requirements in con respect of the minimum ratings, of instrumentsrange and centration, KBN’s ongoing liabilities at any point, point, any ongoing liabilities at KBN’s including to meet all liabilities arising during a subsequent 12-month period liquidityThe borrowing. new without appetite with regard to liquidity mana the purpose of which is to gement, ensure sufficient liquid assets to cover tions. This in practice protects lenders tions. to debt andlosses in relation from any accrued interest. Government and Modernisation, will and Modernisation, Government take charge of running a municipality if obliga it is unable to meet its payment the procedures that must be followed must be followed the procedures that These deferred. to be have if payments ope the state, that stipulate provisions through the Ministryrating of Local county authorities them cannot declare GovernmentLocal The insolvent. selves regardingAct also contains provisions limited to payments being deferred being limited to payments as cannot be cancel obligations payment Section 55 of the Local Government led. municipalities and that Act stipulates defence, and serves inde to provide defence, pendent confirmation to the Board. liance with the approved risk limits liance with the approved and whether internal KBN control at The inter is functioning satisfactorily. nal auditor represents the third line of facilitating appropriate methodology. facilitatingappropriate methodology. are independent however, They also, control functions to monitor comp ment and compliance functions repre ment and compliance with sent the second line of defence, both serving to support the first line of defence by assisting with advice and monitoring and controlling whether activities are carried within out KBN’s riskThe manage limits. the approved trol offer three lines of defence. KBN’s KBN’s of defence. trol offer three lines the first activities represent operational responsible forline of defence and are dent supervisorycontrol function and as part of its monitoring of KBN’s activities. all matters related to remuneration. all matters related basis schedule on a yearly an audit and uses internal audit as an indepen company’s remuneration schemes and schemes remuneration company’s of management the Board’s to improve

ANNUAL REPORT 2015 / PAGE 30 ANNUAL REPORT / PAGE 31 ------% %

Next Education Education abroad, more abroad, than one year 19 Employees 39 management level 33 over the age of 50 over

%

% KBN has strengthened the activities of expertiseThe level across KBN mentation and adoption of a new mentation approximately finance system involving enteredThe system 25% of employees. in the fourthoperation quarter of 2015 and is intended to help ensure KBN’s activities are managed efficiently and prudently with a satisfactoryof level of having been designated as one of been designated of having importantthree systemically finan further To in Norway. cial institutions its focus, customer KBN’s strengthen separated been have lending activities department dedicated out into a that order In reports directly to the CEO. KBN responds to, to strengthen how monitors implements changes to and effici and improve financial regulation organisa a separate ency in this area, effect from set up with tional unit was 2015 in the risk management depart new membersThe of this unit ment. of expertise level strengthen KBN’s vulnerable to key-per make it less and son risk to risks and with associated succession planning. it carries selected educational out at institutions in the form pre of business participationand sentations careerin of level in order to increase the days schools business at of KBN awareness 10% Approximately and universities. have permanent employees of KBN’s enrolled in further courses. education has increased as a result of the imple International CEO and Employees Employees work experience, work management 15 14 ------more than one year more 30 years or younger 30 years 43 % 6 Nationalities women Mean age Employees 43 46 % % 8 than Norwegian The development of KBN and its of The development Other citizenships Board of Board Directors CAPACITY, EXPERTISE AND EXPERTISE CAPACITY, STRUCTURE ORGANISATIONAL KBN had 72 employees at the end at KBN had 72 employees to 68.9 full-time of 2015 equating permahold employees 63 employees. KBN had the equiva nent positions. more full-time employ lent of seven the end the end of 2015 than at ees at representing an increase of of 2014, principallyThe additions were 12.5%. inclu in staff and support functions, compliance ding in risk management, due toand the finance department, KBN being subject to new regulati ons and additional internal control and reporting requirements as a result in accordance with the strategy and the strategy in accordance with in the acti targets set by the Board The priority areas for 2015 vity plan. specialist KBN’s strengthening (i) were in order toteams and their capacity (ii) increasingreduce key person risk, (iii) work processes, the efficiency of (iv) syste management development, on diversity and targeted work matic stu increasing and (v) and equality, relevant of KBN at awareness dents’ universities. financial markets to investment in local markets to investment financial is committed to KBN projects. welfare measuringperformanceits theagainst best participants in all the specialist it operates. areas in which conductedis managersemployees and men Mean age 40 ------44 CORPORATE DIVERSITY IN KBN AS OF 31.12.2015 AS DIVERSITY IN KBN CORPORATE International Age Share Share of women KBN’s reporting on corporate social KBN’s The Board approved general guideli The Board approved KBN has worked actively to put cli actively KBN has worked ORGANISATION AND EMPLOYEES EMPLOYEES AND ORGANISATION KBN is dependent on skilled employ ees to carryout everyday activities from participating range that in global ater value creation for KBN. for KBN. creation value ater informaand for 2015 responsibility tion about the measures and targets for 2016 can be found on page 22 of this annual report. nes on diversity and equality in 2015. nes on diversity and equality in 2015. explicit The Board is of the view that to pro work targets and systematic mote diversity and equality help create a working and workplace an attractive to gre is conducive that environment vider of green funding and a relatively greenof vider relatively a and funding KBN’s issuer of greensizeable bonds. change in the area of climate work carried was and the environment out action a separate in accordance with Eco-Lighthouse also is KBN plan. certified. were held for all employees to enable to enable held for all employees were in which situations them to identify there might be a risk of corruption or money laundering. on change and the environment mate a pioneeringthe agenda by being pro dedicated e-learning dedicated programme. against measures for guidelines New implemented money laundering were and workshops activities into KBN’s ------No accidents or serious injuries were All employees are treated equally and are treated All employees The target for succession planning At the end of 2015 the proportion of HEALTH, SAFETY WORKING THE AND HEALTH, ENVIRONMENT annual employee satisfaction surveyannual employee led to concrete measures being taken, including setting up a new intranet and extending the management develop Wor the In general, ment programme. Committee consi king Environment to be ders environment the working good. occurredrecorded as having during temporary)45.8% 42.8% and were age of KBN The average respectively. and there 40, a little over was employees employees many as approximately are over under 30 as there are employees Nor do not hold 8% of employees 50. wegian citizenship. KBN places emphasis on ensuring all con good working have employees The Working Environment ditions. aim has been to actively Committee’s of a goodcontribute to the creation and the promo environment working health by buil tion of good physical ding a corporate culture characterised The and collaboration. by well-being Committee has held regular meetings and has carried out safety inspections and riskto assessments in relation issues. safety and environment health, Regular health-promoting and social facilities including exercise activities, for offered were and health checks, with in collaboration all employees The variousgroups. activity KBN’s KBN accords particularKBN accords to the weight the that and requires gender balance or man is iden woman most qualified No taken. is decision any before tified disa to gender, given is consideration or cultural or geographic age, bility, profes background when candidates’ sional and personal are qualifications being assessed. same opportunities access to the have with regard to personal and profes and promotion. sional development who do not speak Norwe Employees gian with training in Nor are provided and diversity and equality work wegian, is part development. of management hoursFlexible working are offered to facilitate arrangements for employees home. care responsibilities at who have criticaland positions management for roles is for internal both of candidates genders to be considered. Directorsof Board the on was women proportiequivalent the while 44.4%, team management ons for the CEO’s (permanent andand for all employees ------2015 2015 2015 2015 2014 2014 2014 2014 ore earnings ore Common equity Tier 1 equity Tier Common ratio capital adequacy C When recruiting for or making chan DIVERSITY EQUALITY AND ges to the composition of its manage units, organisational and teams ment KBN strives to work in a systematic KBN strives to work on diversity and equ and targeted way and to fol ality across the organisation up targets with specific measures in low to promote Its work its activity plans. and equality is a fundamentaldiversity part of its recruitment of new employ of managers and its development ees, and its succession plan employees, a is to achieve objective KBN’s ning. and all levels at gender balance good gender with an overall within all units, balance target of 40%. are held for all managers, and furtherare held for all managers, will work management development take place in 2016 in the form of a con programme.tinuation 2013 2013 2013 2013 - - - CAPITAL ADEQUACY CAPITAL amounts in NOK mill 2012 2012 2012 2012 PROFIT AFTER TAX VS. CORE EARNINGS CORE VS. TAX AFTER PROFIT Profit after tax after Profit Total capital Total ratio adequacy 2011 2011 2011 2011 0 0 5 10 15 20 500 1500 1000 500 2000 5 % 15 % 10 % 1000 1500 2000 20 % As a follow-up to the management As a follow-up good role models. Monthly meetingsMonthly role models. good values, motivate employees and lead the employees motivate values, during restructurings,overall take way attainingat be efficient responsibility, and be and achieving results, objectives an ’ideal manager template’ has been an ’ideal manager template’ against which all managersdeveloped with reporting staff will be measured. to comply with KBN’s Managers have operational risk.operational programme rundevelopment in 2014, and finance system creates opportuand finance system creates nities for important processes to work and will contributebe automated to of efficiency and lower a higher level cally important financial institution and is adapted to future regulatory The new accounting requirements. risk. KBN depends on having an effi on having KBN depends risk. system management flexible cient and is suited to its role as a systemi that

ANNUAL REPORT 2015 / PAGE 32 ANNUAL REPORT / PAGE 33 - - value-adjusted equity, and it is projected equity, value-adjusted for this periodthat will acco dividends The the returnunt for half requirement. in the returnreduction to target relates unchan and ratio equity higher KBN’s ged risk helping to reduce the profile and to risk with its activities, associated the risk-free of return rate fallen having in recent years. ------A lower return been set target has A lower The Norwegian Ministry Norwegian The Financeof Undesirable volatility and price flu Undesirable volatility The capital markets are of increas The capital for KBN in the National Budget forfor KBN in the National The return proposed target 2016. for the 2016-2018 period is 8% of the dividend). This provides the basis This provides the dividend). lending to grow in 2016 for KBN’s KBN’s as in 2015. the same rate at activities will in the coming years be in the regu affected by developments and its ability to latory framework, meet increased demand for financing sector willfrom the local government Pre equity. available be defined by its dictability with regard to the long-term is in which KBN operates framework important to ensuring KBN is able to of activity. maintain a steady level ons. The consequences of this include ons. KBN being subject to higher capital monitoringcloser and requirements by KBN will organise its the authorities. activities so as to ensure it is capitali sed in accordance with all regulatory time. any requirements as in force at After adjusting for the dividend expe equity KBN’s cted to be paid for 2015, NOK 3.4 increased by approximately billion in 2015 due to its strong pro a share capital increase year, fit for the Tier 1 capital instru and an additional ment issue (NOK 3.9 billion before may lead to increased demand for lead to increased demand may more traditional financing with longer a central role KBN plays maturities. in ensuring stable and long-term that termsavai attractive is financing on lable regardless of sudden market flu KBN’s and economic cycles. ctuations the increased following market share financial crisis as part of the coun ter-cyclical policies implemented by the authorities. has classified KBN as one of three sys temically important financial instituti expose themselves to refinancing refinancing to riskexpose themselves short-termby choosing to raise finan Short-termcing in the capital markets. refinanced regularly to be loans have moreand can make municipalities vulnerable to turmoil in the capital In the second half of 2015 the markets. certificatespreads on local government and significa loans widened quickly use the capital Municipalities that ntly. markets for a high proportion of their a financing requirements need to have of expertisehigh level in this area. debt government local on ctuations exposure. ing importance to local government The proportion muni of borrowing. somechoosing to finance cipalities capital using the of their investments Municipalities markets is increasing. ------, which in total , 3 3 Long-term sick leave is defined as defined is leave sick Long-term 3 Over the last few years, local govern local last few years, the Over The sickness rate was 4.4% in 2015in 4.4% was sickness rate The FUTURE PROSPECTS PROSPECTS FUTURE ALLOCATION OF PROFIT OF ALLOCATION sickness rate for men was 3.4% and 3.4% for men was sickness rate is dueThe increase 5.4% for women. to long-term sick leave Inspection Authority. Near-miss Authority. Inspection office premises KBN’s at incidents building the property owner’s involving pro the by with dealt are workforce perty owner. The in 2014. as compared to 3.6% working hours with or in connection working journeys or for work work to or from No accidents or injuries were purposes. reportedLabour Norwegian the to investments or areas where the state investments redu interest cost subsidies, provides interest rate overall cing the sector’s days than 17 consecutive more for absence ill health. due to and building stocks, the level of invest the level stocks, and building sector isment by the local government expected to remain high going forward. ment borrowing has grown by around Some of the local government 8%. to self-cost borrowing relates sector’s country is that economy with a robust ofuse active make to willing and able budgetary measures to address econ In light of Norway’s omic downturns. demograp growth, high population hic changes and a large maintenance to infrastructurebacklog in relation to this and contributed to growth in There exports by mainland Norway. is a high degree of uncertainty looking and the expected growth rate ahead, in has been revised down for Norway Des response to these developments. is recognised as a Norway pite this, The outlook for the world economy economy The outlook for the world open eco as a small, affects Norway oil prices the mean that Lower nomy. of activity in the oil sector has level years acti of high declined after many Norwegian krone has A weaker vity. to a certain extent served as a buffer be paid to KBN’s owner as a dividend, as a dividend, owner be paid to KBN’s NOK 11 million is to be paid in interest 1 capital instruTier on the additional and NOK 1,454 million is to be ments, transferred to retained earnings. a swift return for employees. a swift to work The Board of Directors of Kommu following the proposes AS nalbanken of the profit for the 2015 allocation NOK 417 million is to year: financial represents 3.1%. KBN works acti KBN works represents 3.1%. working the and safety health, on vely and fol on preventing environment, and on facilitating up sick leave, lowing

Jarle Byre Nanna Egidius Board member Board Employee representative Employee

Board member Board Martha Takvam Marit Urmo Harstad Employee representative Employee Chair President & CEO President Kristine Falkgård Kristine 29 March 2016 Else Bugge Fougner

Oslo, 31 December 2015 31 Oslo, The Board of Directors of Kommunalbanken AS The Board of Directors of Kommunalbanken Board member Board Board member Board Petter Steen Jr. Jr. Steen Petter Rune Midtgaard

Rune Sollie Vice Chair Vice Board member Board Martin Skancke regulatory framework within which it operates. KBN’s aim is to contribute to the long-term of local government financing KBN’s regulatory within which it operates. framework done. for a job well employees like to thank KBN’s The Board of Directors would serviceswelfare in the years ahead. The accounts for 2015 show that KBN achieved results that are satisfactory results that KBN achieved that current given the show The accounts for 2015 the market conditions and

ANNUAL REPORT 2015 / PAGE 34 ANNUAL REPORT / PAGE 35 THE BOARD OF DIRECTORS OF BOARD THE

ANNUAL REPORT 2015 / PAGE 36 ANNUAL REPORT / PAGE 37 2015 2011 SOLLIE

RUNE BYRE JARLE RUNE MIDTGAARD RUNE Senior Relationship Manager, Manager, Senior Relationship KBN. KBN Remuneration Member, Committee. Andreas alternate is Personal Aleström. Member of the Board since Master of Business and Economics. State AuthorisedState Public Accountant. KBN Audit Member, Committee. Norske Skogindustrier CFO, ASA. since representative Employee Member of the Board since 2014 Member of the Board Master of Business and Authorised Analyst Financial (AFA). KBN Remuneration Member, Committee. CFO Finance and IT, ArcusGruppen. 2014

2015 SKANCKE

MARIT URMO HARSTAD URMO MARIT NANNA EGIDIUS NANNA MARTIN Employee representative since representative Employee Bachelor of Management. Manager, Senior Relationship KBN. Nedre Member of the Board, Bekkelaget skolemusikkorps. alternate is KristinePersonal Henriksen Lien. Master of Business. KBN Audit Member, Committee. Director of Strategic Planning Lillehammer and Development, municipality. Stiftelsen General Manager, Lillehammer Etterbruksfond. AS and Ikomm Vice Chair, Norsk AS. Luftambulanse Chair, Principles for Responsible Chair, Fronteer Solutions Investment, Member of the Board, AS. Storebrand and Norfund. Member of the Board since 2004 Vice Chair since MSc. Master of Business, KBN Risk Committee. Chair, Owner and general manager, Skancke Consulting.

PETTER JR. STEEN MARTHA TAKVAM MARTHA ELSE BUGGE FOUGNER BUGGE ELSE Schoolmaster. of former Mayor Advisor, Haugesund. Vice chair in the Board of AS. Directors Haugaland Kraft at Member of the Board since 2015 Member, KBN Risk Committee. Member, Audit, Director Group Internal ASA. Telenor Member of the Board since 2005 Master of Business and MBA in finance. Audit Committee. KBN Chair, Morgenstjerne Eiendom AS. Aberdeen Member of the Board, ASA, Eiendomsfond Norge II ASA and Aker Kværner Holding Protector Forsikring ASA. Lawyer. KBN Remuneration Chair, KBN Risk Member, Committee. Committee. Hjort firm. Partner, law AS and Eksportkreditt Norge Chair, Chair since 1999 ANNUAL REPORT 2015 / PAGE 38 ANNUAL REPORT / PAGE 39 71 61 67 62 62 62 63 63 65 65 65 65 68 69 69 ......

......

...... Interest rate risk rate Interest risk Currency Liquidity risk and Capital adequacy capital management Notes, bonds and other Notes, securities interest-bearing Other assets institutions credit from Loans Senior securities issued Financial derivatives and offsetting Collateral debt Subordinated capital Share 1 capital Tier Additional Risk management risk Credit 27 Note 28 Note 29 Note 30 Note Note 16 Note 17 Note 18 Note 19 Note 20 Note 21 Note 22 Note 23 Note 24 Note Risk management 25 Note 26 Note 61 41 52 55 53 47 47 59 42 54 54 43 48 48 49 49 44 60 60 40 40 ......

......

......

...... at amortised cost at Hedge accounting institutions Deposits with credit loans Instalment Categorisation of Categorisation financial instruments measured Financial instruments value fair at measured Financial instruments Pensions Tax Leases Net unrealised gain/(loss) Net unrealised on financial instruments income Net trading expenses Salaries and administrative Remuneration Net interest income Net interest expenses and commission Fees FINANCIAL STATEMENTS 2015 STATEMENTS FINANCIAL NOTES TO THE FINANCIAL STATEMENTS FINANCIAL THE TO NOTES 13 Note 14 Note 15 Note Note 10 Note 11 Note 12 Note Note 7 Note 8 Note 9 Note Balance Note 3 Note 4 Note 5 Note 6 Note Income statements Income 1 Note 2 Note Statement of changes in equity Statement of cash flows Statement policies Accounting Statement of comprehensive income of comprehensive Statement of financial position Statement Income statement Income

3 0

24 27 93 39 (5)

478 123 673 182 491 491 491 (13) (18)

2014 2014 (734) (719) 4 496 1 515 6 011

4 5 6

12 16 30 30 11

713 151 115

2015 2015 1 882 2 583 1 870 1 116 3 854 1 642 1 870 1 859 5 496 1 092

8 3 1 2 9 4 Note Note 5,6,7

Of which is tax is tax Of which Actuarial defined benefit gain/(loss) plan on Items which willwhichItems reclassified be not loss inprofit or Total comprehensive income for the year the year for income comprehensive Total Total other comprehensive income comprehensive other Total

Profit before before Profit tax

Net unrealised gain/(loss) financialinstruments on Net interest Net income Feescommissionexpenses and Income tax the year Profit for Portion shareholder allocated to Total operating expenses operating Total Other expenses

Net trading income Net trading Other comprehensive income income comprehensive Other Interest expense Profit the for year Interest income Depreciation assetsfixed on Portion ofcapital owners additional allocated to 1 Tier

STATEMENT OF COMPREHENSIVE INCOME OF STATEMENT COMPREHENSIVE (Amounts 1 000 000) NOK in

(Amounts 1 000 000) NOK in INCOME STATEMENT Salaries and administrative expenses Total other operating income operating other Total

ANNUAL REPORT 2015 / PAGE 40 ANNUAL REPORT / PAGE 41

0 61 47 93 86 404 2014 6 191 8 336 1 895 2 145 16 219 25 135 20 919 31 776 455 466 447 130 455 466 398 669 249 928 157 364

49 36

994 829 142 201

2015 8 063 1 764 3 145 7 167 12 202 19 428 37 207 22 831 449 361 437 159 449 361 390 107 256 815 149 944

8 7 8 24 23 17 Note 10,12,22 10,12,13,20 10,11,12,15 10,12,18,21 10,12,13,20 10,11,12,14,21 10,11,12,13,19 10,11,12,13,16

bearing securities

Total equity equity and liabilities Total Total liabilities Total Share capital Additional capital Tier 1 Retained earnings Subordinated debt Pension liabilities Pension Deposits with credit institutions credit Deposits with Current tax liabilitiesCurrent tax Instalment loans

STATEMENT OF FINANCIAL POSITION OF FINANCIAL STATEMENT (Amounts 1 000 000) NOK in Assets Total assets Liabilities equity and institutions credit Loans from Senior securities issued derivatives Financial liabilities Other Other assets Notes,interest and other bonds derivatives Financial assetDeferred tax

0

12

491 994 (13) (10)

(357) 8 336 8 216 1 000 1 870 8 336 12 202 Total equity Total equity

0 0 0

12

491 (13) (10)

(357) 6 191 8 063 6 071 1 870 6 191 earnings earnings Retained Retained Retained Retained

0 0 0 0 0 0 0 0 0 0 0

994 994

Additional Additional Additional Additional Tier 1 capital Tier 1 capital

0 0 0 0 0 0 0 0

2 145 3 145 2 145 1 000 2 145

Share capital Share capital

23 23 24 24 Note Note

Equity as of 31 DecemberEquity 2014 Dividends for 2013 Total other comprehensive income income comprehensive Total other Profit the for year Equity as of 31 DecemberEquity 2015 2014 (Amounts 1 000 000) NOK in January 2014 Equity 1 of as Dividends for 2014 Issuedcapital additional 1 Tier Issue of shareIssue capital of Interest paid on Tier 1 capitalInterest 1 on Tier paid Total other comprehensive income comprehensive Total other Profit the for year 2015 STATEMENT OF CHANGES IN OF IN STATEMENT EQUITY CHANGES (Amounts 1 000 000) NOK in January 2015 Equity 1 of as

ANNUAL REPORT 2015 / PAGE 42 ANNUAL REPORT / PAGE 43

0 0 0 0 6 0 0 0

21 21 39 29 (9) (9)

(50) (50) (25) 2014 (357) (120) (437) 6 763 5 977 32 468 11 015 (6 209) (6 (4 390) (4 116 690 (32 476) (32 (39 189) (39 (45 046) (45 (109 570) (109

0 0 6 13 34 69 69 13 34 21 (7) 994 (14) (30)

2015 (146) (404) (123) 1 000 3 758 5 616 53 163 68 644 19 049 (7 302) (7 (3 855) (3 (7 298) (7 (3 175) (3 (53 149) (53 (45 917) (45 (20 789) (20 (116 443) (116

18 14 Note

bearing securities

FFERENCES

Dividends paid Proceeds from issuance shareof capital Interest paid on Tier 1 capitalInterest 1 on Tier paid Proceeds capital Tier additional issuance from of 1 Repayment of commercial paper securitiesProceeds debt issuance from of Repaymentsecurities of debt Net (purchase)/sales equipment property and of commercialProceeds issuance paper from of Net increase/(decrease) other liabilities in Cash payments to employees and suppliersCashto payments employees and Income taxes paid Net disbursement customers loans to of Net (increase)/decreasecreditinstitutions deposits with in Net (increase)/decrease notes,bonds interest in and other

Interest paid paid commissions and Fees Receiptsfrom securities issued repurchase of Net (increase)/decrease other assets in Interest received Loans from creditLoans institutionswithouttime maturity to agreed Deposits withDepositswithout credit time institutions to agreed maturity NET CASH FLOWSNET CASH Effects foreign of differences exchange DI EXCHANGE FOREIGN FLOWS AFTER CASH NET NET CASH FLOWSNET CASH FROM FINANCING ACTIVITIES

NET CASH FLOWS FROM OPERATING ACTIVITIES OPERATING FROM FLOWS CASH NET

CASH FLOWS FROM INVESTING ACTIVITIES INVESTING FROM FLOWS CASH ACTIVITIES INVESTING FROM FLOWS CASH NET ACTIVITIES FINANCING FROM FLOWS CASH

Cash and cash equivalents at 31 DecemberCash equivalents 31 and at cash

Net change in cash and cash equivalents cashNet and in change Cash and cashJanuary equivalentsCash and 1 at

CASH FLOWS FROM OPERATING ACTIVITIES OPERATING FROM FLOWS CASH

STATEMENT OF FLOWS STATEMENT CASH (Amounts 1 000 000) NOK in

backed Net “ Notes, bondsNotes, Senior “ “

”.

category as of 1 Julycategory 1 of as ” , and in the in income , and ” s when the value is negative.—when

eceivables are measured eceivables at are r sacquisition issue. intention at or ’

EASUREMENT IAL INSTRUMENTS Held to maturity Held “

bearing securitie and in thestatement in income as and to the as Loans and Loans as ”

” indexed loans issuedcustomersindexed to are bonds and Net unrealised on financial gain/(loss) “

.

”

classified classified cial maturity assets to held Held for trading Financialthisin primarily assets category are asset securities, thethat been acquired with have to to intention hold maturity,selectedsecurities resultthat and becameilliquid a as been reclassifiedof financialfrom the crisis 2008 and have in “ derecognisedcontractual the obligation been when has discharged, When expired. cancelled or securities debt issued repurchased,are theAny liability difference is derecognised. thebetween carrying settlement the amount is amount and therecognised lossstatement income gain the as at or in transaction date. CLASSIFICATION AND M place takes categories into instruments financial of Classification at initialsubsequent and determinesthe recognition financialmeasurement category ofIAS The to according 39. instrumentscharacteristicsthe is determined the by of instruments and management Financial liabilities assetsfairvaluethrough and at designated (FVO) loss or profit theSelectedin liquidity and notes bonds portfolio, rate fixed NIBOR loans, designatedfairthrough profit initialvalue at loss or at as recognition,treatmentto similar achieve in related order as derivativescurrency hedge interest contracts to used and rate reduction to a leads This value. fair at measured are risk, which measurement on theininconsistency one hand bonds between thefinancial otherand notes,issued and on bonds, loans and derivatives. Finan 2008.measured Financialmaturity to are at held assets amortisedthe effective using cost method. interest rate Loans and receivables Includedin loans customers, category are and advancesthis to market. an activeand bonds not in Financial and notes quoted assets amortisedthe effective using cost method. interest rate accountingHedge classifiedmay apply to and notes as bonds WhenLoansvaluefair hedge accounting and receivables. is used,change attributablethe that value is theto is hedged risk recognisedamount carrying the of under part as and other interest statement as instruments Financial liabilities amortised cost measured at Publicsome loans institutional from loans benchmark and financial as classified are markets niche public in investors liabilitiesmeasuredcost using the at interest effective amortised method.majority The category liabilities this of in designated are accountingas implies is applied. This hedged items and hedge thatchanges hedged risk that attributable are the value are to recognisedamount carrying the of under part as securities issued unrealisedfinancial gain/(loss) on instruments derivatives Financial the with trading, for Held as classified are derivatives Financial exceptioncontracts of as designated hedging fair instruments in value hedges.Allmeasured financial derivatives value fair are at through profit the presented and are assets loss or as when value is liabilities as positive, and OF FINANC FAIR VALUE Financial instruments categorised are value fair into the hierarchy,significant lowest inputthat on the isto level based measurement.the value fair Level 1 Formarket securities active frequenttradedmarket with in an observationsreporting the date in on the used are prices quoted measurement prices value. fair provided are by of Quoted international (Reuters/Bloomberg). vendors Quoted prices

is a limited

”) Recognition and Recognition KBN “

or

sis in registeredHaakon office

’

COGNITION

” (”the Company

For regular way purchase financial regularsale of way For or

s functional and presentation currency functionalthes and presentation is ’

cialinstrumentsfair through profitvalue loss or at CIAL INSTRUMENTS cial assets are derecognised when thecial derecognised contractual assets when to rights are Finan

RECOGNITION AND DERE Financial liabilities assetsrecognised and statement are the in of contractualfinancialthe KBNto a party becomes position when financial all recognition initial At instrument. the of provisions assetsmeasured and liabilitiesfairfinancial at are value. For categorisedatassets value fair through that as not are profit or costs transaction includes recognition initial at value the loss, to acquisition. attributable directly that are derecognitionfinancial the of instruments takes place on settlement date. assets the value changes of the asset are recognised from the the from recognised assets are asset value the changes the of trade date. Finan transferred. are or theflows cash expire Financial liabilities are The preparation financial of statementsIFRS accordance in with requiresmanagementmake judgements and assumptions, to and usethat affect will use estimates accounting the policies. of The estimates and accountingcarrying judgements affect amounts liabilities, assets revenues of and expenses. and and Assumptions made about future development may change due maymarketto actual changes,the from deviate results and used estimates and judgements significant most The estimates. infinancialthe the of preparation are: accounts FOREIGN CURRENCY TRANSLATION The Company Norwegian kronerand liabilities (NOK).Assets denominated ina foreignthe rate translated currency exchange NOK at are into on the expenses denominated reportingin Revenues and date. a foreigncurrency the rate at translated are exchange into NOK at transaction the financial statements date. The presented are themillion toin and rounded nearestNOK kroner,the with that presented are in thousand. exceptionNOK and 7 of Notes 6 SIGNIFICANTESTIMATES ACCOUNTING AND JUDGEMENTS Fair value measurement Thefinancial fair of an traded thatvalue not are in instruments active availablequotedthe have market, at do not prices or reporting date, is determined using valuationWhen techniques. significantinputsmanagement a observable, to are extent not consideringmakes uses estimates assumptions credit when and risk and liquidityfinancial to related instruments. risk the Even if greatestassumptions the to possible based are and estimates marketextent on actualconditions prevailing the at reporting date,they the may involve add to of degree judgement and may judgements and Assumptions in valuations. uncertainty thealsoto allocation financial of applyinstruments measured at 3). or fairIFRS (Level 1, the 13 hierarchy value 2 in FINAN REPORTING ENTITY ACCOUNTING POLICIES Kommunalbanken AS BASIS OF PREPARATION OF BASIS The financialstatements in been prepared have accordance Internationalwith Financial Standards Reporting (IFRS) as financialadopted statements EU. Theby presented are on a historical basis,cost except for:  companymunicipalities, providing counties, loans to intermunicipal companiesthatcompanies carry out and other KBN level. municipal a at tasks financialVIIsstatements TheOslo. gate ended for year 5B, the approvedBoard Directors31 December the of by were 2015 on 29 March 2016.

ANNUAL REPORT 2015 / PAGE 44 ANNUAL REPORT / PAGE 45

. ” going

eceivables Held or hange of the the hange of r

neffectivethe hedge part of financial distress The value c The value ’ Any i Standard master nettingStandard

IAL ASSETS IAL

s ability pay, loss historythes the to and for ’

offset method.

Net unrealised on financial gain/(loss) instruments

“ s risk, and geographical underlying spread. exposure ’

quency in interestquency in payments principal or renegotiation or of there been incurred,that has is a loss objective evidence n agreements offsetting that give to right and assets of

Deli Payment contract default of breach or loan terms as a result debtors loan of terms a as

Significant financial issuer difficultythe obligor or of

Group impairments Financiallevel,for tested a group assets based impairment at are similarthe with on the into groups assets division risk of characteristics.impaired if the Assetsdata observable are theindicates a flows as group reduction future cash from in a resulttocreditworthiness debtors' changes negative of and/or changesineconomic environment that correlate defaults with in the group. asgroup, on based a uniform Loans customers assessed are to the provisionsActthat Local Government rates the all of Norwegian municipalities tothe regard with to risk lender. equally Securitiescostsplit carried according amortised are into groups at to issuer the the limiting legislation current Under groups. risk various municipalities' possibilitybankrupt, going of the Company does notinstalment its impairments expect any on loans. accountingHedge used are hedge interestInterest cross to currencyswaps and rate liabilities.Whenratein and risk and currency a hedge assets fulfils swap relationship criteriafor the a bond and a between such,ithedge accounting is for accounted as designated and is thefair hedged items inas portfolio value The bonds a hedge. of and receivablesand notes classified are hedged Loans as and liabilities.issued classified are bonds Other The as hedge hedging the including designation, at documented is relationship strategy, and hedge effectivenessismeasured an on on basis using Dollar The risk impairmentper loss calculated group, on is based expectations regarding macroeconomicthe conditions that can impactthe issuer on  isthe statement. in income Hedging recognised instruments are measuredcarrying value fair through loss, or at profit and amounts adjusted are accordingly. hedged itemsthatis attributable the is recognized to hedged risk, income thecarrying item theas the and in of amount of part statement as Offsetting of financial assets and liabilities and assets financial of Offsetting data and estimates as inputs. The most significantmostdata and estimates inputs. as The unobservable comprise the theinputs 2 and Level 3 in valuation usedin Level creditfinancial for premium an active instruments traded not in market. financialKBNassets offset not any and liabilities does the in Position. of Financial Statement agreements qualifyfor not offsetting do net presentation, and therefore,the liabilities assets related and in presented are gross theFinancial Statement collateral Position. of Cash or received pledged asderivative issecurityfor additional exposure subject to ISDA  liabilitiesthe qualify for do not in event default, offsetting but of collateral IASunder the Cash presented a gross 32. in basis is on Position. of Financial Statement IMPAIRMENT FINANC OF Financial instruments classified as Loans and and Loans as classified instruments Financial Whenmaturitytofor there impairment. is assessed objective are impairedare shallevidence be loss, assets and of the value written down. Individual impairments When themeasured the differencethe between asset's is as loss carryingthe value amount the of future estimated present and When recognisedcashthestatement. flows. The in income is loss commitments individual impairments, for assessed are the following intoconsideration: lossmay be taken events 

not

securities

but denominatedbut

r inputs when theyinputs when

indices indices

sactions.

derivatives option elements. with and commodity

depends on whether adjustments whether that are depends on

indices

rate loans to customers, issued debt features. Fair value of financial instruments without without instruments financial of value Fair features. ’ inputs might include: inputs might include:

binding price differentfrom sources quotes presentation Historical implied or volatilities Non Market indices, both bond and credit default swap indices,Market creditswap indices, defaultfor bond and both Indicative similarfor and estimates prices instruments provided Prices similar issues on potential in thefrom new instruments More liquidMore sameinstruments theby identical issuedwith issuer Actualtransactionsmarket identical instruments in before or Quoted prices and credit reporting Quoted the for spreads at date and prices Quoted prices and credit reporting Quoted the for spreads at date and prices Observableinterest rate curves, spreads,FX yield swap basis instruments similar by other market otherby participants same issuer maturity,foran adjustment but liquidity is necessary risk after the reporting date, so that an adjustment for events thebetween date transaction the of date reporting and is necessary similarsame issue the instruments by issued adjustmentcurrencyinfor soa different currency, is that an necessary similar same issuer a the instruments with by issued but differentmaturity that for tenor, adjustment an so is necessary rates, equity

embedded determined using derivativesthecash is discounted method,flows discount thefrom relevant where rates derived are observablemoney market interest rates and other risk factors that may significantlyWhenthe fair of instruments. the value affect cannot reportingsuch reliably at factors date, a observed be makemanagement may assumptions estimates and use when determiningthe value. fair Fair financial value of instruments embeddedwith derivatives is determinedmodelsmarket using option pricing observable with Fair value disclosures value Fair at hierarchy value fair the in categorised instruments financial For severalmovements of the period a reconciliation ends between period. reporting valuationlevelsthe each at end of The is done techniquefinancialfairto of determine value used instruments the is determined on categorised based Level or 3 inLevel 2 instruments     done to thedone tomarket observable considered are be data to significant inputs Other in (Level used 2). not or (Level 3) determination of fair value might include: The same type of input might be used to determine the fair value fair determine typeinputmight the to ofThe be used same the however 2 and Level 3, classifiedof Level as notes and bonds significancemarket to extent the data adjustments what of of and adjustmentdata on observable is given done based are weight the instrumentInwhen categorized according these IFRS is 13. to cases traded in an active market inputstraded where a large extent to in are an active and unobservable, OTC and Level 3 For financialnotmarket,instruments an active tradedthat in are fairvalue is determined using valuation techniques where significantdata. on unobservable Financial input is based instrumentslow classified bonds include with notes and Level 3 as fixed liquidity,      provided by vendorsprovided by classified are Level 1 as Level 2 Formarket financialinstruments quoted in prices an active where notare similar available,instruments quoted on active prices in markets, significantwhere valuation or techniques inputs are possible.market usedare based where on observable data represent actual market tran Level 2 

KBN in will

per cent per

25

Changes in o t

per centper

was completedthe and published was by

s financial statements. statements. s financial ’ s equity consists of shareconsists equity capital,s of additional 1 Tier ’

s loan loss provisioning (impairment) for loans and bond bond and loans for (impairment) provisioning loss s loan ’

Financial Instruments Financial s approach to hedge accounting.s assessed to approach It whether be will ’ 2016 assess the effect theof changes for its financial statements, considerand will early adoption,JanuaryIt i.e. is 2017. 1 from some effectsthe for rulesmay expected give the new that Company investmentsthemeasured new amortised cost, on at based standardcurrentmethod, the while using an expected loss standardAssessmentsmethod. loss an incurred uses been have started debtorsthat regardingfor go bankrupt,may whether not municipalities,exampleNorwegian impairmentmay rise to give model IFRScharges 9. it is designed as in an expected loss in model standardfornew The hedge new also includes a mayaccounting, entail the adjustments hence adoption to and KBN furthernotmay today economic that hedges are hedge accounted model.treatment IFRSbe given such Finallythe 9 the in new new has changed the model for classification and measurement. KBN an effect alsothe will but for this Company, look into whether has materialdoeschanges expect to not financial the statements based on this. IASB in July 2014, with effective date 1 JanuaryJuly 2018 (early IASB effective with in 1 2014, date implementation isis expected possible). EU Endorsement the by standard replacesThisinsecond 2016. the halfIAS of 39 Financial instruments: and Measurement. Recognition ACCOUNTINGSTANDARDS ISSUED YET NOT BUT EFFECTIVE IFRS 9 The accountingto standards financial the statements applied are theconsistent year.thosein previous used with standardsJanuary not 2015 have effective lead with to date 1 material changes in KBN CHANGES IN POLICIESACCOUNTING effective from 1 January 2016, and the new tax rate is used in the rate ineffective is tax used January and thefrom 2016, new 1 calculation for 2015. tax deferred of EQUITY The Company capital that fulfils the requirements of retained equity, and earnings.classified Dividends are as the until by equity approved Annual additional Generalcapital measuredMeeting. The 1 is Tier subtractedcostat interest is and paid retained from earnings in asthe dividends. sameway SEGMENT INFORMATION Thesegment: one operating Company has to lending the The companies. municipal and municipalities Norwegian segmentCompany provide separate reporting not than does other disclosuresthe portfolio lending on a whole. and the as business STANDARDS OF NEW ACCOUNTING IMPLEMENTATION IFRSstandards in2015. KBN implemented new any not has loss for the year), changes in net deferred tax and adjustmentloss tax changes theto in deferred for year), net taxes payablein corporate incomerespect years. The previous of is rate27 from reduced intax Norway

Unrealised is also also is

leases, leases,

profile of profile of

e are classified as classified are linear For For items measured ng

without agreed time to without agreed

The value of pension liabilities net The is d, and interestd, presented as and is .

downs. depreciation, Ordinary based on

. Interest income for assets and liabilities. assets Interest for and income Assets are tested forAssets impairment annually. are If

lease. Leases that are not operatilease. thatnot are Leases

at amounts equal to the fair valuethefair of the leased property amounts to at equal reducingsame period differences offset. the are within lineterm. the financ over Under basis lease . leases.

ASSETS

ng e XED I Income tax consists of current taxes (tax on the taxable profitcurrent taxable Income consists on the tax taxes (tax of or Taxes are recognised are theyTaxes statement accrue,i.e.in income the as tax. Temporary is and before thetax on profit income based permanent differencesbase for the adjusted are before tax year's calculated.for liabilities current taxes tax is Deferred and deferred assets differences temporary tax calculated of basis on the are the valuesbetween financial accounting end. the year tax at and increasing Tax calculation. this for used is rate tax nominal The and tax TAXES or, if lower, the present value of the minimum lease payment.or,the the if lower, present value of position benefitsto salary determine and expected earned final used are entitlements.theincluded for in period is The pension cost net "Salaries consists administrative and sum of the and of expenses" the period's service costs, interest costs on the calculated liability and administrative expenses assetsfinancial and liabilities in statement recognised the are of Lease payments under an operating lease are recognised on a Lease lease recognised operating payments on a are an under straight PENSIONS calculated and actuarial on economic assumptions. based The Company has an employee pensionscheme.The an employee Company The has pension definedtreatedschemeA a benefitis as plan. INTANGIBLE ASSETS therethe is an indication impaired, are the assets value that of the theassets difference between carrying and the is written down, amounttheamount recoverable loss. and in is recognised profit or gains and losses on financialgainslosses on and instruments value fair and value at changes hedged items under hedged risk attributable the on to hedge accounting the statementin income recognised are under "Net unrealisedfinancial gain/(loss)instruments". on Other commission expenses expenses as and charges recognised are the servicein is provided. when the period F methodcalculatedcost the straight is over line price, using a estimatedthe disposal is life, and the assets useful value of assumed be zero. to classified intangible is A an asset name with an domain as acquiredindefinite newly depreciated. is A useful not life and portfolioNovember deployed insystem was 2015 and amortised is cost acquisition The asset. intangible an as classified theover useful life. LEASES transferthat substantiallyA lease not risks does the and all classifiedrewards asset is relatedthe of ownership an to as operati financ Fixed assetscostFixed carried deduction the accumulated with of at are depreciation and write FLOWS CASH OF STATEMENT using prepared Themethod Flows direct Statementis the Cash of classifiedcashand presents flows activity. by and cash Cash equivalentsshortdemanddeposits and cash on hand, include termcredit deposits institutions with maturity RECOGNITION REVENUES OF Intereststatementcommissionsincome recognised are the and in they accrue or as earned are themeasured in income amortised is cost recognised at statement effectivemethod. using the interest atderivatives, value fair including interest rate interest is recognisedincomeit accrues either expense. or as as interest interest income independent or expense underlying of assets and liabilities

ANNUAL REPORT 2015 / PAGE 46 ANNUAL REPORT / PAGE 47

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

24 10 14 2014 2 710 2 710 2 138 2 138

(2 710) (2 (2 138) (2 Other Other Other Other liabilities liabilities

0 0 0 0 0 0 0 0 0 0 0 0 0 0

30 11 19 340 214

2015 1 983 2 234 1 983 2 574 1 768 2 574

Loans and and Loans Loans and and Loans receivables receivables

0 0 0 0 2 0 0 0 0 0 0 2 0 0 0 0 0 0 2 0 0 0

Held to Held to maturity maturity

0 0 0 0 0 0 0 0 0 0 0 0

(211) (111) (211) (111) 1 709 1 298

(1 821) (1 (1 821) (1 (1 509) (1 (1 509) (1 hedge hedge Fair value Fair value Fair value Fair value

0 0 0 0 0 0 0 0 0 0 0 0

723 2 377 (3 775) (3 (1 925) (1 (3 775) (3 (1 398) (1 (1 925) (1 (1 398) (1 (2 648) (2 (2 648) (2 trading trading Held for for Held Held for for Held

0 0 7 5 0 0 4

21 27 23

(944) 3 678 1 872 6 740 6 706 5 022 5 571 6 487 3 348 1 670 6 515

(1 717) (1 option option At fair value through profit or loss or profit through value fair At At fair value through profit or loss or profit through value fair At Fair value Fair value Fair value Fair value

7 5 5

21 27 23

Total Total 1 642 5 912 2 214 3 854 9 415 5 496 6 011 8 625 5 117 1 884 1 515 4 496

(2 136) (2 (5 595) (5 (1 509) (1 (4 157) (4

2014 Deposits with credit institutions credit Deposits with Net interestNet income

Instalment loans Notes,interest and other bonds bearing securities derivatives Financial derivatives Financial Subordinated debt Total interest expenses Senior securities issued securities Senior Loans from institutions credit Loans from Loans from institutions credit Loans from Total and fees expenses commission

NOTE 2 FEES COMMISSION AND EXPENSES Other transaction costs NOTE 1 NET INTEREST INCOME NOTES TO THE FINANCIAL NOTESTO THE FINANCIAL STATEMENTS Notes,interest and other bonds bearing securities derivatives Financial Total interest income Total interest income Senior securities issued securities Senior derivatives Financial

(Amounts 1 000 000) NOK in 2015 (Amounts000) 1 000 NOK in Expenses bankingservices of Deposits with credit institutions credit Deposits with Instalment loans Subordinated debt Net interestNet income

Total interest expenses

0 0 0 0 0 0 0 0 0 0

13 26 39

336 336 (36) (36)

2014 Other Other liabilities liabilities

0 0 0 0 0 0 0 0 0 0

6 25 (89) (89) (19) (109) (109) 2015 Loans and Loans and Loans

receivables receivables

0 0 0 0 0 0 0 0 0 0

151 151 (213) (213) bearing securities" NOK and hedge hedge

Fair value Fair value Fair value

0 0 0 0 0 0 0 0 0 0

2 653 2 653 (16 959) (16 (16 959) (16 trading trading trading Held for for Held for Held

0 0 0 1

115 607 214 (21)

(222) (271) 18 061 18 439 (4 214) (4 (3 413) (3

option option

At fair value through profit or loss loss or profit through value fair At loss or profit through value fair At Fair value Fair value Fair value In cases where the changessale, thecases value fair realisedIn are on in where repurchasetermination maturity, or before resulting the or gain trading"Netlossthe in income" income is presented as statement. Financialfair derivativessee in 13 Hedge value hedges, Note accounting,measuredfair through at profitvalue and loss or are presentedare thecolumn value the in hedge table Fair in compriseabove. billion The 3.2 in items hedged related NOK "Notes, interest and other bonds 158.8"Senior billionsecurities in that issued", classified are as Loans Other and receivables liabilities and initially are and measuredInchangesfor amortised cost.in the addition at value bond thatis risk attributablethe (interestto rate hedged and statementcurrency income recognised "Net the as risk) in are unrealisedfinancial gain/(loss) on instruments". value These receivables Loansthechanges presented in and columns are and Other liabilitiesthe table. in above

0 1

115 607 125 (21)

(331) (271) (734)

1 116 2 804 18 775 (4 250) (4 Total Total (17 172) (17

NOK swap NOK swap

bearing securities bearing securities

Net 1.1 NOK unrealised billion gains to in 2015 amounting primarily comefrom Senior securities issued and financial derivatives increased thethese, of relatedto result and are marketscreditswap incomechangesfixed spreads in in and spreads.tocredit totalchanges gains of spread give In rise USD in reduction while 2015, in million 600 NOK Changes in fair value are the result of changes in market changesChangesfairthe of in in result value are parametersfactors, riskmainly pricesmarket and on bonds, interest rates,spreads, spreads credit rates, FX swap basis and reflectedand are the carrying in Statement in amounts of takes KBN As statement. income the in and position financial limitedvery currencyinterestchangesthe risk, and rate in relevantmostly parameters the will symmetric asset and on be and position financial of Statement the of sides liabilities smalltherefore income extent give the rise to to effects in net a statement.credit investments in spreadsin Changes for the liquidity othermay on the hand issued for portfolio bonds and lead to significant statementincome effects, may changesas in basis spreads. swap spreads have lead to gains of NOK 500 million.spreads of 500 to NOK lead gains have Net unrealised gain/(loss) on financial instruments financial on gain/(loss) unrealised Net

Subordinated debt Senior securities issued securities Senior Loans from institutions credit Loans from derivatives Financial Notes,interest and other bonds Instalment loans Instalment loans

2014 NET UNREALISED GAIN/(LOSS) INSTRUMENTS ON FINANCIAL 2015 Notes,interest and other bonds NOTE 3 Loans from institutions credit Loans from derivatives Financial (Amounts 1 000 000) NOK in Senior securities issued securities Senior Subordinated debt Net unrealised gain/(loss) on financial instruments financial on gain/(loss) unrealised Net NET TRADING INCOME NOTE 4 (Amounts 1 000 000) NOK in

Gain/(loss)securitiesfrom repurchase of issued Gain/(loss)fromsales bond investments and derivatives of terminations income trading Net

ANNUAL REPORT 2015 / PAGE 48 ANNUAL REPORT / PAGE 49

7 4 2

57 23 93 54 2014 and

9 2 66 12 26 62 115 2015 off payment salary

adjusted retirement pension

. The CEO's decisions on the decisions CEO's . on The

recurring accumulated in the payment of respect

but these schemes were discontinuedschemesbut 1 were from these effect with ”), G

members of the Board. The Board approves the guidelines each for remuneration year senioroffor salary executives KBN variable payments.and of practicalcarries the annual implementation review an out of the variable a writtenelement remuneration of in form of the the by report internal that auditor is accordance reviewed in with the remuneration regulation. followingThe Board the remuneration of determines the CEO preparatory matter on this Remuneration outcarried the work by Committee. seniordetermines theThe other CEO the remuneration of executives Board'sset the withinthe guidelines limits by after consulting the Board remuneration senior subsequentlyare of to executives submitted thefor Board information. 2015 IN EXECUTIVES SENIOR KBN'S OF REMUNERATION Pension benefits Seniormembers executives KBN's defined benefit of are pension scheme administered KLPby for salaries up to 12 times the National Insurance scheme the amount. of base Members entitledare life to expectancy a completion serviceupon the of equivalent to 30 years of of 66% base salary at the time of leaving KBN's employment. KBN previously provided supplemental pension schemes for salaries Insurance amount National times base in the ofexcess 12 (“12 November 2015. Senior executives who were members November were the of Senior 2015. who executives definedfundedscheme benefitoperations from their retained Octoberentitlement toschemethe this 31 to rights in up accrued 2015. contractually were Senior entitledto executives who a defined contributionsalaries 12 times for of excess scheme in the National Insurancethe amount received base accumulated one asfund October a value 2015 up until 31 inclosure individualsNovember 2015. the the of The affected by schemescompensation received futurefund for accumulation in salary 1 November from in effectthe with an increase of form salary the of compensated 20% to extent of 2015. was The CEO senior amount, other base timesin while the ofexcess 12 compensatedexecutives of extent the 15%. were to Fixed salary salaryFixed salary payable thein annual2015 included normal increase, a non pensioncontractual the value defined contribution in supplementalsalariestimes 12 in pension for of scheme excess thecompensation National Insurancethefor amount and base discontinuationsupplemental the pension schemes. of The Chief Risk the included Officer, not in Thorstad, was Håvard compensation arrangements. salary Variable financial 2015 the of respect in salary variable for Guidelines KBN all for salary variable for criteria the including year, approvedBoardemployees, the and in by 2014, December were resulted employees all receiving variable in salary equivalent to 1.5 times one month's salary.

MAKING PROCESS MAKING s leaders group, ’ s values, with leadership leadership with values, s ’

the following financial year year financial following the which carries out which preparatory

s salary. ’

years

s Company expectations and its the of ’ based remuneration programs options. or

to employees all in fixed salariesfixed effect adjusted are with year each leading when comparedleading equivalent with when

’ s values proposition its is personnel policy, and and ’ persons.

7

s remuneration senior executives policy for in is anchored sscheme senior executives remuneration for complies with s contribution results, their theto attainment shared of ’ ’ ’ Amounts 1 000) NOK in The Board of Directors will submit the following statement on the the on statement following the submit will Directors of Board The salarysenior executivesAnnual and other the to remuneration of General Meeting: EXECUTIVES SENIOR FOR SCHEME REMUNERATION THE NOTE 6 REMUNERATION ( KBN the Company inline owner its with guidelinesforsenior remuneration the central executives. of The principles determiningsalaries the observed when senior of executives that are competitive overall remuneration should be but marketnot sector.companies finance the in banking and KBN the provisions FinancialEnterprises the the of Act Regulation 1), circular the 2), institutions financial at schemes remuneration on on thisFinancialSupervisory the Regulation issued Authority by 3), Government's and theof Norwegian Guidelines Norway for remuneration seniorin of companies state with executives ownership 4). Remuneration forsenior including employees, all executives, salary,consistssalary a fixed variable of payments, pensions and other benefits, insurance, including personnel newspapers, mobiletelephonemortgage and a residential scheme. KBN does not operate share on thework principles applicable remuneration, to guidelines for variablesalary, the and guidelines forsenior remuneration of Board has Theexecutivesthe ofthe CEO. and for remuneration Remunerationthe ofmandateissuedfor work Committee. the a meetingsMinutes the of the Remuneration of Committee are circulated Committeeto three Board. has The the Remuneration themembers, appointed are among and from by annually who GOVERNANCE SYSTEM AND DECISION AND SYSTEM GOVERNANCE Thecommittee Board Directors appointed an advisory has of the Remuneration Committee of up to 1.5 times one monthto timesof one 1.5 up All employees combined assessmentthe a January of from basis of on 1 KBN bank targetsto adherence and their the Fixed salary is the main element of remuneration received. The The received. remuneration of element main the is salary Fixed Boardsets of Directors quantitative criteria for year each variable financialsalary for next payments the can and year paymentsaward skillsmanagersforming assessment for the also with of part reporting staff. Senior President&the Chief executives as defined are Executivethe CEO Officer and (the "CEO") comprising

Salaries contributions Employer (Amounts 000 000) 1 NOK in Pension costs Pension NOTE 5 EXPENSES ADMINISTRATIVE AND SALARIES Other personnel benefits Administrative expenses Total salaries administrative expenses and Average of number man

0

55 87

136 163 146 441 199 141 144 155 148 142 161 175

2 024 2 399 1 225 2 236 2 256 1 066 costs costs 2010 Pension Pension Pension Pension

96) 4

18 13 26 11 14 69 23 19 31 20

349 548 336 111 143 416 644 441 116 159

04 Other Other Other Other 12 benefits benefits

0

83 34

2015 163 161 144 269 306 182 172 169 150 217 294 351

1 619 1 796 1 126 2 231 2 178 1 569 period period* accrued in the the in accrued accrued in the the in accrued Variable salary Variable salary

0 0 0 0 0 0 0 0 0 0 0 0 91 68 81 62 28 113 119 1 737 1 266 01.01.15

above above 12G

off payment off payment off payment off payment

above 12G from from 12G above One One 1507)

01 off 661 808 275

1 210 1 354 1 180 2 816 2 474 1 197 1 343 1 355 1 355 1 647 2 319 2 551 1) The Financial Enterprises Act (LOV Act Enterprises Financial The 1) 2) Regulation on remuneration schemes at financial institutions, institutions, financial at schemes remuneration on Regulation 2) investment firms and fund management companies (FOR 12 3) The Financial Supervisory Authority of Norway: Circular Circular of Norway: Authority Supervisory Financial The 3) 15/2014 Guidelines4) senior for in remuneration executives of companiesstate the ownership, by with adopted Norwegian MinistryIndustry Trade, of and Fisheriesfrom effect with 13 February 2015.

11 878 15 039 10 503 16 907 16 827 12 042 payment Fixed salary Fixed salary Fixed salary before one before

Other benefits Senior executives benefitssuch other as entitled to are insurancemobile subscription arrangements, newspaper phone, conditionstermsto and same other etc. the apply as on employees. arrangements The insurance to relate forms various of insurance personnel including travel insurance health and insurance, disability as well insurance as and life to insurance up salary.the current level fixed of the theThe Financial Chief CEO, Chief Officer and Markets Lending annual NOK fixed Officercar of benefit a entitled are to respectively. 50,000 130,000, and NOK 80,000 NOK The CEO has a contractual a has The CEO entitlement, certain subject to conditions, severance to fixed year's one equivalent to pay salary. Total remuneration to the employees in the employees the to remuneration Total functions control independent Total remuneration to employees whose professional whose professional to employees remuneration Total institution the of position risk the affect activities Total remuneration executives to senior IlseStaff 01.01.14) Bachefrom Margarete (Chief of Frank Øvrebø (CRO) Tor Ole Steinsland (CCO) Steinsland Ole Tor JannickefromTrumpy Granquist 04.08.14) (CFO Karina until Folvik 30.04.14) (CFO Martin Spillum (Chief Financial Markets Officer) Markets Financial (Chief Spillum Martin Kristine Falkgård (President & CEO) & (President Falkgård Kristine 2014 Remuneration senior executives to *Paid out in the following*Paidthe year in out Total remuneration to the employees in the employees the to remuneration Total functions control independent Total remuneration to employees whose professional whose professional to employees remuneration Total institution the of position risk the affect activities Total remuneration executives to senior Lars Officer Prestvik Strøm 01.07.15) from Lending (Chief IlseStaff) Bache Margarete (Chief of Frank 30.10.15) until Øvrebø (CRO Håvard ThorstadfromHåvard 01.11.15) (CRO Tor Ole Steinsland (CCO) Steinsland Ole Tor JannickeTrumpy Granquist (CFO) Martin Spillum (Chief Financial Markets Officer) Markets Financial (Chief Spillum Martin Kristine Falkgård (President & CEO) & (President Falkgård Kristine Remuneration senior executives to 2015

ANNUAL REPORT 2015 / PAGE 50 ANNUAL REPORT / PAGE 51

0 0 0 5 0 0

15 91 66 11 14 45 27 59 34 17 34 52 59 68

935 157 282 105 105 185 158 184 143

2014 2014 2014 2014 2 069 1 119 1 405

7 0 0 0 0 0 0

77 67 90 23 57 32 90 35 35 35 54 70 70

822 123 162 386 155 273 304 178 178

2015 2015 2015 2015 2 004 1 098 1 913

30.11.14)

1)

3)

1)

chairman 05.06.15) from

2) 3) 1) 3) 2)

2)

Ma TostrupMa Smith

chairman Sandal 05.06.15) R. (until Nils chairman Skancke Martin (vice Member committee risk of Member audit committee of Member remunerationcommittee of

Total excl. fees VAT Otherto services not audit related Other financial attestation audit services and services Tax Fees to the statutory auditor statutory the to Fees

Statutory audit fees

Total remuneration to Supervisory Board Supervisory to remuneration Total ² Chairman Svein Ludvigsen 17.06.14)(from Board members ¹ ChairmanElin Eidsvik (until 17.06.14) Remuneration to Supervisory Board Supervisory to Remuneration Committee member Anne

ChairmanBritt (until 17.06.14) Lund ChairmanKjell Skaldebø Inge 17.06.14) (from Remuneration to Control Committee Control to Remuneration Alternatemember Board employees' Kristine representative Lien 01.12.14) Henriksen (from Alternatemember Board employees' JarleByre representative (until 05.06.15) Directors of Board to remuneration Total Alternatemember Board employees' Trine representative Tafjord (17.06.14 Board memberBoard employees' representative Harstad17.06.14) (from Marit Urmo Committeemember Rødal 17.06.14) Ole (from Committee alternate member JevardRoy Committee Control to remuneration Total

Chairman Else Bugge Fougner 3 Remuneration to Board of Directors of Board to Remuneration Board memberBoard employees' representative Tafjord (until Trine 17.06.14) Board member Petter Steen jr (from 05.06.15) Board memberBoard Egidius Nanna Vice Board memberBoard employees' representativeFischer Roald (until 05.06.15) memberBoard employees' representativeJarle Byre 05.06.15) (from Board memberBoard Frode17.06.14) Berge (until Board memberBoard Sollie Rune Board memberBoard Martha Takvam Board memberBoard Midtgaard Rune 17.06.14) (from Vice

0 0

172 525 695 lan lan (39)

2014 2014 2014 (254) 6 302 6 263 2 689 6 263

19 068 21 757 15 747 21 757 2.30 % 2.75 % 2.50 % 1.73 % d p (1 431) (1 31.12.2014

Unfunded plan Unfunded Unfunded plan Unfunded Unfunded plan Unfunded

0 0 0

2.70 % 2.50 % 2.25 % 1.48 % 153 450 635

2015 2015 2015 (266) 1 238 2 328 16 512 18 840 21 757 18 840 (3 889) (3 651) (2 (2 651) (2 31.12.2015

192

2014 2014 2014 1 124 2 101 1 250 6 530 4 823

12 002 14 102 92 546 39 029 32 229 14 102 39 029 (6 996) (6 (7 302) (7 (58 340) (58

Funded plan Funded Funded plan Funded Funded plan Funded

0

224

2015 2015 2015 1 342 1 099 8 191 3 695 10 856 94 813 29 900 39 029 29 900 (1 352) (1 (1 352) (1 (7 778) (7

(12 208) (12 (68 608) (68 the in included is plan This (AFP). plan pension contractual a plan benefit defined The liabilities. pension of calculation coveringclosed 1 of salaries as been has 12xBase amount over for2015 Aprilin current terminated employees was and 2011, informationForthat part further thethe of about plan. were ofunwinding pension Note see 6. 12xBase amount, above Employer's contributionsincluded in and pension costs are liabilities.

Amounts 1 000) NOK in PENSIONS ( NOTE 7 KBN has a defined benefit plan that covers defined benefitthat employees KBN all is and plan a has administeredKommunal through Landspensjonskasse (KLP). Pension benefits include retirement pensions, disability pensionsspousesfor and pensions children, and dependent and is coordinated National benefits Insurance with the from Scheme.Thecompliantthe plan defined benefit is with requirements Mandatorythe Service Norwegian Pension of Act. Full and service pension benefit period 30 years of requires a base cent of gives retirement rightto 66 per the pension of a salary including National Insurance alsothe has KBN Scheme. Economic estimates used in calculation of pension costs and defined benefit obligation benefit defined and costs pension of calculation in used estimates Economic are based on standard basedare on assumptions Accountingrecommended demographicthe to factors related Board. Norwegian Standards by For millioncomprehensive2015 changes an actuariallead in for to income funde inestimatesto 12.2 Other the amounting gain NOK Discount rate Estimated growth wage EstimatedBase in growth amount Expected inbenefit growth levels determininginput covered bondsthe 2014.KBN when Norwegian for discount as The used rate actuarial 2015 and has assumptions millionthe plan.and NOK for unfunded 3.9 Total pension cost recognised in income statement income in recognised cost pension Total contributions Employer contribu- employer incl. statement income in recognised costs Pension tions and service costs Actuarialother gain/(loss)in comprehensive recognised income Defined benefit obligation Pension liabilities Pension Service cost Net pension costs pension Net Net interest Plan assets Net periodic pension cost contributions Employer liabilities pension Net NetJanuary pension liabilities 1 of as Pension costs Pension Movement in pension liabilities pension in Movement

Net pension costs Contribution pension scheme the to Net pensionNet liabilitiesof 31 December as

ANNUAL REPORT 2015 / PAGE 52 ANNUAL REPORT / PAGE 53

0 0 0 0 0 0 0 0 0

(5) (3) 323 182 139 673 182 404 404 182 404 (29) (42) (18) (86) (86) 222 2014 2014 2014 2014 2014

(554) (291) (319) (220) (220) 2014 (222) 27.0 %

Unfunded plan Unfunded

0 0 0 0 0 5 0

16 (1) (4) 233 563 157 713 697 829 832 713 832

(13) (33) (11) (86) 2015 (233) 2015 2015 2015 2015 2015 (791) (803) (201) (201) (119) (119) 2 583 27.6 % (1 465) (1

2014 (192) (909) 1 784 3 600 6 400 47 658 58 340 Funded plan plan Funded

2015 (224) (955) 1 207 3 424 6 816 58 340 68 608

Movement in the fair value of plan assets plan of value fair the in Movement Actuarial gain/(loss) Actuarial Service cost scheme pension the to Contribution

Fair value of plan assets as of 1 January Fair 1 of plan as value of assets Net interest Benefits paid Fair value of plan assets as of 31 Decemberof 31 Fair plan as assets of value Unrealisedfinancial gain/loss on instruments statement income the in differences temporary Total Premiums/discounts bonds on Actuarialother gain/(loss)in comprehensive recognised income differences temporary Total Fixed assetsFixed liabilities Pension Provisions derivatives Financial Deferred liability/(asset)tax Temporary differences Temporary

Effective income tax rate tax income Effective Change inChange deferred tax Tax expenseTax Calculated %)income (27 tax ratechangeEffecttax in of Profit before tax Deferred liability/(asset)tax on itemsChangestax comprehensive in in recognised deferredother income Deferred liability/(asset)tax 31 December as at (27%) Deferred tax liability/(asset)Deferred tax 1 January at as Reconciliationincome of effective rate tax

Current taxes payableon items recognised comprehensive inother income Current taxes Current tax payableCurrent tax Total current taxes

Change inChange deferred tax Total income tax Current taxes Too previous low/high expense years The corporate income tax rate has been reduced from 27 percent to 25 percent from 1 January 2016. 25 percent 1 from percentfrom to been reducedThe corporate 27 rateincome has tax (Amounts 1 000 000) NOK in NOTE 8 TAX

0 0 0 0 0 0 0 0 0 0 7 0 6 5 0 0 0

24 35 2014 7 167 Other Other 25 135 165 942 158 775 170 234 145 099 liabilities liabilities

0 0 0 0 0 0 0 0 0 0 0 0

7 6 0 23 29 6 600 3 188 13 289 99 600 97 289 17 238

2015 119 489 117 716 Loans and and Loans Loans and and Loans receivables receivables

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

69 69

113 113 Held to Held to maturity maturity

0 0 0 0 0 0 0 0 0 0 0 0

772 772

2 178 2 178 1 815 1 815 1 093 1 093

hedge hedge Fair value Fair value Fair value Fair value

0 0 0 0 0 0 0 0 0 0 0 0

29 598 29 598 36 435 36 435 21 016 21 016 19 826 19 826 trading trading Held for for Held Held for for Held

0 0 0 0 0 0

9 619 1 764 1 895 2 190 option option 303 909 143 962 150 328 233 096 231 332 308 402 146 687 159 525 255 465 253 570 At fair value through profit or loss or profit through value fair At At fair value through profit or loss or profit through value fair At

Fair value Fair value Fair value Fair value

1 764 7 167 1 895

25 135 31 776 16 219 37 207 22 831 19 428 20 919 455 287 157 364 249 928 436 245 390 107 449 018 149 944 256 815 446 618 398 669 Total Total

5 years Loans from institutions credit Loans from

Total financial assets derivatives Financial Notes,interest and other bonds bearing securities Instalment loans 2014 Deposits with credit institutions credit Deposits with Total financial liabilities financial Total Subordinated debt derivatives Financial Senior securities issued securities Senior Loans from institutions credit Loans from

Total financial assets derivatives Financial Lease payments recognised as an expense in the period the in expense an as recognised payments Lease KBNis lessee.Property operating main the comprise theVIIs a rental of where in leases part Haakon gate Oslo in Notes,interest and other bonds bearing securities 1 minimumTotal future payments lease Under 1 year Under years 5 Over Future minimum lease lease payments minimum Future Instalment loans

Total financial liabilities financial Total (Amounts 1 000 000) NOK in institutions credit Deposits with (Amounts 1 000 000) NOK in 2015

NOTE 10 CATEGORISATION OF INSTRUMENTS FINANCIAL LEASES NOTE 9 derivatives Financial Subordinated debt Senior securities issued securities Senior

ANNUAL REPORT 2015 / PAGE 54 ANNUAL REPORT / PAGE 55

0 Total Total 1 895 9 619 1 764 7 167 2 190 20 919 31 776 37 207 22 831 335 686 276 384 253 570 143 962 150 328 277 470 231 332 331 233 146 687 159 525 bearing -

0 0 0 0

1 895 1 112 4 193 1 764 2 259 5 967 51 761 11 517 89 562 46 456 29 680 72 702 67 056 58 830 Level 3 Level Level 3 Level 102 974 104 146

0 0 0

bearing securities 9 402 9 619 7 527 7 167 2 190 30 664 56 887 20 572 56 060 Level 2 Level Level 2 Level 201 043 173 410 164 008 103 872 173 324 158 630 179 517 100 695

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

82 882 82 882 84 660 84 660 Level 1 Level Level 1 Level

s credit rating, currency, time to maturity, currency, to underlying expo- time credits rating, ’

Level 1 inputs for Notes, bonds and other interest and for inputs bonds Notes, Level 1

valuationthese loan of products. traded customers that not to are Level 3 includes rate fixed loans marketinan active observable have and do not market prices the is loans such for input significant A recognition. initial after creditspread, estimated is at which reportingeach date. Credit municipalities. all ob- samefor the As be to risk considered is servable credit spreads are available,not management makes assumptions and estimates adjustments relevant credit for risk addi- any loans and on new things prices other among based on the until timeup shorter period of from a tionalsecurity. Loans reporting date in used spreaddetermining are credit to the en- market reporting the value fair that conditions reflectssure on a date. Notes,interest and other bonds active inan quoted prices on fair based Determinationvalue of manymarketand sellers willing with buyers value a fair gives estimate the with lowest of degree valuation uncertainty (Level 1). securities internationalprovided include by quoted prices ven- dors (Reuters/Bloomberg), represent which actual transactions in an active market. quoted not pricesThe where are notes value fair and bonds of reportingsufficient the is deter- available date a on degree to method, discountcashthe mined flow discounted where using ratesmoneymarket derived from are observable interest rate yield curves.adjustedcredit Discountfor ratesliquidity are and risk the of issuer, to large as as a degree possible on based applyingWhen credit/liquidity marketobservable data. adjust- the ments based grouped are assets discount the on rates, to issuer

n

i

h t i W

. e t

a Net unreal- r “

.

t s

e

r e t

observable marketobservable n i

d e

x ”. inputs toare a significant de n i observable inputs - r using both o b i bearing securities bearing securities

- -

N

g

n i t a termfair the these nature value instru- of

term certificatesdebt issued municipal-by o - l -

f .

h t i

w

s n a Valuation techniques where o l Quoted prices in active markets for identical assets and identicalmarkets and assets for activeQuoted in prices

d — — Valuation techniques with with techniques —Valuation n 3 2

a

s

: e i t Valuationfortechniques determination the fair used of value of include cash discounted 3 and financial Levelinstruments 2 in models pricing option and flows Level 1 liabilities Level Level unobservabledegree instruments financial on ised gain/(loss) Information value fair on threefall within value fair of thefor determination Methods used categories, reflect differentdegrees valuation which of uncertain- ty data and estimates as inputs. All changes in fair value of finan- value fair of changes in All inputs. estimatesdata as and cialliabili- instrumentscarryingthe amounts and assets adjust of ties, recognised and are the in income statement as institutions credit with Deposits Instalment loans Level 2 includes short Deposits with credit institutions that are measured at fair value Depositscredit value fair measured at institutions that with are include shorttime term other with credit deposits institutions. Because theirshort of i mentsto is notional approximately equal the amount these loan products the customers have more flexibility refi- in customers have products the these loan nancing marketlenders loans other conditions with the when subject greater to are of loans types these a result, change. As the use allows marketthe and competition liquidity and better in the inputs in as used to be loans of on new prices observable Loans from institutions credit Loans from Subordinated debt Totalfinancial liabilities measured value fair at no significantThere reporting were the transfers Level period. 1 and Level 2 in between Totalfinancial measured fair at assets value derivatives Financial Deposits with credit institutions credit Deposits with derivatives Financial Senior securities issued securities Senior Instalment loans Notes,interestother and bonds There were no significantThere reporting were the transfers Level period.1 and Level 2 in between

2014 Total financialliabilities measured valuefair at Subordinated debt derivatives Financial Senior securities issued securities Senior Loans from institutions credit Loans from Total financialmeasured fair at assets value derivatives Financial Notes,interest and other bonds Instalment loans Deposits with credit institutions credit Deposits with NOTE 11 FINANCIAL INSTRUMENTS FAIR MEASURED VALUE AT (Amounts in NOK 1 000 000)

2015 - features and ’ s value changess at value ’ rates historical vola- and - contracts only in used economic - NOK) and plain vanilla interest rate interest rate vanilla plain and NOK) -

EUR and EUR -

period ends, the includingfairfor development reason in the values. models that use both interest rates, FX interest rates, both use models that structure.financial Fair value of instruments without embedded derivatives is determined using the discounted cash flows meth- discount fromtheod, observa- relevant where rates derived are moneymarketble other interest significant and factors risk rates Whenthat instruments.maythesuch affect the value fair of factorscannot reportingmanage- be reliably at date, observed a determin-usemake estimates ment when may assumptions and in used inputs unobservable significant most The value. fair ing thespreads creditfor valuationin financial Level instru- 3 are in- financial of value Fair market. active an in traded not ments struments embedded with derivatives is determined using option pricingmodelsmarket observable with and estimates as data inputs. For financial instruments measured at fair value that are partseveralthe of periods a reconciliation holdings of over movements report-the each done at the end of between levels is period. ing periodKBNthe fair the analyses values and tilities as inputs. as tilities derivatives Financial OTC are derivatives financial All hedgescurrency interest of swaps (USD basis risk. and For rate NOK, USD and cross currencyswaps without option elements, fair value is determined using the cash method flow discounted dis- with spreads and swap basis from observable count rates derived Level however,2 valuation, interestswap is hence This rates. towith a large extent high marketactivity. Equity commodity and linked the options derivatives valued embedded are using with models corresponding are same valuation issued as and bonds 3. Level as classified techniques Valuation methodsfinancialfairforThe the determining value of in- used struments instruments the defined based are on . The . The binding price indications indications price binding -

significant valuation uncertainty valuation significant

sure and geographic eachmanage- location. reporting On date thethementfor invest- valuation level uncertainty assesses ments.some To extent unobservable credit spreads used. are theseWheresignificantfor valuation are the security allo- the is reflects significant which Level cated3, to valuationuncertainty. moremeasure-For value fair inputs information in about used Policies. Accountingment, the see main the Thesplit funding portfoliofour groups, on based is into funding product and loan main documentationThe four used. categories USD are EUR and loans, benchmark loans in public nichemarkets, private placements and retailfirst The loans. two characterised various groups listed syndicated by loans in are currencies,the the size loanthe forms where primary of differ- ence the groups. between two For listed benchmark quot- bonds marketthat these assessed are such ed prices exist an active in valuation limited with Sen-uncertainty. For Level 1, to to belong markets are prices ior quoted securities niche in issued public market activity and the however, some extent, alsoto available is assessed that it such somewhat lower liquidity is as assessed mainly valuation done using fair is value determination that of the the bonds these For market data. techniques observable and discountedmethodusedcashflows discount with rates is based interestmarket quot- rates, as such marketon observable data, ed pricessimilar and prices on instrumentsfor adjusted differ- ences timematurity,sizeto in and currency (Level 2). Prices on issues an importantnew as the used are in valuation, indicator collectsand inaddition non KBN also Senior securities issued securities Senior choice valuationtechniquesthe of inputs struc- depend on and ture of loan.For each bonds embeddedfair options without value is determined usingthe method discountedcash flow where spreadscredit curves and yield current interestinputs rate are estimated issues.For structuredfrom with on new bonds prices pricing option using determined is value fair elements option from brokers. Group three is private the placements loan terms where are single mainspecially final is group forinvestor. The adapted a retail loans, i.e. loans sold to retail investors. The bonds in these second- the in traded normally not listed and not groupstwo are market, structuredary a large extent to and are products with rates. Quoted FX indices or equity to option linked elements and unobservable are inputs available, prices not hence are used to a significant in valuation. degree the These loans are valuetherefore fair hierarchy, the and 3 in classified Level as thus characterised are by

ANNUAL REPORT 2015 / PAGE 56 ANNUAL REPORT / PAGE 57

2014 2015 1 895 4 193 1 112 1 764 2 259 5 967 11 517 51 761 89 562 46 456 29 680 67 056 72 702 58 830 102 974 104 146

0 0 0 0 0 0 0 0 0 0

below. ” 194 460

(814) 2 204 (2 010) (2 (1 274) (1 Transfers Transfers

1 29

208 367 735 367 (131) 3 053 3 967 1 555 2 383 bearing securitiesto amounting - 14 526 11 265 14 495 15 647 (1 021) (1 Gain/(loss) Gain/(loss)

0 0

(576) (446) 4 050 (3 782) (3 (1 576) (1 (1 510) (1 (56 795) (56 (28 446) (28 845) (60 (24 088) (24 (35 224) (35 (16 133) (16 (33 648) (33 (14 177) (14 Disposals Disposals

Impact of changes in key assumptions key in changes of Impact “

0 0

38

121 1 781 4 092 2 795 33 105 27 565 36 368 25 663 21 901 28 275 17 809 25 442 (3 263) (3 Notes,interest and other bonds in 1 or million2015 transferred NOK Level from 2 460 were marketbased little littlewith on very activity observable for data thesesecurities.Instalment For transfer Level 3 loans of the out interest,fixed ofcustomers is a period to a prod- i.e. ending due uct change. The total credit spread and yield curve is sensitive to changes in each underlyingthe fairthus of factor. instrument The value will spreads,be affected credit changesmarket by in liquidity or risk risk. For more information on sensitivity to unobservable inputs, see table Additions Additions

2013 2014 1 687 1 200 7 677 3 989 1 895 1 112 4 193 51 713 46 524 51 761 11 517 89 562 46 456 112 138 102 774 102 974

bearing securities spread the

bearing securities bearing securities - - - bp to + 61 bp for notes and for notes +61 bp bp to 32 – bp to +88 bp for issuances. debt For bp to +88

20 –

on (spread) to swap intereston (spread) Senior to For rates. -

Significantfairvalue unobservable ininputs within measurement, Level 3 activitymarketcasesthe little Ininstru- no for very relevant of or significantmentthe a valuation is to on estimates extent based esti- significant most The technique. valuation the to as inputs mate an add is securitiesspread the issued reflects liquidity credit risk, risk own marketmarket.theand currency in spreads relevant Credit risk valuationmeasured in Libor 31 Decem- used 3M at against USD from 2015 vary ber bonds.significant Other inputs unobservable include volatilities withinoption formodels, instruments pricing embed- with used ded options option elements. or reflectsmarket liquidity issuer increditthe risk and risk, of risk thecurrencymarket. relevant Libor Measured against 3M USD the between spreads vary Notes,interest and other bonds Total financial liabilities at fair value in Level 3 Level in value fair at liabilities financial Total Subordinated debt derivatives Financial Total financialin 3 Level value fair at assets issued securities Senior derivatives Financial Instalment loans Notes,interest and other bonds

Total financial liabilities at fair value in Level 3 Level in value fair at liabilities financial Total Subordinated debt Total financialin 3 Level value fair at assets issued securities Senior derivatives Financial derivatives Financial Reconciliation of movements in Level Level 3 in movements of Reconciliation Instalment loans Notes,interest other and bonds

3 38 (7) 217 (24) alue alue (151) r v key Impact of of Impact changes in in changes assumptions

2014

1 895 4 193 89 562 46 456 131 701 (10 405) (10 amount Carrying Carrying

1

18

(81) (58)

(369) (249) key Impact of of Impact changes in in changes assumptions

2015

1 764 5 967 72 702 58 830 111 842 (27 421) (27 amount Carrying Carrying an increase in the discount rate of 10 bp would lead reduction to bp would 10 a an increasethe in of discount rate million. in- 18 incould NOK causedvalue an this Again of by be it could be due KBN,case for or spread,crease in credit this the in optionmodels,changes to pricing in- parameters in for used in ratesstance volatilities. or tablesame FX the The assumes above maturitieschange yield the across all curve, differentchanges on for differentmaturitiesmay envisaged. also be bearing -

bearing securities -

Total The changes in key assumptions are defined as a 10 bp change in the unobservablechangethe thatinputs in determining bp defined are for material are fai a 10 The key as changes assumptions in of and liabilities. assets derivatives Financial issued securities Senior Subordinated debt Instalment loans Notes,interest and other bonds An increase in the discount rate used for measuring forAnInstalment used in discount increasethe rate maturities across all to exampleloans 10 bp for leads Level 3 of in million.Sucha reductionloans an for 249 in these NOK value of increaseincrease the in couldin be caused discount an by rate maturities.thespread credit across all Similarly increase the in an interest and other for bonds discount Notes, 10 bp of rate assumptions in key changes of Impact

securitiesin lead a reductionvalue of to would allocatedto Level 3 NOK 81 million; this could be caused by either an increase in creditspreads increasedor for bonds, liquidity relevant in risk financial markets. For Senior securities issued allocated to Level 3

ANNUAL REPORT 2015 / PAGE 58 ANNUAL REPORT / PAGE 59

63

113 113 Fair Fair

Total Total 3 209 6 600 value 99 549 13 238 97 264 25 135 13 238 99 549 145 138 145 138 158 436 112 900 158 436 100 535 145 138 170 273 119 500

lue is dis-

va

2014

0 0 0 0 113

6 600 391 391 745

25 135 13 289 99 600 1 568 145 099 170 234 119 602 amount 14 314 15 882 16 502 15 759 Carrying Carrying Level 3 Level Level 3 Level

63

Fair Fair

7 167 3 209 value 97 264 17 238 63

158 436 165 603 117 773 113

7 182 7 182 8 036 8 036 2 465 85 235 97 018 11 670 84 033 81 505 Level 2 Level Level 2 Level

69 2015

7 167 3 188

97 289 17 238 0 0 0 0 0 0 0 0

158 775 165 942 117 784 amount Carrying Carrying

Level 1 Level Level 1 Level 137 565 137 565 150 400 150 400

loans with fixed interest rate margin interestloansma- to fixed with (time rate -

Nibor

est rate terms that give the customer more flexibility to change themarkettochange. loan terms This provider if higher leads competitionmarket and better liquidity thethe and allows use in inputs the as used of loans in to observable be on new prices valuationthese loan of products. Level 3: turity a KBN granted are between 1 year) bilaterally above and inmarket.tradedan active loan not customer, and are issued securities Senior Senior securitiescostconsistmeasured at issued amortised Euromainly loans and loans benchmark in USDpublic or of niche markets.

-

Net unrealised

“ bearing securities

-

”. dis-for Also purpose this a

bearing securities classified as Held to maturity maturity to Held as classified securities bearing bearing securitiesclassified and receivables Loans as bearing securitiesclassified and Loans as maturity to Held as classified securities bearing bearing securities classified as Held to maturity maturity to Held as classified securities bearing bearing securitiesclassified and Loans as - - loansmargin interest fixed with rate - - - -

-

P.t. loans and Nibor and loans P.t.

(time to maturity within 1 year) have time to maturity(timematurityto time have inter within to year) 1 and/or Level 2: Instalment loans INFORMATION ON FAIR VALUE FAIR ON INFORMATION the method counted but discountcash rate where flow is used, reflects hedged risk only the (interest and currency element). See Note Financial11 instruments measured fairat value for information regarding fairmeasurement.value Forliabilities assets hedging and of relationships that part are as hedged items interest and other bonds (Notes, classifiedsecuritiesSenior and receivables Loans as and issued classified liabilities,Note Other see accounting) 13 Hedge as calculated.riskvalue the changes to is hedged This value due change adjusts asset carrying liability or the is the amount of and recognizedthestatement in income line the on instruments financial on gain/(loss) Senior securities issued securities Senior Total financialliabilities measured amortised costat

Loans from institutions credit Loans from Total financialmeasured amortised at cost assets Notes,interest and other bonds

Notes,interest and other bonds Instalment loans NOTE 12 FINANCIAL INSTRUMENTS MEASURED AT AMORTISED COST (Amounts 1 000 000) NOK in institutions credit Deposits with Total financialliabilities measured value fair at Senior securities issued securities Senior 2014 Instalment loans Notes,interest and other bonds receivables Notes,interest and other bonds Total financialliabilities measured value fair at Total financialmeasured fair at assets value Senior securities issued securities Senior

Total financialmeasured fair at assets value Notes,interest and other bonds Informationlevel the fair within about the value financialmeasured hierarchy, fair instruments for cost, at where amortised closed. 2015 Instalment loans Notes,interest and other bonds receivables

26 21

151 (36) (89)

2014 2014 2014 6 579 9 619 1 085 16 219 13 289 145 099 159 473 going -

.

14 34

336

2015 2015 2015 (213) (109) 2 190 3 188 1 043 19 428 17 204 158 775 163 006

relationshipitemthe ("micro hedge hedge"), and is properly documented.measured effectiveness Hedge is on an on basis ineffectiveness and all recognised unreal- "Net under is instruments". financial on ised gain/(loss)

currency risk. -

bearing securities bearing securities - -

KBN uses fairKBNvalue transactions hedge accounting select- to uses in ed economic and cross interest rate of hedges (Amounts 1 000 000) NOK in level transaction individual at applied is hedging value Fair thewhere hedging instrument hedged is explicitly linked the to HEDGE ACCOUNTING NOTE 13 Total deposits with credit institutions credit with deposits Total Cash collateral pledged

Fair value changes are a result of changes spreadsinFair resultswap currencyunderlying basis factors, interest such risk value of changes as rates a and are Depositscreditinstitutionsmaturity with time agreed with to derivatives Financial Depositscreditinstitutions with maturityto without time agreed

NOTE 14 INSTITUTIONS CREDIT WITH DEPOSITS (Amounts 1 000 000) NOK in Fair value changes on financial instruments in fair value hedges value fair in instruments financial on changes Fair value

hedges value in fair instruments financial of amount Carrying Total

Notes,interest and other bonds Notes,interest and other bonds issued securities Senior Senior securities issued securities Senior derivatives Financial Total

ANNUAL REPORT 2015 / PAGE 60 ANNUAL REPORT / PAGE 61

49 54

2014 2014 2014 2014 6 748 1 092 1 720 4 415 8 042 8 334 8 302 5 924 7 640 6 462 9 669 49 965 41 853 10 998 12 420 21 593 10 515 28 648 20 080 29 213 15 553 12 133 16 111 10 961 107 399 157 364 157 364 108 762 249 879 249 928 247 067 247 067

46

945 100 2015 2015

2015 2015 1 448 6 944 8 034 8 569 9 479 5 850 8 054 6 843 9 234 81 576 68 368 14 754 87 978 47 212 10 913 11 618 22 401 11 093 29 877 19 740 28 817 16 417 12 491 16 819 11 082 149 944 149 944 256 769 256 815 254 376 254 376

BEARING SECURITIES

bearing securities bearing securities bearing securities by type of issuer issuer of type by securities bearing bearing securities by time to maturity maturity time to by securities bearing

¹

Trøndelag Agder Agder

Trøndelag Issued borrowers other by Issued bodies public by Issued borrowers other by 5 years Issuedsovereigns, guaranteed or by central by banks, regionalmultilateral authorities and development banks. Fair value adjustment value Fair customers to loans Total Other loans Total instalment loans instalment Total Accrued interest amount Principal (Amounts 1 000 000) NOK in , principal amount , principal customers to Loans NOTE 16 OTHERNOTES, INTEREST BONDS AND Geographic distribution Geographic

INSTALMENT LOANS NOTE 15 Østfold Akershus Oslo Hedmark Oppland Buskerud Vestfold Telemark Aust Vest Rogaland Hordaland Sogn og Fjordane og RomsdalMøre Sør Svalbard Nord Nordland Troms Finnmark 1 Total notes, bonds and other interest other and bonds notes, Total (Amounts 1 000 000) NOK in ¹

Under 1 year Under Notes, bonds and other interest other and bonds Notes, Domestic Foreign

Total notes, bonds and other interest other and bonds notes, Total interest other and bonds Notes,

3 5 9 1 3 80 20 21 47 93 264

2014 2014 2014 2014 (305) 2 419 4 966 57 646 25 135 25 135 pected 398 669 391 285 116 739 326 470 (109 833) (109 ex

4 9 2 2 11 13 12 36 343 125 142 2015 2015 2015 2015 3 017 7 167 7 167

57 408 68 644 (2 860) (2 390 107 400 894 391 285 (13 805) (13 (113 583) (113

on for the credit risk on theon forcredit reporting the on risk on for the credit risk on theon for date;credit issue the on risk

- -

and moneymarketRelevantinterest reporting the at rate date an add with date reporting (fair the date) value on Relevant moneymarketRelevantinterest reporting the at rate date an add with

B) A)

accrued accrued income expenses and

-

There was no breach in debt covenants as of 31 December December 31 covenants debt no breach of There as was in 2015. Fair value adjustmentchanges)changesto (value that due are totalthefor changecredit the in part KBN'svalue of is a risk marketchanges in parameters bond, like due to is which not interest currencyor risk. Value changes resulting from changes in differencecalcu-credit the amount the to risk between values lated different using two discount rates: * Redemptions in 2015 includes buybacks of 2 979 million*Redemptions 2 979 NOK. 2015 includes of buybacks in

Of which gain/(loss) from fair value adjustment that is due to changes in own creditwhich Of own changes risk from fairvalue adjustment in to gain/(loss) that is due Fair value adjustment value Fair Total senior securities issued Seniorissuedsecurities 31 December at amounts)(nominal as Accrued interest Translation differences SENIOR SECURITIES ISSUED SECURITIES SENIOR NOTE 19 (Amounts 000) 1 000 NOK in Redemptions* Amortisation LOANS FROM CREDIT INSTITUTIONS NOTE 18 OTHER ASSETS OTHER (Amounts 000) 1 000 NOK in NOTE 17 (Amounts 1 000 000) NOK in

New issuanceNew Total loans from credit institutions credit from loans Total Public fees liabilities term short Other Cash collateral received Seniorissuedsecurities 1 January at amounts)(nominal as Intangible assets Fixed assetsFixed Other assets Accounts payable Accrued interest expenses yet and received, not accrued Prepaid,non

Total other liabilities

Intangible assets mainly consist of a new portfolio system. The system was brought into use in 2015 and isIntangible amortised portfolio its mainly 2015 and consist over broughtsystem. in system a new was into use of assets The life. OTHER LIABILITIES (Amounts 1 000 000) NOK in Total other assets

ANNUAL REPORT 2015 / PAGE 62 ANNUAL REPORT / PAGE 63

33

356 737

1 093 1 560 2 396 2014 20 919 19 826 15 837 market 25 135 18 555 (6 579) (6 values Negative liabilities

0

49

978

1 120 2 178 1 058 2015 7 167 31 776 29 598 28 571 assets market values Positive Positive (17 204) (17 (10 037) (10 2014

180

12 841 15 182 670 557 127 547 114 706 543 011 409 353 118 295 amount Notional Notional

0

772 609 162

2 119 2 195 37 207 36 435 32 121 market values Negative liabilities

0

37

776 648

1 815 1 039 22 831 21 016 20 331 assets market values financialthe derivativesin State- basis presented are on a gross contractsmentthat Financial fair Position, a positive of such with fair negative contractsvalue presented are and a with assets as value presented are liabilities. as Positive Positive inBorrowing foreign kroner currencyis converted to Norwegian KBNthroughswaps,interest basis receives where in payments foreign kroner.interestin pays currencyNorwegian Interest and rate ratefixed customers risk termsloansfrom to is arising with contracts. interest FRAhedged with Interest swaps and rate rate themarket toand currency in swaps also risk are used hedge liquidity credit the derivatives portfolio. no in portfolio. KBN has Counterparty risk related to financialcontracts derivatives is Counterparty to related risk mitigated usingstandard by agreements ISDAthat give the right addi- liabilities and in the default, eventto and assets of offset in tion collateral agreements into entered are all with counter- swap parties. The derivatives ismonitored exposure on an ongoing basis. financialcredited in Statementthe of Depositsposition as with institutions creditfrom Loans institutions related or paya- a with receivableblecreditfromto institutions. or collateral Cash re- management,cashceived and is placed KBN's is included in moneymarketshort either instru- term in or and bonds in notes forments. additionalSee 20 informationfinancial Note about derivatives. 2015

0

- 6 471 11 186 789 266 161 572 155 101 627 693 amount 513 298 103 209 Notional Notional

related derivatives - 20

related derivatives - uses financial derivatives only to economically financial to derivatives hedge expo- uses only Allfinancial measured atvalue derivatives fair through are profit loss.or contractstrading. Most categorised are forThe Held as remaining as contracts instruments designated are in hedging fair value hedges. As standard master netting agreements (ISDA) fulfil not the 32, requirements for IAS under do netting Cash collateral received

(Amounts 1 000 000) NOK in KBN suresto and currency risk interest rate the arising in Company's counter- contracts business with swap activities. entersKBN into derivatives is all credit exposure parties high rating and with subject denomi- theto by debt limits approved Board. risk Bond nated inforeigncurrency interest is hedged with curren- and rate to 3 remaining exposures onlyKBN has that swaps such cy market EUR. monthmoney USD and in interestNOK, rates indices used are equity commodity or contractslinked Swap to such to is linked return the borrowing where in risk to hedge indices. NOTE FINANCIAL DERIVATIVES Cash collateral pledged Total cash collateral NOTE 21 OFFSETTING AND COLLATERAL (Amounts 1 000 000) NOK in agreementsKBN into ISDA derivatives all with entered has counterparties.counterpar-Thisthe implies exposures vs that all the ISDAmay in event default.ty agreements The of be netted contain ofexchange regarding collateral theagreements the in (CSA)formfinancial Support Annex Credit relatedto of deriva- EUR.tives cash or collateral inconsistsUSD The exposures. of collateralCash collateralcash pledged and is present received Total financial derivatives

Interest derivatives rate Fair value hedges: Fair value Currency derivatives

Commodity Equity Currency derivatives

Interest derivatives rate Held for trading: for Held

0

6 658 3 381 2 318 collateral collateral

netting and and netting netting and and netting

Amounts after after Amounts Amounts after after Amounts

Cash Cash 6 579 7 167 17 204 20 818 collateral collateral

a netting agreement agreement netting a a netting agreement agreement netting a 13 345 10 958 13 345 10 958 both asset and both asset and liabilities items liabilities liabilities items liabilities Netting effect for Netting effect for Amounts that may not be presented net in the in the net presented be not may that Amounts Amounts that may not be presented net in the in the net presented be not may that Amounts counterparties with with counterparties counterparties with with counterparties statement of financial position, but are subject to to subject are but position, financial of statement statement of financial position, but are subject to to subject are but position, financial of statement

37 207 20 919 22 831 31 776 amount amount Carrying Carrying Carrying Carrying FinancialISDA fulfilling not the Position, agreements on based the requirementsforcolumn the Netting offsetting. forIn effect counterparties liabilities assets both with the and effect items of having manycounterparties positive both with and negative marketis value reflectedshown, suchpositions that it is how may reducedcounter- nettingmuch valuethe by be per gross party.column Amounts collateral The after nettingshows and net aftercollateralthe exposure cash netting and received effect for counterpartiesmarket positive with cash and pledged values collateralcounterparties formarket negative with value.

0 0 0 0

offset in the offset in the statement of statement of Amounts that are are that Amounts financial position financial Amounts that are are that Amounts financial position financial

value value 37 207 20 919 22 831 31 776

Gross fair fair Gross Gross fair fair Gross

Effect of collateral offsetting and Posi- Financial of Statement the in items shows below table The tionsubjectlegally tonetting that binding are agreements and relatedcom- collateral risk. thisKBN toIn counterparty reduce The liabilities). and (assets derivatives Financial item the prises columnfair Grossmarketvalue totalcon- the presents for value tractssame market and negative positive The with value. makeamountscolumnthe amount, Carrying presented are in to itclearthat Statementthese items presented the are gross of in

2015 (Amounts 1 000 000) NOK in Assets Liabilities derivatives Financial Liabilities derivatives Financial 2014 derivatives Financial Assets derivatives Financial

ANNUAL REPORT 2015 / PAGE 64 ANNUAL REPORT / PAGE 65

0 0

100 2014

1 760 1 760 2014*

000. This000. 1 Share inShare %

within risk risk within

2014

s risk exposures. risk s 1 743 1 743 ’ 2015* 994 994 shares 2015 2 144 625 Carrying amount Carrying Number of of Number Nominal amount in Nominal NOK amount second line defence of s total risk. ’

100 first line defence of 3.74% The risk committee is a a is committee risk The s s ’ Coupon +1.5%

Coupon Share inShare % KBN .

2015 3 month NIBOR . The President & CEO has an overall The CEO. President an & has

right 2016

shares 3 144 625 right 2020 Number of of Number Redemption Redemption

Redemption Redemption CCY

management internalcomprisescontrol the and Lending department,Financial the department Markets that performs funding and liquiditymanagement, back and the office and The functions. administration lending monitors, contributes improving guides and to first line the controls, and performs comprehensive measurement,risk the Risk the Management department overall responsibility has for Three lines defence of President CEO & responsibilitymanagementfor risk and internal control, on and KBNan ongoingchangesfollows basis in up and the toleranceand thefor fluctuations profits capital. in The and risk appetite implementedthrough determination is the limits. risk of Risk committee of the Board. preparatorymembers and advisory tothree Board.Its body the Board.members appointedare the the of annually and by from main Board assistcommittee the isThe in the to function of limits of development including capacity, risk on decision making fortolerance. riskshall the Board assist Furthermore the in it monitoringmanagement KBN of and

Retained earnings. recognisedare The paid, expenses when changesseeIn in Statement theequity. 2015 interest the in of million has amount been paid.tax) In 10.3 NOK (after of that inaddition,million at such end, year had accrued 0.8 NOK inmillion2015 is total the attributedtax to profit 11 of after NOK additionalcapital the statement.see 1 holders, income Tier

Nominal Nominal amount in in amount 275 million

1 000

Nominal Nominal CAD sided sided Currency amount in CCY in amount

NOK

s capacity risk bear s to Currency ’ s activities.

’

The Board of Directors overallBoard the has of The .

s strategytos adapted and business the processes, and are ’ KBN issued additional Tier 1 capital in theKBNissued a capital inof form Tier additional 1 KBN'ssubordinatedThe part bond forms 2015. of June bond in havingon KBN a one capital,Tier Basedsee 30. 1 Note right to not pay interest and notional amount to the investorsrightinterestthe the notional not amount to to pay and bond does a liability is qualify therefore as IASunder not 32 and The Position. Financial of Statement the in equity as classified interestInterestline presented on the expenses not are reductionbut of statement,expense rather a in income as the

NOTE 25 RISK MANAGEMENT ORGANISATION MANAGEMENT OF RISK ORGANISATION Board of Directors Statecustomerand sector ownership, group political imply role profile. risk low a maintains KBN that managementRiskinternalcontrol of an integralare and part KBN risknature,scopethe complexity of exposure. and Robustcontrol internal theis carried of an integral as part out managementbusiness bank. the Risk is of processes establishedthatstructure three lines defence a of on based in shallsystematic identification, ensure assessment and KBN monitoringthe in parts risk all of of responsibilitymanagementfor risksets the the appetite risk and and the requirements with of line owner the KBN in from authorities.The appetite risk reflects KBN Additional capital Tier 1

ADDITIONAL TIER 1 CAPITAL NOTE 24 (Amounts 1 000 000) NOK in Total additional Tier 1 capital 1 Tier additional Total is in order to allow for fulfillingof allow is the incapital coming to increasedorder 2015 and the years. requirementsin The Kingdom of Norway of Kingdom The sharesmillion NOK amount of issue the 1 notional of with of form capitalKBN the 2015, share 1 billion NOK in in in received

NOTE 23 SHARE CAPITAL NOTE 22 SUBORDINATED DEBT *Nominal amount converted to NOK using the rate*Nominal reportingconverted using fx NOK date amount to

(Amounts 000) 1 000 NOK in

Total subordinated debt subordinated Total Ordinary subordinatedcapital loan per s risk ’ 09 15.

.

s capitals ’ Average time to rates. All new rates. All new

year as year 31 December of

1 s liquidity requirements can can requirements s liquidity ’ s shorts duration. ’ netShort redemptions. debt average

’ s capital level is sufficient capital levels is based on ’ net debt redemptions, and the redemptions, debt lowest net and

’

weight cent. per of zero

TIONAL RISK TIONAL s),thecent ofis portfolio invested and 65 per in The price risk in the portfolio is managed theThe is level in portfolio issuer price risk at s Common equity Tier 1 capital adequacys Tier is equity ratio Common 1 ’ rates.managedcurrencyInterest risk through are and rate LIQUIDITY RISK LIQUIDITY Liquiditymaturitymanagedmatching is risk profiles by and interest periodsfor rate and liabilities. assets reset liquidity The portfoliomaintained time that over equals a level a is at minimum of 12 months its obligations. payment KBN enters into derivative transactions with financial institutions institutions financial with transactions derivative into KBNenters totoFX interest hedge exposure rates and time to maturity ensures that KBN in invested is liquidity Surplus assets. selling met without be shortliquidtime credit to and rating and notes high bonds with maturity. Liquidity reserves should 25 and 35 constitute between aims duration have to centtotalper also of KBN of assets. fundingof loanto the portfolio. that exceeding equal or OPERA toleranceKBN for low operational very risk. has Operational risk arisesminimised in functions and is all internal effective by control, highcompetency level, professional focus on ethical and behaviour internally and versus business relations, and robustnesscriticalinfunctions. Management the reports to Board operational on the and incidents. risk cent.is compliant all with capital KBN regulatory requirements, relatingminimum regulatory to requirements and buffer requirements,for capitalTiermeasures all equity and (common 1 capital,capital totalcapital) 1 and primary/total Tier months limitallowed 10 of the expected risk actual exposure. and capitalIn process of the management assessment, identifies tomaybe exposed measures and KBN and risks the all estimatescapitalthe tothe level cover total necessary risk exposure.followingassessed risks The separately:credit are risk,market risk, liquidity operational risk, non and other risk risk. financial changesThe Board special attention the pays to of in risk regulatory to framework. IVimpending and changes CRD The to the national capitalKBN requirements increase requirements. KBN transactionssubjectstrictto are requirements also rating and collateralrequire an ISDA and a agreement the agreement with counterparty. Creditto liquidity risk the average related is An portfolio low. and lowest S&P rating on the of AA+ (based the of is portfolio ’ Moody securitiesBIS a with maturitythe portfolio under of was 2015. and isthe limited to portfolio due RISKMARKET Market consists risk and currency interest rate KBN of risk. policychangesminimal toin allowsinterest exposure rates and FX matching liabilities and assets of through as economic well as hedges derivative with instruments. CAPITAL MANAGEMENT Capital Adequacy requirementsKBNis the subject to and minimum requirementsfor capital. regulatory In addition KBN assessescapital itssubstantial accounttaking level into all risks Board to.the of The is exposed bank Directors discusses the capital least level the at to all and assesses risks annually ensure Company that the

s and ’ is carriedis out

external external ’

s internals credit ’

s credits and rating ’

. KBN has a creditKBN assessment . a has

third linethird defence of s client base is theclient local is base s ’ derivative transactions

– . KBN

s.

’ liquidity portfolio

–

s assets consist of loans to municipalities and similar and a a and similar and municipalities to loans of consist s assets s total risk management. The CRO reports to the President ’ ’ Price risk in thePrice in liquidity risk portfolio Issuer default Counterparty default Loss on loans granted to customers Loss to on loans granted

Interest risk and currency rate

Frameworkfor credit assessment system for loans based on economic assessment ofsystemfor on economic loans based municipalities analysis other The debtors. account into takes and quantitative qualitativekey indicators, including and operating conditions, regulatory framework,financialstanding, profile, debt management an overallthe economic assessment and of geographic region. instruments financial into entering for guidelines strict KBN has transactions,to portfolio liquidity the related hedging and rating acceptable lowest The derivatives). (financial instruments for Moody from investmentsA2/Ain and notes bonds is Liquidity risk Liquidity risk Operational Capital level CREDIT RISK KBN liquidity guaranteed or by issued by portfolio and notes bonds of sovereigns, regional authorities,multilateral development banks, coveredfinancial bonds and credit institutions high with rating. Standard and Poor The counterpartytransactions derivative in managed risk and is reducedstandard through addition,KBN agreements. ISDA In enterscollateral require into which posting agreementscash of counterparties.collateral, swap new all with controlProceduresmonitorcreditto and and processes risk been established.have Management approves all assesses and limitscounterparties,new and on KBN based risk models, available capital,risk counterparties Market risk Market  ratings, financial types of instruments tenor. and All counterparties on an ongoing basis. also reviewed The are Board of credit Directors the annually policy for approves municipalexposures lending, by special assessed are and all management loan.to the granting of prior Credit risk assessment government creditworthiness.sector, high has credit which The riskloansthe postponement, payment in is limited to granted as payment obligation cannotThe be eliminated. Local Government municipalityActstates that a cannot a Should go bankrupt. municipalityface payment difficulties,central the government assume meetmunicipalitywould control the of to until it is able    Credit counterparty risk risk and access to the interbank markets.Creditaccess interbank the and liquidity to are risk riskgenerally positions interest open KBNtakes low. rates in no foreignor currencies. for important most the as identified are factors risk following The KBN:  RISK TYPES The subjectmanagement are KBN risk exposure to and risk in strict internal guidelinesthe ensure bank to & CEO, but has a direct reporting line to the Board directthe in toline reporting a & has CEO, but Capital Norwegian accordancethe of Section 47.3 with Requirements The Regulation. theby internalKPMG, auditor directly Board. reporting the to KBN

ANNUAL REPORT 2015 / PAGE 66 ANNUAL REPORT / PAGE 67

62 23 69

240 562 362

Total Total 8 169 1 871 1 757 2 553 4 100 4 864

44 253 22 103 20 461 13 654 42 839 12 947 22 295 16 605 20 395 33 358 426 187 271 603 426 187 307 231

bearing

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

365

1 486 1 093 1 164 236 330 240 438 240 438 240 438 Not rated Not rated

0 0 0 0 0 0

15 40 69 71

538 295 204

AAA AAA 2 621 3 895 7 496 3 416 1 242 8 743 7 869 11 708 11 062 42 559 14 775 42 559 11 062

0 0 0 0 0 0 0 0 2 0 0

26 74 82 26

AA AA 424 174

1 689 2 364 1 806 1 978 4 617 14 558 20 637 20 637 13 453

0 0 0 0 0 0 0 0 0 0 5 0 0 0 5 0 0 0 0 0 0 0 A A

> 1 > 1 year

> 1 year

801 801 796 796

0 0 0 0 9 0 0 0 0 0 0 9 0 0 0 9 0 0 9 0 0 0 0 0 0 0

A A

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

14 14 14 14

tasksthat sector entities carry out public to grantsKBN loans conditions authorities.such regional for and The loans for local thatare municipalitiesthe regional authorities or provide guarantees and authorisedthat been politically approved have the or governor Local the government Ministryby of County via Government and Modernisation.KBNloan has lossesin no 31 at default as of evidence any there is neither 2015, and financial issue December not KBN does 2015. guarantees. The table below includes exposures on the Statement of of Statement the on table includes exposures The below institutions, credit with Deposits lines Position Financial Instalment interest and other bonds loans and Notes, securities. BBB BBB

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

428 463 156

1 875 22 979 21 932 22 979 21 104 Not rated Not rated

0 0

23 48 1+ 1+

240 460 890

5 120 1 333 2 743 9 373 1 757 3 981 5 420 2 553 7 544 9 307 1/A 1/A 10 180 15 998 84 245 23 825 10 938 13 189 84 245 22 697 20 872 < 1 year < 1 year A A

0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 0 0 0 3 0 0 0

A A 362

5 859 8 285 14 506 14 506 14 506

¹

Includingmunicipal billion. loans of sector 256.8 to NOK Amounts 000 000) 1 NOK in NOTE 26 CREDIT RISK ( KBN credit has exposures againstmunicipalthe sector in sovereigns, authorities, local against Norway, as as well multilateral development banks, financial institutions and covered bondsLoans withinthe municipalities given to OECD. may time have to maturity of up to 50 years, and credit limits regulatedare on large the by exposures. regulation Credit exposuresfinancial to institutions shall A of a rating or have above. United States United Kingdom Germany Switzerland Sweden ¹ DecemberUndisbursed 2015. billion 31 to at 3.9 as commitments NOK amount loan country by exposure Credit 2015 Time to maturity Canada New Zealand New Supranational Risk class Belgium Total Austria Spain Netherlands Norway Australia Japan Covered bond Covered France Securitisation Finland Denmark Total Risk class institutions Financial Amountsin table below representthe credit actual exposure 2015 Time to maturity Regional authorities Multilateral development banks Sovereignscentral banks and

16 424 903 383 113

Total Total 8 158 6 706 5 912 5 775 5 904 1 852 1 824 52 164 17 343 17 697 10 678 27 114 38 118 24 438 25 261 27 114 423 511 260 658 423 511 308 467

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 183 272 1 805 221 953 221 953 221 953 219 693 Not rated Not rated

0 0 0 0 0 0 0 0 0 60 34 281 394 746 AAA 9 950 AAA 1 122 6 260 49 818 13 274 13 540 12 994 49 818 17 101 10 886 12 994

2 AA

0 0 0 0

5 769 1 360 8 339 1 021 AA 38 423 21 932 139 278 424 267 706 903 740

6 805 2 410 1 716 1 503 1 021 38 423 21 511

0 0 A

> 1 year > 1 year 24

211 0 0 0 0 0 0 0 0 0 A 2 131 701 383 27 128 24 761

2 485 2 499 3 980 5 775 8 179 3 125 27 128

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 A 11 11 A 11 11

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 monthmoney remaining KBNchanges has to in3 only exposure market interest rates.Interestsensitivitymeasured is the rate as liabilitieschangefair and in assets value a 100 ba- of based on changesis in point interest in- rates shift). (parallel NOK The terestthe ability regulatethe rate on to depends floating risk rate on instalment loans. 12 interestThe a limit rate NOK for Board of adopted risk has million.sensitivity interestmeasured The is rate assuming 50 thethedays an adjustment floating rate to lending on of portfo- lio.mainThesensitivity interest ratecurrencies the pre- in is sented table below: the in 0 0 0 0 0 16 16 16 16 BBB BBB

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 37 483

1 093 1 023 32 871 30 235 32 871 32 871 Not rated Not rated

0 0 0 0 0 0

1+ 1+ 919 972 136 277 6 985 6 810 9 211 2 129 1 965 2 081 8 709 9 805 7 588 4 840 1/A 53 292 13 099 1/A 53 292 17 961 13 099 < 1 year A A < 1 year

0 0 3 0 0 0 0 0 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 0 0 0 A A

¹

Includingmunicipal billion. loans of sector 249.9 to NOK INTEREST RATE RISK RATE INTEREST NOTE 27 (Amounts 1 000 000) NOK in ofInterest result and bor- KBN's lending arises risk a rate as in differences from results risk rate interest The activities. rowing thefor interest rate liabilities, and assets periods fact and the due at differentAsthattimes. in are a cashand out payments management,partinterest of activelyKBN risk rate buys and sellssecurities highly sovereigns, by rated issued local authori- institutions, financial and banks development multilateral ties, and enters into derivatives contracts, mainly contractsFRA and interest rate swaps. KBN has bond debt and investments in severalinvestments debt in currencies,KBN and bond has however, allfully hedged for interest currencies rate all is risk for TheEUR. interestexcept these NOK, rate USD and risk three currenciesissuch hedged usingswaps, interest that rate Total Austria United Kingdom ¹ DecemberUndisbursed 2014. 31 billionto at 5.7 as commitments NOK amount loan Securitisation Total Norway Spain Japan Denmark Credit exposure by country by exposure Credit 2014 Time to maturity Risk class 2014 Time to maturity Riskclass Covered bond Covered Luxembourg Finland France Germany Regional authorities institutions Financial Canada Belgium Multilateral development banks Switzerland Supranational Netherlands Sovereignscentral banks and Australia Sweden

ANNUAL REPORT 2015 / PAGE 68 ANNUAL REPORT / PAGE 69

- 0.4 0.1 0.5 1.0 4.5 0.5 2.2 7.2 rate risk Gross Gross erest int takes into interest rate olute values values olute

sk

0.5 2.2 abs (4.5) (1.8) rate risk 10% in FX change 10% Net interestNet

2014 4.4 0.9 4.5 9.9

Net position Net

1.1 0.3 8.3 9.7 rate

sis assumes zero correlation between FX rates and other market ratessis correlation zero FX and other assumes between factors. risk ofcurrency all risk to related assets and liabilities. However, in items statement to income related positions net term short trans- both at is hedged may occur. Currency risk EUR USD and set to is currency risk for limit level. portfolio The action and level rates.million FX NOK change all a 10 percent absolute 12 for in maturesA the of months. large portfolio to part Further within 12 thismatching liquidity by maturities is reduced risk on assets short term and liabilitiesbankmonths. a toThe also has 3 up manageshortcredit DNBfunding with to line a programme and liquidity. term The2015 that Board Directors portfolio decided in of very of a liquid 2016.shallcreatedsecurities in These holdings shall be be transferrablesignificantcash withoutto under KBN for losses severely stressed market conditions, either through direct sales throughor in repurchase the agreementsa recognised of use repurchase market. The liquidityusingconservative portfoliomanaged invest- a is marketmentcreditkeeping Surplus policy low. risk both and liquidity sovereigns, by issued invested and bonds in notes is localmultilateral authorities, development and highly banks institutions. rated financial

10% in FX change 10%

2015 3.1 10.7 83.1 96.9 Net position Net

)

Amounts 1 000 000 NOK in

The effectthe state-shows table an absolute in income above change ratesFX The relativeto 10 percent in ment NOK. a of net positionsamount foreigncur-calculated on all in based is sensitivity 2014. The 2015 and December analy- rency at as 31

Currency riskthe is defined aschanges riskdue to loss of in rates. Currency risk FX in fluctuations on market values based mainlyarisesKBN's beingto foreign borrowing due in currency, hedging requires policy risk bank's The NOK. in is lending while NOTE 28 CURRENCY RISK (Amounts 1 000 000) NOK in NOTE 29 RISK LIQUIDITY ( Liquidity risk is defined as the risk of KBN not being able to meetLiquidity of to risk being the KBN not able isas defined risk itsfinance commitmentssignifi- and/or demand lending without form incantthe value reduction being costs in of incurred extra more form expensive sold, the toof in of or be that assets need funding. Liquidity risk is monitored and managed through the bank's of liquidityBoard Directors.set the by policy The policy requiresthatof portfolio liquidity a should holdings be months' netminimumheld re- time 12 amounting a of to over 10 months' netdemptions,time redemp- below not at any and tions.maya given situationcover implies in bank that This the lending the to related that including liabilities/payables, its all activities, months borrowing. withoutthe 12 new during next

Total Other currencies Currency

EUR USD Effect of 100 bp change in interest ininterest Effect change of 100 bp rate NOK USD EUR accountthetotal direction the theinterest the effect of the currency, statement Gross is income in while of risk per rate of calculatedcurrency. the effect per Total The table shows the total effect in the income statement related to the assumed change in interest rates. This comes from a fromcomesthechange assumed intereststatement ThisThe rates. a total the in income table shows in the to related effect the an effectfair interest combinationmeasurement, income. For latter the Net on change value and on part based a value of ratethe change interest the interestmonth periodchange. Net rateimpact will three following Net during rate ri the income

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

49 49 49 49

(49) (49) Without Without Without Without maturity maturity

0 0 0 0 0 0 0 0 0 0

629 629 217 286

52 452 52 29 910 29 46 470 46 15 161 52 452 46 470 15 378 (1 182) (1 154 618

206 441 206 155 >5 years >5 years

0 0 0 0 0 0 0 0 0

1 000

80 212 80 93 991 93 32 064 48 148 28 163 65 828 (2 519) (2 (1 167) (1 5 years 5 years 265 426 265 100 229 100 182 960 182 264 426 182 960 (172 602) (172 1 1

0 0 0 0 7 7 0 0 0

(104) 4 311 4 3 308 3 1 743 8 188

46 110 46 44 815 44 45 818 45 16 563 29 255 44 808 44 360 39 862 48 050 (2 044) 044) (2

12 months 12

12 months 12

3 3

0 0 0 0 0 0 0 0

708 708

1 890 9 213 10 999 23 494 23 81 595 81 91 887 32 603 32 44 018 80 887 22 786 23 390

135 905 (96 578) (96 (42 268) (42 3 months3

3 months3

1 1

0 0 15 15

5 006 1 000 1 743 7 167 7 167 2 642 17 982 17 52 552 52 26 568 26 98 686 39 544 39 19 428 25 203 58 211 48 286 19 386 17 474 19 428 143 317 143 (32 555) (32

< month1 < month1

779 779 Total Total Total Total 4 314 4 4 314 4 1 000 1 1 000 1 1 743 1 1 743 1 7 167 7 7 167 7 10 845 10 10 845 10 19 428 19 19 428 19 254 361 254 414 099 414 146 841 146 414 099 414 403 410 403 403 410 403 254 361 361 254 420 630 420 146 841 146 420 630 420

2015 rate interest time to by Exposure reset Financial derivatives exposure liquidity Net Instalment loans Net liquidity exposure liquidity Net Notes,interest and other bonds bearing securities Total liabilities Total Deposits with credit institutions credit Deposits with Financial derivatives Additional capital Tier 1 Total liabilities Total Additional capital Tier 1 Subordinated debt Subordinated debt liabilities Other liabilities Other Senior securities issued securities Senior Senior securities issued securities Senior Loans from institutions credit Loans from Loans from institutions credit Loans from

Exposure by time to maturity time to by Exposure Notes,interest and other bonds bearing securities Instalment loans Total assets 2015 Total assets Deposits with credit institutions credit Deposits with

ANNUAL REPORT 2015 / PAGE 70 ANNUAL REPORT / PAGE 71

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

61 61 61 61

(61) (61)

Without Without Without Without maturity maturity

0 0 0 0 0 0 0 0 0 0

(819) 8 188 8 188 17 226 40 265 26 233 40 265 26 233 (1 212) (1 157 238 198 715 198 715 >5 years >5 years

0 0 0 0 0 0

862

1 760 1 760 37 920 26 574 68 509 64 493 48 701 19 807 (6 982) (6 5 years 5 years 106 180 276 652 169 812 274 892 168 052 (215 125) (215 1 1

0 0 0 0 0 0

125 209 209

4 892 35 377 21 438 31 609 12 330 47 600 69 020 47 391 68 811 74 318 56 815 58 101 16 217 12 months 12 12 months 12 3 3

0 0 0 0 0 0

225 225

6 952 8 284 44 352 89 770 25 310 15 503 82 669 15 278 82 444 33 861 25 577 134 121 (10 664) (10 (62 117) (62 In order maintainto a sufficient capital level, KBN can, depending on market conditions, reduce or increase its total regarding theassetsinto dialogue owner enter or with a changing capitalstructure its changes by policy in or dividend capital equityissuecapital. 1 common share Tier of The requirement including percent to buffers increased 12 10 from further Julyfromto percentincrease and will 1 from 13.5 2015, 1 July Corresponding 2016. this,capital total to requirements includingJuly 1 fromfrom 15.5 increased buffers to percent 13.5 July In percent 2016. 2015,1 from further increase and will 17 to addition countercyclicalcapital the buffermay requirement KBN'scase capital increasein affect such would and requirements. minimum requirements The regarding common equitycapital percent total capital 8.0 Tier 4.5are and 1 and respectively. capitalisedis well reporting on the KBN date,and is capitaladaptingcapitalstructure itsto requirements. new 3 months3 3 months3 1 1

0 0

20 20

9 668 5 949 4 001

37 656 19 196 16 219 39 426 71 713 14 271 46 558 25 135 25 135 43 145 22 926 16 219

101 054 154 929 (64 020) (64 < month1 < month1

515 515

Total Total Total Total 8 639 8 639 9 599 9 599 1 760 1 760 16 219 25 135 25 135 16 219 155 305 247 023 419 507 419 507 392 097 392 097 418 547 155 305 418 547 247 023

the level of Tier 1 and total capital and totalTierthe relative ofto 1 level

30 rating and to ensure efficient marketratingto efficient competition. ensure and The

Board assesses the capitalBoardthe an ongoing assesses and basis level on approves KBN's principlescapitalmanagement.for KBN is capitalsubjecttheto adequacy regulations and shall a have sufficientmarketcapital risk its the profile level and on based conditions.capitalmanagement target The is operationalised capitalthrough ratiototal the 1 adequacy capital Tier and adequacy ratio riskcapital assets. weighted KBN's assessed status is against situationmarketrisk normaltests. usingstress ina and Regulatory requirements for common equity Tier 1 capital adequacy 12 percentset including has at been buffer compliant2015. KBN is requirements all December with 31 at as regulatory capitalat requirements 2015. 31 December as KBN'scapitalconsistscapital, share of retained earnings, hybrid Tier 1 capital and supplementary capital/subordinated debt. A satisfactorymaintainingfor necessary as capital seen of level is the AAA NOTE CAPITAL ADEQUACY AND CAPITAL MANAGEMENT (Amounts 1 000 000) NOK in 2014 rate interest time to by Exposure reset Notes,interest and other bonds bearing securities Instalment loans Net liquidity exposure liquidity Net Net liquidity exposure liquidity Net Financial derivatives Deposits with credit institutions credit Deposits with Financial derivatives Total liabilities Total Total liabilities Total Subordinated debt Subordinated debt liabilities Other liabilities Other Senior securities issued securities Senior Senior securities issued securities Senior Loans from institutions credit Loans from Loans from institutions credit Loans from

Total assets Notes,interest and other bonds bearing securities Total assets 2014 maturity time to by Exposure Instalment loans Deposits with credit institutions credit Deposits with

0 0 3 1 0 4 0 8 0 0 0

34

491 160 255 196 149 790 232 (78)

2014 2 145 5 700 5 284 5 538 1 571 1 571 8 490 4 088 8 490 4 088 10 061 capital nts. nts. 12.26 % 12.26 % 14.53 %

Minimum Minimum lised gain/ eme rea requirements

0 0 0 0 0

42 14 48 95

994 426

2015 (124) (417) (281) 3 145 6 193 1 870 2 005 3 184 2 444 1 857 1 571 9 869 1 571 66 047 69 231 12 950 11 379 51 000 10 385 51 105 assets

weighted weighted 2014 Risk

0 14 48

160 113

24 438 27 598 65 987 27 114 16 236 14 797

456 618 249 880 amount 307 713 Carrying Carrying

0 2 1 4 0 0 0

175 225 343 203 561

5 282 5 507 4 184 4 195 capital

derivative and derivative liabilities. 16.53 % 15.09 % 18.81 % Minimum Minimum

requirements

0 0 0 0

29 17 46

Risk 2 193 2 814 4 284 2 542 7 015 66 026 68 840 52 298 52 443 assets

weighted weighted 2015

0 69 17 46

175

42 839 14 627 36 922 20 395 12 944 20 413

444 940 256 769 amount 311 119 Carrying Carrying

Basic Indicator Approach Approach Indicator Basic

—

Of which counterparty exposure derivatives on Of whichOf Norwegian are municipalities Share capital Supplementarycapital.KBN'scapitaltotal 1 capital Tier cent capital 100 per satisfiesthe of cannot exceed adequacy requir Retained earnings years previous Profit1 capital the Tier included for year in Pension funds pension commitments above asset*Deferred tax Common equityCommon capital Tier 1 Market risk Tier1 capital Common equity ratio adequacy KBN'stotalcapital primary following the comprises elements:

Total credit risk Total capital ratio ratio adequacy capital 1 Tier Credit Valuation Adjustment Adjustment Credit Valuation Securitisation risk Operational requirements capital Minimum Other assets Covered bonds Covered (loss) on liabilities that is due to changes in own credit(loss) includechanges non risk on liabilitiesto in both own that is due *Only non reversing deferred tax asset to be deducted here. *Only assetto non reversingtax be deducted deferred Primarycapitalcalculation thethe under been calculated has Regulation on capital primary financial of for institutions. Un Claims secured residential by property Total primary capitalTotal primary Total supplementary capitalTotal supplementary institutions Financial Ordinary subordinated debt Multilateral development banks Supplementary capital Public sector entities Total Tier1 capital Othercapital Tier approved 1

Intangible assets Dividends payable Adjustments regulatory 1 capitalcommon filters Tier equity in on based Share of unamortised estimate nulled differences Tier1 capital Total common equity Credit risk Credit Regional governments local and authorities Sovereignscentral banks and

ANNUAL REPORT 2015 / PAGE 72 ANNUAL REPORT / PAGE 73

Anne-Ma Tostrup Smith Tostrup Anne-Ma Jevard Roy

CONTROL COMMITTEE’S AND COMMITTEE’S CONTROL STATEMENTS BOARD’S SUPERVISORY SUPERVISORY BOARD’S STATEMENT BOARD’S SUPERVISORY CONTROL COMMITTEE’S STATEMENT COMMITTEE’S CONTROL SupervisoryAS Board for Kommunalbanken Ludvigsen Svein Chair examined by the Supervisory Board. The Supervisory and the proposals for the income statement the Board of Directors’ Board recommends that Annual NOK 1,881,281,272 is adopted by the of profit, well as the application of financial position as statement Meeting. Shareholders’ April 2016 14 Oslo, To the Annual Shareholders’ Meeting of Kommunalbanken AS Meeting of Kommunalbanken Annual Shareholders’ the To been the annual accounts for 2015 have Association, Articles of In accordance with §15 in Kommunalbanken’s Ole Rødal Vice Chair Vice Kjell Inge Skaldebø Chair The Control Committee recommends that the annual report and accounts presented be approved as the annual report that The Control Committee recommends presented be approved and accounts Annual Shareholders’ of profits is adopted by the the application for 2015 and that accounts Kommunalbanken’s proposals. Directors’ Meeting in accordance with the Board of 30 March 2016 Oslo, AS Control Committee for Kommunalbanken The Control Committee has examined Kommunalbanken AS’ annual report and accounts as well as the Auditor’s Auditor’s report annual as the and accounts as well AS’ has examined Kommunalbanken The Control Committee report for 2015. - - - -

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. a basis for our audit opinion. obtained is sufficient and appropriate to provide have we the audit evidence that believe We An audit involves performing in the financial procedures to obtain audit evidence about the amounts and disclosures An audit involves AUDITOR’S REPORT AUDITOR’S To the Annual Shareholders’ Meeting of Kommunalbanken AS of Kommunalbanken Meeting Shareholders’ the Annual To REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS REQUIREMENTS REGULATORY AND LEGAL OTHER ON REPORT REPORT ON THE FINANCIAL STATEMENTS FINANCIAL THE ON REPORT (This translation from Norwegian has been made for information from Norwegian has been made for purposes(This translation only.) ERNST & YOUNG AS Einar Hersvik AuthorisedState Accountant Public (Norway) Officer have fulfilled their duty to ensure that the Company’s accounting information accounting and documented is properly recorded the Company’s ensure that their duty to fulfilled Officer have and generally accepted bookkeeping practice in Norway. as required by law 29 March 2016 Oslo, Based on our audit of the financial statements as described above, and control procedures we have considered necessarywe have in and control procedures as describedBased on our audit of the financial statements above, «Assurance Engagements Other than Assurance Engagements (ISAE) 3000, accordance with the International Standard on the Board of Directors it is our opinion that Audits or Reviews of Historical and Chief Executive Financial Information», report going concern the on corporate and in the statement social responsibility concerning assumption the financial statements, and regulations. and complies with the law of the result is consistent with the financial statements and the proposal for the allocation and documentation Opinion on registration Opinion on the Board of Directors’ report on corporate and on the statement social responsibility Opinion on the Board of Directors’ the information it is our opinion that presented in the Directors’ as describedBased on our audit of the financial statements above, lations and present fairly, in all material respects, the financial position of the Company as at 31 December 2015 and its as the financial position of the Company in all material respects, and present fairly, lations the International year then ended in accordance with financial performance for the Financial Reporting and its cash flows Standards as adopted by the EU. Opinion and regu in accordance with laws been prepared AS have of Kommunalbanken the financial statements In our opinion, effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies An audit also includes evaluating internal control. of the entity’s effectiveness of presentation the overall as evaluating as well made by management, estimates used and the reasonableness of accounting the financial statements. misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor In making those risk assessments, whether due to fraud or error. of the financial statements, misstatement in order to and fair of the financial statements preparation presentation considers internal to the entity’s control relevant not for the purpose but an opinion on the of expressing are appropriate in the circumstances, design audit procedures that onal Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform we the Those standards require that Auditing. onal Standards on from material are free whether the financial statements misstatement. audit to obtain reasonable assurance about the risks including the assessment of of material judgment, The procedures selected depend on the auditor’s statements. Auditor’s responsibility Auditor’s We conducted our audit in based on our audit. on these financial statements Our responsibility is to express an opinion including Internati and practices generally accepted in Norway, and auditing standards regulations, accordance with laws, statements in accordance with the International Financial Reporting Standards as adopted by the EU, and for such inter in accordance with the Internationalstatements Financial Reporting by the EU, Standards as adopted nal control as the Board of Directors and President & CEO determine is necessary of financial to enable the preparation or error. whether due to fraud are free from material misstatement, that statements The Board of Directors’ and President & CEO’s responsibility for the financial statements for responsibility and President & CEO’s The Board of Directors’ The Board of Directors and fairfinancial & CEO are responsible for the preparation of these and President presentation We have audited the accompanying financial statements of Kommunalbanken AS, which comprise of finan the statement AS, of Kommunalbanken financial statements audited the accompanying have We and changes in cash flows income, of comprehensive statement income statement, 31 December 2015, cial position as at a summary of significant accounting policies and other explanatory then ended, equity for the year information.

ANNUAL REPORT 2015 / PAGE 74 ANNUAL REPORT / PAGE 75 ------CHAPTER IV - SUPERVISORY BOARD SUPERVISORY - IV CHAPTER ernisationparticipatecan Supervisorythe in with meeting Board observers. up to two The Supervisory Board constitutes a quorum least 2/3 of when at If the requisite num its members or deputy members are present. a new meeting of the Supervisoryber of members is not present, will constitute a quorumThe new meeting if Board shall be called. more than half the members are present. Supervisorythe of resolutions the which for those are Board Valid resolu a although majority voted, membersof the present have all one third of more than for by only be passed if voted tion can of as broad a range of members as possible, so as to ensure that so as to ensure that of as broad a range of members as possible, variousthe districtsinterest groups and the Company’s by affected A member of the Board of Direc are fairlybusiness represented. tors also be member of the Supervisory cannot Board. One (1) of the members of the Supervisory Board shall be elected this mem For employees. by and from amongst the Company’s The remaining mem ber shall be elected one (1) personal deputy. Annual General bers deputy members and by the shall be elected Meeting. The members of the Supervisory Board shall be elected for two- Mem One third of the members shall retire each year. terms. year A bers elected by the shareholders years. shall be elected for two minimum of one third of the membersbe elected annually. shall The Supervisory Board shall elect a chairman and vice-chairman from amongst its members to serve for a term of one year. SupervisoryThe by the chairman be convened Board shall § 14 or as often as the chairman least once a year and meet at finds necessary the Con when called for by the Board of Directors, or of the members of the Supervisory least two trol Committee or at to be The notice of the meeting shall set out the business Board. considered. and the Compa the Control Committee The Board of Directors, Super the of meetings the attend to called be shall auditor ny’s Unless otherwise determinedvisory by the Supervisory Board. the Board of Directors and mem Board in individual instances, bers the of the Control Committee are entitled to be present at Supervisoryof the meetings rightwith the Board and the to speak The Ministry and Mod of Local Government right of initiative. Company per procurationem Company Annual reportand directors’ annual accounts Present the to the 5. General Meeting Annual General Meeting with the to Make recommendations 6. Association Articles of to the respect to alterations Appoint the managing director 7. salary Fix the managing director’s 8. policy. on remuneration Prepare statements 9. or the vice-chairmanThe chairman the Board of of the Board, § 11 jointly with one of the Board members or the managing director shall sign for the Company. The managing day-to- director shall be responsible for the § 12 in accordance and its business management of the Company day by the with the instructions by the Board and approved laid down Supervisory Board. The Supervisory members and of twelve Board shall consist § 13 Supervisory The composed be should Board members. deputy five ------ARTICLES OF ASSOCIATION OF ARTICLES CHAPTER III - BOARD OF DIRECTORS OF BOARD - III CHAPTER CHAPTER II - EQUITY AND SUBORDINATED LOAN CAPITAL - - CAPITAL LOAN EQUITY SUBORDINATED - AND II CHAPTER SHARES CHAPTER I - COMPANY, OBJECTIVES, REGISTERED OFFICE REGISTERED OBJECTIVES, COMPANY, - I CHAPTER § 10 The Board is responsible for managing the Company’s busi The Board is responsible for managing the Company’s § 10 ness and shall therefore inter alia: business guidelines for the conduct of the Company’s down Lay 1. are followed they and check that authority Grant loans and delegate 2. Make decisions and grant authority for new loans raised 3. and authorisation to sign on behalf of the Grant special powers 4. a member calls for a meeting to be held. The Board constitutes a The a member calls for a meeting to be held. resolu Valid quorum half the members if more than are present. tions are those for which the majority of the members present have or amend although a proposal which implies an alteration voted, If the ment requires more than one-third of all board members. the chairman of the meeting shall on each side are equal, votes the casting vote. have The other members shall be elected by the Annual General Meet The other members shall be elected by the elected be shall (2) two least at that so terms, two-year for ing than three (3) of the elected members. no more but annually, Annual General Meeting shall elect the chairman and The vice-chairman of the Board of Directors. The chairman the Board holds of the Board shall ensure that § 9 when or necessitates, business Company’s as the as often meetings § 8 The Company’s Board of Directors shall comprise of between The Company’s § 8 (2) of the elected membersTwo of (5) and nine (9) members. five the Board shall be elected by and from amongst the Company’s these members (2) personal be two deputies shall For employees. elected. NOK 1,000 (one thousand Norwegian kroner) each. NOK 1,000 (one thousand Norwegian the the consent of conditional on of shares is acquisition The § 6 on withheld be only can Consent Directors. of Board Company’s grounds of fact. § 7 Pre-emption rights given to shareholders under section 4-19 shares for claimed be also can Act Companies Norwegian the of changed owner. which have § 4 The Company’s registered in Oslo. office is to be situated The Company’s § 4 bil share capital is NOK 3,144,625,000 (three The Company’s § 5 six hundred and twenty one hundred and forty-four million, lion, into 3,144,625 shares of kroner) divided thousand Norwegian five maintaining highest possible creditworthiness. loans to local govern are to provide objectives The Company’s § 3 intermunicipal companies and other companies counties, ments, carrythat tasks against either a municipal out local government or other satisfactory guarantee, government security. guarantee, can also undertakeThe Company other tasks appropriate to the business. Company’s § 1 The Company’s name is Kommunalbanken AS. name is Kommunalbanken The Company’s § 1 of the enterpriseis a direct continuation The Company § 2 Norges carried body, administrative out by the government Kommunalbank. counties, be assigned to municipalities, shares may The State’s Such intermunicipalfunds. companies and municipal pension aim of Company’s assignment will be done in accordance with the The Articles of Association were last changed by the Annual General Meeting 5 June Meeting 5 June General Annual the last changed by were Association of Articles The 2015. Authority of Norway 10 July by the Financial Supervisory 2015 and approved ------CHAPTER XI - ENTRY INTO FORCE INTO ENTRY - XI CHAPTER OF ARTICLES THE TO ALTERATIONS - XII CHAPTER ASSOCIATION CHAPTER IX - ANNUAL REPORT AND ACCOUNTS AND REPORT ANNUAL - IX CHAPTER RETIREMENT OF AGE - X CHAPTER CHAPTER VII - AUDITOR - VII CHAPTER VIII CHAPTER § 25 These Articles of Association shall enter into force on the day shall enter into force on the day Association Articles of These § 25 by the King. on which they are approved with the save be altered cannot Association Articlesof The § 26 of the King. approval government tasks against either a municipal guarantee, govern tasks against either a municipal guarantee, government can The Company ment guarantee or other satisfactory security. business. also undertake other tasks appropriate to the Company’s of DirectorsThe Board shall fix all lending terms and condi § 21 time. any be in force at tions as may and financial administration capitalisation The Company’s § 22 and con business shall be satisfactory to the Company’s in relation highest possible aims of maintaining sistent with the Company’s creditworthiness. year. the calendar year shall follow financial The Company’s § 23 annual accounts and an The Board of Directors shall deliver annual reportyear. for each financial auditor the of disposal the at placed be shall accounts annual The least one month priorat the ordinaryAnnual General Meeting. to The audited annual report and accounts shall be scrutinised by the Control Committee and Supervisory Board before being laid Annual General Meeting. before the report annual the adopt shall Meeting General Annual and The than the end of June. accounts no later The Board of Directors shall publish the annual report and by been adopted after they have than one week accounts no later Annual General Meeting. the Managing Director Company’s the for retirement of age The 24 § is 67 years. from the Control Committee. from the Control Members shall be elected for two-year Control Committee of the elect a chairmanControl Committee shall The and vice terms. chairman its members. from amongst supervise Committee shall The Control of the the business of Directors, transactions of the Board including the Company, is run the business and ensure inter alia that in accordance with law and the Articles of Association. be conside shall meet as often as may The Control Committee red necessary It shall keep supervision. in order to ensure effective The Finan as is authorisedsuch a record of its proceedings by and shall cial Supervisory («Finanstilsynet»), Authorityof Norway a report to the Supervisoryannually deliver on its work the Board, SupervisoryThe Financial Authority and Annual General Meeting («Finanstilsynet») of Norway state-authoriseda be shall auditor public Company’s The 18 § accountant and shall be elected by the Supervisory Board. prior weeks report least two at shall be delivered The auditor’s to the meeting of the Supervisoryshall consider the Board which accounts. issuing bonds, by for lending raise funds shall Company The 19 § certificates or other formentering of loan notes or by into loan agreements. inter counties, § 20 Loans can only be granted to municipalities, carrymunicipal companies and other companies which local out - - - CHAPTER VI - CONTROL COMMITTEE CONTROL - VI CHAPTER CHAPTER V - ANNUAL GENERAL MEETING GENERAL ANNUAL - V CHAPTER which render a person no longer eligible for election, he shall retire which render a person no longer eligible for election, or the first collateral line to a member of the Board of Directors, or the first to a member of the Board of Directors, line collateral person No as elected be may Company. the of officer or auditor debt settlement under is in bankruptcy, estate member whose a Should circumstances arise administration. proceedings or private member of the Control Committee. Nor can any person Nor can any become a member of the Control Committee. of colla or in a relationship disability who is under a legal member or related or married subordinacy to, or dependency to, boration, by marriage line or blood in the direct ascending or descending Norway («Finanstilsynet»). Norway auditor No member or deputy member of the Board of Directors, or deputy can be elected as a member of the Company or employee Meeting. One member shall satisfy the requirements to be fulfilled the requirements to One member shall satisfy Meeting. second subsection of the Norwegian by judges under section 54, The election of this mem August 1915. Act of 13 Courts of Justice The Financial SupervisoryAuthority of by ber must be approved § 17 The Control Committee shall consist of three members and § 17 Annual General one deputy member who shall be elected by the 6. Other business referred business Other which or meeting the of notice the in to 6. Annual General fallsAssociation Articles under the of or by law Meeting. 4. Elections of membersElections of and deputy members the Control of 4. Association. Articles of Committee in accordance with § 17 of the policy. on remuneration statement The Board of Director’s 5. Board and the Board of Directors, the members of the Control Board and the Board of Directors, Committee and the auditor. Elections of members of Directors to the Board in accordance 3. with § 8. and accounts, including the application of profit or covering of loss of profit or covering including the application and accounts, of dividend. and the declaration for the year, of the members of remuneration The fixing of the Supervisory 2. The Ministry and Modernisation of Local Government shall call Annual General Meeting. the business: following Annual General Meeting shall transact the The report annual Company’s of the adoption and consideration The 1. shareholders representing minimum a tenth of the share capital, shareholders the share capital, representing minimum a tenth of members Supervisorythe of two Directors, of Board the Board, auditor. the Control Committee or the Company’s § 16 The ordinaryAnnual General Meeting shall be held before § 16 the end of June. An extraordinary General Meeting shall be held if called for by brought before the Supervisory Board by the Board of Directors or Control Committee. 4. Scrutinise the directors’ report, the auditor’s report the and the auditor’s Scrutinisereport, directors’ the 4. report Control Committee’s Adopt instructions for the Control Committee 5. an opinion on matters concerning which are Give the Company 6. and balance sheet, including any consolidated income statement income statement consolidated including any and balance sheet, proposals for the and the Board’s balance sheet, and consolidated year the of loss for of profit or covering application by the Board Elect a state-authorised accountant to act as auditor public 2. General Meeting in respect Annual to the a statement Provide 3. statement income the for proposals Directors’ of Board the of and the Supervisory Board. The Supervisory Board shall: instructions the managing for the Approve director as laid down 1. § 15 The Supervisory busi supervise Board shall § 15 the Company’s promoted are being objectives the Company’s that ness to ensure and articles memorandum of regulation, with law, in accordance Meeting Annual General the resolutions of the and association, members. If the votes on each side are equal, the chairman of the equal, on each side are If the votes members. the casting vote. have meeting shall

ANNUAL REPORT 2015 / PAGE 76 ANNUAL REPORT / PAGE 77 Else Bugge Fougner, Chair Else Bugge Fougner, Byre Jarle AUDITOR AUDITOR INTERNAL Ernst AS & Young Accountant Authorised Public State Einar Hersvik, KPMG AS Accountant Authorised Public State Are Jansrud,

Martin Skancke, Chair Martin Skancke, Else Bugge Fougner

employee representative employee

GOVERNING BODIESGOVERNING CONTROL COMMITTEECONTROL SUPERVISORY BOARD SUPERVISORY BOARD PREPARATORY COMMITTEES PREPARATORY BOARD BOARD OF DIRECTORS OF BOARD Kjell Inge Skaldebø, Chair Kjell Inge Skaldebø, Vice Chair Smith, Tostrup Anne-Ma Ole Rødal Alternates Committee to the Control Jevard Roy Observers to the Supervisory Board General, Director Steffensen, Monica Sølve Ministry and Modernisation of Local Government Deputy Director General, Thor Bernstrøm, Ministry and Modernisation of Local Government Bjørn Nyvik, Ove Alternates to the Supervisory Board Berit Koht Hans Seierstad Cecilie Hansen Stiansen Johnny representative employee Magnus Jonasen, Torger Arne Johansen Anita Orlund Bjørn Ropstad Sirnes Tore Bjørn Skjelstad Lene Conradi Svein Ludvigsen, Chair Ludvigsen, Svein Vice Chair Berit Flåmo, Alfred Bjørlo Rigmor Brøste Karen Marie Hjelmeseter Remuneration Commitee Midtgaard Remuneration Commitee Rune Takvam Risk MarthaCommitee Andreas Aleström Egidius Audit Chair Takvam, Martha Nanna Rune Sollie Rune Sollie Martha Takvam Steen jr. Petter representative Marit Urmo employee Harstad, representative employee Byre, Jarle Alternates representatives to the employee Kristine Henriksen Lien Else Bugge Fougner, Chair Else Bugge Fougner, Vice Chair Martin Skancke, Nanna Egidius Rune Midtgaard As of 31.12.2015 Lending Lending Department Lars Strøm Prestvik Chief Lending Officer Treasury Officer Head of Treasury Thomas Møller Funding and IR Department Martin Spillum Head of Funding & IR Ellen Eskedal Scavenius Financial Markets Financial Markets Chief Financial Markets Chief Financial Markets PA Affairs Roald Fischer Frank Øvrebø & Settlement Middle Office Head of Regulatory Regulatory Affairs Regulatory Thomas Yul Thomas Yul Hanssen Nancy Sørlie Paulsen Head of Middle Office stration & Back Office & Back stration Head of Loan Admini­ Head of Loan Chief Risk Officer Håvard Thorstad Håvard Loan Loan Administration Risk Management Kristine Falkgård President & CEO President Department

Chief Financial Officer Jannicke T. Granquist T. Jannicke Finance & Accounting & Accounting Finance

IT HR & Business Business Head of IT Staff & Compliance Oddny Svergja Oddny Knut Andresen Ilse Bache Administration Management & Internal Control Internal Acting Head of HR Chief of Staff Aleksander Larsen Christina Jakobsen Acting Head of Legal Acting Head of Legal Legal & Compliance Legal Senior Business Controller ORGANISATION As of 15.03.2016 Officer Corporate Corporate Public Relations Tor Ole Steinsland Ole Tor Chief Communications Chief Communications Communications and Communications ANNUAL REPORT 2015 / PAGE 78 ANNUAL REPORT / PAGE 79 Print: AS Nilssen Erik Tanche Annual Report 2015 is produced by by produced is 2015 Annual Report Kommunalbanken Kommunalbanken AS Telephone +47 2150 2000 PO Box 1210 Vika [email protected] N-0110 Oslo www.kbn.org