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Risk management
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Kommuninvest aims to keep risk exposure low. The fundamental principle applied in managing risks is that the terms for borrowing and lending shall be equal in terms of risk. The intention is to eliminate the risks that arise in operations.

 

Creditrisk

  • Loans are only provided to member municipalities and county councils and municipally guaranteed companies. 
  • Membership approval is preceded by a thorough analysis of the finances of the municipality or county council.
  • The finances of the member authorities are reviewed on an ongoing basis.
  • Surplus liquidity is invested in assets with high ratings.   
  • Assets with a risk weight of 0 or 20 percent.
  • Investments are only made with counterparties with a rating of at least A (Standard & Poor’s) or A2 (Moody’s).
  • Credit restrictions on derivatives counterparties.
  • Rating A/A2 or better (Standard & Poor's/Moody's). If the rating for an approved derivatives counterparty exceeds A/A2 but is lower than AA-/Aa3, Kommuninvest is only permitted to enter interest and currency swap agreements.
  • ISDA agreements are to be established with all derivatives counterparties and CSA agreements are also sought. ISDA agreements convey the right to prior redemption if the creditworthiness of the counterparty worsens, and permits netting of positive and negative exposures. CSA agreements regulate the right to secure collateral to eliminate the exposure arising through derivative transactions.

Market risk

  • Interest-rate risk. 
  • The risk (exposure) in the portfolio at any measurement point may never exceed SEK 10 million in a one percentage point parallel shift in the yield curve. However, there is an opportunity to have an exposure of at most SEK 15 million over a period of at most three days.
  • Currency risk
  • Currency risk arises when assets and liabilities denominated in a specific foreign currency in the balance sheet are mismatched in terms of size. Kommuninvest hedges this risk by means of derivatives. However, currency risk arises on an ongoing basis through the net interest income generated on returns on foreign currency investments. This risk is limited by continuously converting such returns into Swedish kronor.
  • Refinancing
  • Diversified funding structure reduces the risk.
  • Liquidity risk
  • In order to secure lending requirements, the company maintains a liquidity reserve of between 20-40 percent of the lending.
  • As an approved monetary policy counterparty to the Swedish Riksbank, Kommuninvest is granted access to the Riksbanks’s short-term credit facilities.
The complete description of Kommuninvest risk management can be found in Kommuninvest's Annual Report.
Page last updated 2012.02.06
Kommuninvest i Sverige AB (publ)

Postal address: P.O. Box 124, SE-701 42 Örebro, Sweden • Central phone no.: +46 10 47 08 700 • Fax: +46 19 121 198 

E-mail: firstname.lastname@kommuninvest.se

Reg. No: 556281-4409 • Street address: Fenixhuset, Drottninggatan 2, Örebro, Sweden • Deliveries: Ågatan 1, Örebro, Sweden