Risk Management

City of Gothenburg’s risk management

The Municipality and Municipal Group are primarily exposed to the following financial risks: interest risk, financing risk, counterparty risk, currency risk and operational risk. Risk limits have been set in policies and guidelines at levels that will ensure the ability to pay, secure access to capital and create predictability in future interest expenses.

Interest risk

Interest risk refers to the risk that a rapid change in market rates will negatively impact the Municipal Group’s net financial items. The risk is managed through a risk mandate for fixed interest term and interest maturity decided by the City Council:

• The average fixed interest term on the total external debt should not be less than two years and should not exceed six years. Outcome: 3.1 years

• Max 35% of the total external debt volume may expire in the next twelve months . Outcome: 32,9% 

Financing risk

Financing risk refers to the risk at any given time of not having access, or having access only at a higher cost, to funds for payments. The risk is managed through a risk mandate for capital commitment and capital maturity decided by the City Council:

• Binding loan commitments shall cover loans maturing over the next twelve months (at least 100%). Outcome: Contribution margin 116%

• Binding loan commitments and liquidity reserve shall cover loans maturing over the next twelve months plus forecasted net outflow for the next twelve months (at least 100%). Outcome: Contribution margin 105%

• The average maturity of long loans should not be less than two years and should not exceed six years. Outcome: 3.2 years

• A maximum of 35% of total external borrowing may mature within the next twelve months. Outcome: 22,2%

The municipality has SEK 1 200 million in the agreed overdraft facility, of which SEK 1 200 million was unutilized as of 31 December 2022 . The City also has loan commitments totalling SEK 13 billion that have not been utilised.

Counterparty risk

Counterparty risk refers to the risk that the counterparty will not be able to fulfil its contractual obligations. The risk is managed through a risk mandate for counterparties decided by the City Council:

• For new agreements on overdraft facilities, binding loan commitments and derivative instruments, the counterparty’s long credit rating shall be at least A3 at the Moody’s credit rating agency, or at least A- at Standard & Poor’s. Outcome: No deviations

• A maximum of 35% of the total counterparty risk per category in derivative agreements may be with an individual counterparty. Outcome: Counterparty with the highest share amounts to 27,8%

• A maximum of 35% of the total volume of credit commitments may be with an individual counterparty. Outcome: Counterparty with the highest share amounts to 27%

Currency risk

Currency risk refers to the risk of incurring increased costs due to fluctuations in Exchange rates. Currency risks arise when purchases, sales, borrowings or investments are made in foreign currency. Currency risks must be hedged immediately regarding financial assets and liabilities, and with the sale and purchase of goods or services, currency hedging must be made by a significant amount.

There is no deviation of this risk.

Operational risk

Operational risk refers to the risk of losses from inadequate internal procedures, errors caused by the human factor or failed systems. Operational risks must be limited through internal controls and procedures for continuous identification, assessment and management of operational risks in financing activities.

There is no deviation of this risk .