Municipality Finance Plc
Half Year Report
5 August 2022 at 1:00 pm (EEST)
MuniFin Group’s Half Year Report January–June 2022: Business remained stable despite turbulent operating environment
This release is a summary of MuniFin Group’s Half Year Report published on 5 August 2022. The complete Half Year Report with tables is attached to this release and available at www.munifin.fi.
MuniFin Group will publish its Pillar III Half Year Disclosure Report 2022 the week of August 8 in accordance with Regulation (EU) No 575/2013 and Directive 2013/36/EU.
In brief: MuniFin Group in the first half of 2022
- The Group’s net operating profit excluding unrealised fair value changes amounted to EUR 74 million (EUR 108 million) in the reporting period, decreasing by 31.0% from the comparison period’s record-high result (15.6% growth). This drop was influenced by the change in credit terms applied in late 2021 and a non-recurring item related to terminated IT system implementation. In the reporting period, the Group’s net interest income was EUR 122 million (EUR 138 million). Costs in the reporting period amounted to EUR 48 million (EUR 34 million). Costs excluding non-recurring item grew and were EUR 38 million, making the figure 13.4% greater than in the comparison period. The costs peaked the most in fees collected by authorities.
- The Group’s net operating profit amounted to EUR 91 million (EUR 127 million). Unrealised fair value changes amounted to EUR 16 million (EUR 20 million) in the reporting period.
- The Group’s leverage ratio was 10.6% (12.8%) at the end of June. The Group redeemed its only AT1 capital loan in Tier 1 capital in April, which decreased Tier 1 capital by EUR 347 million. This explains the reduction in the leverage ratio.
- At the end of June, the Group’s CET1 capital ratio was very strong at 83.8% (95.0%). CET1 capital ratio exceeded the total requirement of 13.2% by over six times, with capital buffers accounted for. The repayment of the AT1 capital loan decreased Tier 1 and total capital ratio to 83.8% (118.4%), bringing them currently on a par with the CET1 capital ratio.
- Russia’s invasion of Ukraine has only had a minor effect on the Group’s financial position and operating profit. Despite the market turbulence, the Group has continued to acquire funding in the normal manner during the reporting period. Because of the uncertainty arising from the war and inflation outlook, the Group has nevertheless maintained larger than normal liquidity buffers as a precaution.
- Long-term customer financing (long-term loans and leased assets) excluding fair value changes totalled EUR 29,807 million (EUR 29,064 million) at the end of June and saw a growth by 2.6% (2.8%). Long-term customer financing decreased by 1.3% (+2.0%) due to the unrealised fair value changes. New lending in January–June amounted to EUR 2,006 million (EUR 1,601 million). Short-term customer financing increased by 41.4% (a year earlier the growth was 13.1%) and reached EUR 1,540 million (EUR 1,089 million).
- Of all long-term customer financing, the amount of green finance aimed at environmentally sustainable investments totalled EUR 2,700 million (EUR 2,328 million) and the amount of social finance aimed at investments promoting equality and communality EUR 1,296 million (EUR 1,161 million) at the end of June. Green and social finance have been extremely well received by customers, and the total amount of this financing increased by 14.6% (24.3%) from the end of 2021.
- In January–June, new long-term funding reached EUR 5,962 million (EUR 6,025 million). At the end of June, the total funding was EUR 40,850 million (EUR 40,712 million), of which long-term funding made up EUR 37,315 million (EUR 36,893 million).
- The Group’s total liquidity is very strong, and it was EUR 11,798 million (EUR 12,222 million) at the end of reporting period. The liquidity coverage ratio (LCR) stood at 292.6% (334.9%) and the net stable funding ratio (NSFR) at 129.4% (123.6%) at the end of June.
- Outlook for the second half of 2022: In 2021, the Group decided to change the terms of its long-term customer loans for the benefit of its customers. The decision was made knowing that it would significantly decrease the Group’s net interest income in 2022. The Group expected in February and still expects its net operating profit excluding unrealised fair value changes to be significantly lower this year than in the previous year. The Group expects its capital adequacy ratio and leverage ratio to remain very strong. The valuation principles set in IFRS framework may cause significant but temporary unrealised fair value changes, some of which increase the volatility of net operating profit and make it more difficult to estimate in the short term. A more detailed outlook is presented in the section Outlook for the second half of 2022.
Comparison figures deriving from the income statement and figures describing the change during the reporting period are based on figures reported for the corresponding period in 2021. Comparison figures deriving from the balance sheet and other cross-sectional items are based on the figures of 31 December 2021 unless otherwise stated.
President and CEO of MuniFin, Esa Kallio:
“In the first half of 2022, the operating environment was again turbulent, but MuniFin’s business operations remained stable and continued without disruptions. The COVID-19 pandemic began to calm down in the spring, but Russia’s invasion of Ukraine gave rise to a new global humanitarian, political and economic crisis, which also heavily affects Finland through the accelerating inflation, rising interest rates and sanctions imposed on Russia. At MuniFin, we were able to operate steadily even during these turbulent times. Our core mandate is to offer our customers funding under all circumstances.
The ongoing economic upheaval and Russia’s invasion of Ukraine have only had a minor impact on MuniFin so far. In the first half of 2022, the demand for our financing was somewhat lesser than expected, but it remained stable. The municipal sector’s moderate demand for financing is partly due to pandemic recovery measures, such as the central government’s COVID-19 support package, and partly due to non-recurring items from sales of health and social services assets by some municipalities during the ongoing health and social services reform
Our other customer group, operators in state-subsidised housing production, have suffered more from the difficult operating environment in the first half of the year. The materials shortage and the increasing price of raw materials, both of which started before the war but were further accelerated by it, have slowed down building contracts and decreased the demand for our finance in the housing sector.
Our funding has remained stable even under the new exceptional circumstances. Despite the market turbulence, our access to the capital markets has remained strong throughout the first half of the year. We have also enjoyed strong investor demand: for example, the green bond we issued in May was once again many times oversubscribed.
The pandemic has transformed our lives into something that is predicted to become the new normal, but the outlook has become even murkier than expected after the war broke out in Europe. Amidst all this uncertainty, it is important to note that at MuniFin, we work hard every day to create stability in these uncertain times and to ensure smooth operations for all our customers.”
Key figures (Group)
| 30 Jun 2022 | 30 Jun 2021 | 31 Dec 2021 | |
| Net operating profit excluding unrealised fair value changes (EUR million)* | 74 | 108 | 213 |
| Net operating profit (EUR million)* | 91 | 127 | 240 |
| Net interest income (EUR million)* | 122 | 138 | 280 |
| New lending (EUR million)* | 2,006 | 1,601 | 3,275 |
| Long-term customer financing (EUR million)* | 28,831 | 28,582 | 29,214 |
| New long-term funding (EUR million)* | 5,962 | 6,025 | 9,395 |
| Balance sheet total (EUR million) | 47,491 | 45,658 | 46,360 |
| CET1 capital (EUR million) | 1,421 | 1,346 | 1,408 |
| Tier 1 capital (EUR million) | 1,421 | 1,694 | 1,756 |
| Total own funds (EUR million) | 1,421 | 1,694 | 1,756 |
| CET1 capital ratio, % | 83.8 | 91.1 | 95.0 |
| Tier 1 capital ratio, % | 83.8 | 114.7 | 118.4 |
| Total capital ratio, % | 83.8 | 114.7 | 118.4 |
| Leverage ratio, % | 10.6 | 12.6 | 12.8 |
| Return on equity (ROE), annualised, %* | 8.5 | 11.7 | 10.7 |
| Cost-to-income ratio* | 0.3 | 0.2 | 0.2 |
| Personnel | 180 | 163 | 164 |
* Alternative performance measure.
MUNICIPALITY FINANCE PLC
Further information:
Esa Kallio
President and CEO
tel. +358 50 337 7953
Harri Luhtala
CFO
+358 50 592 9454
MuniFin (Municipality Finance Plc) is one of Finland’s largest credit institutions. The company is owned by Finnish municipalities, the public sector pension fund Keva and the Republic of Finland. MuniFin Group also includes the subsidiary company, Financial Advisory Services Inspira Ltd. The Group’s balance sheet totals close to EUR 47.5 billion.
MuniFin builds a better and more sustainable future with its customers. MuniFin's customers include Finnish municipalities, joint municipal authorities, municipally-controlled entities, wellbeing services counties, as well as non-profit housing organisations. Lending is used for environmentally and socially responsible investment targets such as public transportation, sustainable buildings, hospitals and healthcare centres, schools and day care centres, and homes for people with special needs.
MuniFin's customers are domestic but the company operates in a completely global business environment. The company is an active Finnish bond issuer in international capital markets and the first Finnish green and social bond issuer. The funding is exclusively guaranteed by the Municipal Guarantee Board.
Read more: www.munifin.fi
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