MuniFin Group’s Half Year Report January–June 2023

Business developed steadily under uncertain market environment

MuniFin Group’s Half Year Report January–June 2023: Business developed steadily under uncertain market environment

Municipality Finance Plc
Half Year Report
7 August 2023 at 1:00 pm (EEST)

This release is a summary of MuniFin Group’s Half Year Report published on 7 August 2023. 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 2023 the week of August 7 in accordance with Regulation (EU) No 575/2013 and Directive 2013/36/EU.

In brief: MuniFin Group in the first half of 2023

• The Group’s net operating profit excluding unrealised fair value changes amounted to EUR 81 million (EUR 74 million) in January–June, growing from the comparison period and exceeding the previous year’s figure by 9.3% (in 2022, the net operating profit excluding unrealised fair value changes decreased by 31%). The increase in net operating profit was affected by significant non-recurring item included in the comparison period’s costs and increase in net interest income of 2%.
• Costs in the reporting period amounted to EUR 43 million (EUR 48 million) and grew by almost 14%, the comparison period’s non-recurring items excluded. The growth in costs was primarily driven by almost quadrupling of the guarantee commission paid to the Municipal Guarantee Board, which is a compensation for the guarantees the Municipal Guarantee Board grants to MuniFin’s funding. Increase in guarantee commission paid was due to the change in the calculation methodology informed by Municipal Guarantee Board.
• The Group’s net operating profit amounted to EUR 77 million (EUR 91 million). Unrealised fair value changes amounted to EUR -5 million (EUR 16 million) in the reporting period.
• The Group’s leverage ratio continued to strengthen, and it was 11.9% (11.6%) at the end of June.
• At the end of June, the Group’s CET1 capital ratio was very strong at 101.3% (97.6%). CET1 capital ratio was well over the total requirement of 13.9%, with capital buffers accounted for. Tier 1 and total capital ratios were on a par with the CET1 capital ratio, standing at 101.3% (97.6%).
• Because of the uncertainty arising from the war and inflation outlook, the Group has maintained larger than normal liquidity buffers as a precaution. The accelerating inflation has pushed up market interest rates, which has had a positive effect on the Group’s net interest income. Russia’s invasion of Ukraine has not had a significant negative effect on the Group’s operations.
• Long-term customer financing (long-term loans and leased assets) excluding unrealised fair value changes totalled EUR 31,530 million (EUR 30,660 million) at the end of June and saw an increase of 2.8% (2.6%). New long-term customer financing decreased in January–June and amounted to EUR 1,931 million (EUR 2,153 million). Short-term customer financing totalled EUR 1,198 million (EUR 1,457 million).
• Of all long-term customer financing, the amount of green finance aimed at environmentally sustainable investments totalled EUR 3,814 million (EUR 3,251 million) and the amount of social finance aimed at investments promoting equality and communality totalled EUR 1,875 million (EUR 1,734 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 14.1% (14.6%) from the comparison period.
• In January–June, new long-term funding reached EUR 7,118 million (EUR 5,962 million). At the end of June, the total funding was EUR 41,018 million (EUR 40,210 million), of which long-term funding made up EUR 37,919 million (EUR 35,560 million). MuniFin decided to repay the debt related to the European Central Bank’s targeted longer-term refinancing operations (TLTRO III) in the reporting period. The debt totalled EUR 2,000 million.
• The Group’s total liquidity is very strong, and it was EUR 11,323 million (EUR 11,506 million) at the end of June. Liquidity Coverage Ratio (LCR) stood at 253% (257%) and Net Stable Funding Ratio (NSFR) at 127% (120%) at the end of June.
• Revised outlook for the second half of 2023: The Group expects its net operating profit excluding unrealised fair value changes to be at the same level or higher (Financial Statements Bulletin 2022: at the same level) as in 2022. The Group expects its capital adequacy ratio and leverage ratio to remain strong. The valuation principles set in the 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. A more detailed outlook is presented in the section Outlook for the second half of 2023.
  
  

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 2022. Comparison figures deriving from the balance sheet and other cross-sectional items are based on the figures of 31 December 2022 unless otherwise stated.

President and CEO of MuniFin, Esa Kallio:

“The first half of 2023 was marked by continued economic uncertainty. The Russian invasion of Ukraine gave rise to an energy crisis and caused the cost of living to shoot up, inflicting concern and complicating the economic situation. At MuniFin, our operations remained stable and we were able to successfully carry out our core mandate of ensuring the availability of affordable financing for our customers.

In municipal finances, 2023 is looking to be a relatively good year. Temporary tax benefits have boosted municipal finances, causing municipalities to have lower financing needs in the reporting period than in the previous year as expected. The new wellbeing services counties that started their operations on 1 January 2023 had a low demand for financing, as was to be expected.

The financing needs in the affordable social housing sector were slightly higher in the first half of the year than in the year before. For several years now, our customers have suffered from the rising costs in construction, which has delayed the progress of the building projects.

Market turbulence triggered by high interest expenses and inflation have not had a direct effect on MuniFin’s operations. Our funding has remained stable and our access to the capital markets strong throughout the first half of the year.

Despite the continued uncertainty, we have again successfully carried out our core mandate and ensured affordable financing for our customers.”

Key Figures (Group)

	Jan–Jun 2023	Jan–Jun 2022	Jan–Dec 2022
Net operating profit excluding unrealised fair value changes (EUR million)*	81	74	170
Net operating profit (EUR million)*	77	91	215
Net interest income (EUR million)*	124	122	241
New long-term customer financing (EUR million)*	1,931	2,153	4,375
New long-term funding (EUR million)*	7,118	5,962	8,827
Cost-to-income ratio*	0.3	0.3	0.2
Return on equity (ROE), annualised %*	7.5	8.5	9.9
	30 Jun 2023	30 Jun 2022	31 Dec 2022
Long-term customer financing (EUR million)*	30,129	28,831	29,144
Balance sheet total (EUR million)	48,377	47,491	47,736
CET1 capital (EUR million)	1,500	1,421	1,482
Tier 1 capital (EUR million)	1,500	1,421	1,482
Total own funds (EUR million)	1,500	1,421	1,482
CET1 capital ratio, %	101.3	83.8	97.6
Tier 1 capital ratio, %	101.3	83.8	97.6
Total capital ratio, %	101.3	83.8	97.6
Leverage ratio, %	11.9	10.6	11.6
Personnel	186	180	175

* Alternative Performance Measure

MUNICIPALITY FINANCE PLC

Further information:

Esa Kallio
President and CEO
[phone]

Harri Luhtala
CFO
[phone]

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 approximately EUR 48 billion.

MuniFin builds a better and more sustainable future with its customers. Our customers include municipalities, joint municipal authorities, wellbeing services counties, joint county authorities, corporate entities under the control of the above-mentioned organisations, and affordable social housing. 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.

 

Attachment

• MuniFin Half Year Report 2023