27.8.2010
Interim Report 2010
Municipality Finance Plc Proceeds Strongly and Is Ready for Challenges
Municipality Finance Plc has managed to continue its successful operations even in the rapidly changing business environment. The company has continued to grow well and in a managed way. The net operating profit for the first half of 2010 will rise to EUR 31 million, where as in 2009 the net operating profit for the entire year was EUR 34 million.
The market share in lending still substantial
Investments by municipalities and the resulting need for financing in the local government sector has remained at the same level as in the corresponding period last year.In the first half of 2010, demand for lending from Municipality Finance has also remained active.Municipality Finance’s long-term loan portfolio at the end of June amounted to EUR 10,815 million (31 December 2009: EUR 9,741 million).The loan portfolio increased by 11.0% from the end of 2009 and 23.3 % from the end of June 2009.In municipal lending the competitive situation has not returned to the level preceding the financial crisis, and Municipality Finance’s market share is still high.
Demand for lending from companies owned by municipalities have decreased in comparison to the first half of last year.In addition, lending requests from government subsidised housing production have decreased from the record-high levels of 2009 but are still above the long-time average.
Competitive global funding
Thanks to the outstanding credit rating of the state of Finland and the Finnish municipalities, Municipality Finance’s funding operations have remained successful, and the company has managed to keep its funding costs at a competitive level.
In January-June, the company acquired EUR 3,155 million (1 January – 30 June 2009: EUR 3,937 million) in long-term funding. The parent company's total funding at the end of June amounted to EUR 16,438 million (31 December 2009: EUR 13,136 million), of which 20% was denominated in euros and 80% in other currencies.
Financial leasing added to the service palette
In order to broaden its service palette, Municipality Finance started offering financial leasing services early this year. The aim is to further increase transparency and service offering in the Finnish leasing market. This new financing product has been well received by the customers of Municipality Finance. The company is perceived as a new trustworthy partner, bringing more competition in the market.
Despite successful operations, considerable challenges are ahead
Municipality Finance’s CEO Pekka Averio is concerned about the availability of affordable financing for municipalities in future. “If the changes to the capital requirements directive prepared by the European Commission come into force in the outlined form, they will also have implications to the customers and owning parties of Municipality Finance. The changes proposed by the Basel Committee on Banking Supervision and the European Commission would pose severe challenges for specialised credit institutions like Municipality Finance in adjusting operations if capital requirements were tightened both qualitatively and quantitatively. Municipality Finance would probably be forced to limit its operational volume, which would result in higher lending costs for our customers.
In its outlined form, the European Union’s capital requirements directive does not take into account the situation faced by low risk profile credit institutions, such as Municipality Finance. Regulation will be needed in future, too, but the suggested tightening of capital requirements would limit the operational preconditions of the soundest players in the financial world. If we want to secure affordable lending for municipalities, the decision makers should understand the consequences of their decisions in advance and not only after the decisions have been made.”
Municipality Finance Plc
Further information:
Pekka Averio, CEO, tel.+358 (0)500 406 856
Esa Kallio, Executive Vice President, tel. +358 (0)50 337 7953
Interim Report 2010
Interim Report 2010
