Municipality Finance Plc
Half Year Report
15 August 2019 at 4:00 pm (EET)
Municipality Finance Plc Half Year Report January-June 2019: Business operations remained strong
This release is a summary of Municipality Finance’s Half Year Report published on 15 August 2019. The complete Half Year Report with tables is attached to this release and available at www.munifin.fi.
In brief: Municipality Finance Group in the first half of 2019
- The net operating profit excluding unrealised fair value changes decreased by 2.9% and amounted to EUR 90.0 million in the review period (EUR 92.7 million). Taking into account unrealised fair value changes, net operating profit amounted to EUR 33.7 million (EUR 124.4 million).
- The Group’s net interest income remained at the same level than in the previous year and amounted to EUR 117.2 million (EUR 118.0 million). The expenses grew, as anticipated, by 17.5% from the previous year and amounted to EUR 30.6 million (EUR 26.0 million). The unrealised fair value changes weakened the result by EUR 56.3 million, while a year earlier they improved the result by EUR 31.7 million.
- The Group’s capital adequacy was further strengthened and the CET1 capital ratio was 69.1% (66.3%). Tier 1 capital ratio and total capital ratio were 91.4% (88.0%) at the end of the review period.
- At the end of June, the Group’s leverage ratio amounted to 3.99% (4.06%).
- Long-term customer financing grew by 3.3% (1.7%) and the portfolio amounted to EUR 23,719 million at the end of the review period (EUR 22,968 million). This figure includes long-term loans and leasing. The total of new loans withdrawn in January–June amounted to EUR 1,386 million (EUR 1,239 million). In the entire customer finance portfolio, the amount of green financing aimed at environmentally friendly investments totalled EUR 1,194 million (EUR 1,081 million).
- In January–June, EUR 3,432 million was acquired in long-term funding (EUR 3,985 million). The total amount of acquired funding was EUR 31,822 million (EUR 30,856 million).
- Total liquidity remained close to the year-end level and stood at EUR 8 554 million at the end of June (EUR 8 722 million).
- Return on equity (ROE) decreased due to unrealised fair value changes and was 3.60% (10.76%).
- Outlook for the second half of 2019: MuniFin estimates its net operating profit excluding unrealised fair value changes to remain at the same level as in 2018 or decrease, even though MuniFin’s net operating profit excluding unrealised fair value changes was better than anticipated in the first half of 2019. The IFRS 9 standard adopted at the beginning of 2018 has significantly increased unrealised fair value changes recognised in profit and loss and in equity, which respectively increases the volatility of net operating profit. More information on outlook in section “Outlook for the second half of 2019”.
Comparatives deriving from the income statement are based on figures reported for the corresponding period in 2018. Balance sheet and other cross-sectional figures on 31 December 2018 are used as derivatives unless otherwise stated.
President and CEO of MuniFin, Esa Kallio:
“In MuniFin’s operations, the first six months of 2019 were in line with business expectations. In the past years, MuniFin has invested strongly in responding to the changing customer needs. This year we have hired for the first time in our company’s history a chief economist who has a central role in supporting our customers with insight into market developments and their effects on the economy and financial market. We have also been active in growing our service portfolio. Leasing has been a welcome financing option among customers and the customer base of green financing is growing continuously: both products are well-established in the market and have managed to deepen MuniFin’s customer relations. Demand for financing remained at a good level in both the municipal and social housing production segments.
Therefore, our core business remained strong but the result was weakened mainly due to the volatility brought about by the accounting standards adopted in the beginning of 2018 concerning the unrealised fair value changes of financial instruments.
The task of restructuring the organisation and production of Finland’s health and social services failed during the term of the previous government, but the reform proposedly based on a regional model is also on the new government’s agenda. This time, the discussions regarding the financing of the health and social services reform should not only concern the operational expenditure but also how the funding for the required investments in premises, infrastructure and equipment is arranged. The current funding model of MuniFin and the Municipal Guarantee Board has proven effective in the financing of the municipal and housing sectors and going forward, its use should also continue in relation to investments related to health and social services. The same model should also be used to finance major infrastructure projects the government is currently initiating.
New banking regulation requirements were published during this review period. One of the aims of the wide-ranging regulation renewal is to significantly ease the leverage ratio requirements for public development credit institutions such as MuniFin in the future. The final effects of the change will be clarified after possible discussions with the supervisory authority European Central Bank. “
Group’s key figures
|30 Jun 2019||31 Dec 2018||30 Jun 2018|
|Net operating profit excluding unrealised changes in fair value (EUR million)||90||190||93|
|Net operating profit (EUR million)||34||190||124|
|Net interest income (EUR million)||117||236||118|
|New loans withdrawn (EUR million)||1,386||2,953||1,239|
|New funding acquisition (EUR million)||3,432||7,436||3,985|
|Balance sheet total (EUR million)||36,956||35,677||35,521|
|Common Equity Tier 1 (CET1) capital (EUR million)||1,076||1,065||1,016|
|Tier 1 capital (EUR million)||1,423||1,413||1,363|
|Total own funds (EUR million)||1,423||1,413||1,363|
|CET1 capital ratio, %||69.1||66.3||61.0|
|Tier 1 capital ratio, %||91.4||88.0||81.9|
|Total capital ratio, %||91.4||88.0||81.9|
|Leverage ratio, %||3.99||4.06||3.97|
|Return on equity (ROE), %||3.60||10.76||14.56|
MuniFin (Municipality Finance Plc) is one of Finland’s largest credit institutions: the company’s balance sheet totals nearly EUR 37 billion. The company is owned by Finnish municipalities, the public sector pension fund Keva and the Republic of Finland.
MuniFin’s mission is to build a better future in line with the principles of responsibility and in cooperation with its customers. MuniFin’s customers are Finnish municipalities, municipal federations, municipally controlled companies and non-profit housing corporations. 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. It is the most active Finnish bond issuer in international capital markets and the first Finnish green bond issuer. The funding is exclusively guaranteed by the Municipal Guarantee Board.
The Municipality Finance Group also includes the subsidiary company, Financial Advisory Services
Read more: www.munifin.fi