Municipality Finance Plc (MuniFin) maintained its position as the most important financier for Finnish municipalities and government-subsidised housing production in the first half of the year. With a market share of approximately 80 per cent, the company remained the most significant financier for its customers and practically bore sole responsibility for financing government-subsidised housing production. 

MuniFin continued to strengthen its balance sheet during the period to ensure the availability of competitive funding to its customers in the future. The company’s aim is to satisfy the potentially higher leverage ratio requirements brought about by stricter regulation of the financial industry primarily by ensuring that it continues to achieve a strong result.

Municipality Finance Group’s net operating profit increased by 27% reaching EUR 80.7 million (1 January – 30 June 2012: EUR 63.7 million) and net interest income was EUR 78.6 million (1 January – 30 June 2012: EUR 67.9 million). The Group’s risk-bearing capacity continued to strengthen, with capital adequacy at 35.73% at the end of June (31 December 2012: 33.87%) and the capital adequacy ratio for Tier 1 capital at 31.09% (31 December 2012: 26.22%).

Competition in the supply of financing to the local government sector has continued to decrease substantially

There was a significant change in the supply of financing to the local government sector during the period under review, as the banking sector substantially reduced the supply of long-term loans to municipal customers. Municipality Finance’s lending to municipalities, however, continued as normal.

In the first half of 2013, investments by municipalities and municipal federations and the resulting financing requirements of the municipal sector remained at the previous year’s level. The rate of increase in lending for housing construction, on the other hand, was higher than anticipated at the end of last year. This increase in the demand for housing financing is largely due to customers looking to refinance their old state-subsidised housing loans with new market-based loans. As interest rates remained low, customers continued to actively use short-term financing.

Total lending volume at the end of the period stood at EUR 16.8 billion, which is 7.0 per cent higher than at the end of 2012 (31 December 2012: EUR 15.7 billion). The amount of new loans withdrawn during the period increased by 17 per cent to EUR 1.9 billion (1 January – 30 June 2012: EUR 1.6 billion).

Higher funding acquisition due to normal refinancing

During the period, the company acquired EUR 7.1 billion in funds from international investors (1 January – 30 June 2012: EUR 4.9 billion), with total funding now amounting to EUR 22.9 billion (31 December 2012: EUR 22.0 billion). The majority of the growth is due to normal refinancing of maturing loans and does not as such reflect an increase in local government sector funding requirements. 

In April the company issued its largest ever bond transaction, which also marked the company’s inaugural issue in the United States capital market under the rule 144A . The transaction was met with very high demand and the final issue size was USD 1.75 billion. The largest group of investors were central banks and other official institutions. The geographical distribution of the investors was well balanced across the world. In total, the company carried out 160 funding arrangements during the period.

President and CEO Pekka Averio:

“In comparison to recent years, the first half of 2013 was relatively stable in the international financial markets. The measures initiated by the European Central Bank in late 2012 to stabilise the situation noticeably calmed the markets, particularly with respect to the European crisis countries. At the same time, there are signs emerging in Central Europe that suggest that the general economic situation is beginning to improve. However, there are still substantial differences between countries.
 
In Finland, the weakening of the general economic situation has resulted in increased uncertainty about the future. A decline in industrial orders and a slowing down of exports are serious signs that the economic trends in Finland continue to deteriorate and decisions aimed at promoting new growth are urgently needed.”
 
“The funding requirements of Municipality Finance’s customers remained largely unchanged from the previous year. Municipality Finance continues to be the most significant financier for its customers, with a market share of approximately 80 per cent. Total lending volume at the end of the period stood at EUR 16.8 billion, which is 7% higher than at the end of 2012 (31 December 2012: EUR 15.7 billion).
 
Our customers are facing a challenging situation. Extensive ongoing reforms in the local government sector are yet to be completed, which has an impact on the long-term development of municipalities and their investment decisions in particular. It is therefore very important that these reform projects are completed quickly. Local government investments are highly significant to the functioning of society as a whole, particularly in the healthcare and energy sectors, which are the two industries most affected by the ongoing reforms.
 
“During the review period EU’s development of financial market regulation in response to the financial crisis also progressed. The European Parliament decided on reforms to the regulation of banks’ capital requirements (known as the CRR and CRD IV package) based on the Basel III agreement, but postponed its decision on the implementation of a leverage ratio requirement, which is the most significant component of these new regulations to Municipality Finance.
 
The positive aspect of the European Parliament’s decision is that the risk profile of a credit institution’s operations is likely to have an effect on the leverage ratio requirement applied to it. The unfortunate aspect, however, is that we will now have to wait until 2017 for final confirmation of the minimum leverage ratio required of Municipality Finance. As a result, we must prepare for the strictest possible requirements and accumulate the required funds through our operations in the coming years.”

Municipality Finance Plc

Further information:
Pekka Averio, President and CEO, tel. +358 500 406 856
Esa Kallio, Executive Vice President, Deputy to CEO, tel. +358 50 337 7953
Marjo Tomminen, Senior Vice President, CFO, tel. +358 50 386 1764

Resolutions by the Annual General Meeting of Municipality Finance Plc held on 26 March 2013

The Annual General Meeting of Municipality Finance Plc held on 26 March 2013 adopted the company’s financial statements and discharged the members of the Board of Directors and the CEO from liability for the financial year 2012. The Annual General Meeting decided that no dividend will be distributed.

Board of Directors and remuneration

The number of Board members was confirmed at seven instead of the previous eight members. Eva Liljeblom (Chairman) Fredrik Forssell (Vice Chairman), Teppo Koivisto, Sirpa Louhevirta, Asta Tolonen and Juha Yli-Rajala were re-elected as Board members and Tuula Saxholm was elected as a new member. Additional information on the Board members can be found on the company website atwww.munifin.fi.

The Annual General Meeting confirmed the fees payable to Board members for the term 2013–2014. The fees correspond with the fees paid for the previous term: annual remuneration of a Board member EUR 15,000, annual remuneration of the Vice Chairman of the Board EUR 18,000, annual remuneration of the Chairman of the Board EUR 30,000 and a meeting fee of EUR 500 per Board and committee meeting to members and EUR 800 per meeting to the chairmen.

Election of the auditor and fees

The Annual General Meeting re-elected KPMG Oy Ab as the company’s auditor for a term starting at the end of the Annual General Meeting and ending at the close of the next Annual General Meeting. It was decided that the auditor’s fee will be paid against invoice.

Additional information on the company’s operations in 2012 is available in the company’s Annual Report, which can be downloaded in PDF format from the company website at www.munifin.fi.

Municipality Finance Plc

Pekka Averio
President and CEO
Tel. +358 500 406 856

Municipality Finance achieved the best result in its history in 2012

Municipality Finance’s result for 2012 was the best in the company’s history. Group’s net operating profit was EUR 138.6 million (EUR 65.3 million in 2011). The company’s lending portfolio grew by 15% and its balance sheet total by 7% to EUR 25.6 billion. The company’s funding acquisition totalled EUR 6.6 billion during the year.

In the CEO’s Review published today in Municipality Finance’s annual report 2012, Pekka Averio, Municipality Finance’s President and CEO, brings up his concern about the continuous growth of municipalities’ investment needs and the simultaneous increase in their repair liabilities.

“We estimate that borrowing by municipalities will continue to grow moderately in the next few years, as municipalities still have a lot of investment needs. At the same time, repair liabilities for the municipal infrastructure will increase,” writes Averio.

There are upward pressures on the financing costs of municipal investments. The growth of costs is due to changes in the regulation concerning the entire financial sector.

“A number of parallel projects are in progress which, when realised, will tighten the liquidity and capital requirements for the entire banking sector and increase the costs of regulation and control. With these developments, customers’ financial expenses will also rise.

With the changes, the entire banking and financial sector – including Municipality Finance – will be forced to acquire significantly more of their own funds to maintain their operations even at the current level.”

According to Averio, measures were launched at Municipality Finance in 2012 with the aim of meeting the new capital and liquidity requirements by developing the company’s own operations.

Summary of Municipality Finance’s year 2012

• The Group’s net operating profit totalled EUR 138.6 million (2011: EUR 65.3 million). The growth was 112% year-on-year. 
• Net interest income grew by 51% compared with the previous year, totalling EUR 142.4 million (2011: EUR 94.2 million). 
 • The balance sheet total stood at EUR 25,560 million (2011: EUR 23,842 million). The balance sheet grew by 7% compared with the end of the previous year. 
• The Group’s risk bearing capacity continued to be very strong, with capital adequacy ratio at 33.87% at year-end (2011: 24.13%) and the capital adequacy ratio for Tier 1 capital at 26.22% (2011: 19.04%). 
• Total funding acquisition for 2012 amounted to EUR 6,590 million (2011: EUR 6,673 million). The total amount of funding grew to EUR 22,036 million (2011: EUR 20,092 million).

• Lending increased to EUR 15,700 million (2011: EUR 13,625 million). In total, 17% more loans were withdrawn than in the previous year, amounting to EUR 3,254 million (2011: EUR 2,780 million). 
• Investments totalled EUR 6,224 million at the end of 2012 (2011: EUR 5,640 million).

Further information:

Municipality Finance Plc
Pekka Averio, President and CEO, tel. +358 500 406 856
E-mail pekka.averio@munifin.fi

1 January – 31 December 2012

Summary of 2012

• The Group’s net operating profit amounted to EUR 138.6 million (2011: EUR 65.3 million). The growth was 112% year-on-year.
• Net interest income grew by 51% compared with the previous year, totalling EUR 142.4 million (2011: EUR 94.2 million).
• Balance sheet total stood at EUR 25,560 million (2011: EUR 23,842 million). The balance sheet grew by 7% compared with the end of the previous year.
• The Group’s risk-bearing capacity continued to be very strong, with capital adequacy ratio at 33.87% at year end (2011: 24.13%) and the capital adequacy ratio for Tier I capital at 26.22% (2011: 19.04%).
• Total funding acquisition for 2012 amounted to EUR 6,590 million (2011: EUR 6,673 million). The total amount of funding grew to EUR 22,036 million (2011: EUR 20,092 million).
• Lending increased to EUR 15,700 million (2011: EUR 13,625 million). In total, 17% more loans were withdrawn than in the previous year, amounting to EUR 3,254 million (2011: EUR 2,780 million).
• Focus on the development of financial leasing operations that started in 2010 continued strongly. The leasing portfolio stood at more than EUR 64 million at year end (2011: EUR 30 million).
• Investments totalled EUR 6,224 million at the end of 2012 (2011: EUR 5,640 million).
• The turnover of Municipality Finance’s subsidiary, Inspira, stood at EUR 1.8 million (2011: EUR 2.2 million). Net operating profit at the end of 2012 totalled EUR 0.2 million (2011: EUR 0.4 million).

Municipality Finance’s role in financing the local government sector continues to grow in importance

Municipality Finance Plc (MuniFin) strengthened its position in the first half of the year as the most important financier for Finnish municipalities and government–subsidised housing production. During the period, the company acquired EUR 4.9 billion in funds from international investors (1 January – 30 June 2011: EUR 5.1 billion), with total funding now measuring at EUR 22.8 billion (31 December 2011: EUR 20.1 billion). The funding acquired during the first six months of the year represents over 80% of MuniFin’s total funding requirement for the year.
 
The international financial markets were characterised by a great deal of nervousness during the period, which only served to underline Finland’s position as a safe haven for investors. One of the most positive signs in the first half of the year was the high level of interest in MuniFin’s benchmark issues among central banks, which is indicative of the confidence international investors have in Finland and the Finnish local government sector. Investor confidence in Finland has remained at a good level despite continued uncertainty over whether the eurozone can overcome the crisis it currently faces.
 
The inaugural Sterling benchmark issue from MuniFin

MuniFin’s largest transactions during the period were the company’s first Sterling benchmark issue of GBP 300 million and the issue of a USD 1 billion benchmark. These highly successful transactions helped MuniFin to acquire significant new investors and increase the geographic diversification of its funding. The company carried out a total of 109 funding arrangements during the period.
 
MuniFin also developed and issued an innovative new bond with a distinct focus to allow private investors around the world to invest safely in a specific environmental project, namely a Westenergy waste energy power plant in Mustasaari. The interest in the new investment product was so high in Japan that the company issued a total of three bonds, with the second issue following the first by just over a week. The “clean energy bond” is proof of MuniFin’s ability to create innovative new investment products to further diversify the funding base of non–profit projects.
 
Moderate growth in lending

New lending by MuniFin increased by 7.1% to EUR 1,582 million (1 January – 30 June 2011: EUR 1,476 million) during the first six months of the year. This increase was moderate and there were no significant changes in municipalities’ funding requirements. The housing loan portfolio did, however, grow somewhat faster than in 2011. Lending for renovation projects and the level of refinancing of housing loans increased. Many of the refinancing transactions concerned old state–subsidised housing loans that were refinanced as market loans due to the historically low interest rates. The state’s guarantee liabilities for the housing loans of municipalities and non–profit corporations are diminishing as the loans become guaranteed by the municipalities themselves.
 
At the end of June 2012, MuniFin’s long–term loan portfolio stood at EUR 14.7 billion (31 December 2011: EUR 13.6 billion).
 
The Municipality Finance Group’s net operating profit grew 82% to reach EUR 63.7 million (1 January – 30 June 2011: EUR 35.0 million) and net interest income was EUR 67.9 million (1 January – 30 June 2011: EUR 41.0 million). The Group’s risk bearing capacity continued to improve, with capital adequacy at 27.85% at the end of June (31 December 2011: 24.13%) and capital adequacy for Tier 1 capital at 21.66% (31 December 2011: 19.04%).
 
President and CEO Pekka Averio:

“The financial markets are going through major changes. Banks are increasingly focusing on lending to private sector, while Municipality Finance and similar financial institutions manage the funding of the local and regional government sectors in many European countries. Many of the countries that currently do not have a financial institution of this type are either in the process of establishing one or giving the matter serious consideration.”
 
”The tighter market regulations stemming from the financial crisis will be an important factor in the future of Municipality Finance, as they will result in increasing costs and capital requirements for the banking sector as a whole, including Municipality Finance. In response to these developments, Municipality Finance is continuing to strengthen its balance sheet to ensure the availability of competitive funding to its customers in the future. Our primary method of strengthening the balance sheet is ensuring the profitability of our operations.”
 
”We contribute to the local government sector as a whole by funding investments in the maintenance of municipal infrastructure and public buildings. Many schools, hospitals, streets and water supply networks are badly in need of maintenance and renovation. Under the circumstances of uncertainty related to the local government reform and concern over the increasing indebtedness of municipalities, the burden of this maintenance backlog is being shifted to future generations. It would be sensible to proceed with maintenance and renovation investments during the current economic slowdown.”
 
Municipality Finance Plc
 
Further information:
Pekka Averio, President and CEO, tel. +358 (0)500 406 856
Esa Kallio, Executive Vice President, Deputy to CEO, tel. +358 (0)50 337 7953

In relation to the decision by Standard & Poor’s (S&P) in December 2011 to place its ratings on the Republic of Finland and other 14 Euro zone sovereigns on credit watch with negative implications, S&P also placed Municipality Finance’s long-term AAA-rating on credit watch with negative implications. The reason for this was the close relationship between the Finnish state and the Finnish municipal sector. According to S&P’s rating methodology, Municipality Finance’s rating, the company being a public sector entity, cannot be higher than the rating of the sovereign. 

On January 13, 2012 S&P affirmed Finland’s “AAA” long-term and “A-1” short-term sovereign credit ratings. The outlook on the long-term rating is negative. Respectively, on January 20, 2012 S&P affirmed Municipality Finance the best “AAA” long-term rating and – reflecting that on the sovereign – the outlook is negative. Municipality Finance’s short-term credit rating is “A-1”.

“S&P’s rating affirmation was anticipated, and it further improves Municipality Finance’s status in the international financial markets. After the recently confirmed rating downgrades there remains only a small group of issuers with the best possible “AAA” ratings, which clearly strengthens our ability to take care of our clients’ financing needs in all circumstances”, says Pekka Averio, CEO of Municipality Finance.

For more information:

President and CEO Pekka Averio, Municipality Finance Plc, tel. +358 9 6803 6211, +358 500 406856
Deputy to the CEO Esa Kallio, tel. +358 9 6803 6231, +358 50 3377953

Credit rating agency Moody’s has on January 9, 2012, once again, confirmed the best possible credit rating, Aaa, for Municipality Finance Plc.

According to Moody’s the best possible rating reflects Municpality Finance’s strong and important position in the Finnish public sector financing, solid financial fundamentals, asset quality and conservative risk-management policies.

Municipality Finance gets over 99 per cent of its financing from the international money market. The best credit rating has helped Municipality Finance to obtain financing at all times and at more beneficial terms than most banks and European sovereigns.

“The relevance of the top-class credit rating is being emphasized in the current uncertain market environment and the confirmed credit rating gives a strong signal that in challenging times the operations of Municipality Finance Plc and the Finnish public sector are trustworthy”, says Pekka Averio, CEO of Municipality Finance.

The full report of Moody’s is available under www.munifin.fi.

For more information:

President and CEO Pekka Averio, Municipality Finance Plc, tel. +358 9 6803 6211, +358 500 406856

Deputy to the CEO Esa Kallio, tel. +358 9 6803 6231, +358 50 3377953

On December 5, 2011, Standard & Poor’s (S&P) placed its ratings on Finland and other 14 Euro zone sovereigns on credit watch with negative implications. The credit rating of Finland may be downgraded from the current AAA by a maximum of one notch to AA+.

Consequently, due to the close relationship between the Finnish state and the Finnish municipal sector, S&P is placing Municipality Finance’s long-term AAA-rating on credit watch with negative implications. There have not been any material changes in the financial situation of Municipality Finance. According to the S&P’s rating methodology Municipality Finance’s rating (entity being part of the public sector) cannot be higher than the rating of the sovereign. At the same time S&P affirms Municipality Finance’s A-1+ short-term rating.

As grounds for their decision to place Euro zone sovereigns on credit watch, S&P expresses their concerns about the potential adverse impact of deepening political, financial, and monetary problems within the European Economic and Monetary Union.
S&P concludes their review concerning Euro zone sovereigns after the European summit on December 9th, 2011 and consequently concerning Municipality Finance once the credit watch on the sovereigns has been resolved. S&P may decide to lower the rating of Finland and Municipality Finance by maximum of one notch, to AA+. S&P may also affirm the rating at its current level if they deem the actions decided on at the summit as sufficient.

Further information:

Pekka Averio, President and CEO, tel. +358 500 406 856