Report of the Board of Directors
and Financial Statements 2020
Financial Statements 1 January-31 De-
cember 2020
Report of the Board of Directors
Report of the Board of Directors and Financial Statements 2020 are a translation
of the original Finnish version of "Toimintakertomus ja tilinpäätös 2020".
In case of discrepancies, the Finnish version shall prevail.
This report fulfills the disclosure obligation pursuant to Section 7:5§ of
the Securities Market Act.
In brief:
MuniFin Group in 2020
• The year 2020 was characterised by the COVID-19 pandemic. The pandemic
significantly increased the demand for MuniFin Group’s customer financing,
especially the growth of municipal sector’s financing. Otherwise, the pandemic
only had a minor effect on the Group’s operating profit and financial standing.
• The Group’s net operating profit excluding unrealised fair value changes
was EUR 197 million (EUR 186 million) and it increased by 6.2% (-2.1%).
The net interest income totalled EUR 254 million (EUR 240 million) and it grew
by 5.8% (1.7%). The costs in the financial year amounted to EUR 58 million
(EUR 60 million), making it 3.0% (+22.8%) smaller than in the previous year.
• The net operating profit amounted to EUR 194 million (EUR 131 million).
Unrealised fair value changes amounted to EUR -3 million (EUR -54 million).
• At 104.3% (83.1%), the Group’s CET1 capital ratio remained very strong.
Tier 1 and total capital ratio were 132.7% (107.9%) at the end of 2020.
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
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• The Group’s leverage ratio was 3.9% (4.0%) at the end of December. Calculated using
the CRR II calculation principles, to be enforced in June 2021, MuniFin Group’s leverage
ratio was 13.4%, including deductions made based on MuniFin’s status as a public
development credit institution, according to which the Group’s customer financing can
be excluded from the leverage ratio.
• Long-term customer financing was at the end of December EUR 28,022 million (EUR
24,798 million) and it grew by 13.0% (8.0%). Long-term customer financing includes
both long-term loans and leased assets. New lending in January–December amounted
to EUR 4,764 million (EUR 3,175 million). Short-term customer financing reached EUR
1,310 million (EUR 804 million) and grew by 62.9% (10.9%) from the previous year. The
growth was spurred by the increase in the demand of loans and a drop in the availability
of financing from other credit institutions, both due to the COVID-19 pandemic.
• In the entire long-term customer financing, the amount of green financing aimed at
environmental investments totalled EUR 1,786 million (EUR 1,263 million) and the social
finance projects amounted to EUR 589 million (EUR - million) at the end of the year.
• In 2020, new long-term funding reached EUR 10,966 million (EUR 7,385 million),
and total funding totalled EUR 38,139 million (EUR 33,929 million) at the end of
December.
• The Group’s liquidity has remained at a good level. At the end of December, total liquidity
amounted to EUR 10,089 million (EUR 9,882 million). The Liquidity Coverage Ratio was
264.4% (430.2%) at the end of the year.
• The Board of Directors proposes that it may based on the authorisation of the Annual
General Meeting, decide paying dividend maximum amount of EUR 0.52 per share,
totalling EUR 20,313,174.96. The authorisation is valid until the next Annual General
Meeting. Based on the ECB’s recommendation, the Board of Directors intends to refrain
from deciding on the distribution of dividends until 30 September 2021.
• Outlook for 2021: The Group expects its net operating profit excluding unrealised fair
value changes to remain at the same level as in 2020. The valuation principles set in
IFRS 9 standard may cause significant 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 2021.
Comparison figures deriving from the income statement and figures describing the change
during financial year are based on figures reported for the corresponding period in 2019.
Comparison figures deriving from the balance sheet and other cross-sectional items are
based on the figures of 31 December 2019 unless otherwise stated.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
31 Dec 2020 31 Dec 2019
Net operating profit excluding unrealised fair value changes (EUR million)* 197 186
Net operating profit (EUR million)* 194 131
Net interest income (EUR million)* 254 240
New lending (EUR million)* 4,764 3,175
Long-term customer financing (EUR million)* 28,022 24,798
New long-term funding (EUR million)* 10,966 7,385
Balance sheet total (EUR million) 44,042 38,934
CET1 capital (EUR million) 1,277 1,162
Tier 1 capital (EUR million) 1,624 1,510
Total own funds (EUR million) 1,624 1,510
CET1 capital ratio, % 104.3 83.1
Tier 1 capital ratio, % 132.7 107.9
Total capital ratio, % 132.7 107.9
Leverage ratio, % 3.9 4.0
Return on equity (ROE), %* 9.4 6.8
Cost-to-income ratio* 0.2 0.3
Personnel 165 167
*Alternative performance measure. For more information on alternative performance measures, see pages 35–40.
Key figures (Group)
The calculation formulas for
all key figures can be found
on pages 35–42. All figures
presented in the Report of
the Board of Directors are
those of MuniFin Group, unless
otherwise stated.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
100
120
140
160
180
200
220
20202019201820172016
172
187
190
186
197
Liikevoitto ilman realisoitumattomia arvostuksia
15
17
19
21
23
25
27
29
20202019201820172016
21.3
21.7
23.0
24.8
28.0
0
20
40
60
80
100
120
20202019201820172016
46.2
53.0
66.3
83.1
104.3
2.0
2.5
3.0
3.5
4.0
4.5
5.0
20202019201820172016
2.9
2.4
3.0
3.2
4.8
Net operating profit excluding unrealised fair value changes, EUR million*
Long-term customer financing, EUR billion* New lending, EUR billion*
CET1 capital ratio, %
*Alternative performance measure. For more information on alternative performance measures, see pages 35–40.
The calculation formulas for all key figures can be found on pages 35–42. All figures presented in the Report of the Board of Directors are those of MuniFin Group, unless otherwise stated.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Report of the Board of Directors
1 January–31 December 2020
7 Report of the Board of Directors
35 Note 1. Key figures
43 Note 2. Group’s capital adequacy position
51 Note 3. Parent Company’s capital adequacy position
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
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Report of the Board of Directors
At the beginning of 2020, the global economic outlook
had already deteriorated as a result of the trade war
between the United States and China. The outbreak of
the COVID-19 pandemic in the first quarter nevertheless
caused the economy to plunge further into contraction,
as many countries had no choice but to enact shutdown
measures. The crisis impaired the spending capacity of
households in particular. While the early stages of the
crisis also caused significant disruptions in the value
chains of the manufacturing industry, it was the services
sector that was hit the hardest. Unemployment rose
rapidly, especially in the US.
When the pandemic broke out, it elicited a strong
reaction from the markets. Major stock market indices
dropped by more than 30% in a matter of weeks, credit
risk spreads grew wider and the loan rates of the most
deeply indebted countries increased. Confidence in
the interbank money market wavered as well, causing
Euribor rates to rise noticeably in March–April.
Central banks and governments responded to the
economic shock by launching extensive recovery
measures, which helped turn the real economy round
relatively quickly. Globally, the lowest point in economic
activity was in April–May. By mid-summer, economic
recovery already exceeded expectations. Employment
also recovered better than estimated.
The markets also settled fairly quickly. The stock market
started to recover and credit risk spreads shrank already
in late March. Even the loan interest rates of Southern
European countries, severely impacted by the first wave
of the pandemic, took a downward trend in late spring.
During the summer, Euribor rates slowly returned closer
to the ECB key deposit rate, dipping even below it later in
the year. The euro strengthened.
In late 2020, the second wave of the pandemic pushed
the economy back into recession, but this time without a
sharp decline. Although contagion prevention measures
were in effect, the fundamental function of the economy
was maintained much better than in the spring. According
to estimates, the global economy shrank by 4.5% in 2020.
The euro area economy is estimated to have shrunk by
more than 7%, and the Finnish economy by 3.5%.
The pandemic situation remained much calmer in Finland
than in many other countries. In consequence, total
production fell less than expected and also recovered
better than expected in the summer. The Finnish GDP fell
only modestly in international comparison.
However, Finnish municipalities suffered substantial loss-
es in revenue as the pandemic reduced their income from
municipal taxes and other sources. Thanks to the State’s
stimulus package, the year 2020 was nevertheless better
for local government finances than previous year was.
Operating environment in 2020
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The outbreak of the COVID-19 pandemic and the resulting
economic uncertainty have had a significant growth on the
Group’s business volume but only a limited impact on the
Group’s financial standing.
The general pandemic restrictions have had some
practical effects on the Group’s operating practices, for
example through increased remote work arrangements,
but otherwise the Group’s activities have continued in the
usual manner. The pandemic increased the demand for
financing especially in its first few months, because it was
expected to increase municipalities’ expenditures. While
much of these costs were compensated for by the State,
reduced income nonetheless increased the financing
needs of municipalities. At the same time, other credit
institutions also partially withdrew from the municipal
financing market due to the pandemic and concentrated
on serving other customer groups.
These changes resulted in the increased demand for
MuniFin Group’s services. Despite the exceptional
circumstances, the Group’s own funding has been
successful and liquidity has maintained on a good level.
Thus, MuniFin Group has succeeded in fulfilling its
customers’ financing needs.
MuniFin is a nationally significant credit institution and
the continuity of its activities is essential for the Finnish
society. The Group has ensured the health and safety of
its personnel and the continuity of its services by having
the majority of employees work remotely during the
crisis. This has in part ensured the continuity of socially
essential services and business processes also during the
COVID-19 pandemic.
To facilitate customers’ access to services while the
restriction measures are in force, the Group has further
developed its digital services. MuniFin has enhanced
the remote support for its digital services and organised
popular online classes that instruct customers in their
efficient use. The Group has also held several webinars
for customers and other stakeholder groups on themes
related to the economic outlook and its effects on
municipal finances.
MuniFin Group has individual customers who have run into
economic challenges due to the COVID-19 pandemic. If the
pandemic has impacted their repayment ability temporarily,
MuniFin has offered them repayment holidays and made
concessions to the payment terms of their loans. The
demand for such arrangements has been modest, however.
MuniFin Group’s total credit risk has remained low and
the amount of expected credit losses (ECL) remains low.
The Group’s customer exposures have zero risk weight
in MuniFin Group’s capital adequacy calculation because
they are from Finnish municipalities or involve a municipal
guarantee or a state deficiency guarantee supplementing
the real estate collateral. Based on the management’s
assessment, all receivables from customers will be fully
recovered and no final credit losses are therefore expected.
More information on forbearance measures and expected
credit losses are in the Consolidated Financial Statement’s
Note 27.
In order to secure the banking sector’s ability to continue
financing its customers in exceptional circumstances,
the banking authorities have eased some requirements
of supervised banks. Regardless of the underlying
conditions, MuniFin Group’s capital adequacy ratios are
strong and the supervisory decisions have only had a
minor effect on them. More information on the applied
concessions and their effects are provided in the Sections
Group’s own funds and capital adequacy and Group’s
minimum capital requirements and capital buffers.
Impact of the COVID-19 pandemic
on MuniFin Group
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Information on the Group results
CONSOLIDATED INCOME STATEMENT
(EUR million) 01–12/2020 01–12/2019 Change, %
Net interest income 254 240 5.8
Other income 2 6 -57.0
Income excluding unrealised fair value changes 257 246 4.3
Commission expenses -5 -4 19.6
Personnel expenses -18 -18 0.8
Other items in administrative expenses -15 -15 4.0
Depreciation and impairment on tangible and intangible assets -6 -6 -6.3
Other operating expenses -15 -18 -17.1
Costs -58 -60 -3.0
Credit loss and impairments on financial assets -1 0 <-100.0
Net operating profit excluding unrealised fair value changes 197 186 6.2
Unrealised fair value changes -3 -54 -94.3
Net operating profit 194 131 47.9
Profit for the financial year 155 105 48.0
Figures have been rounded, so the total of individual figures may differ from the total figure presented. The changes over 100% are described in the
table as >100% or <-100%.
Group’s net operating profit excluding
unrealised fair value changes
The Group’s core business operations remained
strong during 2020. MuniFin Group’s net operating
profit excluding unrealised fair value changes
grew by 6.2% (-2.1%) and totalled EUR 197 million
(EUR 186 million). Income excluding unrealised
fair value changes was EUR 257 million (EUR 246
million) and grew by 4.3% (3.3%). The Group’s
expenses shrank to EUR 58 million (EUR 60 million),
by 3.0% (+22.8%). During 2020, the COVID-19
pandemic slowed cost growth, but at the same
time, it accelerated business growth, which had
a positive impact on the net interest income.
Overall, the pandemic did not have any significant
negative impact on MuniFin Group’s core business’
results or profitability.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Net interest income totalled EUR 254 million
(EUR 240 million), up 5.8% (1.7%) on the previous year.
This was due to growth in customer financing, successful
funding operations and a favourable interest rate
environment. The Group’s net interest income does not
include EUR 16 million in interest expenses of the AT1
capital loan, as the capital loan is treated as an equity
instrument in the consolidated accounts. The interest
expenses of the capital loan are treated similarly to
dividend distribution, that is, as a deduction in retained
earnings under equity upon realisation of interest payment
on an annual basis.
Other income shrank from the previous year to EUR 2
million (EUR 6 million). Other income includes commission
income, realised net income from securities and foreign
exchange transactions, net income on financial assets at
fair value through other comprehensive income, and other
operating income. Other income also includes the turnover
of the Subsidiary Company Inspira.
Commission expenses totalled EUR 5 million (EUR 4
million) and primarily comprised paid guarantee fees,
custody fees and funding programme update fees.
Administrative expenses were EUR 33 million (EUR
32 million) and they grew by 2.3% (18.5%). Of which
personnel expenses comprised EUR 18 million (EUR 18
million) and other administrative expenses EUR 15 million
(EUR 15 million). Personnel expenses were 0.8% higher
than previous year. Personnel expenses were affected
by slower growth in employee numbers, redefined
principles for the capitalisation of the acquisition costs
of development projects, and the Government’s decision
to temporarily reduce all Finnish companies’ pension
contributions due to COVID-19 pandemic. Personnel
expenses include a restructuring provision of EUR 0.6
million due to the Group’s reorganisation in 2020 and the
related cooperation negotiations. The average number of
employees in the Group during the financial year was 167,
as compared to 162 in the previous year.
Other items in administrative expenses grew moderately,
4.0% during the financial year. The COVID-19 pandemic
reduced certain types of expenditure, such as travelling
expenses, but on the other hand, the Group has invested
heavily in the development of IT systems, such as the loan
lifecycle management system. In 2019, MuniFin Group
signed outsourcing agreements for IT end-user and
infrastructure services as well as for the operation of the
business IT systems to improve operational reliability and
the availability of services. The practical implementation
of the outsourcing agreements is currently underway
and services are partially in production. The project is
expected to be completed in 2021.
During the financial year, depreciation and impairment on
tangible and intangible assets reached EUR 6 million (EUR
6 million). The Group has invested significantly recently
in developing IT systems and business operations,
which have increased the amount of depreciation in the
recent years.
Other operating expenses decreased to EUR 15 million
(EUR 18 million), by 17.1% (+14.7%). Fees collected by
authorities were EUR 7 million (EUR 7 million) and
increased by 13.6% (-4.7%), mainly due to an increase
in the contribution to the Single Resolution Fund. These
fees excluded, other expenses were EUR 7 million (EUR 11
million) and decreased by 35.1% (+23.7%). This decrease
is mostly due to smaller purchases of external services
compared to the previous year.
The amount of expected credit losses (ECL), calculated
according to IFRS 9, increased during the financial
year. Change recognised in the income statement was
EUR 0.9 million (EUR 0.0 million). Due to the COVID-19
pandemic, MuniFin Group has updated the scenarios
used for calculating expected credit losses to take into
account the effect of the COVID-19 pandemic. Scenarios
include probability weights. Due to uncertainty caused
by the COVID-19 pandemic, MuniFin Group has given a
larger weight to the adverse scenario. During the second
half of 2020, MuniFin Group has specified the methods
for estimating and modelling expected credit losses, as
well as the assumptions used in the model. The change in
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
the modelling methodology affected the modelling of the
probability of default over the lifetime of the loan, therefore
increasing the expected credit losses by approximately
EUR 0.5 million.
In addition, MuniFin Group has recorded an additional
discretionary provision (management overlay) of EUR
0.34 million to take into account the financial effects of
the COVID-19 pandemic. The year 2020 was financially
exceptionally weak for certain customer segments, such
as the arts sector and sports facilities providers. However,
the deteriorating financial situation is not yet reflected in
the Group’s internal risk ratings, which have been mainly
updated based on the 2019 financial statements. As the
credit risk of certain customer segments is estimated to
have increased since then, MuniFin Group’s management
decided to record an additional discretionary provision
based on a group-specific assessment. MuniFin Group’s
overall credit risk position has remained low due to the
fact, that the COVID-19 pandemic has not had an impact
on the guarantees the Group has received. According
to the management’s assessment, all receivables will be
recovered in full and therefore no final credit loss will arise,
because the receivables are from Finnish municipalities or
they are accompanied by a securing municipal guarantee
or a state deficiency guarantee. During the Group’s more
than 30 years history, it has never recognised any final
credit losses in its customer financing.
On 31 December 2020, the Group had a total of EUR
24 million (EUR 2 million) guarantee receivables from
public sector entities due to customer insolvency.
This increase is caused by a few individual customers.
The credit risk of the liquidity portfolio has remained
at a good level, its average credit rating being AA+.
More information on the credit risks on financial assets
and other commitments are available in Note 27 in the
Consolidated Financial Statements.
Group’s profit and unrealised fair value changes
Net operating profit was EUR 194 million (EUR 131
million). Unrealised fair value changes weakened MuniFin
Group’s net operating profit by EUR 3 million during the
financial year; in the previous year, they had a negative
impact of EUR 54 million. In 2020, net income from hedge
accounting amounted to EUR 4 million (EUR -19 million)
and unrealised net income from securities and foreign
exchange transactions to EUR -7 million (EUR -35 million).
The Group’s effective tax rate during the financial year
was 20.0% (20.0%). Taxes in the consolidated income
statement amounted to EUR 39 million (EUR 26 million).
After taxes, the Group’s profit for the financial year was
EUR 155 million (EUR 105 million) The Group’s full-year
return on equity (ROE) was 9.4% (6.8%). Excluding
unrealised fair value changes, ROE was 9.6% (9.6%).
The Group’s other comprehensive income includes
unrealised fair value changes of EUR -32 million (EUR 28
million). During the financial year, the most significant item
affecting the other comprehensive income was the fair
value change due to changes in own credit risk of financial
liabilities designated at fair value through profit or loss of
EUR -17 million (EUR 10 million). Net change in Cost-of-
Hedging totalling EUR -16 million (EUR 17 million).
On the whole, unrealised fair value changes net of deferred
tax affected the amount of consolidated equity by EUR -28
million (EUR -21 million) and CET1 capital net of deferred
tax in capital adequacy by EUR -15 million (EUR -28
million). In capital adequacy calculations, the cumulative
effect of unrealised fair value changes was EUR 12 million
(EUR 27 million) on MuniFin Group’s own funds.
Unrealised fair value changes reflect the temporary impact
of market conditions on the valuation levels of financial
instruments at the reporting time. The value changes may
vary significantly from one reporting period to another,
causing volatility in profit, equity and own funds in capital
adequacy calculations. The effect on individual contracts
will be removed by the end of the contract period.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
In accordance with its risk management principles,
MuniFin Group uses derivatives to financially hedge
against interest rate, exchange rate and other market and
price risks. Cash flows under agreements are hedged, but
due to the generally used valuation methods, changes in
fair value differ between the financial instrument and the
respective hedging derivative. Changes in the shape of
the interest rate curve and credit risk spreads in different
currencies affect the valuations, which cause the fair
values of hedged assets and liabilities and hedging
instruments to behave in different ways. In practice, the
changes in valuations are not realised on a cash basis
because the Group primarily holds financial instruments
and their hedging derivatives almost always until the
maturity date. Changes in credit risk spreads are not
expected to be materialised as credit losses for the Group,
because the Group’s liquidity reserve has been invested
in instruments with low credit risk. In the financial year,
unrealised fair value changes were influenced in particular
by changes in interest rate expectations and credit risk
spreads in the Group’s main funding markets.
Parent Company’s result
MuniFin’s total net interest income at year-end was EUR
238 million (EUR 224 million), and net operating profit
stood at EUR 178 million (EUR 115 million). The profit after
appropriations and taxes was EUR 22 million (EUR 8
million). The interest expenses of EUR 16.2 million for 2020
on the AT1 capital loan, which forms part of Additional
Tier 1 capital in capital adequacy calculation, have been
deducted in full from the Parent Company’s net interest
income (EUR 16.2 million). In the Parent Company, the AT1
capital loan has been recorded under the balance sheet
item Subordinated liabilities.
Subsidiary Inspira
The turnover of MuniFin’s subsidiary, Financial Advisory
Services Inspira Ltd., was EUR 2.8 million for 2020
(EUR 3.5 million), and its net operating profit amounted to
EUR 0.1 million (EUR 0.2 million).
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Information on the consolidated
statement of financial position
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(EUR million) 31 Dec 2020 31 Dec 2019 Change, %
Cash and balances with central banks 5,566 4,909 13.4
Loans and advances to credit institutions 1,842 818 >100.0
Loans and advances to the public and public sector entities 28,022 24,798 13.0
Debt securities 5,763 5,716 0.8
Derivative contracts 2,358 2,245 5.0
Other items included in the assets 491 446 10.0
Total assets 44,042 38,934 13.1
Liabilities to credit institutions 2,001 1,178 69.9
Liabilities to the public and public sector entities 3,884 3,862 0.6
Debt securities issued 32,912 29,984 9.8
Derivative contracts 2,861 1,762 62.3
Other items included in the liabilities 679 554 22.7
Total equity 1,705 1,594 6.9
Total liabilities and equity 44,042 38,934 13.1
The changes over 100% are described in the table as >100% or <-100%.
The Group’s consolidated statement of financial position
saw 13.1% of growth from the end of 2019 (9.1%) and
amounted to EUR 44,042 million at the end of 2020 (EUR
38,934 million). The increase in the assets is mainly due to
substantial growth in customer financing, cash collateral
for derivatives, and increased liquidity. The increase in
liabilities is due to debt securities issued and the valuation
of derivatives.
At the end of the year, the Group’s equity stood
at EUR 1,705 million (EUR 1,594 million), including
the AT1 capital loan of EUR 347 million (EUR 347
million). The profit of the financial year increased the
equity. In addition, in the consolidated accounts, interest
expenses amounting to EUR 12.6 million net of deferred tax
on the AT1 capital loan (EUR 12.6 million) were deducted
from the equity, as were the dividends of EUR 6.3 million
paid to MuniFin shareholders for the 2019 financial year
(EUR 6.3 million).
The Parent Company’s balance sheet at the end of the
year was EUR 44,042 million (EUR 38,933 million).
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin is the only credit institution in Finland that
specialises in financing for the local government sector
and state-subsidised housing production. It is by far the
largest financier for its customer base.
MuniFin Group’s customers consist of municipalities, joint
municipal authorities, and municipality-controlled entities,
as well as non-profit organisations and projects nominated
by the Housing Finance and Development Centre of
Finland (ARA). All loans granted by MuniFin have the risk
level associated with Finnish public sector entities and a
risk weight of 0% in capital adequacy calculations. The
Group offers its customers diverse financing services and
extensive support in investment planning and financial
management.
The customers demand for MuniFin’s financing grew in
2020. New lending from January to December was higher
than in the previous year, and amounted to EUR 4,764
million (EUR 3,175 million).
This growth in new lending is mainly due to the COVID-19
pandemic, which resulted in an increased demand for
financing among municipal customers but also in other
credit institutions concentrating on financing other
customer groups than municipal customers.
MuniFin’s long-term customer financing amounted to
EUR 28,022 million (EUR 24,798 million) at the end of
2020 and it grew by 13.0% (8.0%). This figure includes
long-term loans and leased assets. Long-term customer
financing excluding unrealised fair value changes
amounted to EUR 27,511 million (EUR 24,458 million) at the
end of the year. The growth was 12.5% (7.4%).
In the entire long-term customer financing, the amount
of green financing aimed at environmental investments
totalled EUR 1,786 million (EUR 1,263 million). Green
finance projects are approved by an evaluation team of
independent experts outside of MuniFin Group. In 2020,
the Group further increased its sustainable finance and
granted the first social finance loans. Social finance is
available for non-profit housing production investments
that promote equality and communality in a particularly
significant way, and for investments in welfare and
education. At the end of 2020, social finance amounted to
EUR 589 million (EUR - million).
The Group offers a wide range of financial management,
analysis and reporting tools for its customers.
The COVID-19 pandemic increased customers’ need to
use digital services in remote working contexts and to
model various economic effects of the crisis. With the
crisis pushing customers more and more towards online
services and meetings, MuniFin Group has been able
to provide even more efficient customer service. Online
events and training on digital services have proved very
popular among customers.
Financing and other services for customers
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin Group’s funding strategy is to diversify its funding sources to ensure access to
funding under all market conditions. The Group actively diversifies its funding across
multiple currencies, maturities, geographical areas and investor groups. Proactive
long-term cooperation with investors has increased MuniFin’s name recognition in various
markets. The COVID-19 pandemic caused severe disruptions in the capital markets
in 2020, but MuniFin’s good reputation among investors as well as the safety of the
investments in the Finnish municipal sector secured MuniFin’s access to markets in times
when this was difficult or even impossible for many other issuers.
Despite the exceptional circumstances, MuniFin Group was able to acquire funds nearly as
usual during the financial year, securing uninterrupted financing for its customers. Due to
the increased demand for financing, the size of 2020 funding programme was increased
several times during the year.
The main focus in MuniFin Group’s funding was on public arrangements, which had
very strong demand among investors. During 2020, MuniFin issued euro-denominated
benchmark bonds of EUR 1.5 billion and 1 billion, and a dollar-denominated bond of USD
1 billion. In addition to these three benchmark bonds, MuniFin issued a social bond of
EUR 500 million in September. This was the first social bond ever issued in Finland, and
the first ever social bond issued by a Nordic issuer in the SSA (Sovereign, Supranational,
Agency) category. In October, MuniFin also issued a green bond of EUR 500 million.
Moreover, MuniFin participated in the ECB’s third series of targeted longer-term
refinancing operations (TLTRO III) with EUR 1,250 million, which partly enabled to ensure its
customer’s financing on competitive terms.
MuniFin Group acquires all of its funding from the international capital market. In 2020,
MuniFin Group’s new long-term funding totalled EUR 10,966 million (EUR 7,385 million) in 11
(11) different currencies. A total of 218 (198) funding arrangements were made.
MuniFin Group’s total funding at the end of 2020 amounted to EUR 38,139 million (EUR
33,929 million). MuniFin’s short-term debt instruments under the Euro Commercial Paper
(ECP) programme amounted to EUR 3,896 million (EUR 2,728 million). Of total funding,
50% (34%) was denominated in euros and 50% (66%) in foreign currencies.
The majority of funding transactions are arranged as standardised issues under debt
programmes, of which MuniFin uses the following:
Medium Term Note (MTN) programme EUR 40,000 million
Euro Commercial Paper (ECP) programme EUR 10,000 million
AUD debt programme (Kangaroo) AUD 2,000 million
Funding and liquidity management
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin’s funding is guaranteed by the Municipal Guarantee Board, a public law institution
whose membership consists of all municipalities in mainland Finland. The members
are responsible for the liabilities of the Municipal Guarantee Board in proportion to
their population. The Municipal Guarantee Board has granted guarantees for the debt
programmes as well as for funding arrangements outside the programmes. Based on this,
debt instruments issued by MuniFin are classified as zero-risk when calculating the capital
adequacy of credit institutions and solvency of insurance companies, and as Level 1 liquid
assets in liquidity calculation in the EU.
MuniFin Group’s liquidity remained good. MuniFin’s investment operations mostly comprise
the management of prefunding, and the funds are invested in liquid and highly rated
financial instruments to ensure business continuity under all market conditions.
According to the Group’s liquidity policy, its total liquidity amount must be enough to cover
uninterrupted business (including new net customer financing) for at least 12 months.
At the end of 2020, MuniFin Group’s total liquidity was EUR 10,089 million (EUR 9,882
million). Investments in securities totalled EUR 4,453 million (EUR 4,922 million) and their
average credit rating remained at AA+. The average maturity of the investment portfolio
stood at 2.8 years (2.3 years) at year-end. In addition to this, MuniFin Group had EUR 5,636
million (EUR 4,960 million) in other investments, of which EUR 5,601 million (EUR 4,936
million) were in central bank deposits and EUR 35 million (EUR 24 million) in money market
deposits in credit institutions.
MuniFin Group monitors the sustainability of its liquidity investments with ESG scores
(Environmental, Social and Governance). The Group’s liquidity investments ESG score has
improved in 2020 from 53.0 to 55.7 on a scale of 1–100. The benchmark index is 53.3 (50.6).
In addition to monitoring the ESG scoring of its investments, MuniFin Group also has
direct sustainable investments. At the end of the year, they amounted to EUR 355 million
(EUR 150 million), which is 8.0% (3.0%) of all investments in securities. The Group’s ratio
of sustainable investments is higher than the market benchmark 2.1% (1.9%). The ratio of
socially responsible investments to MuniFin Group’s own green funding was 13.8% (10%).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin’s credit ratings
Long-term fundingRATING AGENCY
Moody’s Investors Service
Standard & Poor’s
P-1
A-1+
Short-term funding
Stable
Stable
Outlook
MuniFin’s credit ratings correspond to those of the Government of Finland. The credit ratings did not
change during the financial year. The Municipal Guarantee Board, which guarantees MuniFin Group’s
funding, also has the corresponding ratings.
Municipality Finance Plc • Annual Report 2020
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Group’s own funds and capital adequacy
At the end of 2020, the Group’s total capital ratio was
132.7% (107.9%) and the CET1 capital ratio 104.3% (83.1%).
The CET1 capital ratio increased from the end of 2019 by
21.3 percentage points mainly due to a decreased risk
exposure amount and the lowered operational risk capital
requirement. The Group’s capital adequacy has remained
strong, surpassing legal requirements by a wide margin. The
Group’s own funds exceed the minimum requirement set in
legislation by EUR 1,487 million (EUR 1,332 million), taking
valid capital buffers into account.
Capital adequacy
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
30.0
50.0
70.0
90.0
110.0
130.0
150.0
12/2016 12/2017 12/2018 12/2019 12/2020
67. 0
72.5
88.0
107. 9
132.7
46.2
53.0
66.3
83.1
104.3
1,1241,124
1,293
1,293
1,413
1,413
1,510
1,510
1,624
1,624
Own funds (EUR million)
CET1 capital ratio, %
Total capital ratio, %
Group’s own funds and capital adequacy
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
At the end of 2020, MuniFin Group’s CET1 capital totalled
EUR 1,277 million (EUR 1,162 million) and Tier 1 capital
EUR 1,624 million (EUR 1,510 million). The Group had no
Tier 2 capital. The Group’s own funds totalled EUR 1,624
million (EUR 1,510 million).
The CET1 capital includes the profit for the financial year,
as it has been subject to a financial review by the auditors
and can therefore be included in CET1 capital based on
the permission granted by the ECB in accordance with
the Capital Requirements Regulation.
MuniFin Group has applied the Commission’s Delegated
Regulation (2020/866) on additional valuation
adjustment (AVA) in prudent valuation. The delegated
regulation changed the aggregation factor applied in
valuation related to market price uncertainty, close-out
costs and model risks. The aggregation factor was
temporarily changed to 66% until the end of 2020, after
which it was returned to its previous level of 50%. At the
end of December 2020, this had a EUR 8 million effect on
the Group’s own funds.
GROUP’S OWN FUNDS EUR , 31 Dec 2020 31 Dec 2019
Common Equity Tier 1 capital before adjustments 1,328,150 1,218,199
Adjustments to Common Equity Tier 1 capital -51,338 -55,747
Common Equity Tier 1 capital (CET1) 1,276,812 1,162,452
Additional Tier 1 capital before adjustments 347,454 347,454
Adjustments to Additional Tier 1 capital - -
Additional Tier 1 capital (AT1) 347,454 347,454
Tier 1 capital (T1) 1,624,265 1,509,906
Tier 2 capital before adjustments - -
Adjustments to Tier 2 capital - -
Tier 2 capital (T2) - -
Total own funds 1,624,265 1,509,906
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Kokonaisriskin määrä 12/2020 (MEUR)
412
231
581
423
214
763
The Group’s total risk exposure amount decreased by
12.6% from the end of 2019, totalling EUR 1,224 million
(EUR 1,400 million) at the end of 2020. The overall credit
and counterparty risk decreased from the year-end 2019
figure of EUR 763 million to EUR 581 million at the end of the
financial year. This was particularly influenced by a decrease
in the risk weights of the liquidity portfolio. There was no
capital requirement for market risk at the end of 2020 or
in the comparison year, because the currency position
was less than 2% of own funds, and, based on Article 351
of the Capital Requirements Regulation (CRR), the own
funds requirement for market risk has therefore not been
calculated. The credit valuation adjustment risk increased to
EUR 231 million (EUR 214 million). The risk exposure amount
of operational risk decreased by 2.6% to EUR 412 million
due to a decrease in the profit indicator (EUR 423 million). In
November 2020, the European Banking Authority published
an answer in the Single Rulebook QA process (2018_3969)
regarding the calculation of operational risk requirements.
The way the profit indicator is calculated at the end of
the year had previously been subject to interpretation.
According to the EBA’s answer, at the end of the year,
last three year-end observations including the current
reporting period’s year-end observation shall be used.
Previously, MuniFin Group has applied the same relevant
indicator for the whole reporting year, when calculating the
operational risk requirement. MuniFin Group adheres to this
calculation method from December 2020 onwards. This
will not have a significant effect on MuniFin Group’s capital
adequacy figures.
Total risk exposure amount 12/2020
EUR 1,224 million
Credit and counterparty credit risk
Credit Valuation Adjustment risk
Operational risk
EUR million EUR million
Total risk exposure amount 12/2019
EUR 1,400 million
There was no capital requirement for market risk at the end of 2020 and 2019.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Detailed key figures on the capital adequacy of both MuniFin
Group and the Parent Company are provided in the Notes to
this Report. The principles of capital adequacy management
are described in Note 2 to the Consolidated Financial
Statements, Risk management principles and the Group’s
risk position. Concurrently with this Report of the Board of
Directors and the Financial Statements, MuniFin Group is
publishing a separate Pillar III Disclosure Report on capital
adequacy and risk management, which is available in English
on MuniFin’s website.
Group's minimum capital requirements and capital
buffers
The minimum capital requirement is 8% for capital adequacy
and 4.5% for CET1 capital adequacy. Under the Act on
Credit Institutions, the capital conservation buffer is 2.5%
and, for MuniFin Group, the additional capital requirement
for other systemically important credit institutions (O-SII) is
0.5%. Based on the systemic risk buffer set by the Financial
Supervision Authority (FIN-FSA), there has been an additional
capital requirement of 1.5% for MuniFin Group from July 2019
and it will be reviewed annually. The systemic risk buffer and
the O-SII additional capital requirement are parallel buffers,
of which the greater is applied. In April 2020, the FIN-FSA
updated the capital requirements for Finland’s largest
credit institutions, aiming to mitigate the negative effects
the COVID-19 pandemic could have on the stability of the
financial markets and on the credit institutions’ capacity to
finance the economy. The FIN-FSA removed MuniFin Group’s
abovementioned additional capital requirement of 1.5%,
0.0 %
20.0 %
40.0 %
60.0 %
80.0 %
100.0 %
120.0 %
83.1%83.1%
12.4%
12.4% 0.00%0.00%
-1.3%
-1.3%
0.8%
0.8%
9.3%
9.3% 104.3%
104.3%
Group’s CET1 capital ratio changes
CET1
capital ratio
12/2019
Credit risk Market risk CVA VaR Operational
risk
CET1
capital
CET1
capital ratio
12/2020
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
effective immediately, which reduced the Group’s capital
requirements by 1.0 percentage points. The FIN-FSA also
decides on a countercyclical capital buffer requirement on a
quarterly basis, and it decided not to impose it on December
2020.
For MuniFin Group, the credit institution-specific
countercyclical capital buffer requirement that is imposed
based on the geographical distribution of exposures is 0,21%
(0.72%). The Group therefore has a minimum requirement of
7.71% (9.22%) for CET1 capital ratio and 11.21% (12.72%) for
total capital ratio.
In addition to the abovementioned requirements, the
European Central Bank has imposed an additional capital
requirement of 2.25% (P2R) on MuniFin Group as part of
the annual supervisor’s review (SREP). Due to the COVID-19
pandemic in 2020, the ECB did not perform the annual
SREP, but instead gave MuniFin Group an operational letter
confirming the continuation of the previous P2R requirement
of 2.25%. Including this P2R requirement, the total SREP
capital requirement ratio (TSCR) was 10.25% (10.25%) at
the end of 2020. The minimum level of total capital ratio was
13.46% (14.97%) including P2R and other additional capital
requirements.
MuniFin Group fulfils these minimum capital adequacy
requirements many times. The Group’s CET1 capital ratio was
104.3 % (83.1%) and total capital ratio was 132.7% (107.9%) at
the end of December.
0.00 %
2.00 %
4.00 %
6.00 %
8.00 %
10.00 %
12.00 %
14.00 %
16.00 %
4.50%4.50%
2.50%
2.50%
0.21%
0.21%
0.50%
0.50% 7.71%7.71%
2.25%
2.25%
3.50%
3.50% 13.46%13.46%
Group’s minimum capital requirements and capital buffers
CET1
capital
requirement
Capital
conservation
buer
Counter-
cyclical
buer
O-SII and
systemic
risk buer
(max)
CET1
minimum
P2R Tier 1 and
AT1 capital
requirement
Minimum
capital
requirements
with buers
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Leverage ratio and Liquidity Coverage Ratio
At the end of the year, MuniFin Group’s leverage ratio was
3.9% (4.0%), calculated using currently valid calculation
principles (CRR). The slight decrease in the leverage
ratio was caused by the strong growth in the Group’s
credit portfolio during the financial year. As of June 2021,
the minimum leverage ratio will be 3%. Changes to the
regulation concerning the leverage ratio and capital
requirements are discussed in the Section Changes in the
regulation of the leverage ratio and capital requirements.
At the end of December, MuniFin Group’s Liquidity
Coverage Ratio (LCR) was 264.4% (430.2%).
The minimum requirement is 100%.
MuniFin Group is also preparing for the adoption of the Net
Stable Funding Ratio (NSFR), which will take effect in June
2021 with the minimum requirement of 100%. At the end of
December 2020, the Group’s NSFR was 116.4% (116.3%)
calculated according to current interpretations.
Changes in the regulation of the leverage ratio
and capital requirements
Changes to the regulation of banks’ capital adequacy
(CRR II and CRD V) will be largely applied in June 2021.
MuniFin fulfils the CRR II definition of a public development
credit institution and may therefore deduct in the
calculation of its leverage ratio all credit receivables from
the central government and municipalities. This has a
significant positive effect on the Group’s leverage ratio.
At the end of 2020, MuniFin Group’s leverage ratio was
13.9%, taking the abovementioned legislative change
into account. Without it, the leverage ratio stood at 3.9%.
According to the current estimates, changes in the
calculation of derivatives exposure also affect on the
leverage ratio (CRR II). This is estimated to have around
0.5 percentage points negative effect on the leverage
ratio. Taking into account both changes, leverage ratio
(CRR II) is 13.4%. Minimum requirement for leverage ratio
will be 3%.The leverage ratio, in force from June 2021, has
been the strictest of the capital requirements imposed
on MuniFin Group, and therefore this may have impact on
MuniFin Group’s profitability goals and capital planning in
the long run.
New capital requirements regulation will slightly lower
MuniFin Group’s CET1 capital ratio. The most significant
increase is in counterparty credit risk capital requirement,
which will bring down MuniFin Group’s CET1 ratio by an
estimated 3.4 percentage points, while the total of all
the other changes are estimated to remain clearly lower.
Even after these changes, MuniFin Group’s CET1 ratio
will remain very high at 100.9% compared to the minimum
requirement of 9.96% including P2R and other additional
capital requirements.
Liabilities under the Act on the Resolution of
Credit Institutions and Investment Firms
MuniFin’s crisis resolution authority is the EU’s Single
Resolution Board (SRB). The SRB is expected to impose
a binding minimum requirement for own funds and eligible
liabilities (MREL) on MuniFin. MuniFin expects the decision
to be made in early 2021 and take effect in 2022. MuniFin
expects its own funds and eligible liabilities to exceed the
minimum requirements by a wide margin.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin Group’s operations require adequate risk
management mechanisms to ensure that the Group’s risk
position remains within the limits set by Parent Company’s
Board of Directors. To preserve its strong credit rating,
the Group applies conservative risk management
principles and aims to keep its overall risk status low.
The relevant risk types associated with the Group’s
operations include credit and counterparty credit risk,
market risk and liquidity risk. All operations also involve
strategic and operational risks, including compliance risk
and ESG (Environmental, Social and Governance) risk.
The Group’s risks are described in greater detail in Note
2 to the Consolidated Financial Statements, entitled
Risk management principles and the Group’s risk position.
Concurrently with this Report of the Board of Directors
and the Financial Statements, MuniFin Group is publishing
a separate Pillar III Disclosure Report on capital adequacy
and risk management, which is available in English on
MuniFin’s website.
Risk position
The COVID-19 pandemic may affect MuniFin Group’s
counterparty risk, liquidity portfolio credit risk and risks
related to liquidity, lending and business processes. So
far, however, the pandemic has not had any significant
negative effects on these risks.
There were no material changes in the Group’s risk
appetite during 2020. Risks remained within the limits
set by the Board of Directors during the year, and the risk
position remained stable despite the COVID-19 pandemic.
Unrealised fair value changes of financial instruments
caused the volatility of profits. The Group continuously
monitors and analyses the volatility arising from valuations
and prepares for any impacts this may have on its profit
and capital adequacy.
The Group is exposed to credit risks as part of its business.
Due to the nature of its customer base, credit risks are low,
but it is impossible to completely eliminate them. The credit
risks emerge almost exclusively from customer financing,
the liquidity portfolio investments and the derivatives
portfolio. MuniFin also offers derivative products for
its customers for hedging their interest rate positions.
These products are covered with offsetting contracts from
the market. The Group only uses derivatives for hedging
against market risks. During the year, MuniFin’s credit risk
position remained at a low and stable level.
In view of its credit risk mitigation techniques (mortgage
collateral and guarantees received) and exemptions set
out in CRR Article 400 related to the calculation of large
exposures, MuniFin Group is not exposed to customer
risk in its customer financing, and thus the customer risk
of any individual customer does not exceed 10% of own
funds. The amount of expected credit losses increased
slightly and was EUR 0.9 million recognised in the income
statement. During the second half of 2020, MuniFin Group
has specified the methods for estimating and modelling
expected credit losses, as well as the assumptions used
in the model. The change increased the expected credit
losses by approximately EUR 0.5 million. In addition, the
Group has recorded an additional discretionary provision
(management overlay) to cover the deterioration of its
customers’ credit risk due to the COVID-19 pandemic,
which is not yet reflected in the Group’s internal risk
ratings, which are based on the client’s 2019 financial
statement data.
Risk management
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The amount of forborne receivables at the end of
December was EUR 88 million, which is EUR 55 million
higher than at the end of 2019. MuniFin has individual
customers who have faced economic challenges due to
the COVID-19 pandemic. If their repayment ability was
impaired temporarily, MuniFin offered them repayment
holidays and made concessions to the payment terms of
their loans. In 2020, these amounted to EUR 208 million.
Part of this amount was classified as forbourne exposures.
Non-performing exposures amounted to EUR 136 million
at the end of December (EUR 67 million), for which the
Group has absolute guarantees by municipalities or real
estate collateral and state deficiency guarantee, and these
exposures are therefore not expected to carry the risk of
a final credit loss. Non-performing exposures represented
0.5% of total customer exposures (0.3%).
The COVID-19 pandemic has not weakened MuniFin
Group’s credit risk position so far. The credit risk position
is expected to remain stable and in line with the Group’s
credit risk strategy. However, if prolonged, the pandemic
may affect MuniFin’s counterparty risks, liquidity portfolio
credit risk and risks related to liquidity, lending and
business processes. MuniFin Group has intentionally
changed allocations in its liquidity portfolio to lower its risk
levels even further. For now, the pandemic and related
economic uncertainty has only had a modest effect on
the Group’s financial situation and risk position. Due to
pandemic-related restrictions, MuniFin Group has changed
its operating practices and remote work arrangements,
but has otherwise carried out normal business operations
without any interruptions.
Market risks include interest rate risk, exchange rate risk
and other market and price risks. MuniFin Group actively
monitors and hedges its interest rate risk and manages
it by using derivatives. Interest rate risk mainly arises
from the differences in Euribor rates applicable to the
assets and liabilities in the balance sheet. Eight scenarios
are used in the calculation of the earnings risk, of which
the least favourable outcome is considered. The least
favourable scenario was based on an assumption of a rise
of one percentage point in the whole interest rate curve.
One-year earnings risk at the end of December was EUR
-32 million (EUR -14 million). Several scenarios are also
used in the calculation of the Economic Value of Equity,
of which the least favourable outcome is considered. The
least favourable scenario was based on an assumption
of a rise of two percentage points in the whole interest
rate curve. The Economic Value of Equity at the end of
December was EUR -345 million (EUR -114 million).
MuniFin Group’s FX risk is hedged by using derivative
contracts to swap all funding and investments
denominated in foreign currency into euros. In practice,
the Group’s operations are not exposed to exchange rate
risks, but a small temporary exchange rate risk may arise
due to collateral management in the clearing of derivatives
by central counterparties. This exchange rate risk is
actively monitored and hedged. Derivatives are also used
to hedge against other market and price risks. Derivatives
can only be used for hedging purposes as the Group
does not engage in trading activities. MuniFin Group has
also determined valuation risk as a significant risk for
its business. Unrealised fair value changes of financial
instruments increase the Group’s earnings volatility.
MuniFin Group continuously monitors and analyses the
volatility arising from valuations and prepares for any
impacts this may have on its profit and capital adequacy.
The Group’s market risk has remained stable. The
COVID-19 pandemic caused market volatility especially
during the spring, which manifested in increased valuation
volatility in the Group’s profits. The market became more
stable towards the end of the year, reducing the pandemic-
related volatility.
MuniFin Group manages its refinancing risk by limiting the
average maturity between financial assets and liabilities.
In addition, the Group manages its liquidity risk by setting a
limit for the minimum adequacy of the available short-term
and long-term liquidity. At the end of 2020, its survival
horizon was 12.3 months (13.6 months). The Group’s liquidity
remained good, with the LCR being 264.4% (430.2%) at the
end of the year. The availability of funding also remained at
a good level throughout the year, and the Group was able
to continue to acquire funding almost normally despite the
exceptional situation caused by the COVID-19 pandemic.
In January–December 2020, MuniFin Group issued EUR
10,966 million (EUR 7,385 million) in long-term funding.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin Group’s operational risks are estimated to be
at a moderate level, and there were no material losses
from operational risks in 2020. According to MuniFin’s
estimate, the COVID-19 pandemic has not increased the
Group’s operational risks. The extensive remote work
arrangements have had some effects on the Group’s
operating practices, but its business operations have
continued normally. Control points related to processes
and information security, for example, have remained in
place and continued to function in the usual way.
ESG risks include environmental, social and governance
risks. MuniFin Group actively monitors climate risks and
their potential effect on its business. The Group’s current
estimate is that climate risks are unlikely to manifest
substantially in the short-term. In analysing its customer
finance portfolio, MuniFin Group has included climate
risk in its risk management framework in the medium and
long-term. All of MuniFin Group’s customers are located
in Finland, which protects the Group from the negative
effects of climate change to some degree. In the medium
and long-term, climate risks may nevertheless have an
adverse economic effect on the Group’s customers and
therefore on their loan repayment ability.
From MuniFin Group’s point of view, social risks related
to the Finnish society and the Group’s customers mostly
concern economic inequality, inequalities of minority
groups, regional inequality, uneven distribution of welfare
and imbalances in regional vitality. MuniFin Group actively
monitors the social risks related to its customers and their
potential effect on business. According to its estimate,
the Group is currently not exposed to any substantial
social risks.
Finland is a well-governed country and on a list of the
180 least corrupted countries, Finland ranks third. From
MuniFin Group’s perspective, governance risks mainly only
manifest in individual misconduct cases. The Group aims
to assess, predict and manage these risks by acquiring
adequate customer information and employing efficient
risk management procedures. MuniFin Group actively
monitors the governance risks related to its customers
and their potential effect on business and continuously
develops its own governance practices, which are
described in the following Section Governance. According
to MuniFin Group’s estimate, it is currently not exposed to
any substantial governance risks.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
In addition to corporate legislation, MuniFin complies with
the governance requirements of the Finnish Act on Credit
Institutions. MuniFin’s governance policy is described in
more detail on MuniFin’s website.
Upon the publication of the Annual Report, MuniFin Group
also publishes a Corporate Governance Statement on its
website, pursuant to Chapter 7, Section 7 of the Finnish
Securities Market Act. The statement is separate from
the Annual Report and includes a description of the main
features of the internal control and risk management
systems pertaining to the financial reporting process. The
statement also includes the governance descriptions
required by the Act on Credit Institutions as well as
information on how MuniFin complies with the Finnish
Corporate Governance Code for listed companies
published by the Finnish Securities Market Association.
The code applies to Finnish listed companies, i.e.
companies whose shares are listed on the Helsinki Stock
Exchange. Since MuniFin is exclusively an issuer of listed
bonds and its shares are not subject to public trading, this
code does not apply directly to MuniFin.
Group structure
The Municipality Finance Group (MuniFin Group or the
Group) consists of Municipality Finance Plc (MuniFin or
the Parent Company) and Financial Advisory Services
Inspira Ltd (Inspira or Subsidiary Company). MuniFin owns
100% of Inspira. No changes to the group structure took
place in the financial year.
General meeting
MuniFin Annual General Meeting (AGM) was held on
25 March 2020. The AGM confirmed the Financial
Statements for 2019 and discharged the members of
the Board of Directors, the CEO and the Deputy CEO
from liability for the financial year 2019. In addition, in
accordance with the proposal of the Board of Directors,
the AGM decided that a dividend of EUR 0.16 per share
(EUR 0.16 per share) will be paid, amounting to a total of
EUR 6,250,207.68 (EUR 6,250,207.68). The remaining
part of distributable funds, EUR 129,117,955.25 (EUR
127,617,814.70) will be retained in equity.
Based on the proposal of the Shareholders’ Nomination
Committee, the AGM appointed the Board of Directors for
the 2020–2021 term, lasting from the 2020 AGM to the
end of the subsequent AGM. The AGM also confirmed the
proposal of the Shareholders’ Nomination Committee on
the remuneration of Board members.
In addition, the meeting elected KPMG Oy Ab as MuniFin’s
auditor, with APA Tiia Kataja as the principal auditor.
Kataja acted as the principal auditor during the previous
term as well.
Board of Directors
The Shareholders’ Nomination Committee made a
proposal to the AGM held on 25 March 2020 regarding
the members to be elected for the term that began at
the end of the 2020 AGM and will conclude at the end of
the 2021 AGM.
Governance
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The AGM elected the following members to the
Board of Directors: Maaria Eriksson, Markku Koponen,
Kari Laukkanen, Vivi Marttila, Tuula Saxholm,
Denis Strandell, Kimmo Viertola and Helena Walldén.
The MuniFin Board nominated Helena Walldén as the
Chair of the Board and Tuula Saxholm as the Vice Chair.
Both held the same positions in the previous term.
In order to comply with laws governing credit institutions
and organise its work as efficiently as possible, the MuniFin
Board has appointed the Audit, Risk and Remuneration
Committees. The MuniFin Board has selected Markku
Koponen (Chair), Kari Laukkanen and Vivi Marttila as the
members of the Audit Committee. In the Risk Committee,
the Board selected Kari Laukkanen (Chair), Maaria
Eriksson and Denis Strandell. In the Remuneration
Committee, the Board selected Helena Walldén (Chair),
Markku Koponen, Tuula Saxholm and Kimmo Viertola.
From the 2019 AGM to the 2020 AGM, the members of
the Board of Directors were Helena Walldén (Chair), Tuula
Saxholm (Vice Chair), Maaria Eriksson, Minna Helppi,
Markku Koponen, Jari Koskinen, Kari Laukkanen and
Vivi Marttila. Raija-Leena Hankonen resigned from the
MuniFin’s Board and its committees on 21 February 2020.
The operations of the MuniFin’s Board of Directors and its
committees are described in more detail in the Corporate
Governance Statement 2020 and on MuniFin’s website.
Personnel
At the end of December 2020, MuniFin Group had 165
(167) employees, of which 154 worked for the Parent
Company (156). Salaries and remuneration paid across the
Group amounted to EUR 14.9 million (EUR 14.5 million).
The President and CEO of MuniFin is Esa Kallio, with Mari
Tyster, Executive Vice President, acting as deputy to the
President and CEO. In addition, the MuniFin Executive
Management Team includes Executive Vice Presidents
Aku Dunderfelt, Toni Heikkilä, Rainer Holm, Joakim
Holmström and Harri Luhtala.
In November 2020, MuniFin restructured its organisation
and operating practices to streamline its operations,
to further improve its products, services and customer
experience. The renewed organisation is more strongly
based on MuniFin’s core operations, i.e., customer
financing solutions and capital market processes. The
changes took effect on 1 January 2021. This process
included cooperation negotiations with the entire staff
and resulted in the termination of 10 positions. For some
of those, who performed these positions, new positions
could be offered, resulting in an termination of employment
of 8 people within the Group.
MuniFin established a new Development and HR Services
division to manage the development portfolio and support
change management. The new function is headed by the
Group’s current HR Director, Minna Mäkeläinen, who is
also a member of the MuniFin’s Executive Management
Team as from 1 January 2021.
In January 2021, changes took place in MuniFin’s
management as Rainer Holm, Executive Vice President of
Technology Services, will leave the service of MuniFin by
30 April 2021. Holm will be succeeded by Juha Volotinen
as from 1 April 2021. Volotinen will also act as a member of
MuniFin’s Executive Management Team.
Salaries and remuneration
The remuneration paid to MuniFin Group’s management
and employees consists of fixed remuneration (base
salary and fringe benefits) and a variable element based on
the conditions of the remuneration scheme. The principles
of the remuneration scheme are confirmed by Parent
Company’s Board of Directors, and they are reviewed on
an annual basis. The Remuneration Committee advises
the Board of Directors on remuneration-related matters.
For more information on salaries and remuneration, refer
to Note 45 Salaries and Remuneration in this Report and
to the Remuneration Report 2020, which is published
as a separate document from the Report of the Board of
Directors and the Financial Statements and is available on
MuniFin’s website.
Internal audit
The purpose of the internal audit is to monitor the reliability
and accuracy of MuniFin’s information on finances and
other management. It also ensures that MuniFin has
sufficient and appropriately organised manual and IT
systems for its operations and that the risks associated
with the operations are adequately managed.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
At the end of the 2020 financial year, MuniFin had paid
share capital registered in the Trade Register to the
amount of EUR 43,008,044.20, and the number of shares
was 39,063,798. The company has two series of shares
(A and B), with equal voting and dividend rights. Each
share confers one vote at the Annual General Meeting.
At the end of 2020, MuniFin had 277 shareholders (277).
LARGEST SHAREHOLDERS 31 Dec 2020 No. of shares Per cent
1. Keva 11,975,550 30.7%
2. Republic of Finland 6,250,000 16.0%
3. City of Helsinki 4,066,525 10.4%
4. City of Espoo 1,547,884 4.0%
5. VAV Asunnot Oy * 963,048 2.5%
6. City of Tampere 919,027 2.4%
7. City of Oulu 903,125 2.3%
8. City of Turku 763,829 2.0%
9. City of Kuopio 592,028 1.5%
10. City of Lahti 537,926 1.4%
* VAV Asunnot Oy is fully owned by City of Vantaa.
The amounts of shares presented in the above table do not include any shares owned by
the Group companies of the listed shareholders.
MuniFin is not aware of any material changes in the holdings of major shareholders during
the year.
Share capital and shareholders
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin’s Board of Directors is not aware of any events having taken place after the end
of the reporting period that would have a material effect on the Group’s financial standing.
Events after the reporting period
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Outlook for 2021
The COVID-19 pandemic will continue to weigh down
the economy in early 2021, when susceptible new
virus variants require the maintenance of restrictions.
Vaccination of high-risk groups and health care workers
will gradually strengthen confidence in the economy.
It is generally estimated that in Western countries,
the vaccination coverage necessary for easing most
restrictions will be reached by the autumn. However, the
vaccination schedule and the availability of vaccines are
still very much uncertain.
In the second half of 2021, economic growth in the euro
area, and also in Finland, may temporarily be quite rapid,
as accumulated household consumer demand begins
to unravel. The COVID-19 pandemic has scarred the
production structure, which slows down the recovery
of economy. Governments have introduced stimulus
packages to prevent mass unemployment and a wave of
bankruptcies, but the economy’s normal recovery process
has ground to a halt. It will take time until companies will
fully regain their ability to make investments.
If demand recovers much faster than supply, the economy
may face inflationary pressure for the first time in a long
time. This may make it harder to correctly adjust stimulus
policies and cause uncertainty in the markets. Long-term
interest rates and asset pricing in general are sensitive to
changes in inflation expectations.
As a whole, the economic outlook for 2021 is hopeful. Joe
Biden’s US presidency is expected to restore a sense
of stability and predictability in international relations,
and trade policy tensions are also expected to ease,
although the EU–UK Brexit deal leaves many unanswered
questions in the trade relations between the EU and the
UK. In 2021, the euro area economy is expected to grow by
approximately 4%. Finland’s GDP accumulates slower than
the euro area on average, as the economic downturn has
also been milder.
In 2020, the Government of Finland’s COVID-19 subsidies
brought temporary relief to the municipal economy. The
comprehensive COVID-19 subsidy for municipalities will
decrease in 2021 and attention will gradually turn back to
the structural imbalances in the municipal economy.
Finland’s long-running social welfare and health care
reform took a step forward in 2020, when the Government
introduced a new implementation proposal to the
Parliament. Parliament’s committees will continue to
prepare the reform in 2021. Assessing the wide-ranging
impact of the reform remains challenging, but the reform
is currently not expected to have any significant effects on
MuniFin Group’s operations in 2021.
Changes to the regulation of banks’ capital adequacy
(CRR II and CRD V) will be largely applied in June 2021.
MuniFin fulfils the CRR II definition of a public development
credit institution and may therefore deduct in the
calculation of its leverage ratio all credit receivables from
the central government and municipalities. This has a
significant positive effect on the Group’s leverage ratio.
Thanks to strong growth in business operations already
in 2020 and the projected growth to 2021, successful
funding and a favourable interest rate environment,
MuniFin Group’s net interest income is expected to
develop positively in 2021. The expenses are expected
to grow as the costs were at exceptionally low level in
2020, but clearly slower than before COVID-19 pandemic.
Investments in IT systems and improvement of operational
reliability will increase the expenses.
Considering the above-mentioned circumstances and
assuming that there will be no major changes in the
development of market interest rates and credit risk
premiums when compared to market expectations, the
Group expects its net operating profit excluding unrealised
fair value changes to remain at the same level as in 2020.
The valuation principles set in IFRS 9 standard may cause
significant 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.
The estimates presented herein are based on current
views of the development of the operating environment
and MuniFin Group’s operations.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Municipality Finance Plc has distributable funds of EUR 151,454,113.07, of which the profit
for the financial year totalled EUR 22,336,157.82.
On 15 December 2020, the European Central Bank (ECB) recommended that, due to
the COVID-19 pandemic, until 30 September 2021 significant credit institutions exercise
extreme prudence when deciding on dividends.
Although MuniFin’s financial position is stable and strong, and the negative effects of
COVID-19 pandemic to MuniFin’s results or capital adequacy have been limited, MuniFin’s
Board of Directors has nevertheless decided to adhere to the ECB’s recommendation.
Therefore, the Board of Directors proposes to the Annual General Meeting (AGM) the
following authorisation:
The AGM will authorise MuniFin’s Board of Directors to decide on the dividend and its
payment in one or more instalments at a time it deems best, taking into account the current
authority recommendations. The MuniFin’s Board of Directors proposes that the AGM
will authorise the Board of Directors to decide on a dividend payment of a maximum of
EUR 0.52 per share, totalling EUR 20,313,174.96. The authorisation will be valid until the
next AGM.
The Board of Directors intends to follow the current recommendation adopted by the
ECB and refrains from deciding on a dividend payment based on the authorisation until
30 September 2021.
MuniFin will publish possible decisions on dividend payment separately, and
simultaneously confirm the dividend record and payment dates. The possible dividend will
be paid to the shareholders who are registered as shareholders in the Company’s register
of shareholders as maintained by the Company on the record date.
MuniFin clearly fulfils all the prudential requirements set for it. No events have taken place
since the end of the financial year that would have a material effect on the Company’s
financial position. In the Board’s opinion, the proposed distribution of profits does not place
the fulfilment of the capital requirements or the Company’s liquidity in jeopardy.
The Board’s proposal concerning
the profit for the financial year 2020
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
31 Dec 2020 31 Dec 2019 31 Dec 2018 31 Dec 2017 31 Dec 2016
Turnover (EUR million) 532 718 714 204 184
Net interest income (EUR million) 254 240 236 229 206
% of turnover 47.7 33.5 33.1 112.0 112.2
Net operating profit (EUR million) 194 131 190 198 174
% of turnover 36.5 18.3 26.6 97.2 94.8
Unrealised fair value changes (EUR million)* -3 -54 0 11 3
Net operating profit excluding unrealised fair value changes (EUR million)* 197 186 190 187 172
Cost-to-income ratio* 0.2 0.3 0.2 0.2 0.2
Cost-to-income ratio excluding unrealised fair value changes* 0.2 0.2 0.2 0.2 0.2
Return on equity (ROE), %* 9.4 6.8 10.8 12.6 12.5
Return on equity (ROE) excluding unrealised fair value changes, %* 9.6 9.6 10.7 11.9 12.3
Return on assets (ROA), %* 0.4 0.3 0.4 0.5 0.4
Return on assets (ROA) excluding unrealised fair value changes, %* 0.4 0.4 0.4 0.4 0.4
The Group’s development
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
31 Dec 2020 31 Dec 2019 31 Dec 2018 31 Dec 2017 31 Dec 2016
Long-term customer financing (EUR million)* 28,022 24,798 22,968 21,651 21,196
New lending (EUR million)* 4,764 3,175 2,953 2,439 2,924
Total funding (EUR million)* 38,139 33,929 30,856 30,153 28,662
New long-term funding (EUR million)* 10,966 7,385 7,436 9,510 6,733
Equity (EUR million) 1,705 1,594 1,486 1,339 1,184
Total balance sheet (EUR million) 44,042 38,934 35,677 34,738 34,052
Total liquidity (EUR million)* 10,089 9,882 8,722 9,325 7,505
Liquidity Coverage Ratio (LCR), % 264.4 430.2 176.7 173.0 149.1
Equity ratio, %* 3.9 4.1 4.2 3.9 3.5
CET1 capital (EUR million) 1,277 1,162 1,065 946 777
Tier 1 capital (EUR million) 1,624 1,510 1,413 1,293 1,124
Total own funds (EUR million) 1,624 1,510 1,413 1,293 1,124
CET1 capital ratio, % 104.3 83.1 66.3 53.0 46.2
Tier 1 capital ratio, % 132.7 107.9 88.0 72.5 66.9
Total capital ratio, % 132.7 107.9 88.0 72.5 66.9
Leverage ratio, % 3.9 4.0 4 .1 3.8 3.5
Personnel 165 167 151 134 106
Following the adoption of IFRS 9 at the beginning of 2018, the amount of derivatives measured at fair value through profit or loss has grown and they are treated as gross amounts divided into
interest income and interest expenses. This has increased the key figure for turnover, as interest income grew in 2018, 2019 and 2020. As permitted under IFRS 9, the Company has not restated
earlier periods.
* Alternative Performance Measure. For more information on Alternative Performance Measures, see pages
87–92.
The calculation formulas for all key figures can be found on pages 87–94. All figures presented in the Report of the Board of Directors are those of the MuniFin Group, unless otherwise stated.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin Group defines the Alternative Performance Measures (APMs) to be financial measures
that have not been defined in the IFRS standards or the capital requirements regulation
(CRD/CRR). The APMs improve comparability between companies in the same sector and
between reporting periods and provide valuable information to the readers of the financial
reports. The APMs provide a more consistent basis for comparing the results of financial periods
and for assessing MuniFin Group’s performance. They are also an important aspect of the way in
which Group’s management defines operating targets and monitors performance.
The Alternative Performance Measures are presented in MuniFin Group’s financial reports in
accordance with the guidelines for Alternative Performance Measures issued by the European
Securities and Markets Authority (ESMA).
MuniFin Group has not made any adjustments to APMs nor included any new APMs due
to the impacts of COVID-19 pandemic.
Note 1. Key figures
Note 1. Key figures
Tunnusluvut Alku
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
ALTERNATIVE
PERFORMANCE MEASURE DEFINITION / EXPLANATION RECONCILIATION 1 Jan–31 Dec 2020 1 Jan–31 Dec 2019
EUR million
Net interest income Interest income and expense from financial assets
and liabilities are recognised in net interest income. A
significant part of Group’s revenues consists of net interest
income.
Interest and similar income (incl. Leasing) 533 767
Interest and similar expense -279 -526
Net interest income 254 240
Unrealised fair value changes Due to IFRS 9 implementation more financial instruments
are measured at fair value through profit and loss which
increases PnL volatility. To enhance comparability of
business performance between periods and companies,
it is often necessary to exclude the PnL effect of the
unrealised fair values changes.
Net income from securities and foreign exchange transactions,
unrealised fair value changes
-7 -35
Net income from hedge accounting 4 -19
Unrealised fair value changes -3 -54
Net operating profit Net operating profit describes Group’s operating profit
before taxes.
Net operating profit 194 131
Net operating profit excluding
unrealised fair value changes
Net operating profit excluding unrealised fair value
changes as an APM is of interest of showing MuniFin
Group’s underlying earnings capacity.
Net operating profit 194 131
- Unrealised fair value changes -3 -54
Net operating profit excluding unrealised fair value changes 197 186
Income Income, which describes the Group's total income
including net interest income, is used e.g. as a denominator
(minus commission expenses) in Cost-to-income ratio
Net interest income 254 240
Commission income 3 3
Net income from securities and foreign exchange transactions -8 -33
Net income on financial assets at fair value through other
comprehensive income
0 0
Net income from hedge accounting 4 -19
Other operating income 0 0
Income 253 192
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
ALTERNATIVE
PERFORMANCE MEASURE DEFINITION / EXPLANATION RECONCILIATION 1 Jan–31 Dec 2020 1 Jan–31 Dec 2019
EUR million
Income excluding unrealised
fair value changes
Income excluding unrealised fair value changes reflects
the Group’s operating income, of which the most
significant is net interest income.
Income 253 192
- Unrealised fair value changes -3 -54
Income excluding unrealised fair value changes 257 246
Other income Other income includes all other income of the Group than
net interest income and unrealised fair value changes.
Commission income 3 3
Net income from securities and foreign exchange transactions, realised -1 2
Net income on financial assets at fair value through other
comprehensive income
0 0
Other operating income 0 0
Other income 2 6
Costs Costs, which describe the Group's total costs, is used e.g.
as a numerator (excl. commission expenses) in Cost-to-
income ratio.
Commission expenses 5 4
Administrative expenses 33 32
Depreciation and impairment on tangible and intangible assets 6 6
Other operating expenses 15 18
Costs 58 60
Cost-to-income ratio Cost-to-income ratiois an established key ratio in the
banking sector for assessing the relationship between
expenses and income. Theratiogives investors a
comparative view of MuniFin Group’s cost-effectiveness.
Costs (excl. Commission expenses) 53 56
÷ Income (incl. Net commission income) 248 187
Cost-to-income ratio 0.2 0.3
Cost-to-income ratio excluding
unrealised fair value changes
Cost-to-income ratio excluding unrealised fair value
changes gives a more precise picture of MuniFin Group’s
operative effectiveness as it excludes the income
volatility of unrealised fair value changes. Cost-to-
income ratio excluding unrealised fair value changes as
an performance measure is more widely used after the
implementation of IFRS 9 as PnL volatility of income has
grown due to unrealised fair value changes of financial
intstruments. It improves comparability of operative
effectiveness between companies and reporting periods.
Costs 53 56
÷ (Income 248 187
- Unrealised fair value changes) -3 -54
Cost-to-income ratio excluding unrealised fair value changes 0.2 0.2
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
ALTERNATIVE
PERFORMANCE MEASURE DEFINITION / EXPLANATION RECONCILIATION 1 Jan–31 Dec 2020 1 Jan–31 Dec 2019
EUR million
The effect of unrealised fair value
changes on other comprehensive
income and equity net of tax
The key figure describes the effect of unrealised fair
value changes during the reporting period on the Group’s
comprehensive income and equity net of tax.
Unrealised fair value changes (through PnL) -3 -54
Taxes related to the unrealised fair value changes (through PnL) 1 11
Net change in fair value due to changes in own credit risk on financial
liabilities designated at fair value through profit or loss, net of tax
-13 8
Net change in Cost-of-Hedging, net of tax -12 14
Net change in fair value of financial assets at fair value through other
comprehensive income, net of tax
0 0
The effect of unrealised fair value changes on other
comprehensive income and equity net of tax
-28 -21
New lending Key indicator used in management reporting to describe
MuniFin Group’s business volume during the reporting
period. The indicator includes the amount of new loans
excluding unrealised fair value changes.
New lending 4,764 3,175
New long-term funding Key indicator used in management reporting to describe
MuniFin Group’s funding activity during the reporting
period. The indicator includes the amount of new
funding (over 1 year) issued excluding unrealised fair
values changes.
New long-term funding 10,966 7,385
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
ALTERNATIVE
PERFORMANCE MEASURE DEFINITION / EXPLANATION RECONCILIATION 31 Dec 2020 31 Dec 2019
EUR million
Return on Equity (ROE), % ROE measures the efficiency of MuniFin Group’s capital
usage. It is commonly used performance measure and as
an APM improves comparability between companies.
((Net operating profit 194 131
- Taxes) -39 -26
÷ Equity and non-controlling interest (average of values at the beginning
and end of the period)) x100
1,650 1,540
Return on Equity (ROE), % 9.4% 6.8%
Return on Equity (ROE) excluding
unrealised fair value changes, %
MuniFin Group’s strategy indicator. Excluding the
unrealised fair value changes increases comparability
between reporting periods.
((Net operating profit excluding unrealised fair value changes 197 186
- Taxes -39 -37
÷ Equity and non-controlling interest (average of values at the beginning
and end of the period)) x100
1,650 1,540
Return on Equity (ROE) excluding unrealised fair value changes, % 9.6% 9.6%
Return on Assets (ROA), % ROA measures the efficiency of MuniFin Group’s
investments. It is commonly used performance measure
and as an APM improves comparability between
companies.
((Net operating profit 194 131
- Taxes) -39 -26
÷ Average balance sheet total (average of values at the beginning and
end of the period)) x100
41,488 37,305
Return on Assets (ROA), % 0.4% 0.3%
Return on Assets (ROA) excluding
unrealised fair value changes, %
Excluding the unrealised fair value changes increases
comparability of ROA between reporting periods.
((Net operating profit excluding unrealised fair value changes 197 186
- Taxes) -39 -37
÷ Average balance sheet total (average of values at the beginning and
end of the period)) x100
41,488 37,305
Return on Assets (ROA) excluding unrealised fair value changes, % 0.4% 0.4%
Equity ratio, % Equity ratiois an investment leverage and solvency ratio
that measures the amount of assets that are financed by
equity. It is commonly used performance measure and as
an APM improves comparability between companies.
(Equity and non-controlling interest 1,705 1,594
÷ Balance sheet total) x100 44,042 38,934
Equity ratio, % 3.9% 4.1%
Long-term loan portfolio Key indicator used in management reporting to describe
MuniFin Group’s business volume.
Loans and advances to the public and public sector entities 28,022 24,798
- Leasing 1,091 828
Long-term loan portfolio 26,931 23,970
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
ALTERNATIVE
PERFORMANCE MEASURE DEFINITION / EXPLANATION RECONCILIATION 31 Dec 2020 31 Dec 2019
EUR million
Long-term customer financing Key indicator used in management reporting to describe
MuniFin Group’s business volume.
Loans and advances to the public and public sector entities 28,022 24,798
Long-term customer financing 28,022 24,798
Long-term customer financing excluding
unrealised fair value changes
Key indicator used in management reporting to describe
MuniFin Group’s business volume. In this indicator the
unrealised fair value changes have been excluded to
enhance comparability of business performance between
periods.
Loans and advances to the public and public sector entities
- Unrealised fair value changes
28,022
-511
24,798
-340
Long-term customer financing excluding unrealised
fair value changes
-27,511 24,458
Short-term customer financing Key indicator used in management reporting to describe
MuniFin Group’s business volume.
Debt securities, commercial papers
(municipalities and municipal companies)
1,310 804
Short-term customer financing 1,310 804
Total funding Key indicator used in management reporting to describe
MuniFin Group’s funding volume.
Liabilities to credit institutions 2,001 1,178
Liabilities to the public and public sector entities 3,884 3,862
Debt securities issued 32,912 29,984
Tot al 38,797 35,024
- CSA collateral (received) -658 -1,095
Total funding 38,139 33,929
Total liquidity Key indicator used in management reporting to describe
MuniFin Group’s liquidity position.
Debt securities 5,763 5,716
- Short-term customer financing -1,310 -804
Shares and participations 0 10
Investments in securities total 4,453 4,922
Cash and balances with central banks 5,566 4,909
Other deposits 70 51
Other investments total 5,636 4,960
Total liquidity 10,089 9,882
Vaihtoehtoiset tunnusluvut
loppu
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
OTHER MEASURES DEFINITION RECONCILIATION 1 Jan-31 Dec 2020 1 Jan-31 Dec 2019
EUR million
Turnover Defined in IFRS (IAS 1). Turnover is not disclosed in
MuniFin Group’s income statement so the formula for
turnover should be given even though it is not considered
to be an APM.
Interest and similar income (incl. Leasing) 533 767
Commission income 3 3
Net income from securities and foreign exchange transactions -8 -33
Net income on financial assets at fair value through other
comprehensive income
0 0
Net income from hedge accounting 4 -19
Other operating income 0 0
Turnover 532 718
31 Dec 2020 31 Dec 2019
Liquidity Coverage Ratio (LCR), % Defined in CRR. (Liquid assets 9,229 8,291
÷ (Liquidity outflows - liquidity inflows in a stress situation)) x100 3,490 1,928
Liquidity Coverage Ratio (LCR), % 264.4% 430.2%
Net Stable Funding Ratio (NSFR), % Prior to the implementation of CRR II, providing
data on NSFR is based on EU 1024/2013 Article 4
and the calculation of the ratio is based on Basel III
NSFR guidelines.
(Available Stable Funding (ASF) 30,883 26,179
÷ Required Stable Funding (RSF)) x100 26,539 22,518
Net Stable Funding Ratio (NSFR), % 116.4% 116.3%
CET1 capital ratio, % Defined in CRR. (Common Equity Tier 1 (CET1) capital 1,277 1,162
÷ Risk exposure amount) x100 1,224 1,400
CET1 capital ratio, % 104.3% 83.1%
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
31 Dec 2020 31 Dec 2019
Tier 1 capital ratio, % Defined in CRR. (Tier 1 capital 1,624 1,510
÷ Risk exposure amount) x100 1,224 1,400
Tier 1 capital ratio, % 132.7% 107.9%
Total capital ratio, % Defined in CRR. (Total own funds 1,624 1,510
÷ Risk exposure amount) x100 1,224 1,400
Total capital ratio, % 132.7% 107.9%
Leverage ratio, % Defined in CRR. (Tier 1 capital 1,624 1,510
÷ Total exposure) x100 42,100 37,982
Leverage ratio, % 3.9% 4.0%
CET1 capital ratio (CRR II preliminary), % Defined in CRR II, which enters into force June 2021. (Common Equity Tier 1 (CET1) capital 1,277
÷ Risk exposure amount (CRR II preliminary)) x100 1,265
CET1 capital ratio (CRR II preliminary), % 100.9%
Leverage ratio (CRR II preliminary), % Defined in CRR II, which enters into force June 2021. (Tier 1 capital 1,624
÷ Total exposure (CRR II preliminary)) x100 12,122
Leverage ratio (CRR II preliminary), % 13.4%
Tunnusluvut Loppu
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Table 1. Minimum capital requirements and capital buffers
MINIMUM CAPITAL REQUIREMENTS
AND CAPITAL BUFFERS,
31 Dec 2020
Capital
requirement
Capital
conservation
buffer
1)
Countercyclical
buffer
2)
O-SII
3)
Systemic
risk buffer
4)
Total capital
buffers Tot a l
Common Equity Tier 1 (CET1) capital 4.50% 2.50% 0.21% 0.50% 0.00% 3.21% 7.71%
Tier 1 (T1) Capital 6.00% 2.50% 0.21% 0.50% 0.00% 3.21% 9.21%
Total own funds 8.00% 2.50% 0.21% 0.50% 0.00% 3.21% 11.21%
MINIMUM CAPITAL REQUIREMENTS
AND CAPITAL BUFFERS EUR ,
31 Dec 2020
Capital
requirement
Capital
conservation
buffer
1)
Countercyclical
buffer
2)
O-SII
3)
Systemic
risk buffer
4)
Total capital
buffers Tot a l
Common Equity Tier 1 (CET1) capital 55,065 30,592 2,630 6,118 0 39,340 94,405
Tier 1 (T1) Capital 73,420 30,592 2,630 6,118 0 39,340 112,760
Total own funds 97,893 30,592 2,630 6,118 0 39,340 137,234
Note 2. Group's capital adequacy position
Note 2. Group’s capital adequacy position
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MINIMUM CAPITAL REQUIREMENTS
AND CAPITAL BUFFERS,
31 Dec 2019
Capital
requirement
Capital
conservation
buffer
1)
Countercyclical
buffer
2)
O-SII
3)
Systemic
risk buffer
4)
Total capital
buffers Tot a l
Common Equity Tier 1 (CET1) capital 4.50% 2.50% 0.72% 0.50% 1.50% 4.72% 9.22%
Tier 1 (T1) Capital 6.00% 2.50% 0.72% 0.50% 1.50% 4.72% 10.72%
Total own funds 8.00% 2.50% 0.72% 0.50% 1.50% 4.72% 12.72%
MINIMUM CAPITAL REQUIREMENTS
AND CAPITAL BUFFERS EUR ,
31 Dec 2019
Capital
requirement
Capital
conservation
buffer
1)
Countercyclical
buffer
2)
O-SII
3)
Systemic
risk buffer
4)
Total capital
buffers Tot a l
Common Equity Tier 1 (CET1) 62,980 34,989 10,082 6,998 20,993 66,064 129,044
Tier 1 (T1) Capital 83,973 34,989 10,082 6,998 20,993 66,064 150,037
Total own funds 111,964 34,989 10,082 6,998 20,993 66,064 178,028
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
1)
Act on Credit Institutions (610/2014), Chapter 10, Section 3, and the EU Capital
Requirements Regulation (575/2013) and Directive (2013/36/EU). Valid from 1 January
2015.
2)
Act on Credit Institutions (610/2014) Sect 10:4-6 § and the EU Capital Requirements
Regulation (575/2013) and Directive (2013/36/EU). On 18 December 2020 (13 December
2019), the Board of Financial Supervisory Authority (FIN-FSA) decided not to set
countercyclical capital buffer requirement for credit exposures allocated to Finland.
The institution-specific countercyclical capital buffer requirement is determined on the
basis of the geographical distribution of the exposures. For MuniFin Group, it is 0.21%
(0.72%). Several countries have reduced their countercyclical capital buffer rates due to
challenges of COVID-19 pandemic.
3)
Other Systemically Important Institutions additional capital requirements: Act on
Credit Institutions (610/2014) Sect 10:8 § and the EU Capital Requirements Regulation
(575/2013) and Directive (2013/36/EU). Additional capital requirement (O-SII) for
MuniFin Group is 0.5% (0.5%). The decision of the Board of FIN-FSA on 29 June 2018,
effective on 1 January 2019.
4)
Act on Credit Institutions (610/2014) Sect 10:6a § and the EU Capital Requirements
Regulation (575/2013) and Directive (2013/36/EU). On 6 April 2020, the FIN-FSA made
a decision to remove the additional capital requirement determined on the basis of the
structural characteristics of the financial system (systemic risk buffer) from Finnish credit
institutions. The aim of the decision is to mitigate the negative effects of the COVID-19
pandemic on the stability of the financial markets. The decision entered into force
immediately. The systemic risk buffer and the O-SII additional capital requirement are
parallel buffers, of which the greater is applied.
Due to the ongoing pandemic, the European Central Bank (ECB) will not give the yearly
Supervisory Review and Evaluation Process Decision (SREP Decision) this year. Instead,
the ECB has given MuniFin Group an Operational Letter, in which the capital buffer
requirement (P2R) imposed on MuniFin Group last year is confirmed to continue in force
unchanged at 2.25%. Considering the additional capital requirement the new minimum
level for CET1 capital ratio is 9.96% (11.47%) and total capital ratio 13.46 % (14.97%).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Table 2. Own Funds
EUR , 31 Dec 2020 31 Dec 2019
Share capital 42,583 42,583
Reserve for invested non-restricted equity 40,366 40,366
Retained earnings 1,258,224 1,121,774
Fair value reserve 16,471 28,882
Other reserves 277 277
Foreseeable dividend -20,313 -6,250
Accrued interest net of deferred taxes of AT1 capital loan treated as equity -9,459 -9,433
Common Equity Tier 1 (CET1) capital before regulatory adjustments 1,328,150 1,218,199
Intangible assets -17,346 -14,704
Deductions due to prudential filters on Common Equity Tier 1 capital -33,992 -41,043
Common Equity Tier 1 (CET1) capital 1,276,812 1,162,452
Instruments included in Additional Tier 1 capital 347,454 347,454
Additional Tier 1 (AT1) capital 347,454 347,454
Tier 1 (T1) capital 1,624,265 1,509,906
Tier 2 (T2) capital - -
Total own funds 1,624,265 1,509,906
Table 3. Consolidated key figures for capital adequacy
31 Dec 2020 31 Dec 2019
CET1 capital ratio, % 104.34 83.06
Tier 1 capital ratio, % 132.74 107.88
Total capital ratio, % 132.74 107.88
Common Equity Tier 1 capital includes the profit
for the financial year, which has been subject to a
financial review by the external auditor, and therefore
can be included in CET1 capital on the basis of
permission granted by the ECB in accordance with
the Capital Requirements Regulation. Deductions
due to prudential filters on CET1 capital are made
up of MuniFin’s debt value adjustment (DVA) and
prudent valuation adjustment (PVA). In addition, the
amount of foreseeable dividend has been deducted
from CET1 capital.
Change in own credit risk is not included in the own
funds (CRR Art. 33).
Additional Tier 1 capital contains MuniFin’s AT1
capital loan EUR 350 million at face value, from which
EUR 347.5 million can be included in the own funds.
The AT1 loan was issued on October 1st 2015. A more
detailed description of AT1 capital loan is included in
the Parent Company Note 34 Subordinated liabilities.
In addition, main features of capital instruments are
included in a separate Pillar III Disclosure Report
from this Report of Board of Directors and Financial
Statements. Pillar III Disclosure Report is available in
English on MuniFin’s website.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
31 Dec 2020 31 Dec 2019
EUR , Capital requirement Risk exposure amount Capital requirement Risk exposure amount
Credit and counterparty risk, standardised approach 46,448 580,596 61,038 762,976
Exposures to central governments or central banks - 0 - 0
Exposures to regional governments or local authorities 458 5,721 289 3,613
Exposures to public sector entities 718 8,975 - 0
Exposures to multilateral development banks - 0 323 4,043
Exposures to institutions 30,970 387,121 37,847 473,090
Exposures in the form of covered bonds 12,243 153,037 20,676 258,456
Exposures in the form of shares in CIUs - - 84 1,049
Other items 2,059 25,742 1,818 22,724
Market risk - - - -
Credit valuation adjustment risk (CVA VaR), standard method 18,470 230,876 17,085 213,561
Operational risk, basic indicator approach 32,976 412,196 33,841 423,016
Tot al 97,893 1,223,668 111,964 1,399,553
The capital requirement for counterparty risk is EUR 3,275 thousand (EUR 2,896 thousand).
The capital requirement for credit risk is calculated
using the standardised approach. When calculating
the capital requirements for market risk, only foreign
exchange risk is taken into account as the Group does not
have a trading book nor share or commodity positions.
As foreign exchange risk is hedged by swapping all
currency denominated funding and investments into
euros, the Group’s foreign exchange position is very small.
On 31 December 2020 the FX net position was EUR 2.1
million, which is less than 2% of total own funds. There
was no capital requirement for market risk since the FX
net position did not exceed 2% of the total own funds
(CRR 575/2013 Art. 351). Also in the comparison year, the
FX net position was less than 2% of total own funds.
Guarantees granted by the Municipal Guarantee Board
for certain derivative counterparties are not taken into
account in credit valuation adjustment risk.
The capital requirement for operational risk is calculated
using the basic indicator approach. The calculation of the
relevant indicator has been changed in accordance with
EBA recommendation (Q&A 2018_3969) to include also
the reporting date’s observation in the average over three
years for the year-end requirement. The change has no
significant impact on the capital adequacy.
Table 4. Consolidated minimum requirement for own funds
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Table 5. Consolidated exposure by class
31 Dec 2020
EUR ,
EXPOSURE CLASSES
On-balance
sheet exposure
Off-balance
sheet exposure
Derivatives
exposure Total exposure
Average exposure
amount over
the period
Risk exposure
amount
Exposures to central governments or central banks 5,873,259 - - 5,873,259 4,907,696 0
Exposures to regional governments or local authorities 13,893,677 753,517 397,641 15,044,834 14,778,461 5,721
Exposures to public sector entities 495,823 - - 495,823 432,695 8,975
Exposures to multilateral development banks 185,612 - - 185,612 208,265 0
Exposures to international organisations 158,697 - - 158,697 146,967 0
Exposures to institutions 1,970,555 - 559,905 2,530,460 2,384,224 387,121
Exposures to corporates 6,360,654 1,594,447 - 7,955,101 7,975,930 0
Exposures secured by mortgages on immovable property 9,275,460 4,809 - 9,280,269 8,943,126 0
Exposures in default 136,700 1,201 - 137,901 76,111 0
Exposures in the form of covered bonds 1,530,373 - - 1,530,373 1,956,922 153,037
Items representing securitisation positions - - - - - -
Exposures in the form of shares in CIUs - - - - - -
Other items 33,791 - . 33,791 27,576 25,742
Tot al 39,914,602 2,353,973 957,545 43,226,121 41,837,973 580,596
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
31 Dec 2019
EUR ,
EXPOSURE CLASSES
On-balance
sheet exposure
Off-balance
sheet exposure
Derivatives
exposure Total exposure
Average exposure
amount over
the period
Risk exposure
amount
Exposures to central governments or central banks 5,170,467 - - 5,170,467 4,794,138 0
Exposures to regional governments or local authorities 11,316,007 724,183 290,560 12,330,750 12,420,665 3,613
Exposures to public sector entities 342,131 - - 342,131 283,806 0
Exposures to multilateral development banks 182,632 - - 182,632 196,299 4,043
Exposures to international organisations 111,246 - - 111,246 93,708 0
Exposures to institutions 1,907,819 - 506,879 2,414,698 2,574,145 473,090
Exposures to corporates 6,031,136 1,629,526 - 7,660,662 7,146,923 0
Exposures secured by mortgages on immovable property 8,515,464 7,609 - 8,523,074 8,683,596 0
Exposures in default 61,757 - - 61,757 39,091 0
Exposures in the form of covered bonds 2,137,947 - - 2,137,947 2,005,152 258,456
Items representing securitisation positions - - - - 574 -
Exposures in the form of shares in CIUs 9,769 - - 9,769 9,806 1,049
Other items 31,920 - - 31,920 27,942 22,724
Tot al 35,818,296 2,361,319 797,439 38,977,054 38,275,845 762,976
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Table 6. Leverage ratio
CONSOLIDATED LEVERAGE RATIO
EUR , 31 Dec 2020 31 Dec 2019
Tier 1 (T1) capital 1,624,265 1,509,906
Total exposure 42,102,840 37,982,245
Leverage ratio, % 3.86 3.98
EXPOSURES
EUR , 31 Dec 2020 31 Dec 2019
On-balance sheet exposures (excl. derivatives and intangible assets) 41,533,974 36,504,446
Derivatives exposure -512,445 355,758
Off-balance sheet exposure 1,081,310 1,122,041
Tot al 42,102,840 37,982,245
BREAKDOWN OF ONBALANCE SHEET EXPOSURE EXCLUDING DERIVATIVES AND EXEMPTED EXPOSURES
EUR ,
31 Dec 2020
Leverage ratio exposure value
31 Dec 2019
Leverage ratio exposure value
Covered bonds 1,530,373 2,137,947
Exposures treated as sovereigns 20,533,442 17,083,751
Exposures to regional governments, multilateral development banks,
international organisations and public sector entities not treated as sovereigns 73,627 38,732
Institutions 1,970,555 1,907,819
Secured by mortgages of immovable properties 9,275,460 8,515,464
Corporate 6,360,654 6,031,136
Exposures in default 136,700 61,757
Other exposures 51,137 56,393
Tot al 39,931,948 35,833,000
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Table 1. Own funds
EUR , 31 Dec 2020 31 Dec 2019
Share capital 43,008 43,008
Reserve for invested non-restricted equity 40,743 40,743
Retained earnings 1,245,898 1,109,919
Fair value reserve 16,471 28,882
Other reserves 277 277
Foreseeable dividend -20,313 -6,250
Common Equity Tier 1 (CET1) capital before regulatory adjustments 1,326,084 1,216,578
Intangible assets -17,358 -14,719
Deductions due to prudential filters on Common Equity Tier 1 capital -33,992 -41,043
Common Equity Tier 1 (CET1) capital 1,274,733 1,160,816
Instruments included in Additional Tier 1 capital 349,388 348,896
Additional Tier 1 (AT1) capital 349,388 348,896
Tier 1 (T1) capital 1,624,121 1,509,712
Tier 2 (T2) capital - -
Total own funds 1,624,121 1,509,712
Note 3. Parent Company's capital adequacy position
Common Equity Tier 1 capital includes the profit for the
financial year, which has been subject to a financial review
by the external auditor, and therefore can be included
in CET1 capital on the basis of permission granted by
the ECB in accordance with the Capital Requirements
Regulation. Deductions due to prudential filters on CET1
capital are made up of MuniFin’s debt value adjustment
(DVA) and prudent valuation adjustment (PVA). In addition,
the amount of foreseeable dividend has been deducted
from CET1 capital.
Own credit risk changes are not included in the own funds
(CRR Art. 33).
Additional Tier 1 capital contains MuniFin’s AT1 capital
loan EUR 350 million at face value, from which EUR 349.4
million can be included in the own funds. The AT1 loan was
issued on October 1st 2015. A more detailed description
of AT1 capital loan is included in the Parent Company
Note 34 Subordinated liabilities. In addition, main features
of capital instruments are included in a separate Pillar III
Disclosure Report from this Report of Board of Directors
and Financial Statements. Pillar III Disclosure Report is
available in English on MuniFin’s website.
Note 3. Parent Company’s capital adequacy
position
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Table 2. Key figures for capital adequacy
31 Dec 2020 31 Dec 2019
CET1 capital ratio, % 107.14 85.00
Tier 1 capital ratio, % 136.51 110.54
Total capital ratio, % 136.51 110.54
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
31 Dec 2020 31 Dec 2019
EUR ,
Capital
requirement
Risk exposure
amount
Capital
requirement
Risk exposure
amount
Credit and counterparty risk, standardised approach 46,522 581,522 61,090 763,631
Exposures to central governments or central banks - 0 - 0
Exposures to regional governments or local authorities 458 5,721 289 3,613
Exposures to public sector entities 718 8,975 - 0
Exposures to multilateral development banks - 0 323 4,043
Exposures to institutions 30,956 386,946 37,833 472,917
Exposures in the form of covered bonds 12,243 153,037 20,676 258,456
Exposures in the form of shares in CIUs - - 84 1,049
Equity exposure 131 1,639 131 1,639
Other items 2,016 25,203 1,753 21,912
Market risk - - - -
Credit valuation adjustment risk (CVA VaR), standardised method 18,470 230,876 17,085 213,561
Operational risk, basic indicator approach 30,190 377,380 31,081 388,508
Tot al 95,182 1,189,778 109,256 1,365,700
The capital requirement for counterparty risk is EUR 3,275 thousand (EUR 2,896 thousand).
Table 3. Minimum requirement for own funds
The capital requirement for credit risk is calculated
using the standardised approach. When calculating
the capital requirements for market risk, only foreign
exchange risk is taken into account as MuniFin does not
have a trading book nor share or commodity positions. As
foreign exchange risk is hedged by swapping all currency
denominated funding and investments into euros, the
Company’s foreign exchange position is very small. On
31 December 2020 the FX net position was EUR 2.1
million, which is less than 2% of total own funds. There
was no capital requirement for market risk since the FX
net position did not exceed 2% of the total own funds
(CRR 575/2013 Art. 351). Also in the comparison year, the
FX net position was less than 2% of total own funds.
Guarantees granted by the Municipal Guarantee Board
for certain derivative counterparties are not taken into
account in credit valuation adjustment risk.
The capital requirement for operational risk is calculated
using the basic indicator approach. The calculation of the
relevant indicator has been changed in accordance with
EBA recommendation (Q&A 2018_3969) to include also
the reporting date’s observation in the average over three
years for the year-end requirement. The change has no
significant impact on the capital adequacy.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Table 4. Exposure by class
DEC
EUR ,
EXPOSURE CLASSES
On-balance
sheet exposure
Off-balance
sheet exposure
Derivatives
exposure Total exposure Risk exposure amount
Exposures to central governments or central banks 5,873,259 - - 5,873,259 0
Exposures to regional governments or local authorities 13,893,677 753,517 397,641 15,047,725 5,721
Exposures to public sector entities 495,823 - - 495,823 8,975
Exposures to multilateral development banks 185,612 - - 185,612 0
Exposures to international organisations 158,697 - - 158,697 0
Exposures to institutions 1,969,682 - 559,905 2,529,586 386,946
Exposures to corporates 6,360,654 1,594,447 - 7,943,173 0
Exposures secured by mortgages on immovable property 9,275,460 4,809 - 9,289,297 0
Exposures in default 136,700 1,201 - 137,910 0
Exposures in the form of covered bonds 1,530,373 - - 1,530,373 153,037
Items representing securitisation positions - - - - -
Exposures in the form of shares in CIUs - - - - -
Equity exposures 656 - - 656 1,639
Other items 33,252 - - 33,252 25,203
Tot al 39,913,845 2,353,973 957,545 43,225,364 581,522
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
DEC
EUR ,
EXPOSURE CLASSES
On-balance
sheet exposure
Off-balance
sheet exposure
Derivatives
exposure Total exposure Risk exposure amount
Exposures to central governments or central banks 5,170,467 - - 5,170,467 0
Exposures to regional governments or local authorities 11,316,007 724,183 290,560 12,330,750 3,613
Exposures to public sector entities 342,131 - - 342,131 0
Exposures to multilateral development banks 182,632 - - 182,632 4,043
Exposures to international organisations 111,246 - - 111,246 0
Exposures to institutions 1,906,958 - 506,879 2,413,837 472,917
Exposures to corporates 6,031,136 1,629,526 - 7,660,662 0
Exposures secured by mortgages on immovable property 8,515,464 7,609 - 8,523,074 0
Exposures in default 61,757 - - 61,757 0
Exposures in the form of covered bonds 2,137,947 - - 2,137,947 258,456
Items representing securitisation positions - - - - -
Exposures in the form of shares in CIUs 9,769 - - 9,769 1,049
Equity exposures 656 - - 656 1,639
Other items 31,101 - - 31,101 21,912
Tot al 35,817,272 2,361,319 797,439 38,976,029 763,631
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Consolidated Financial Statements
(IFRS)
Konsernitilinptös
Consolidated
Financial Statements
Municipality Finance Group Consolidated Financial Statements
1 January–31 December 2020
56 Consolidated Financial Statements (IFRS)
58 Consolidated income statement
60 Consolidated statement of financial position
62 Consolidated statement of changes in equity
64 Consolidated statement of cash flows
65 Notes to the Consolidated Financial Statements
227 Parent Company Financial Statements (FAS)
228 Income statement
229 Balance sheet
232 Statement of cash flows
233 Notes to the Parent Company Financial Statements
339 Signatures to the Report of the Board of Directors and Financial Statements
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR , Note 1 Jan–31 Dec 2020 1 Jan–31 Dec 2019
Interest and similar income (3) 532,935 766,581
Interest and similar expense (3) -278,814 -526,326
Net interest income 254,121 240,255
Commission income (4) 2,834 3,490
Commission expense (5) -5,066 -4,235
Net income from securities and foreign exchange transactions (6, 7) -7,790 -33,373
Net income on financial assets at fair value through other comprehensive income (8) -3 114
Net income from hedge accounting (9, 26) 4,183 -19,097
Other operating income (11) 127 135
Administrative expenses (12) -33,004 -32,268
Depreciation and impairment on tangible and intangible assets (30) -5,794 -6,183
Other operating expenses (13) -14,610 -17,626
Credit loss and impairments on financial assets (14) -857 28
Net operating profit 194,141 131,239
Income tax expense (15) -38,840 -26,307
Profit for the financial year 155,301 104,932
Consolidated income statement
Consolidated income
statement
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR , Note 1 Jan–31 Dec 2020 1 Jan–31 Dec 2019
Profit for the financial year 155,301 104,932
Components of other comprehensive income
Items not to be reclassified to income statement in subsequent periods
Net change in fair value due to changes in own credit risk on financial liabilities designated at fair value through profit or loss (7) -16,551 10,325
Net change in Cost-of-Hedging (26) -15,564 17,299
Items to be reclassified to income statement in subsequent periods
Net change in fair value of financial assets at fair value through other comprehensive income (8) 112 308
Net amount reclassified to the income statement on the sales of financial assets at fair value through other comprehensive income (8) - -90
Net change in expected credit loss of financial assets at fair value through other comprehensive income (27) -62 -117
Taxes related to components of other comprehensive income 6,413 -5,545
Total components of other comprehensive income -25,652 22,181
Total comprehensive income for the financial year 129,649 127,113
Statement of comprehensive income
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR , Note 31 Dec 2020 31 Dec 2019
Assets
Cash and balances with central banks (20) 5,565,801 4,909,338
Loans and advances to credit institutions (21) 1,841,853 818,323
Loans and advances to the public and public sector entities (22) 28,022,325 24,798,432
Debt securities (23) 5,763,214 5,716,318
Shares and participations (24) 27 9,797
Derivative contracts (19, 25) 2,358,163 2,244,997
Intangible assets (28, 30) 17,346 14,704
Tangible assets (29, 30) 10,364 9,041
Other assets (31) 259,785 170,359
Accrued income and prepayments (32) 203,547 242,450
Total assets (16, 17, 18) 44,042,426 38,933,758
Consolidated statement of financial position
Consolidated statement of
financial position
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR , Note 31 Dec 2020 31 Dec 2019
Liabilities and equity
Liabilities
Liabilities to credit institutions (34, 37) 2,001,478 1,178,256
Liabilities to the public and public sector entities (35, 37) 3,884,026 3,862,053
Debt securities issued (36, 37) 32,911,906 29,983,585
Derivative contracts (19, 25) 2,860,570 1,762,010
Provisions and other liabilities (38) 247,021 116,374
Accrued expenses and deferred income (39) 152,398 180,917
Deferred tax liabilities (33) 279,906 256,241
Total liabilities (16, 17, 18) 42,337,306 37,339,436
Equity
Share capital (40) 42,583 42,583
Reserve fund (40) 277 277
Fair value reserve of investments (40) 847 807
Own credit revaluation reserve (40) -255 12,985
Cost-of-Hedging reserve (40) 15,624 28,075
Reserve for invested non-restricted equity (40) 40,366 40,366
Retained earnings (40) 1,258,224 1,121,774
Total equity attributable to Parent Company equity holders 1,357,666 1,246,868
Other equity instruments issued (40) 347,454 347,454
Total equity 1,705,120 1,594,321
Total liabilities and equity 44,042,426 38,933,758
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Consolidated statement of changes in equity
Consolidated statement of
changes in equity
(EUR 1,000)
Total equity attributable to parent company equity holders
Other equity
instruments
issued Total equity
Share
capital
Reserve
fund
Fair value
reserve of
investments
Own
credit
revaluation
reserve
Cost-of-
Hedging
reserve
Reserve for
invested
non-restricted
equity
Retained
earnings Tota l
Equity at 31 December 2018 42,583 277 726 4,726 14,235 40,366 1,035,692 1,138,605 347,454 1,486,059
Interest paid on Additional Tier 1 capital instrument - - - - - - -12,600 -12,600 - -12,600
Dividends paid for 2018 - - - - - - -6,250 -6,250 - -6,250
Profit for the financial year - - - - - - 104,932 104,932 - 104,932
Components of other comprehensive income net of tax
Items not to be reclassified to income statement in subsequent periods
Net change in fair value due to changes in own credit risk on financial
liabilities designated at fair value through profit or loss - - - 8,260 - - - 8,260 - 8,260
Net change in Cost-of-Hedging - - - - 13,840 - - 13,840 - 13,840
Items to be reclassified to income statement in subsequent periods
Net change in fair value of financial assets at fair value through other
comprehensive income - - 247 - - - - 247 - 247
Net amount reclassified to the income statement on the sales of financial
assets at fair value through other comprehensive income - - -72 - - - - -72 - -72
Net change in expected credit loss of financial assets at fair value through
other comprehensive income - - -94 - - - - -94 - -94
Equity at 31 December 2019 42,583 277 807 12,985 28,075 40,366 1,121,774 1,246,868 347,454 1,594,321
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
(EUR 1,000)
Total equity attributable to parent company equity holders
Other equity
instruments
issued Total equity
Share
capital
Reserve
fund
Fair value
reserve of
investments
Own
credit
revaluation
reserve
Cost-of-
Hedging
reserve
Reserve for
invested
non-restricted
equity
Retained
earnings Tota l
Interest paid on Additional Tier 1 capital instrument - - - - - - -12,600 -12,600 - -12,600
Dividends paid for 2019 - - - - - - -6,250 -6,250 - -6,250
Profit for the financial year - - - - - - 155,301 155,301 - 155,301
Components of other comprehensive income net of tax
Items not to be reclassified to income statement in subsequent periods
Net change in fair value due to changes in own credit risk on financial
liabilities designated at fair value through profit or loss - - - -13,241 - - - -13,241 - -13,241
Net change in Cost-of-Hedging - - - - -12,451 - - -12,451 - -12,451
Items to be reclassified to income statement in subsequent periods
Net change in fair value of financial assets at fair value through other
comprehensive income - - 90 - - - - 90 - 90
Net amount reclassified to the income statement on the sales of financial
assets at fair value through other comprehensive income - - - - - - - - - -
Net change in expected credit loss of financial assets at fair value through
other comprehensive income - - -50 - - - - -50 - -50
Equity at 31 December 2020 42,583 277 847 -255 15,624 40,366 1,258,224 1,357,666 347,454 1,705,120
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Consolidated statement of
cash flows
Consolidated statement of cash flows
(EUR 1,000) 1 Jan–31 Dec 2020 1 Jan–31 Dec 2019
Cash flow from operating activities 772,020 1,444,778
Net change in long-term funding 3,702,396 1,951,565
Net change in short-term funding 1,257,523 -298,985
Net change in long-term loans -3,074,492 -1,701,327
Net change in short-term loans -506,296 -79,193
Net change in investments 462,373 227,376
Net change in collaterals -1,287,941 1,048,093
Interest on assets 83,389 103,695
Interest on liabilities 161,397 215,113
Other income 62,547 57,319
Payments of operating expenses -86,847 -70,685
Taxes paid -2,028 -8,192
Cash flow from investing activities -8,236 -3,646
Acquisition of tangible assets -3,644 -289
Proceeds from sale of tangible assets 165 382
Acquisition of intangible assets -4,758 -3,739
Cash flow from financing activities -23,753 -23,688
Paid interest on AT1 instrument -15,750 -15,750
Dividend paid -6,250 -6,250
Total cash flow from leases -1,753 -1,688
Change in cash and cash equivalents 740,031 1,417,443
Change in cash and cash equivalents at 1 January 4,990,649 3,573,206
Change in cash and cash equivalents at 31 December 5,730,680 4,990,649
Cash and cash equivalents include the following
statement of financial position items:
Cash and balances with central banks and Loans and
advances to credit institutions payable on demand.
(EUR 1,000) 31 Dec 2020 31 Dec 2019
Cash and balances with central banks 5,565,801 4,909,338
Loans and advances to credit institutions 164,879 81,311
Total cash and cash equivalents 5,730,680 4,990,649
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Notes to the Consolidated
Financial Statements
Notes to the Consolidated Financial Statements
Note 1. Summary of significant accounting policies
Note 2. Risk management principles and
the Group’s risk position
Notes to the income statement
Note 3. Interest income and expense
Note 4. Commission income
Note 5. Commission expense
Note 6. Net income from securities and foreign
exchange transactions
Note 7. Financial assets and liabilities designated at
fair value through profit or loss
Note 8. Net income on financial assets at fair value
through other comprehensive income
Note 9. Net income from hedge accounting
Note 10. Impact of the reclassified financial assets
and liabilities
Note 11. Other operating income
Note 12. Administrative expenses
Note 13. Other operating expenses
Note 14. Credit losses and impairments on
financial assets
Note 15. Income tax expense
Notes to the statement of financial position and
other notes
Note 16. Financial assets and liabilities
Note 17. Fair values of financial assets and liabilities
Note 18. Breakdown of financial assets and liabilities at
carrying amount by maturity
Note 19. Osetting financial assets and liabilities
Note 20. Cash and cash equivalents
Note 21. Loans and advances to credit institutions
Note 22. Loans and advances to the public and public
sector entities
Note 23. Debt securities
Note 24. Shares and participations
Note 25. Derivative contracts
Note 26. Hedge accounting
Note 27. Credit risks of financial assets and other
commitments
Note 28. Intangible assets
Note 29. Tangible assets
Note 30. Changes in intangible and tangible assets during
the financial year
Note 31. Other assets
Note 32. Accrued income and prepayments
Note 33. Deferred tax
Note 34. Liabilities to credit institutions
Note 35. Liabilities to the public and public sector entities
Note 36. Debt securities issued
Note 37. Reconciliation of the carrying amount of
the issued debt
Note 38. Provisions and other liabilities
Note 39. Accrued expenses and deferred income
Note 40. Equity
Note 41. Contingent assets and liabilities
Note 42. Collateral given
Note 43. O-balance-sheet commitments
Note 44. Related-party transactions
Note 45. Salaries and remuneration
Note 46. Events after the reporting period
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 1. Summary of significant accounting policies
Notes to the Consolidated Financial Statements
General information on the Group
Municipality Finance Group (referred to as MuniFin
Group or the Group) consists of Municipality Finance
Plc (referred to as MuniFin or the Parent Company) and
Financial Advisory Services Inspira Ltd (Inspira or the
Subsidiary). The Group’s Parent Company is a Finnish
public limited liability company established under Finnish
legislation and domiciled in Helsinki. Its registered address
is Jaakonkatu 3 A, 00100 Helsinki. The Subsidiary’s
domicile is Helsinki and registered address Jaakonkatu 3
A, 00100 Helsinki. A copy of the Consolidated Financial
Statements is available online at www.munifin.fi or
from the Group’s Parent Company at Jaakonkatu 3 A,
00100 Helsinki.
The Board of Directors of MuniFin has approved these
Financial Statements for disclosure at its meeting on 15
February 2021. According to the Finnish Limited Liability
Companies Act, shareholders may accept or reject the
Financial Statements at the Annual General Meeting held
after the publication. The Annual General Meeting may
also decide to alter the Financial Statements.
Basis of preparation
These Consolidated Financial Statements have been
prepared in accordance with International Financial
Reporting Standards (IFRS) and in compliance with IAS
and IFRS and the SIC and IFRIC interpretations in force
on 31 December 2020. International Financial Reporting
Standards refer to the standards and their interpretations
approved for application in the EU in accordance with
the procedure stipulated in EU Regulation (EC) No.
1606/2002 and embodied in the Finnish Accounting Act
and the decrees enacted under it. In addition, the Notes
to the Consolidated Financial Statements comply with
the requirements of the Finnish accounting and corporate
legislation complementing the IFRS requirements.
Capital adequacy information in compliance with Part
Eight of the EU Capital Requirements Regulation (EU No.
575/2013) is presented in a Pillar III Disclosure Report
which is a separate report from the Report of the Board of
Directors and the Financial Statements.
The Consolidated Financial Statements have been
prepared under historical cost convention, except for
financial assets and liabilities measured at fair value and
hedged items in fair value hedge accounting for the risk
hedged.
The Group’s functional currency is euro. The notes of the
Financial Statements are presented in thousands of euros.
All figures in the Notes have been rounded, so the total of
individual figures may differ from the total figure presented.
In preparing the Financial Statements under IFRS, the
Group management is required to make certain estimates
and use judgement in the application of the accounting
policies. The Section Accounting policies requiring
management judgement and key uncertainty factors related
to estimates of this Note provides information on the items
in which the figures presented may be most affected by
management judgement or uncertainty factors.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Basis of consolidation
The Consolidated Financial Statements encompasses
the Financial Statements of MuniFin, the Parent Company,
and the Subsidiary, Financial Advisory Services Inspira
Ltd, in which the Parent Company has control. The Group
has control over an investee if it is exposed or has rights,
to variable returns from its involvement with the investee
and has the ability to affect those returns through its power
over the investee. Inspira is fully owned by the Group and
thus the Group’s control is based on votes. Intra-group
holdings have been eliminated by using the acquisition
method. Intra-group transactions, receivables and liabili-
ties as well as distribution of profit have been eliminated in
the Consolidated Financial Statements.
Segment reporting
The Group’s line of business is credit institution operations
and providing financial services. The Group operates in a
single segment, which also forms the basis of reporting to
the Group’s chief operating decision maker. Group-level
information pursuant to IFRS 8 with respect to information
on products and services are presented in Note 3 Interest
income and expense and in Note 4 Commission income.
The Group has not broken down income or assets based
on geographical areas due to operating in Finland only. The
Group regularly monitors the development of the lending
portfolio by customer and the proportion of interest paid
by each customer of the total interest income. The largest
cities measured by population and non-profit companies
focused on rental housing development are the largest
borrowers. One customer group accumulates over 10%
of the Group’s total interest income. The chief operating
decision maker of the Group is the Chief Executive Officer
of the Parent Company as he is responsible for allocating
resources to and assess the performance of the Group.
Translation of foreign currency denominated items
Transactions denominated in a foreign currency have been
recorded in euro, the Group’s functional currency, using the
exchange rates of the transaction dates. On the reporting
date, monetary receivables and liabilities denominated in a
foreign currency have been translated into euros using the
European Central Bank’s average exchange rate of that
date and the resulting translation differences are recorded
in the income statement under Net income from securities
and foreign exchange transactions. The fair value changes
of financial assets denominated in a foreign currency
and classified as fair value through other comprehensive
income are divided into translation differences arising
from changes to the amortised cost of the asset and
other changes in carrying amount. Translation differences
related to changes in amortised cost are recognised in the
income statement, while other changes in carrying amount
are recognised in other comprehensive income.
Classification and measurement of financial
instruments
The classification of financial instruments at initial
recognition depends on their contractual terms and for
financial assets on the business model for managing the
instruments. Financial instruments are initially measured
at fair value taking into account transaction costs that are
incremental and directly attributable to the acquisition cost
or issue of the financial asset or liability, unless the financial
asset or liability is measured at fair value through profit or
loss. Trade receivables are measured at the transaction
price.
Classification and measurement of financial assets
The classification of financial assets is dependent on the
business model applied to managing the financial assets
and the characteristics of their contractual cash flows.
Financial assets are reclassified only when the business
model for managing financial assets is changed. On initial
recognition, a financial asset is classified as amortised
cost (AC), fair value through other comprehensive income
(FVOCI) or fair value through profit or loss (FVTPL). Certain
financial assets, that otherwise meet the requirements to
be classified as amortised cost or fair value through other
comprehensive income, can be irrevocably designated to
be measured at fair value through profit or loss by applying
fair value option (FVO).
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Business model assessment
The Group has determined its business models at the
level that best reflects how it manages groups of financial
assets to achieve its business objective. Business model
is not assessed on an instrument-by-instrument basis, but
at a higher level of aggregation and is based on observable
factors such as:
• How the performance of the business model and the
financial assets held within that business model are
evaluated and reported to the Group’s key management
personnel.
• The risks that affect the performance of the business
model and the financial assets held within that business
model and, in particular, the way those risks are
managed.
• How managers of the business are compensated, for
example, whether the compensation is based on the fair
value of the assets managed or on the contractual cash
flows collected.
• The expected frequency, value and timing of sales.
The business model assessment is based on reasonably
expected scenarios without taking “worst case” or “stress
case” scenarios into account. If cash flows after initial
recognition are realised in a way that is different from
original expectations, the Group does not change the
classification of the remaining financial assets held in that
business model, but incorporates such information when
assessing newly originated or newly purchased financial
assets going forward.
MuniFin Group has identified two different business
models for managing financial assets: the first business
model is based on holding financial assets and collecting
contractual cash flows. The other business model is based
on collecting contractual cash flows and selling financial
assets.
The Group’s lending is held within a business model whose
objective is to hold financial assets in order to collect
contractual cash flows. In addition, financial assets such
as bank account balances, bank deposits, CSA collateral
receivables and reverse repurchase agreements are held
within a business model whose objective is to hold finan-
cial assets in order to collect contractual cash flows.
Liquidity investments are held within a business model
whose objective is achieved by both collecting contractual
cash flows and selling financial assets. Thus based on the
business model the financial assets are classified as fair
value through other comprehensive income (FVOCI) under
IFRS 9.
Solely payment of principal and interest (SPPI) test
As a second step of its classification process, the Group
assesses the contractual terms of financial assets to iden-
tify whether they meet the SPPI test. In the SPPI test, the
contractual cash flows of the financial asset are assessed.
In order to pass the SPPI test, the cash flows need to
consist solely of payments of principal and interest.
“Principal” for the purpose of this test is defined as the fair
value of the financial asset at initial recognition and it may
change over the life of the financial asset for example, if
there are repayments of principal or amortisation of the
premium or discount.
The most significant elements of interest within a lending
arrangement are typically the consideration for the time val-
ue of money and credit risk. To make the SPPI assessment,
the Group applies judgement and considers relevant factors
such as the currency in which the financial asset is denomi-
nated, and the period for which the interest rate is set.
Financial assets are required to be classified at fair value
through profit or loss, if they contain contractual terms that
are unrelated to a basic lending agreement and give rise
to cash flows that are not solely payments of principal and
interest on the amount outstanding. These contractual
terms are required to introduce a more than de minimis
exposure to risks or volatility in the contractual cash flows,
in order for the financial asset to fail the SPPI test. Some
of the Group’s structured lending agreements do not fulfil
the SPPI criteria and are thus classified mandatorily at fair
value through profit or loss.
As a result of the requirements in the SPPI test, embedded
derivatives in financial assets would be classified at fair
value through profit or loss. IFRS 9 does not allow for the
separation of embedded derivatives from financial asset
host contracts.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Amortised cost
A financial asset is classified at amortised cost if it meets
both of the following conditions and is not designated at
fair value through profit or loss:
• The asset is held within a business model whose objec-
tive is to hold assets to collect contractual
cash flows; and
• The contractual terms of the financial asset give
rise on specified dates to cash flows that are solely pay-
ments of principal and interest on the principal amount
outstanding.
Financial assets in this category are initially recognised
at fair value adjusted by directly attributable transaction
costs. Subsequently, these assets are measured at
amortised cost using the effective interest method. The
measurement of impairment is based on the expected
credit loss model described in Section Impairment of
Financial assets. Interest received on financial assets at
amortised cost is recognised in the income statement un-
der Interest and similar income. The expected credit losses
are recognised in the income statement under Credit loss
and impairments on financial assets.
Based on the business model assessment required by
IFRS 9, financial assets that are classified at amortised
cost include the Group’s lending portfolio consisting of
short-term and long-term lending, money market deposits,
reverse repurchase agreements, bank account balances
and CSA collateral receivables. Not all aforementioned
assets can be classified at amortised cost as required by
the business model as certain lending agreements fail the
test of solely payments of principal and interest. These
structured lending agreements are classified mandatorily
at fair value through profit or loss.
As a rule, the Group hedges fixed rate lending and lending
at long-term reference rates and applies fair value hedge
accounting to these. Lending that is designated as hedged
item in a hedge relationship, is measured at fair value
for the risk hedged. Hedge accounting principles are
described in Section Hedge accounting of this Note. Note
26 Hedge accounting describes how hedge accounting
has been implemented in the Group.
Fair value through other comprehensive income
A financial asset, that is a debt instrument, is classified at
fair value through other comprehensive income if it meets
both of the following conditions and is not designated at
fair value through profit or loss:
• The asset is held within a business model whose
objective is achieved by both collecting contractual
cash flows and selling financial assets; and
• The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments
of principal and interest on the principal amount
outstanding.
Financial assets in this category are initially recognised
at fair value adjusted by directly attributable transaction
costs. Subsequent changes in fair value are recognised
through the other comprehensive income and are pre-
sented in the Fair value reserve adjusted by deferred tax.
The measurement of impairment is based on the expected
credit loss model described in Section Impairment of
Financial assets. Foreign exchange gains and losses on
debt securities denominated in foreign currencies are
recognised in the income statement under Net income
from securities and foreign exchange transactions. Interest
received on debt securities is recognised in the income
statement under Interest and similar income. The expected
credit losses are recognised in the income statement
under Credit loss and impairments on financial assets. Upon
disposal, the cumulative gain or loss previously recognised
in the other comprehensive income is reclassified from the
fair value reserve in equity to the income statement and
presented under Net income on financial assets at fair value
through other comprehensive income.
On initial recognition of an equity investment that is
not held for trading, the Group may irrevocably elect to
present subsequent changes in fair value in the other
comprehensive income. When this election is made,
amounts presented in the other comprehensive income
are not subsequently transferred to the income statement.
Dividends on such investments are recognised in the
income statement unless the dividend clearly represents
a partial recovery of the initial investment. This election is
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
made on an investment-by-investment basis. The Group
classifies all of its investments in equity instruments at fair
value through profit or loss.
Based on the business model assessment required by
IFRS 9, investments of the liquidity portfolio are classified
at fair value through other comprehensive income. The
majority of the liquidity portfolio consists of fixed and float-
ing rate debt securities and investments in commercial
papers. These investments pass the SPPI test.
Fair value through profit or loss
A financial asset is classified at fair value through profit or
loss unless it is classified at amortised cost or fair value
through other comprehensive income. This category
comprises of the following assets:
• derivative assets
• debt instruments with contractual terms that do not
represent solely payments of principal and interest on
the principal amount outstanding
• investments in equity instruments
• financial assets designated at fair value through profit
or loss on initial recognition.
Financial assets in this category are initially recognised at
fair value, with transaction costs recognised in the income
statement as incurred. Subsequently, these assets are
measured at fair value through profit or loss. Fair value
changes are recorded in the income statement under Net
income from securities and foreign exchange transactions.
Interest received on financial assets at fair value through
profit or loss is recognised in the income statement under
Interest and similar income.
Designated at fair value through profit or loss
On initial recognition, the Group can designate certain
financial assets at fair value through profit or loss (fair
value option). This irrevocable designation is made if doing
so eliminates or significantly reduces measurement or
recognition inconsistencies (i.e. eliminates an accounting
mismatch) which would otherwise arise from measuring
financial assets on different bases. Financial assets that
the Group has designated at fair value through profit or
loss include debt securities of the liquidity portfolio of
which the interest rate risk is hedged with interest rate and
cross currency interest rate swaps.
Classification and measurement of financial liabilities
On initial recognition, a financial liability is classified at
amortised cost (AC) or fair value through profit or loss
(FVTPL). Certain financial liabilities, that otherwise meet
the requirements to be classified at amortised cost, can be
irrevocably designated at fair value through profit or loss
by applying the fair value option (FVO). Financial liabilities
are not reclassified after initial recognition.
Amortised cost
Financial liabilities are classified at amortised cost,
except for
• derivative liabilities; and
• liabilities that are designated at fair value through
profit or loss.
Financial liabilities in this category are initially recognised
at fair value adjusted by directly attributable transaction
costs. Subsequently, these liabilities are measured at
amor tised cost using the effective interest method. Inter-
est paid on liabilities is recognised in the income statement
under Interest and similar expense.
Financial liabilities that are classified at amortised cost
include liabilities to credit institutions, liabilities to the
public and public sector entities and debt securities
issued. MuniFin Group applies fair value hedge accounting
according to IFRS 9 to financial liabilities at amortised cost
which have been hedged. Hedge accounting principles are
described in Section Hedge accounting of this Note. Note
26 Hedge accounting describes how hedge accounting
has been implemented in the Group.
Fair value through profit or loss
A financial liability is classified at fair value through
profit or loss, unless it is classified at amortised cost.
This category includes derivative contracts and liabilities
that are designated at fair value through profit or loss upon
initial recognition.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Financial liabilities in this category are initially recognised
at fair value. Subsequent changes in fair value are
recorded in the income statement under Net income from
securities and foreign exchange transactions. Interest paid
on liabilities is recognised in the income statement under
Interest and similar expense.
Designated at fair value through profit or loss
On initial recognition, the Group can designate certain
financial liabilities at fair value through profit or loss.
This designation is made:
• If it eliminates or significantly reduces an accounting
mismatch; or
• If financial liabilities are both managed and their perfor-
mance evaluated on a fair value basis in accordance with
a documented risk management or investment strategy.
The Group has designated short-term debt instruments
denominated in foreign currencies, which have been
hedged with FX swaps at fair value through profit or loss.
The designation reduces accounting mismatch which
would otherwise arise between the measurement of the
derivative and financial liability. In the transition to IFRS 9,
the Group also designated certain financial liabilities at
fair value through profit or loss. The financial liabilities
designated at fair value through profit or loss in the
transition consist of financial liabilities, which have been
hedged according to the Group’s risk management policy,
but to which fair value hedge accounting in accordance
with IFRS 9 is not applied. To eliminate the accounting
mismatch resulting from the economic hedge, these debt
instruments have been designated at fair value through
profit or loss. As a result of the designation all financial
liabilities containing embedded derivatives requiring
separation are classified at fair value through profit or loss.
An embedded derivative is part of a hybrid financial
instrument, which contains a non-derivative host and an
embedded derivative which causes the contractual cash
flows to be modified in a similar way to that of stand-alone
derivative cash flows. If the economic characteristics and
risks of an embedded derivative are not closely related
to the characteristics and risks of the host contract, the
embedded derivative of a debt instrument is required
to be separated. The separated embedded derivative
is measured at fair value through profit or loss. If the fair
value of the embedded derivative cannot be separately
measured, the entire hybrid instrument is designated at
fair value through profit or loss. Debt securities issued by
MuniFin can contain interest or redemption terms with the
economic characteristics and risks that are not closely re-
lated to the host contract. The Group hedges all structured
interest and redemption terms in its issued debt securities
with offsetting derivatives and designates them at fair val-
ue through profit and loss and thus the above mentioned
components are not separated from the host contract.
The fair value changes of financial liabilities designated at
fair value through profit or loss are recorded in the income
statement under Net income from securities and foreign
exchange transactions, except for fair value changes
attributable to changes in the Group’s own credit risk. The
fair value changes of the derivative hedging the financial
liability are recorded in the same income statement line
item. When a financial liability is designated at fair value
through profit or loss, the fair value changes due to chang-
es of the Group’s credit risk are presented separately in
the other comprehensive income under Net change in fair
value due to changes in own credit risk on financial liabilities
designated at fair value through profit or loss.
The Group applies the income approach of IFRS 13 to the
separation of fair value changes related to changes in own
credit risk from the fair value changes of the financial liabil-
ity. For the majority of financial liabilities designated at fair
value through profit or loss, no market price is available as
there is no active secondary market. The methodology for
separation of own credit risk, utilises MuniFin’s benchmark
curves, cross currency basis spreads and credit spreads
of MuniFin’s issued debt securities as input. Based on
the aforementioned inputs, valuation curves can be con-
structed for various reporting periods for valuing financial
liabilities designated at fair value through profit or loss. By
comparing fair values calculated using the trade date and
reporting period curves, the impact of the change in own
credit risk on the fair value of the financial liability can be
determined.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Recognition and derecognition of financial assets
and liabilities
Financial assets are recognised on the statement of
financial position on the settlement day. Financial liabilities
are recognised when the consideration is received.
Derivatives are recognised on the trade date.
Financial assets are derecognised when the contractual
right to the assets expires or when the rights have been
transferred to another party. Financial liabilities are
derecognised when the obligations have been fulfilled.
Derecognition due to substantial modification of terms
and conditions
The Group derecognises a financial asset, such as a loan
to a customer, when the terms and conditions have been
renegotiated to the extent that, substantially, it becomes
a new loan. The newly recognised loans are classified as
stage 1 for the purposes of measurement of expected
credit loss, unless the modified loan is deemed to be a
credit-impaired financial asset (Purchased or Originated
Credit Impaired, POCI). If the modification does not result in
cash flows that are substantially different, the modification
does not result in derecognition.
If an existing financial liability is replaced by another
from the same lender on substantially different terms,
or the terms of the existing liability are substantially
modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of
a new liability.
Impairment of financial assets
The IFRS 9 requirements for impairment are based on a
three-stage approach to measure expected credit losses
(ECLs). Financial assets classified as amortised cost or fair
value through other comprehensive income are in scope
for recognising impairment under the IFRS 9 standard.
Also finance lease receivables and off-balance sheet
binding loan commitments are in scope for recognising
impairment due to their credit risk. For further information
on the classification of financial assets, see Section
Classification of financial instruments and measurement
principles of this Note.
Impairment of financial assets is calculated based on
the credit loss expected to arise over a 12-month period,
unless there has been a significant increase in credit
risk since origination, in which case, the allowance is
calculated based on the expected credit losses over the
lifetime of the asset. Both lifetime and 12-month expected
credit losses (ECLs) are calculated on an individual basis.
Collective assessment has been used to determine the
management overlay provision.
Measurement of ECLs
The assets in the scope of the expected credit loss
impairment model are classified into three stages. Stage
1 includes assets with no significant increase in credit
risk. Stage 2 includes assets with significantly increased
credit risk since origination, and stage 3 includes assets
that are credit impaired and thus fulfil the definition of
default. Default is defined as a situation where the obligor
is more than 90 days-past-due or the obligor is considered
unlikely to pay its credit obligations for example due to
the obligor’s bankruptcy or distressed restructuring.
The definition of default is in line with the Group’s capital
adequacy calculations and risk management as well
as with that required by international regulators. The
provision for stage 1 is equivalent to the credit loss
expected for 12 months. For stages 2 and 3, the provision
is equivalent to the expected credit losses for the entire
lifetime. The Group calculates ECLs based on three
probability-weighted scenarios to measure the expected
cash shortfalls. The net present value of the contractual
cash flows of the exposure are compared to the sum of
the net present value of expected future cash flows. If the
contractual cash flows are higher than the expected future
cash flows, the difference is recognised as an expected
credit loss. The expected future cash flows are discounted
with the effective interest rate (EIR). The fair value of
collateral and received guarantees are taken into account
when calculating expected future cash flows.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The principles of the ECL calculations are outlined below and the key elements are,
as follows:
PD The Probability of Default is an estimate of the likelihood of default over a given time
horizon. A default may only happen at a certain time over the assessed period, if the
exposure has not been previously derecognised and is still in the portfolio. The PD
used in stage transition is defined on a client level. The PD used to calculate the
exposures expected credit loss takes also into account the guarantees received,
so that the Finnish government PD is applied in the ECL calculation instead.
EAD The Exposure at Default is an estimate of the exposure at a future default date,
taking into account expected changes in the exposure after the reporting date,
including prepayments of principal and interest, whether scheduled by contract or
otherwise, expected drawdowns on committed facilities, and accrued interest from
missed payments.
LGD The Loss Given Default is an estimate of the loss arising in the case where a default
occurs at a given time. It is based on the difference between the contractual cash
flows due and those that the lender would expect to receive, including cash flows
from the realisation of any collateral.
When estimating the ECLs, the Group considers three scenarios. Each of these are
associated with different PDs, EADs and LGDs. When relevant, the assessment of multiple
scenarios also incorporates how defaulted loans are expected to be recovered, including
the probability that the loans will cure and the value of collateral or the amount that might
be received for selling the asset. The maximum period for which the credit losses are
determined is the contractual life of a financial instrument unless the Group has the legal
right to call it earlier.
Impairment losses and their reversals are accounted for and disclosed separately from
modification losses or gains that are accounted for as an adjustment of the financial asset’s
gross carrying value.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The accounting principles of ECL are summarised below:
• Stage 1: If there has been no significant increase in credit risk since initial recognition,
the provision for exposures are based on the 12-month expected loss. The 12-month
ECL is calculated as the portion of the lifetime ECL that represent the ECLs that result
from default events on a financial instrument that are possible within the 12 months after
the reporting date. The Group calculates the 12-month ECL allowance based on the
expectation of a default occurring in the 12 months following the reporting date. These
expected 12-month default probabilities are applied to a forecast EAD and multiplied by
the expected LGD and discounted by an EIR.
• Stage 2: When the exposure has shown a significant increase in credit risk since origi-
nation but is not credit-impaired, the Group records a provision for the lifetime expected
credit losses. The mechanics are similar to those explained above, including the use of
multiple scenarios, but PDs and LGDs are estimated over the lifetime of the instrument.
The expected cash shortfalls are discounted by their EIR.
• Stage 3: For assets considered credit-impaired, the Group recognises the lifetime
expected credit losses. For these exposures interest revenue is calculated by applying
the EIR to the amortised cost (net of provision).
• Purchased or Originated Credit-Impaired assets (POCI) are financial assets that are
credit-impaired on initial recognition.
• Loan commitments: When estimating ECLs for undrawn loan commitments, the Group
estimates the expected portion of the loan commitment that will be drawn down over its
expected life. The ECL is then calculated based on the present value of the expected
shortfalls in cash flows if the loan is drawn down, based on probability-weighting of the
three scenarios. The expected cash shortfalls are discounted at an approximation to the
expected EIR of the loan.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
At each reporting date, the Group assesses whether there has been a significant increase
in credit risk for exposures since initial recognition on an individual basis by comparing the
risk of default occurring over the expected life between the reporting date and the date of
initial recognition. The Group considers reasonable and supportable information that is
relevant and available without undue cost or effort for this purpose. If one of the following
factors indicate that credit risk has increased significantly, the instrument is transferred
from stage 1 to stage 2:
• Thresholds for significant increases in credit risk based on both
the percentage and absolute change in probability of default relative
to initial recognition (12MPD ≤ 1%: 12MPD doubled and increased by
0.5 basis points/ 12MPD > 1%: 12MPD doubled or increased by 2.0 basis points)
• Additional qualitative factors, such as forbearance on a financial asset or
watch list of counterparties
• Financial assets which repayments are more than 30 days past due.
Movements between stage 2 and stage 3 are based on whether a financial asset is credit-
impaired due to the change in credit risk. A financial asset is impaired if there is objective
evidence of the impairment. An exposure will migrate through the ECL stages as asset
quality deteriorates. If, in a subsequent period, asset quality improves and also reverses any
previously assessed significant increase in credit risk since origination after a probation
period and after fulfilment of certain criteria, then the calculation basis for ECL reverts from
lifetime ECL to 12-month ECL.
Transition from stage 1 to stages 2 and 3, and from stage 2 to stage 3, are immediate.
Transition from stage 2 to stage 1 and from stage 3 to stage 2 requires that the criteria for
transition must be met for six months before transition (probation period).
In the measurement of expected credit losses forward-looking information and
macroeconomic scenarios are included in the model. The scenarios are the same as used
in the Group’s financial annual planning and stress testing. The macroeconomic projections
cover a three-year period and as no reliable macroeconomic projections exceeding a
three-year time horizon are available, forward-looking adjustment will be limited to a three-
year period. Mainly three scenarios are used; base, optimistic and adverse. Scenarios
also include probability weights. The ECL model consists of the following macroeconomic
variables for Finnish counterparties of financial assets; Finnish government long-term
EUR rates, the development of residential housing prices and unemployment rate. The
projections are included in the macroeconomic scenarios. For non-Finnish financial assets,
stress test scenarios published by the European Central Bank are used.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Forborne and modified loans
The Group sometimes makes concessions or
modifications to the original terms of loans or other
receivables as a response to the borrower’s financial
difficulties, rather than enforcing the collection of
collateral. Forbearance measures are concessions
to original contractual payment terms agreed at the
customers’ initiative to help the customer through
temporary payment difficulties. Performing forborne
exposures include forborne exposures reclassified as
performing during their probation period or forbearance
measures made into a performing loan. Loan modifications
due to reasons other than the customer’s financial
difficulties are not classified as forborne exposures. The
Group considers a loan forborne when such concessions
or modifications are provided as a result of the borrower’s
present or expected financial difficulties and the Group
would not have agreed to them if the borrower had been
financially healthy.
Once a loan or other receivable has been classified as
forborne, it will remain forborne for a minimum 24-month
probation period. In order for the loan or other receivable
to be reclassified out of the forborne category, the
customer has to meet all of the following criteria:
• All of its loan facilities and other receivables have to be
considered performing.
• The probation period of two years has passed from the
date the forborne contract was considered performing.
• Regular payments of more than an insignificant amount
of principal or interest have been made during at least
half of the probation period.
• The customer does not have any contract that is more
than 30 days past due.
Forborne loans and payment delays are regularly reported
to management as an indicator of anticipated client pay-
ment ability/solvency.
Presentation of allowance for ECL in the statement of
financial position
Loss allowances for ECL are recognised in the income
statement with a corresponding charge to the statement
of financial position as follows:
• Financial assets classified at amortised cost: as a
deduction from the gross carrying amount of the assets.
• Debt instruments classified at FVOCI: no loss allowance
is recognised as a deduction from the gross carrying
amount of the assets in the statement of financial
position because the carrying amount of these assets is
at fair value. However, the loss allowance is recognised
through the other comprehensive income in the fair
value reserve. The accumulated loss recognised in the
fair value reserve is recycled through OCI to the income
statement upon derecognition of the assets.
• Finance lease receivables: as a deduction from the
gross carrying amount of the assets.
• Binding loan commitments: recognised in Provisions and
other liabilities.
Write-off
Financial assets are written off, either partially or in
full, when the Group has no reasonable expectations
of recovering the financial asset. This is generally the
case when the Group determines that the borrower or
guarantor does not have assets or sources of income that
could generate sufficient cash flows to repay the amounts
subject to the write-off. The Group’s credit risks and credit
risk management are further discussed in Note 2. If the
amount to be written off is greater than the accumulated
loss allowance of the expected credit losses, the
difference is first treated as an addition to the allowance
that is then applied against the gross carrying amount.
Financial assets that are written off could still be subject to
enforcement activities in order to comply with the Group’s
procedures for recovery of the amounts due. Subsequent
recoveries of amounts previously written off reduce the
amount of the expense in the income statement.
Hedge accounting
The interest rate and foreign exchange rate risk of
the Group are managed by entering into derivative
transactions. According to the Market Risk Policy the
Group’s hedging strategy is to mainly hedge all material
foreign exchange and interest risks of financial assets
and liabilities with maturities exceeding one year. As a
result, foreign currency denominated items are translated
into euros, fixed rate and long-term reference rates are
swapped to floating interest rates with shorter terms.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Fair value hedge accounting is applied to financial assets
and liabilities denominated in euros, where the plain-vanilla
interest rate of the hedged item has been swapped to a
floating rate using derivatives. In addition, fair value hedge
accounting is applied to foreign currency denominated
financial liabilities with fixed interest rates, which have
been hedged by exchanging the principal into euros
and the interest rate into a floating rate. The hedging
relationships within hedge accounting are documented
and they comply with the Group’s risk management
objectives and strategy. The Group does not apply cash
flow hedge accounting.
The Group applies both hedge accounting according
to IFRS 9 and portfolio hedge accounting according
to IAS 39. Fair value hedge accounting according to
IFRS 9 is applied to fixed rate funding and zero coupon
funding denominated in euros. The hedged item for
euro-denominated funding is interest rate risk. IFRS 9
fair value hedge accounting is also applied to fixed rate
funding and zero coupon funding denominated in foreign
currencies. For all foreign currency hedge relationships
the Group has elected to utilise Cost-of-Hedging. For
each hedge relationship, when the cross currency
swap is designated as a hedging instrument, the cross
currency basis spread is separated and excluded from the
designation and accounted for as Cost-of-Hedging. The
difference between the changes in fair value of the actual
derivative and the designated portion of the derivative are
recorded through the other comprehensive income under
Net change in Cost-of-Hedging to the Cost-of-Hedging
reserve. Thus, changes in cross currency basis spreads
will impact other comprehensive income and not create
ineffectiveness in the hedge relationship.
For financial liabilities the hedged item is at amortised
cost, excluding the portion of hedged interest risk, which
is subject to fair value hedge accounting. The credit risk
of the Group is not included in the hedging relationship.
For each financial liability in fair value hedge accounting,
the Group determines the credit spread of each trade at
inception. The credit spread corresponds to the margin,
which needs to be added to the discount curve in order
for the fair value at inception to match the issue price.
The credit spread is held constant throughout the hedge
relationship and based on its present value, the fair value
of the financial liability with respect to the hedged risk can
be calculated. The change in the value of the hedged risk
is recognised as an adjustment to the carrying amount of
the hedged item in the income statement under item Net
income from hedge accounting. Ineffectiveness between
the hedged item and the designated portion of the
hedge are recorded in the income statement. Separating
the credit risk from the fair value is a requirement for
applying hedge accounting only on interest rate and
foreign exchange risks. The Group uses interest rate
swaps and cross currency interest rate swaps as hedging
instruments.
In addition, fair value hedge accounting according to
IFRS 9 is applied to structured lending, which passes the
SPPI test and is thus at amortised cost and which has
been hedged 1:1 with interest rate swaps. The customer
marginal of the lending agreement is not part of the hedge
relationship.
Both funding and structured lending are hedged with
hedging instruments with terms that match the hedged
item. The hedge ratio between the hedged item and
hedging instrument is 1:1. As a result, it is expected that
the fair value changes of the derivative offset the fair value
changes of the hedged item related to the hedged risk.
Prospective effectiveness testing has been performed
by verifying that the critical terms match. Ineffectiveness
is introduced into the hedge relationship due to the
differences in the interest rate curves used in valuing
the hedged item and hedging instrument. In addition,
ineffectiveness could be created if the critical terms
would differ or if the credit risk of the derivative would
increase. MuniFin has CSA collateral agreements with
its derivative counterparties to mitigate the counterparty
credit risk related to derivatives. The effectiveness of all
hedge relationships is verified at inception of the hedge
relationship and regularly after that on a quarterly basis.
Fair value hedge accounting according to IFRS 9 is
also applied to lease agreements at fixed and long-
term reference rates. The interest risk of these lease
agreements is hedged with interest rate derivatives.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Due to the size of the agreements, several lease
agreements are hedged with one interest rate derivative.
The terms of the derivative match the combined terms of
the hedged agreements. The customer marginal of the
lease agreement is not part of the hedge relationship.
The principles of fair value hedge accounting applied to
lease agreements resemble those presented above to a
large extent. Due to the way the agreements are hedged,
the prospective effectiveness testing is performed using
sensitivity analysis. In the analysis the fair value change of
the hedged item and hedging instrument is simulated by
shifting the interest rate curves.
For financial assets, the Group applies fair value hedge
accounting in accordance with IAS 39 portfolio hedge
accounting to lending at fixed rates and long-term
reference rates. The hedged risk is interest rate risk.
The customer marginal of the lending agreement is not
part of the hedge relationship. The negative reference
rates in the current interest rate environment are taken
into account as part of the eliminated margin. Lending is
hedged as a portfolio, as such the hedged item consists
of several lending agreements. The lending agreements
are grouped and hedged by pricing and re-fixing dates.
The interest rates and payments dates of the interest rate
derivatives hedging the lending agreements contained
in the portfolio are defined so that the notionals and cash
flows match the terms of the lending agreements of the
hedged item. Therefore, the fair value changes of the
hedging instrument is assumed to offset that of the lending
agreements. The effectiveness of the hedge relationship
is expected to be effective throughout the hedged period,
until maturity. As the portfolio consists of several hedges
and lending agreements, prospective effectiveness
testing is performed for each new group of hedged items
and for the entire portfolio at the inception of each new
hedge. Prospective effectiveness testing is performed
as a sensitivity analysis and by reviewing the notionals
of the hedges and hedged items by maturity bucket. The
Group performs retrospective effectiveness testing using
regression analysis on fair value changes.
The hedged items, lease agreements and lending, are
measured at amortised cost excluding the portion of
hedged interest risk, which is subject to fair value hedge
accounting. The change in the value of the hedged risk is
recognised as an adjustment to the carrying amount of
the hedged item in the income statement under item Net
income from hedge accounting.
The carrying amounts of assets and liabilities in hedge
accounting are presented in Note 16 Financial assets and
liabilities. The fair values of derivatives included in hedge
accounting are presented in Note 25 Derivatives. The
notionals of hedged items, the fair value of the hedged
items, the impact of hedge accounting on profit or loss
and on equity is shown in Note 26 Hedge accounting. The
impact of hedge accounting on profit or loss is also shown
in Note 9 Net income from hedge accounting.
The change in fair value due to foreign exchange
differences of derivatives in hedge accounting and the
hedged items are recognised in the income statement
under Net income from securities and foreign exchange
transactions. Other changes in fair value of the hedged
items and derivatives hedging them are recognised in
the income statement under Net income from hedge
accounting. The ineffective portion of the hedging
relationship is also shown on this line in the income
statement. The interest received and paid on derivative
contracts is recognised as an adjustment to Interest and
similar expenses of hedged liabilities or as an adjustment to
Interest and similar income of hedged assets.
Offsetting financial instruments
Financial assets and liabilities are offset and the net
amount is reported on the statement of financial position
when there is a legally enforceable right to offset the
recognised amounts and there is an intention to settle
on a net basis or realise the asset and settle the liability
simultaneously. Offsetting financial instruments are
presented in Note 19.
Cash and cash equivalents
Cash and cash equivalents contains cash and loans
and advances to credit institutions payable on demand.
Deposits and investments with maturities less than three
months on the date of the acquisition can also be included
in cash and cash equivalents.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Determination of fair value
Fair value is the price that would be received to sell
the asset or paid to transfer the liability in an orderly
transaction between market participants at the
measurement date. The fair values of financial instruments
are determined on the basis of either price quotations
obtained from functioning markets or, if such markets
do not exist, by applying valuation methods. A market is
deemed to be functioning if price quotations are readily
and consistently available, and they reflect real market
transactions executed in a consistent manner between
independent parties.
If a quoted price in an active market is not available for a
financial instrument, the Group uses valuation techniques
standard across the industry and for which sufficient
information is available to determine the fair value. The
chosen valuation technique should include all factors that
market participants would consider in pricing the financial
instrument. The valuation technique maximises the use of
observable inputs and as few as possible unobservable
inputs are used.
The Group measures fair values using the following fair
value hierarchy, which reflects the significance of the
inputs used in making the measurements:
• Level 1: Inputs that are quoted market prices
(unadjusted) for identical instruments in active markets
that the Group can access at the measurement date.
The market is considered to be active if trading is
frequent and price data is regularly available. These
quotes (mid) represent the price for an orderly
transaction between parties in the market on the
valuation date.
• Level 2: Inputs other than quoted prices included
within level 1 that are observable either directly (i.e. as
prices) or indirectly (i.e. derived from prices). This level
includes instruments valued using quoted prices for
identical instruments in markets that are considered
less than active or other valuation techniques in which
all significant inputs are directly or indirectly observable
from market data.
• Level 3: This level includes all instruments for which
the valuation technique includes inputs that are
unobservable and the unobservable inputs have a
significant impact on the instrument’s valuation. If the
valuation input is illiquid, extrapolated or based on
historical prices, the valuation input will be defined as a
level 3 valuation input as these types of inputs are per
definition unobservable. Unobservable inputs are used
only to the extent that no relevant observable inputs are
available.
If the inputs used to measure fair value are categorised
into different levels of the fair value hierarchy, the fair value
measurement is categorised in its entirety in the level
of the lowest level input that is significant to the entire
measurement.
The best evidence of the fair value of a financial instrument
on initial recognition is normally the transaction price.
If the fair value on initial recognition differs from the
transaction price and the fair value is evidenced, neither
by a quoted price in an active market for an identical asset
or liability, nor based on a valuation technique for which
any unobservable inputs are judged to be insignificant in
relation to the measurement, then the financial instrument
is initially measured at fair value and adjusted to defer the
difference between the fair value on initial recognition and
the transaction price (Day 1 gain or loss). The difference is
amortised on a straight-line basis throughout the lifetime
of the contract. For callable instruments, the amortisation
period is considered to be until the first call date.
The fair value hierarchy levels, the Group’s valuation
methods and the valuation framework is described in more
detail in Note 17.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Leases
A leaseis defined as a contract, or part of a contract, that
conveys the right to control the use of an identified asset
for a period of time in exchange for consideration.
Lease liabilities are initially measured at the present value
of the remaining lease payments, discounted using the
incremental borrowing rate. The lease liability is subse-
quently measured at amortised cost using the effective
interest method. Right-of-use assets are initially measured
at cost which is the amount equal to lease liability. Lease
liabilities are presented in the statement of financial
position under Provisions and other liabilities and the
interest expense under Interest and similar expense. Lease
payments are allocated between interest expense and
the deduction of the lease liability. Right-of-use assets are
presented under Tangible assets. The right-of-use assets
are depreciated over the shorter of the asset’s useful life
and the lease term on a straight-line basis.
The Group is the lessee of various items such as office
space, parking facilities and cars. The lease terms are ne-
gotiated on individual basis and they can contain extension
options. The use of extension options are considered on a
contractual basis. When the Group is reasonably certain
to exercise extension and termination options, they are
included in the lease term.
The Group has elected to use the practical expedient as
allowed by IFRS 16.C10(a) by applying a single discount
rate to all lease liabilities. The majority of the Group’s lease
liability relates to office premises for which the interest rate
implicit in the lease is not readily determined. Consequent-
ly, an incremental borrowing rate (IBR) is used. Maturity
has been defined based on the lease term of office premis-
es and parking space. The same maturity for the discount
rate is used for all leases since the impact of other leases
than office premises are considered not material.
Lease agreements, where the Group is the lessor, have
been classified as finance leases. A lease is a finance
lease if the financial benefits and risks of the asset are
substantially transferred to the lessee. The finance lease
agreements are recognised on the statement of financial
position as a receivable at an amount corresponding to
the net investment in the lease. The proceeds from the
leases are divided into repayments and interest income.
Interest income is recognised over the term of the lease in
a way that the remaining net investment yields the same
rate of return over the period of the lease. Finance leases
are presented in the statement of financial position under
Loans and advances to the public and public sector entities.
Interest received is presented in the income statement
under Interest income and similar income.
The Group’s finance leases are long-term leases of mov-
able fixed assets such as machines, medical equipment,
furniture, vehicles, IT and office equipment. In addition the
Group offers property leasing. Leasing customers are the
same as in lending, i.e. municipalities, cities, joint municipal
authorities and companies owned and controlled by
municipalities. The Group does not bear the residual value
risk of the lease agreements.
Intangible assets
An intangible asset is recognised in the statement of
financial position only if it is probable that the expected
future economic benefits that are attributable to the asset
will flow to the Group and the acquisition cost can be
measured reliably. The initial measurement is at cost. The
acquisition cost includes all costs that are directly attribut-
able to preparing the asset for its intended use, including
in-house work. The recognised intangible asset does not
include costs of using the asset, staff training expenses or
administration and other overhead costs.
After initial recognition, an intangible asset is recognised
at its cost less accumulated depreciation and impairment.
Intangible assets are depreciated at straight-line basis
over 3–8 years depending on the useful life of the asset.
Depreciation begins when the asset is available for use. At
each reporting date, all intangible assets are reviewed for
indications of impairment and change in their useful lives.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
An intangible asset that is not yet available for use is tested
for impairment at least annually. Impairment testing is per-
formed more frequently if required due to any indication
of impairment. The impairment charge is the difference
between the carrying amount and the recoverable amount
of the intangible asset. The recoverable amount is deter-
mined for the cash generating unit to which the asset be-
longs to. A cash-generating unit is the smallest identifiable
group of assets whose cash flows are largely independent
of the cash inflows from other asset groups. As MuniFin’s
operations are treated as a single segment and the oper-
ations cannot be divided into smaller, fully independent
cash-generating units, the impairment is determined by
considering MuniFin as a single cash-generating unit.
Software as a service (SaaS)
The development costs related to the implementation
of SaaS services are recognised in Accrued income and
prepayments. The amount capitalised in prepayments
is a project that is performed before the SaaS service is
available to the Group to the extent necessary for its use.
In SaaS, the other party has control and thus it cannot
be recognised as an intangible asset. Prepayment costs
are spread over the contract period from the date when
the asset is ready for use. Purchased services and other
project-related external costs, among other things, are
capitalised in prepayments.
Tangible assets
Tangible assets are recognised in the statement of
financial position at historical cost, net of accumulated
depreciation and impairment. Assets are depreciated on
a straight-line basis over their estimated useful lives. The
estimated useful lives are:
Office renovation costs during the lease term
Buildings 25 years
Machinery and equipment 5 years
IT equipment 4 years
The assets’ residual values and useful lives are reviewed at
each financial statement date and, if necessary, adjusted
to reflect the changes in the expected economic benefit.
The Group assesses at each reporting date whether there
is any evidence of the tangible assets being impaired.
If evidence of impairment is identified, the recoverable
amount is assessed for the given assets. If the carrying
amount of an asset item is greater than the recoverable
amount, an impairment loss is recognised in the
income statement.
Provisions and contingent liabilities
A provision is recognised for an obligation resulting from
a past event and it is probable that the obligation will be
realised, yet the timing and the exact amount are uncertain.
The obligation needs to be based on either an actual or
legal obligation towards a third party. Provisions may arise,
for example, from onerous contracts or as a result of reor-
ganisations that have a material effect on the nature and
focus of the Group’s operations. Restructuring provision
is recognised when the Group has prepared a detailed
restructuring plan and has begun to implement the plan
or communicated the matter. Provisions are disclosed in
Note 38 Provisions and other liabilities.
A contingent liability is a potential obligation based on
past events. The existence of the obligation will not be
confirmed until the uncertain future event outside the
control of the Group occurs. Contingent liabilities can
also be such obligations, that do not require an outflow to
settle or of which the amount cannot be reliably estimated.
Contingent liabilities are disclosed in Note 41 Contingent
assets or liabilities.
Equity
Equity consists of share capital, retained earnings and
reserves of equity (reserve fund, fair value reserve, own
credit revaluation reserve, Cost-of-Hedging reserve and
reserve for invested non-restricted equity). Other instru-
ments issued by the Group can be classified into equity
based on their nature. Perpetual instruments with interest
payments which are at the discretion of the issuer are clas-
sified as equity in the Consolidated Financial Statements.
The EUR 350 million AT1 capital loan issued by MuniFin
is an equity instrument and included in the consolidated
equity. The capital loan is perpetual and the interest
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
payments and redemption are at the discretion of the
Group. The AT1 capital loan is subordinated to other
liabilities. It is senior to other items contained in equity. The
instrument holders do not bear rights of shareholders,
control or voting rights at the annual general meeting.
Interest payments are treated as a deduction of equity
based on the decisions of the issuer. Transaction expens-
es are deducted from the capital. These are presented in
equity net of deferred taxes as a deduction of the capital
loan. The deferred tax assets are recognised in the income
statement through the tax deduction of the transaction
expense amortisation. The equity is disclosed in Note 40.
Recognition of income and expenses
Net interest income
Interest income and expense from financial assets
and liabilities are recognised in net interest income.
Transaction expenses and premium or discount as well
as commissions and fees received and paid which are
considered as a compensation for the risk incurred by
the Group in relation to the financial instrument and are
considered as an integral part of the effective interest rate,
are taken into account when the effective interest rate is
calculated. For floating rate financial liabilities premium
or discount is amortised from the date of issuance to the
next interest payment date. For fixed rate financial liabilities
the premium or discount is amortised until maturity. The
Group amortises the premium or discount of floating rate
debt security investments until maturity. In the current
market conditions, the premium or discount on a financial
asset is not based on changes in market rates, but credit
risk. The market value of a floating rate investment does
not reset to the nominal when its interest rate is re-fixed
to market interest rates, therefore the amortisation to the
next interest date is not justifiable. The Group evaluates
the impact of changes in market conditions on the amorti-
sation principle and applying it regularly.
The negative interest income from assets is presented as
interest expense and the negative interest expense from
liabilities is presented as interest income. The interest
income and expenses on derivatives hedging liabilities
in hedge accounting is recognised in interest expense
and the interest income and expenses on derivatives
hedging assets in hedge accounting is recognised in
interest income.
Commission income and expenses
Fees that are not an integral part of the effective interest
rate of a financial instrument are accounted for in ac-
cordance with IFRS 15 standard. Commission income in
accordance with IFRS 15 is recognised when the Group
transfers control of services’ performance obligations
to a customer. The key criterion is the transfer of control.
Commission income is recognised to the extent that the
Group is expected to be entitled of the services rendered
to the customer.
The Group’s commission income consist of fees for
financial advisory services and fees for digital services.
The performance obligations of the services are met either
over time or at a point in time, depending on the nature
of the service. The commissions for advisory services
are mainly charged from the customer after the service
has been performed in accordance with the terms of
the agreement and commission for digital services are
charged once a year and recognised over time. Other
commissions are charged and recognised at the time of
the service is provided.
Commission expenses include paid guarantee fees,
custody fees as well as funding programme update fees.
Commission expenses are recognised on accrual basis.
Net income from securities and foreign exchange
transactions
Net income from securities includes fair value changes
of financial assets and liabilities measured at fair value
through profit or loss, fair value changes of derivative
contracts at fair value through profit or loss (not included
in hedge accounting) as well as capital gains and losses
related to these items. Net income from foreign exchange
transactions includes unrealised and realised translation
differences for all items denominated in foreign currencies.
Translation differences related to the hedged items
and hedging instruments in hedge accounting are also
presented under this item.
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Net income on financial assets at fair value through
other comprehensive income
Net income on financial assets at fair value through other
comprehensive income includes realised gains and
losses of the financial assets at fair value through other
comprehensive income.
Net income from hedge accounting
Net income from hedge accounting includes the net
result from recognising financial assets and liabilities
and derivative contracts hedging them at fair value for
the hedged risk. Foreign exchange gains and losses on
hedged items and hedging instruments are recognised
in Net income from securities and foreign exchange
transactions.
Other operating income
Other operating income includes gains from the disposal
of tangible and intangible assets and other operating
income.
Administrative expenses
Administrative expenses include salaries and fees,
pension costs as well as other social security costs.
In addition, costs related to IT, marketing and other
administrative costs are presented as administrative
expenses.
Depreciation and impairment on tangible and intangible
assets
Depreciation and impairment on tangible and intangible
assets include depreciation according to plan and
possible impairment of tangible and intangible assets.
The depreciation principles are discussed in Sections
Intangible assets and Tangible assets of this Note.
Other operating expenses
Other operating expenses include expenses to authorities,
rental expenses and other expenses from credit institution
operations paid by the Group.
Expenses to authorities include stability fees as well as
other administrative and supervisory fees. Stability fees
are contributions paid to EU Crisis Resolution Fund. The
Resolution Fund is managed by EU Joint Resolution
Council, which decides on the amount of the stability fees.
The stability fee is determined by the size of the entity and
the risks involved in its business. The fee is fully expensed
at the beginning of the financial year using the estimate of
the amount of the payment and adjusted after the payment
has been made. In addition to the stability fee, the Group
pays the Financial Stability Agency (FSA) an administrative
fee that is determined on the same basis as the FIN-FSA’s
supervisory fee. The administrative fee is recognised on an
accrual basis as Other operating expenses.
The FIN-FSA’s supervisory fee is based on the fixed basic
fee and the total assets. The supervisory fee payable to
the European Central Bank is determined on the basis
of the significance and the risk profile to be monitored.
Supervisory fees are recognised on an accrual basis as
Other operating expenses.
Credit loss and impairments on financial assets
Credit loss and impairments on financial assets include
the expected credit losses recognised according to IFRS
9 for the financial assets classified as amortised cost and
fair value through other comprehensive income as well as
write-offs and subsequent recoveries recognised for all
financial assets.
The accounting principles of the impairments are
discussed in Section Impairment of financial assets of
this Note.
Remuneration
The Group’s remuneration system is in its entirety contri-
bution-based. The description of the remuneration system
is available online at www.munifin.fi.
Salaries and remuneration consist of short-term employee
benefits and termination benefits. Short-term employee
benefits are employee benefits (other than termination
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benefits) that are expected to be settled in their entirety
within twelve months of the financial reporting period in
which the employees render the related service. Termina-
tion benefits are employee benefits provided in exchange
for the termination of an employee’s employment as a
result of the Group’s decision to terminate an employee’s
employment before the normal retirement date or an
employee’s decision to accept an offer of benefits in
exchange for the termination of employment.
Pension coverage has been arranged via an external
pension insurance Group. The Group’s pension plans are
defined contribution plans. For defined contribution plans,
the Group makes fixed payments to external pension
insurance companies. After this, the Group has no legal or
actual obligation to make further payments if the pension
insurance company does not have sufficient assets to pay
the employees’ pensions for current or preceding periods.
The contributions payable are recognised as expenses
in the income statement for the period to which the
payments relate.
Income taxes
Income taxes in the consolidated income statement
comprise accrual-based taxes that are determined
based on the profits generated by the Group companies,
and changes in deferred taxes in accordance with IAS
12 Income Taxes. Taxes are recognised in the income
statement, with the exception of taxes related to items
recognised in other comprehensive income or in equity.
In this case, the tax is also recognised correspondingly in
other comprehensive income or directly in equity. Taxes
based on the taxable income for the period are calculated
based on tax legislation enacted or approved in practice
by the financial statement date.
Deferred taxes may comprise of temporary differences
between carrying amount and taxable value, as well as
confirmed tax losses. Deferred taxes in the Consolidated
Financial Statements consist of the release and transfer
to equity of the voluntary credit loss provision and
depreciation difference recorded by the Parent Company.
In addition, deferred taxes arise from financial assets
measured at fair value through other comprehensive
income, changes in own credit risk on financial liabilities
designated at fair value through profit or loss and Cost-of-
Hedging recorded through other comprehensive income.
Deferred taxes arise from differences in the treatment of
the AT1 capital loan and issuance expenses and interest
expenses related to the AT1 capital loan in the Parent
Company’s statutory Financial Statements and the
Consolidated Financial Statements. Deferred taxes which
are presented in Note 33 Deferred tax are calculated
based on the tax rate that is anticipated to be in force at
the time of the temporary difference being released.
Accounting policies requiring management judgement
and key uncertainty factors related to estimates
Preparation of the accounts in accordance with the
IFRS requires management estimates and assumptions
that affect the revenue, expenses, assets and liabilities
presented in the Financial Statements.
The key assumptions made by the Group concern key un-
certainty factors pertaining to the future and the estimates
at the financial statement date including the uncertainties
related to the potential short- and long-term impact of the
COVID-19 pandemic. These relate to, among other things,
the determination of fair value and the expected credit
losses and impairment of financial assets.
Management judgement related to the determination
of fair value
The level of management judgement required in
establishing fair value of financial instruments for which
there is a quoted price in an active market is usually
minimal. For the valuation of financial instruments where
prices quoted in active markets are not available, the
Group uses valuation techniques to establish the fair
value. These valuation techniques involve some level of
management estimation and judgement, the degree of
which will depend on observability of the input parameters
and the instrument’s complexity. For instruments, valued
using valuation models which are standard across the
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industry and where all inputs are quoted in active markets,
the level of subjectivity or judgement required is low. The
level of subjectivity and degree of management judgement
required is more significant for those instruments valued
using sophisticated models and where some or all of
the inputs are less liquid or unobservable. Management
judgement is required in the selection and application
of appropriate parameters, assumptions and modelling
techniques in particular, where data is obtained from
infrequent market transactions or extrapolation
techniques are applied.
MuniFin Group discloses financial assets and liabilities
according to their fair value hierarchy levels in the Notes
to the Financial Statements. Management judgement
is required in determining the hierarchy level to which a
financial instrument should be classified specifically when
the valuation is determined by a number of inputs, of which
some are observable and others not. Furthermore, the
classification of an instrument can change over time to
reflect changes in input liquidity. The Group also discloses
a sensitivity analysis of the impact on the level 3 financial
instruments by using reasonably possible alternatives for
the unobservable input. The determination of reasonably
possible alternatives requires management judgement.
The valuation methods and controls and quantitative
disclosures with respect to the determination of fair value
as well as the fair value hierarchy levels and sensitivity
analysis are disclosed in Note 17 Fair values of financial
assets and liabilities. The changes in the fair values of
financial instruments impact the income statement line
items Net income from securities and foreign exchange
transactions and Net income from hedge accounting as well
as the other comprehensive income line items Net change
in fair value of financial assets at fair value through other
comprehensive income, Net change in fair value due to
changes in own credit risk on financial liabilities designated
at fair value through profit or loss and Net change in
Cost-of-Hedging.
Management judgement related to the expected credit
losses
The measurement of impairment losses under
IFRS 9 across all categories of financial assets requires
judgement, in particular, the estimation of amount and
timing of future cash flows and collateral values when
determining impairment losses and the assessment of
a significant increase in credit risk. These estimates are
driven by a number of factors, changes in which can result
in different levels of allowances. Expected credit losses
are disclosed in Note 27. The changes of the expected
credit losses are recognised under the income statement
line Credit loss and impairments of financial assets.
The Group’s ECL (Expected Credit Losses) calculations are
an output of complex models with a number of underlying
assumptions regarding the choice of variable inputs and
their interdependencies. Elements of ECL models that are
considered accounting judgements and estimates include:
• The Group’s internal credit grading model, which
assigns probabilities of default (PD) to the individual
grades.
• The Group’s criteria for assessing if there has been
a significant increase in credit risk and qualitative
assessment.
• Development of ECL models, including the various
formulas and the choice of inputs.
• Determination of relationships between
macroeconomic scenarios and, economic inputs, such
as unemployment levels and collateral values, and their
effect on PDs, EADs and LGDs.
• Selection of forward-looking macroeconomic scenarios
and their probability weightings, to derive the economic
inputs into the ECL models.
The Group regularly reviews its models in the context of
actual loss experience and adjusts them when necessary.
In addition to the model-based expected credit losses, the
Group has recorded an additional discretionary provision
(management overlay) amounting to EUR 340 thousand to
cover the deterioration of its customers’ credit risk due to
the COVID-19 pandemic, which is not yet reflected in the
Group’s internal risk ratings which are based on the clients’
2019 financial statement data.
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Application of new standards
The Consolidated Financial Statements have been pre-
pared in accordance with the same accounting policies as
in 2019, with the exception of the following new standards,
interpretations and amendments to existing standards that
the Group has applied starting from 1 January 2020.
Amendments to References to Conceptual Framework in
IFRS Standards (effective for financial years beginning on
or after 1 January 2020). The revised Framework codifies
IASB’s thinking adopted in recent standards. The Concep-
tual Framework primarily serves as a tool for the IASB to
develop standards and to assist the IFRS Interpretations
Committee in interpreting them.It does not override the
requirements of individual IFRSs and did not have a direct
impact on the Consolidated Financial Statements of
MuniFin Group.
Definition of a Business – Amendments to IFRS 3 Business
Combinations (effective for financial years beginning on
or after 1 January 2020). The amendments narrowed and
clarified the definition of a business. They also permit a
simplified assessment of whether an acquired set is a
group of assets rather than a business. The amendment
did not have a direct impact on the Consolidated Financial
Statements of MuniFin Group.
Definition of Materiality – Amendments to IAS 1 Presen-
tation of Financial Instruments and IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors
(effective for financial years beginning on or after 1 January
2020). The amendments clarify the definition of materiality
and include guidance to help improve consistency in the
application of that concept across all IFRS Standards. In
addition, the explanations accompanying the definition
have been improved. The amendment did not have a
direct impact on the Consolidated Financial Statements of
MuniFin Group.
COVID-19-Related Rent Concessions – Amendment to
IFRS 16 Leases (effective for financial years beginning on
or after 1 June 2020). The amendment allows the lessees
not to account for rent concessions as lease modifications
if the concessions are a direct consequence of the
COVID-19 pandemic and only if certain conditions are met.
The amendment did not impact on the Consolidated Fi-
nancial Statements of MuniFin Group as the Group has not
have any rent concessions related to COVID-19 pandemic.
Amendments related to the IBOR reform
IBOR reform
IBOR reform is a global change aimed at replacing
Interbank Offered Rates (IBORs) with alternative nearly
risk-free rates (RFR). The reason for the reform is, among
other things, the revealed manipulation cases of the IBOR
reference rates. In European Union the reform is regulated
by the EU Benchmark Regulation (EU BMR). Most promi-
nently, IBOR reform affects the London Interbank Offered
Rate (LIBOR), a panel-based benchmark thatis available
in five currencies (USD, GBP, EUR, CHF, JPY) and whose
quotation is expected to expire after 2021, and therefore
the financial instruments referencing to those rates must
be changed or replaced during 2021. However, the timing,
in particular for the USD LIBOR reference rate, is still
uncertain and may be delayed for some tenors. Under the
EU BMR, interest rate benchmarks such as EONIA, EURI-
BOR, LIBOR, WIBOR and STIBOR havebeen classified as
critical.
Euribor is the most important IBOR used by MuniFin
Group. The calculation methodology of Euribor changed
during 2019. In July 2019, the Belgian Financial Services
and Markets Authority (FSMA) granted authorisation with
respect to Euribor under the EU BMR. This allows market
participants to continue to use Euribor for both existing
and new contracts. The Group’s current view is that
Euribor will continue to exist as a benchmark rate for the
foreseeable future.
MuniFin Group has exposures to IBORs on its financial
instruments that will be replaced or reformed as part of
these market-wide initiatives. There is uncertainty over
the timing and the methods of transition across the juris-
dictions that the Group operates in. The Group anticipates
that the IBOR reform will especially affect its funding
products and derivatives, risk management, IT systems,
valuations, collateral management and hedge accounting.
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For now, the IBOR reform has not have significant impacts
on the Group’s risk management principles, which are dis-
cussed in more detail in Note 2 Risk management principles
and the Group’s risk position.
Reliefs given by the IASB
The IASB (International Accounting Standards Board) is
addressing the IBOR reform and its effects on financial
reporting in two phases. The aim of the reliefs is to facilitate
the transition of companies from IBOR reference rates
to alternative risk-free rates and to temporarily ease the
requirements of those IFRS standards that could form an
obstacle to the implementation of the IBOR reform. The
reliefs apply only to changes, which are a direct conse-
quence of the IBOR reform. Any other changes will be
subject to the normal requirements of IFRS standards also
during the IBOR reform. The amendments are relevant
to MuniFin Group given that the fair values of financial
instruments depend on the relevant IBORs and that the
Group applies hedge accounting to hedge relationships
with IBOR terms.
In September 2019, the IASB issued the Interest Rate
Benchmark Reform– Amendments to IFRS 9, IAS 39 and
IFRS 7. The EU endorsed the amendments on 15 January
2020. These phase 1 amendments modify specific hedge
accounting requirements related to the uncertainty arising
from the IBOR reform to the timing and amount of cash
flows of a hedged item or hedging instrument during the
period of uncertainty to allow hedge accounting to contin-
ue for affected hedge relationships.
The Group has initially adopted IBOR reform related phase
1 amendments to IFRS 9, IAS 39 and IFRS 7 from 1 January
2020. The Group applies amendments retrospectively
to hedging relationships that existed at 1 January 2020
or have been designated thereafter and that are directly
affected by the IBOR reform. The Group will cease to apply
the phase 1 amendments when the uncertainty arising
from the IBOR reform is no longer present with respect
to the timing and the amount of the interest rate bench-
mark-based cash flows of the hedged item or hedging
instrument, or when the hedge accounting is discontinued.
In August 2020, the IASB issuedthe phase 2 amendments
to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 standards.
EU endorsed the amendments on 14 January 2021. The
phase 2 amendments address issues that might affect
financial reporting when an existing interest rate bench-
mark is actually replaced. The phase 2 amendments allow
hedge accounting not to be discontinued simply because
the hedged item, hedging instrument or hedged risk is
changed as a direct consequence of the IBOR reform.
However, any valuation adjustments resulting from the
changes are recognised as part of hedge ineffectiveness.
The phase 2 amendments introduce a practical expedient
for modifications required as a direct consequence of the
IBOR reform and made on an economically equivalent
basis. These modifications are accounted for by updating
the effective interest rate so that it corresponds to the
change in the market interest rate. The amendments are
effective for annual periods beginning on or after 1 January
2021, with earlier application permitted. MuniFin Group
applies the phase 2 amendments as of 31 December 2020.
The phase 2 amendments will cease to apply once the
changes required by IBOR reform have been implemented.
IBOR reform and hedge accounting
The Group’s accounting policies related to hedge ac-
counting are discussed in more detail in the Section Hedge
accounting of this Note.
The Group has issued fixed rate debt instruments in vari-
ous foreign currencies to which the Group applies IFRS 9
fair value hedge accounting using cross currency interest
rate swaps or a combination of fixed-to-floating interest
rate swap (pay leg USD LIBOR) and floating-to-floating
cross currency swap (receive leg USD LIBOR) as the
hedging instruments. The phase 1 amendments permit
continuation of hedge accounting even if in the future the
hedged risk, GBP LIBOR, USD LIBOR or other benchmark
rates (IBORs), may no longer be separately identifiable.
However, this relief does not extend to the requirement
that the designated interest rate risk component must
continue to be reliably measureable. If the risk component
is no longer reliably measureable, the hedging relationship
is discontinued. The phase 2 amendments on the other
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hand, allow the hedge accounting of existing IBOR hedge
relationships to be continued in situations where, as a
consequence of the IBOR reform, changes are made
to the hedging relationship that would normally lead to
the discontinuation of hedge accounting. Such changes
include e.g. changing the hedged risk from IBOR reference
rate to an alternative risk-free rate or changes to the
hedging instrument if the hedging instrument refers to
IBOR and is changed to an alternative risk-free rate as a
direct consequence of the IBOR reform. The Group has
not made any above mentioned phase 2 related changes
to its hedge relationships during 2020.
MuniFin Group also applies IFRS 9 fair value hedge
accounting to issued euro-denominated fixed rate debt,
which are hedged to floating rate Euribor. In addition, the
Group has fixed and revisable rate lending and leasing
financing in euros. The interest rate risk of the loans and
leased assets are hedged using Euribor interest rate
swaps. MuniFin Group applies fair value portfolio hedge
accounting in accordance with IAS 39 to its fixed and re-
visable rate loans and IFRS 9 fair value hedge accounting
to its fixed and revisable rate leased assets and structured
lending. As Euribor is expected to continue, MuniFin Group
does not currently anticipate changes to these hedge
relationships due to the IBOR reform.
In accordance with the phase 1 reliefs, while uncertainty
due to the IBOR reform exists, prospective effectiveness
testing is based on existing critical terms, hedged cash
flows or hedged risks. Any ineffectiveness arising from
hedge relationships is recognised in Net income from
hedge accounting. In addition to potential sources of
ineffectiveness outlined in Note 26 Hedge accounting, the
IBOR reform may result in ineffectiveness as the transition
of hedged items and related hedging instruments from
IBORs to alternative risk-free rates may occur at different
times. This may result in different impacts on the valuation
of hedged items and related hedging instruments.
Modifications of financial instruments as a consequence of
the IBOR reform
MuniFin Group has some issued foreign currency floating
rate debt exposure referencing to IBORs for which the
maturities go beyond 2021. MuniFin Group does not apply
hedge accounting to these financial liabilities as they are
initially classified as designated at fair value through profit
or loss. The Group has entered into negotiations to re-
purchase or restructure these liabilities. Compared to the
Group’s total funding exposure, the share of IBOR-linked
funding is minor.
In addition, the Group has derivative contracts referencing
to ceasing IBOR reference rates and with maturity beyond
2021. These derivative contracts include both derivative
contracts in hedge accounting (described above in Sec-
tion IBOR reform and hedge accounting) and other hedging
derivative contracts. The changes required by the IBOR
reform may be conducted, inter alia, through restructuring,
activation of fallback conditions or termination of the
contract, depending on the manner in which the changes
required by the IBOR reform are implemented in the finan-
cial instrument hedged by that derivative in question.
The Group’s bilateral derivative instruments are governed
by the International Swaps and Derivatives Association’s
(ISDA) Master Agreement. ISDA has amended the stan-
dardised contract terms for situations where quotations
for a reference rate are not available (fallback clauses).
The Group has agreed with its derivative counterparties to
include these new terms in the agreements. The changes
to the agreements will take effect in January 2021.
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MuniFin Group’s IBOR exposure
The table below presents a summary of the Group’s financial instruments
(excluding derivative contracts) which refer to an IBOR reference rate and have
maturity beyond 2021.
31 Dec 2020
EUR ,
The carrying amount of financial instruments
referring to IBOR and with maturity beyond 2021
Financial assets
Euribor * 12,497,869
Financial assets in total 12,497,869
Financial liabilities
Euribor * -
USD Libor 51,433
JPY Libor 28,176
Financial liabilities in total 79,609
* The Group’s current view is that Euribor will continue to exist as a benchmark rate for
the foreseeable future.
The table below presents a summary of the notionals of the Group’s derivative
contracts under hedge accounting, which refer to an IBOR reference rate and have
maturity beyond 2021.
31 Dec 2020 EUR ,
FLOATING RATE INTEREST
Notional of derivative contracts referring to
IBOR and with maturity beyond 2021
SEK Stibor 99,658
USD Libor 8,556,760
Euribor* 31,825,920
Tot al 40,482,338
* The Group’s current view is that Euribor will continue to exist as a benchmark rate for
the foreseeable future.
Hedges with two floating legs (receive/pay leg) are presented in the table under each
applicable reference rate.
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IBOR transition project
The Group has set up an IBOR transition project, owned
by the Head of Capital Markets, in which, but not limited to,
risk management, funding, treasury, legal, finance and IT
are represented. The aim of the project is to prepare the
Group for a smooth transition to alternative risk-free rates.
In 2019, the Group conducted an impact assessment and
prepared for the IBOR transition project.
In July 2020, the discounting methodology of Euro
denominated interest rate derivatives centrally cleared
through LCH (London Clearing House) changed from
EONIA (Euro Overnight Index Average) to €STR (Euro
Short-term Rate). A similar change was conducted in
October for USD centrally cleared interest rate derivatives
to change discounting from Federal Funds rate to SOFR
(Secured Overnight Financing Rate). During the last quarter
of 2020 the Group also renegotiated the interest rate term
of the collaterals for the majority of its CSA agreements
with its bilateral derivative counterparties. The CSA
agreements transitioned from EONIA to €STR rate and the
discounting methodology for those derivative agreements
was changed accordingly. Part of the CSA negotiations
were postponed to 2021 and for the derivatives with these
counterparties the discounting methodology change
will be conducted in 2021 accordingly. The change in
discounting methodologies did not have a material impact
on the Group’s consolidated income statement as the
valuation impact was in principle offset by equivalent cash
compensations.
During 2021, the Group’s IBOR transition project will focus
in particular on changing or replacing the ceasing IBOR
-linked instruments with alternative risk-free rates or on
otherwise economically equivalent terms.
MuniFin Group is also closely monitoring the market
and preparing readiness for the issuance of new RFR
products. In addition, the Group monitors new investment
opportunities offered by alternative risk-free rate products
entering the market.
MuniFin Group’s floating rate customer loans and leasing
agreements all reference to Euribor. As Euribor is expect-
ed to continue, the Group currently expects only limited
impacts on its client-facing activities due to the IBOR
reform. The Group is committed to treating its customers
fairly and is closely monitoring the evolving market practic-
es. The Group will prepare a communication and training
plan to ensure that client-facing staff will have sufficient
knowledge and competence to respond to customer
needs appropriately.
Other new or amended standards and interpretations that
entered into effect in 2020 did not have a material impact
on the Consolidated Financial Statements.
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New and amended standards and interpretations
not yet adopted
* = Not yet endorsed for use by the European Union as of
31 December 2020.
The Group has not yet adopted the following new and
amended standards and interpretations already issued
by the IASB. The Group will adopt them on their effective
date or, if the date is other than the first day of the financial
year, from the beginning of the subsequent financial year.
Standards published by IASB that enter into effect after 1
January 2020:
Property, Plant and Equipment — Proceeds before
Intended Use – Amendments to IAS 16 Property, Plant and
Equipment* (effective for financial years beginning or after
1 January 2022). Under the amendments, proceeds from
selling items before the related item of PPE is available for
use should be recognised in profit or loss, together with
the costs of producing those items. Management esti-
mates that the change will not have a material impact on
the Consolidated Financial Statements of MuniFin Group.
Onerous Contracts – Costs of Fulfilling a Contract –
Amendments to IAS 37 Provisions, Contingent Liabilities
and Contingent Assets* (effective for financial years
beginning or after 1 January 2022). When an onerous
contract is accounted for based on the costs of fulfilling
the contract, the amendments clarify that these costs
comprise both the incremental costs and an allocation
of other direct costs. Management estimates that the
change will not have a material impact on the Consolidated
Financial Statements of MuniFin Group.
Other standards and interpretations to be applied in future
financial periods are assessed not to have a material
impact on the Consolidated Financial Statements.
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Note 2. Risk management principles and the Group’s risk position
General risk management principles
MuniFin Group’s operations require sufficient risk manage-
ment mechanisms to ensure that the Group’s risk positions
remain within the limits set by the Board of Directors.
MuniFin Group applies very conservative principles to its
risk management. The aim is to keep the overall risk profile
at such a low level that the Parent Company’s strong credit
rating (Aa1 /AA+) is not compromised.
The Group regularly surveys risks related to its operations
and continuously develops methods for recognising
and managing risks. Risks are assessed with regular risk
analyses. The aim of the analyses is to recognise the new
challenges and risks created by changes in the operating
environment and prioritise the risks and their management
on the basis of the results. The Group mitigates risks it has
identified with collateral, guarantees, derivative contracts,
insurance and active risk management. According to
its own analysis, the Group does not have any liabilities
containing wrong-way risk (the likelihood of a default by
counterparty is positively correlated with general market
risk factors).
The Board of Directors has ratified the Group’s Risk and Governance Framework and, as part of it, key policies and process-
es for the effective implementation of internal control and risk management, as shown in the figure below.
BUSINESS MODEL
RESPONSIBILITY
POLICY
STRATEGY
RISK POLICIES
RISK ASSESSMENT DOCUMENTS
CUSTOMER CONDUCT POLICIES
INTERNAL GOVERNANCE DOCUMENTS
BOARD OF DIRECTORS
Market Risk Policy
ICAAP
AML and CTF Policy
Remuneration Policy
Outsourcing Policy
Internal Audit Charter
Disclosure Policy
Fit & Proper Policy
Accounting Policies
Investment Services Policy
Credit Risk Policy
ILAAP
Liquidity & Funding
Risk Policy
Contingency
Funding Plan
Risk Appetite Framework (RAF)
Risk appetite setting and articulation of the operational limits for the material risk
Compliance &
Operational Risk Policy
Recovery Plan
Valuation Policy
Stress Testing
Programme
Risk Management Policy
EMT &
MANAGERS
Guidelines
Instructions
Contingency, Preparedness and Disaster Recovery Plans
Processes
CORPORATE GOVERNANCE
POLICY & AUTHORISATIONS
RISK & GOVERNANCE FRAMEWORK
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin Group’s Risk Appetite Framework (RAF)
defines target and maximum levels for risk indicators.
The framework is updated regularly, at least annually, and
the Board of Directors of the Parent Company approves
the document. Risk Appetite Frameworks enables the
Group to:
1. Effectively identify, assess and manage the risks
inherent in its strategy as well as other internal and
external business risks,
2. Understand and decide on the amount of risk it is
willing to take in executing its business strategy,
and to actively communicate it,
3. Promote sound discussions of MuniFin Group’s
risk appetite and enable challenging of business
and risk taking decisions.
The Risk Appetite Framework is linked to both short-
term and long-term strategic plans, capital and financial
plans, the recovery plan and the remuneration policy. It
is fully aligned with the ICAAP (Internal Capital Adequacy
Assessment Process) and the ILAAP (Internal Liquidity
Adequacy Assessment Process).
The Risk Appetite Framework is described in the following
table. The Group has remained within the risk appetite set
by the Board of Directors during the financial year.
Summary of Risk Appetite Framework indicators
Risk pillars Risk indicators Objectives
Profitability &
Capital
Credit rating
Maintain a sufficient level of earnings,
profitability and capital, even in stress periods.
Leverage ratio (CRR and CRR II)
Net interest income ratio
Cost-to-income ratio
Change in CET1 ratio
Liquidity &
Funding
Liquidity coverage ratio
Maintain an adequate liquidity buffer
and a sustainable funding position and profile,
even in stress periods.
Net stable funding ratio
Financing gap
Indicators related to funding
Survival horizon
Credit risk
Non-performing exposures
Maintain a sound credit risk profile appropriate
for MuniFin’s business model.
Expected credit losses
Average credit rating (customer financing)
Single-name concentration
Average credit rating (liquidity portfolio)
Geographic concentration (liquidity portfolio)
Market risk
Economic value of equity
Maintain a sound market risk profile appropriate
for MuniFin’s business model.
NII risk
Basis risk
FX risk
Spread risk
Fair value volatility
Prudent valuation
Operational risk
Reputation
Maintain an effective operational control
and compliance to support functional and
responsible operations.
Indicators related to HR
IT and business continuity risks
Cybercrime and data protection risks
Internal fraud and financial crime
Process and conduct risk
Regulatory breaches
Operational losses
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
There were no material changes in the Group’s risk posi-
tion in 2020. Despite the COVID-19 pandemic, the Group’s
risk position has remained stable and at a moderate level.
Based on the Group’s assessment, risk management met
the requirements set for it. MuniFin Group’s risk manage-
ment and internal control practices and processes are de-
veloped continuously. During 2020 the risk management
system environment has been developed in particular. The
Group’s risk position is regularly reported to the Board of
Directors as a part of monthly risk reporting, and, in addi-
tion, the Chief Risk Officer provides the Risk Committee
of the Board a semi-annual extended risk review of the
Group’s risk positions. In the exceptional circumstances
caused by the COVID-19 pandemic, the Group’s risk
position has been reported to the management and Board
more frequently than normal.
If the COVID-19 pandemic would prolong it might affect the
Group’s counterparty risk, liquidity portfolio credit risk and
risks related to liquidity, lending and business processes.
MuniFin Group has deliberately made changes to the
allocation of its liquidity portfolio and thereby sought to
further reduce the already low risk levels. For now the
outbreak of the COVID-19 pandemic and the resulting
surge in economic uncertainty have had only a minor effect
on MuniFin Group’s economic situation. The general pan-
demic restrictions have had some practical effects on the
Group’s operating practices, for example with increased
remote work arrangements, but otherwise the Group’s
activities have continued in the usual manner.
A number of the Group’s counterparties in capital markets
transactions are based in the United Kingdom (UK). Fol-
lowing the UK’s withdrawal from the European Union (EU),
some of the Group’s UK-based counterparties have be-
come restricted in their ability to provide financial services
to counterparties located in EU from their UK entities.
Consequently, such counterparties have decided to tran-
sition their operations from the UK to member states of the
EU. In order to ensure continuity of its funding and liquidity
management activities, the Group has restructured its
business relationships accordingly. Such restructuring has
involved negotiating and entering into new legal documen-
tation and transitioning business activities to new entities.
The immediate effects to the Group of UK’s withdrawal
from the EU were very limited. However, the full impact
of Brexit in the long-term to the Group and to financial
markets in general remains difficult to determine.
In addition, the IBOR reform is under way, a global change
aimed at replacing Interbank Offered Rates (IBORs) with
alternative nearly risk-free rates (RFR). The reason for
the reform is, among other things, the revealed cases of
manipulation of IBOR reference rates. In European Union
the reform is regulated by the EU Benchmark Regulation
(EU BMR). Most prominently, IBOR reform affects the
London Interbank Offered Rate (LIBOR), a panel-based
benchmark thatis available in five currencies (USD, GBP,
EUR, CHF, JPY) and whose quotation is expected to expire
after 2021, therefore the financial instruments tied to
those reference rates must be changed or replaced during
2021. However, the timing, in particular for the USD LIBOR
reference rate, is still uncertain and may be delayed for
some tenors. Under the EU BMR, interest rate benchmarks
such as EONIA, EURIBOR, LIBOR, WIBOR and STIBOR
havebeen classified as critical. For now, the IBOR reform
has not have significant impacts on the Group’s risk man-
agement principles. The status of the Group’s IBOR tran-
sition project is discussed more broadly in the accounting
policies (Note 1) in Section IBOR reform.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Organisation of risk and capital adequcy management
For the implementation of internal control framework,
the Group applies the three lines of defence model.
MuniFin Group has an extensive risk management
organisation, which covers all operations including the
tasks and responsibilities of different departments and
decision-making bodies. Internal control framework is
supported by controls of different processes. Internal
control is performed at all levels of the organisation
and the nature and scope of operations are taken into
account in defining the operating methods used in internal
control. Internal control is primarily carried out in line
operations, where internal control is continuous and part of
day-to-day operations.
The Board of Directors of the Parent Company is
responsible for the Group’s management and the proper
arrangement of its operations. The Board of Directors is
responsible for the duties specified for it in the Limited
Liability Companies Act, the Articles of Association and
other legislative provisions and regulations issued by the
authorities. Duties and principles of the Board of Directors
are confirmed as part of MuniFin’s Corporate Governance
Policy and the appended Board’s Rules of Procedure.
The Corporate Governance Statement is available on
MuniFin’s website. The main duties of the Board include
confirming the Group’s strategy, annual operating plan
and budget, monitoring the Group’s financial situation and
ensuring through supervision that the management, and
risk management in particular, are properly arranged by
management. The Board of Directors also makes all the
far-reaching decisions related to the nature and scope of
the activities.
As requested by the regulation and in order to organise
its work as efficiently as possible, the Board has
established an Audit Committee, a Risk Committee, and
a Remuneration Committee for assistance and for the
preparation of matters. The Board may also establish other
committees as necessary.
The purpose of the Audit Committee, as a preparatory
body, is to assist the Board of Directors in duties
related to financial reporting and internal control.
The Audit Committee supervises work of the external
and internal audit.
1
MANAGEMENT
Business Units
Support Functions
Risk Management
Compliance
Internal Audit
2 3
Board of Directors
Audit, Risk and Remuneration Committees
MUNIFIN DEFENCE LINES
Supervisory Authorities
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The Risk Committee assists the Board in the matters in
regards to the Group’s overall risk appetite and strategy,
and in overseeing that the management complies with the
risk strategy decided by the Board. The Risk Committee
is to estimate whether the prices for the services that tie
up capital correspond with the Group’s business model
and risk strategy and, in the event this is not the case, to
present a remedy plan to the Board. Furthermore, the Risk
Committee shall assist the Remuneration Committee in
the establishment of sound remuneration policies, and
to assess whether the incentives provided by the remu-
neration system take into consideration the Group’s risks,
capital and liquidity requirements, and the likelihood and
timing of the earnings.
The Remuneration Committee of the Board of Directors is
responsible for preparatory work to assist in the Board’s
decision-making concerning the setting of objectives
related to the Group’s remuneration system, assessment
of whether the objectives are attained, development of
the remuneration system and the remuneration and other
benefits for the CEO and persons reporting to the CEO.
In the first line of defence, management, business units
and support functions have the ownership of material risk
types and are responsible for identifying, evaluating and
managing risks. The Group’s risk appetite, guidelines, pro-
cesses, controls and limits guide this work. All employees
who work in the first line of defence are responsible for the
risk management of their own work.
The second line of defence includes Risk Management
and Compliance functions. The Risk Management
function supplements the business units’ work with their
independent supervisory and reporting responsibilities.
They are also responsible for risk-related guidelines and
processes, advice and information, risk strategy, limits
and risk appetite alignment as part of RAF. The second
line of defence informs the Board and the Executive
Management Team (EMT) on issues that may have or has
had an impact on MuniFin Group’s risk profile or strategy.
The main responsibilities of the Compliance function
include reporting to the management of the changes in
the regulations affecting the operations of MuniFin Group
including their potential impact on operational activities.
In addition, the tasks include internal communication,
training and advice for the staff to ensure compliance with
the regulations, assess internal processes for ensuring
compliance with the regulations as well as communication
with the supervising authorities and monitoring the related
actions within the Group.
In the third line of defence, an independent internal audit
regularly conducts risk-based audits in accordance with
the annual plan approved by the Board. The task of internal
audit is to conduct an independent review of the first two
lines of defence and it carries out its tasks independently
of the other lines of defence.
Stress testing
MuniFin Group constantly conducts stress testing related
to its business in accordance with the stress testing
program approved by the Board of Directors of the Parent
Company. The annual ICAAP and ILAAP processes
include stress testing on group-level solvency and liquidity
adequacy. Risk management, independent of the Group’s
business, is responsible for designing stress scenarios in
cooperation with business units. The main objective of the
stress testing conducted in early 2020 was to analyse the
development of MuniFin Group’s solvency and profitability
in 2020–2023. Business, market and credit risks and their
estimated economic impact under different circumstances
were tested. In addition, the liquidity adequacy of the
Group was tested with several different stress scenarios.
As in previous years, the results of the stress tests showed
that with the current capital requirements, the level of equi-
ty in the Group during the period under review is sufficient
even under very unfavourable conditions. In addition, the
Group’s total own funds also fulfilled the expected 3%
leverage ratio. In terms of liquidity, stress tests showed
that the liquidity of the Group is sufficient even under very
unfavourable conditions.
In late 2020, the Group also carried out a so-called reverse
stress testing including a pandemic scenario as part of
its recovery plan. This stress test aims to find extremely
negative scenarios that threaten the Group’s business
continuity, as well as the steps that the Group can take to
cope with the situation and continue its business.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Capital adequacy management principles
MuniFin Group’s objectives regarding equity in relation to
risk-taking and the operating environment are defined as
part of the annual planning. The planning horizon extends
to at least the following three years, in order to be able
to predict the business performance trend and the suffi-
ciency of own funds with respect to the increasing capital
requirements arising from changing regulation and to be
able to react to potential needs for additional capitalisation
in sufficient time. The Board of Directors approves the
capital adequacy plan and monitors it. The Group updates
its capital adequacy plan at least annually and follows
implementation of the plan quarterly.
The aim for the capital adequacy management is to mon-
itor the capital adequacy and to confirm that the Group’s
capital adequacy fulfills its targets and requirements set by
financial authorities to ensure continuity of the operations.
Controlling capital adequacy is continuous and an essen-
tial part of the Group’s strategic planning process, which
covers setting strategic goals, specifying development
projects and making financial forecasts for the following
years. This is done in cooperation with management and
the Board. The Board of the Parent Company approves
the final strategy. Management ensures that the operative
measures of the Group correspond with the principles de-
termined in the strategy approved by the Board. As part of
the annual planning, the management prepares a business
plan for the coming year and business forecasts for the
years that follow. The Group’s risk position and its effect
on the Group’s financial status are also evaluated. Regular
risk analyses as well as various stress test scenarios are
used for evaluating and measuring risks. Based on these,
the capital adequacy plan is updated annually and actions
needed to strengthen own funds are determined. The
adequacy of own funds is also monitored through monthly
business analyses.
The Group calculates its capital adequacy based on the
EU Capital Requirements Regulation (EU 575/2013) and
Directive (2013/36/EU). The capital adequacy require-
ment for credit risk is calculated using the standardised
approach, and the capital adequacy requirement for
operational risks using the basic indicator approach.
As the Group has neither a trading book nor share and
commodity positions, only currency risks are taken into
account in the capital adequacy calculations for market
risk. As the Group hedges against exchange rate risks by
using derivative contracts to translate all foreign currency
denominated funding into euros, the Group’s currency
position is very small. The credit ratings given by Standard
& Poor’s, Moody’s Investor Service and Fitch Ratings are
used for determining the risk weights used in the capital
adequacy calculations. The aforementioned companies
are credit rating institutions approved by the Finnish
Financial Supervisory Authority for capital adequacy
calculations. In capital adequacy calculations for the credit
risk, the Group uses methods for reducing the credit risk
such as guarantees provided by municipalities as well as
deficiency guarantees given by the State of Finland. For
derivatives, netting agreements, collateral agreements
(ISDA/Credit Support Annex) and guarantees granted
by the Municipal Guarantee Board (MGB) are used for
reducing the capital adequacy requirement related to the
counterparty risk of derivative counterparties.
In addition to the Report of the Board of Directors and the
Consolidated Financial Statements, the Group publishes
a separate Pillar III Disclosure Report on capital adequacy
and risk management, which is available in English on
MuniFin’s website.
Strategic risks
Strategic risk means that MuniFin Group would choose
a wrong strategy for pursuing financially profitable oper-
ations or that the Group would fail to adapt its strategy to
changes in the operating environment.
The management of strategic risks is based on continuous
monitoring and analyses of customers’ needs, forecasts of
market trends, and analyses of changes in the competition
and the operating environment. Risks and their signif-
icance are assessed annually as a part of the strategy
process and in connection with annual assessment of the
Board of Directors. The existing strategy extends to 2024,
and its need for updating is evaluated at least annually.
According to an assessment by the Group’s management,
the COVID-19 pandemic has not significantly affected the
strategic risks of the Group.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Refinancing risk and liquidity risk
Refinancing risk means the risk related to refinancing of
the loans. The Group manages refinancing risk by limiting
the average maturity of the financial assets and liabilities.
The financing gap is calculated as the difference between
average maturity of assets (customer financing and
liquidity portfolio) and the average maturity of liabilities
(funding portfolio).
Liquidity risk means the risk of the Group not being able
to perform its payment obligations arising from settling
financial agreements or other financing activities on their
due date. The Group manages the liquidity risk by limiting
the short-term Liquidity Coverage Ratio (LCR) and Net
Stable Funding Ratio (NSFR) and the Survival Horizon for
the long-term liquidity.
In order to maintain its conservative liquidity and funding
risk profile as defined in RAF, MuniFin Group has identified
several sources of liquidity. Primary sources of liquidity are
short-term and long-term funding, liquidity portfolio, repo
markets and cash. Central Bank liquidity facility is a second
source of liquidity.
MuniFin Group follows the principle of prefunding and
acquires its funding in the form of short- and long-term
funding. This is to ensure that adequate liquidity is available
at any given time and in all market conditions. For this
purpose, the required minimum amount for the liquidity
portfolio is determined through scenario analyses to
meet internal and regulatory liquidity requirements. In
the case that the Group needed to acquire additional
liquidity, it would first assess the availability of funding
from the capital markets in the form of short-term or
long-term funding. If this is not available, the Group
could utilise the liquidity portfolio as a source of liquidity
by selling assets or using them as collateral in the repo
markets. MuniFin Group has existing agreements in place
with counterparties to enter into bilateral repurchase
agreements (repo agreements). These repo arrangements
could be used to cover funding redemptions in the
short term and to cover any unexpected changes in the
liquidity position.
A key aspect of the Group’s liquidity and funding risk
management is the maintenance of a well-balanced, low
risk liquidity portfolio in the form of highly liquid assets,
which could be liquidised or used as collateral in the
repo markets in the event that the Group experiences an
unexpected and sudden liquidity shortage. The overall
liquidity portfolio mainly consists of prefunding that is
raised from the markets, but not yet utilised for customer
financing. In case of a sudden outflow of funds, the Group
holds a liquidity portfolio at such a level that its LCR and
Survival Horizon have a sufficient buffer to continue normal
operations even under such conditions. The high quality
liquid assets (HQLA) used to manage the Group’s liquidity
are presented in the table below:
LIQUID ASSETS, HQLA
EUR , 31 Dec 2020 % 31 Dec 2019 %
Level 1 8,560,796 85% 7,748,230 79%
Level 2a 896,100 9% 762,354 8%
Level N 580,086 6% 1,341,015
14%
Tot al 10,036,984 100% 9,851,601 100%
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The liquidity portfolio is divided into liquidity quality levels
so that level 1 and 2a are considered high quality liquid
assets. Assets on the liquidity level N are liquid in normal
market conditions (other liquid assets).
The secondary source of liquidity is a public funding
source in the form of the existing Central Bank liquidity
facility (Note 42 Collateral given), which is considered as
an alternative, if primary sources were either not sufficient,
available in a timely manner or the cost of using primary
sources of liquidity were considered too high. Loans
granted by MuniFin Group to the municipal sector are
accepted as collateral for this facility and the Group has
pre-pledged part of the loan portfolio in order to ensure
access to this liquidity source at any time, if required. In
addition, the Group is able to increase the facility through
pledging additional municipal loans to the collateral pool.
The facility is tested regularly to ensure that the liquidity is
available intraday, if needed.
Liquidity stress testing is a key tool used by MuniFin Group
to assess liquidity adequacy and these stress tests are
mainly performed on a monthly basis. The main objective is
to determine whether the Group has sufficient liquidity to
continue its normal business operations under both busi-
ness-as-usual or baseline scenario and stress scenarios.
The Group prepares, in connection with the business
planning process, a Liquidity and Funding Plan (L&F Plan).
The plan is approved by the Board of the Parent Company
and reviewed on a quarterly basis by the Risk Committee,
which reports its observations to the Board. The L&F Plan
and the quarterly review of the plan include regular back
testing. The L&F Plan is part of the Group’s ongoing Inter-
nal Liquidity Adequacy Assessment Process (ILAAP) and
it includes forecasting and planning of funding and liquidity
position. The L&F Plan is aligned with the ICAAP baseline
scenario during the annual business planning process.
The plan aims at keeping the level of the Group’s liquidity
and funding within its risk appetite defined by the Board. It
also takes into account economic perspective to ensure a
sufficient long-term profitability for the Group.
Within the ILAAP performed annually, the Group assesses
the adequacy of its liquidity resources to cover the
forecast liquidity needs under the business-as-usual and
stress scenarios. ILAAP is an integral part of the Group’s
risk management framework that includes other strategic
processes such as RAF, ICAAP, Recovery Plan and remu-
neration framework. RAF formalises the interplay between
these processes. Stress tests are required to assess the
Group’s liquidity adequacy in a comprehensive, integrated
and forward-looking manner. ILAAP consists of a baseline
scenario and adverse scenarios and is fully aligned with
the ICAAP baseline scenario; the only exception being the
assumed restricted access to funding markets.
The Group aims to maintain strong credit ratings in all
market conditions to be able to execute its funding plan
in an efficient and cost-efficient manner. To support the
cost efficiency and quick execution, the Group has in place
debt issuance programmes of standardised templates.
Standardised programmes provide the Group the flexibility
and ease of execution. Furthermore, MuniFin Group uses
bilateral loan document with some funding counterparties.
All funding issued by MuniFin is explicitly guaranteed by
the Municipal Guarantee Board (MGB).
Funding concentration risk refers to the risk that the Group
is overly dependent on funding from a limited number
of products, markets, geographical area, investors or
maturities. To mitigate the risk, MuniFin Group ensures the
funding diversification across various products, markets,
maturities and investor type and by not placing too much
reliance on any one funding source. MuniFin Group aims
to keep this mix relatively stable, with the goal being to
ensure continuity of funding while simultaneously avoiding
overreliance on any specific market. To maintain access to
diversified funding sources, the Group aims to maintain its
good relationship with investors and arranging banks and
to actively seek new potential markets and investors. The
diversification of the Group’s funding requirements is set
out and planned for in detail through the annual L&F Plan.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The table below presents the maturity breakdown of MuniFin Group’s financial liabilities.
BREAKDOWN OF FINANCIAL LIABILITIES BY MATURITY
31 Dec 2020
(EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years over 10 years Tot a l
Liabilities to credit institutions 658,737 759 29,601 38,614 37,488 765,199
Liabilities to the public and public sector entities 137,168 388,332 979,706 1,427,094 1,505,614 4,437,915
Debt securities issued 8,673,256 4,505,609 13,857,502 3,185,728 3,754,717 33,976,813
Provisions and other liabilities 237,212 - - - - 237,212
Tot al 9,706,373 4,894,700 14,866,809 4,651,436 5,297,819 39,417,138
31 Dec 2019
(EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years over 10 years Tot a l
Liabilities to credit institutions 1,096,374 841 7,049 30,054 67,817 1,202,135
Liabilities to the public and public sector entities 56,844 151,225 1,159,614 1,510,590 1,610,580 4,488,853
Debt securities issued 6,837,785 4,188,237 14,343,596 4,143,021 1,891,846 31,404,486
Provisions and other liabilities 103,627 - - - - 103,627
Tot al 8,094,630 4,340,303 15,510,259 5,683,666 3,570,243 37,199,101
Breakdown of financial liabilities by maturity is
presented using carrying amounts and future
interest payments translated into euros using
year-end foreign exchange rates. Financial
liabilities containing a call option are shown
in the table at the amount at which the liability
can be called on the next call date. These
liabilities are also shown in the maturity bucket
corresponding to the next call date. The
financial statement line Liabilities to credit
institutions contains CSA collateral totalling
EUR 658,120 thousand (EUR 1,095,340
thousand). These are presented in the maturity
bucket 0–3 months although their outflow
date is not known and is dependent on the
development of derivative fair values. A part of
the financial liabilities presented as maturing
during the next 12 months are callable. Based
on the current forecast of this amount 30–50%
is expected to be called during 2021. During
2020 34% (24%) of such debts matured
prematurely.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The table below presents the maturity breakdown of MuniFin Group’s derivatives at fair value.
BREAKDOWN OF DERIVATIVES BY MATURITY
31 Dec 2020
(EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years over 10 years Tot al
Derivative assets 13,995 81,899 454,061 583,520 1,224,688 2,358,163
Derivative liabilities -184,922 -124,631 -1,728,905 -185,014 -637,098 -2,860,570
Interest flows related to derivative assets and liabilities 133,434 239,860 698,692 268,969 128,374 1,469,329
31 Dec 2019
(EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years over 10 years Tot al
Derivative assets 95,560 82,925 623,358 404,855 1,038,300 2,244,997
Derivative liabilities -112,249 -224,564 -846,044 -143,177 -435,976 -1,762,010
Interest flows related to derivative assets and liabilities 178,431 272,975 800,940 231,360 95,151 1,578,857
The Group hedges all of its funding to floating
rate euros. In addition, all lending is hedged to
floating rates. For evaluating the impact of de-
rivatives, the interest flows of derivative assets
and liabilities are shown on one line. Derivatives
containing call option are shown in the table in
the maturity bucket during which the derivative
can be called on the next call date.
The Group has presented the maturities of
financial assets based on their maturity dates
in Note 18.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Market liquidity risk
Market liquidity risk means that the Group would fail to re-
alise or cover its position at the market price, because the
market lacks depth or is not functioning due to a disruption.
The Group monitors the liquidity of markets and products
on a continuous basis. In addition, established market
standards are observed when derivative contracts are
transacted. Almost all market values of debt securities
valued at fair value are calculated based on quotations re-
ceived from the market. For the remaining debt securities,
the market value is calculated using other market infor-
mation. The valuation techniques and valuation inputs are
described in more detail in Note 17 Fair values of financial
assets and liabilities.
The COVID-19 pandemic caused significant disruptions
in the international capital markets during the spring. The
swift action and substantial stimulus packages of central
banks had an important role in stabilising the markets. De-
spite the exceptional circumstances, during the financial
year MuniFin Group has been able to acquire funds in a
nearly usual manner, securing uninterrupted financing for
its customers. Due to the increased demand for financing,
the 2020 funding programme was increased during the
year. The Group’s long-standing funding strategy has
relied on diversification into multiple currencies, markets,
maturities and investor types. This strategy, combined
with MuniFin’s good reputation among investors as well as
the safety of investments in the Finnish municipal sector,
secured MuniFin’s access to markets this spring in times
when this was difficult or even impossible to many other
issuers.
Credit risk
Credit risk means the risk of a counterparty defaulting
on its commitments to the Group. Credit risk has been
identified as a material risk in the Risk Appetite Framework,
but is mitigated by the loan guarantees and/or collaterals
as well as the fact that MuniFin only finances public-sector
entities with a zero-percent risk weighting. Customer
financing is one source of credit risk, but credit risk can
also arise from other types of receivables, such as bonds,
short-term debt instruments and derivative contracts as
well as off-balance sheet items such as unused credit
facilities, limits and guarantees. In addition, geographical
concentration and settlement risks are considered as
credit risks.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The table below presents the Group’s maximum exposure to credit risk grouped by the items on the statement of financial position.
31 Dec 2020 31 Dec 2019
MAXIMUM EXPOSURE TO CREDIT RISK
EUR ,
Amortised cost and
Fair value through other
comprehensive income
, of which expected
credit losses
Fair value through
profit or loss *
Amortised cost and
Fair value through other
comprehensive income
, of which expected
credit losses
Fair value through
profit or loss *
Cash and balances with central banks 5,565,801 0 - 4,909,338 0 -
Loans and advances to credit institutions 1,841,853 -43 - 818,323 -28 -
Loans and advances to the public and
public sector entities 27,977,887 -1,091 44,438 24,747,332 -186 51,100
Debt securities 1,733,355 -42 4,029,859 1,775,862 -104 3,940,456
Derivative contracts - - 2,358,163 - - 2,244,997
Other assets 244,875 -4 - 160,097 -4 -
Credit commitments (off-balance sheet item) 2,353,978 -4 - 2,361,323 -4 -
Tot al 39,717,750 -1,184 6,432,459 34,772,275 -327 6,236,553
* Includes all financial assets measured at fair value through profit or loss (IFRS 9 classifications; designated at fair value through profit or loss, mandatorily at fair value through profit or loss
and fair value through profit or loss).
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The Act on the Municipal Guarantee Board (MGB Act)
sets limits on the operations of MuniFin Group, which
can also be considered as an important credit risk
management tool. The Municipal Guarantee Board
(MGB) is an institution governed by the public law, whose
purpose under the MGB Act is to secure and develop the
joint municipal funding. To accomplish this purpose MGB
can grant guarantees to the funding of credit institutions
controlled or owned directly or indirectly by municipalities
if the funding is used for financing of municipalities,
joint municipal authorities and municipality-controlled
entities, as well as non-profit corporations and other
non-profit entities nominated by the Housing Finance
and Development Centre of Finland (ARA). Financing,
derivatives and other services can be offered only to
customers and objects in accordance with the MGB Act.
All funding issued by MuniFin has a MGB guarantee. In
addition, MuniFin has guarantees granted by MGB to
mitigate the counterparty credit risk of some derivative
counterparties.
In addition to the MGB Act, a material credit risk
management principle is that all customer financing and
the derivatives offered to customers have to obtain the
so-called zero risk weight in MuniFin Group’s capital
adequacy calculation. As a business model, this zero risk
requirement for all customer financing, is different from
other credit institutions’ and the credit risk principles
inherent and required in their credit risk policies. MuniFin
Group’s Credit risk policy and credit risk management
practices rely significantly on this principle.
MuniFin’s customers consist of municipalities, joint
municipal authorities, and municipality-controlled entities,
as well as non-profit corporations and other non-profit
organisations nominated by the Housing Finance and
Development Centre of Finland (ARA). MuniFin Group
may only grant loans and leasing financing without
a separate security directly to a municipality or joint
municipal authority. For others, loans must be secured
with an absolute guarantee issued by a municipality or
joint municipal authority or a real estate collateral and a
state deficiency guarantee. The guarantee or guarantee
together with a real estate collateral has to fully cover
the financing provided. Guarantees and the fair value
of collateral received are also taken into account in the
calculation of expected credit losses. The Group does not
bear the residual value risk for the objects of its leasing
services. MuniFin Group has not had credit losses from the
financing of its customers after the realisation of any real
estate collateral and guarantees have taken place.
Municipal customers are divided into three sectors:
municipalities, joint municipal authorities and municipal
companies. By law, a Finnish municipality cannot default
(Bankruptcy Act 120/2004). The municipalities have an
unlimited right to increase local income tax rates and due
to this, together with other elements of autonomy, the
Finnish municipal sector has, similar to sovereigns, a zero
credit risk weighting in capital adequacy calculation of
credit institutions. Finnish municipalities and cities can also
establish joint municipal authorities to provide services
that they are legally required to provide for their citizens or
undertake regional development activities. Municipalities
are jointly members of these joint municipal authorities
and are commonly responsible for their funding and other
liabilities. All loans to municipal companies are guaranteed
by municipalities (or joint municipal authorities). Thus
there is always a municipality, that cannot default by
law, to carry the risk of default. When a loan has a 100%
absolute guarantee from a municipality or a joint municipal
authority, MuniFin Group can apply for payment directly
from the guarantor in accordance with the terms of the
loan. The guarantor is committed based on the guarantee
commitment to pay the interest and other ancillary costs in
addition to the principal.
The housing customer group consists of two types of
housing institutions: institutions owned or controlled
by municipalities (or joint municipal authorities) and
state-subsidised housing institutions. Loans for housing
companies owned by municipalities or joint municipal au-
thorities are guaranteed by municipalities, or these loans
can also at the same be categorised as state-subsidised
housing loans. In such cases there is real estate collateral
and a deficiency guarantee from the State of Finland.
State-subsidised housing institutions are defined as
corporations designated by state authority and engaged in
the renting or production and maintenance of housing, or
corporations controlled by them. The housing companies
are nominated by the Housing Finance and Development
Centre of Finland (ARA), a governmental agency operating
under the supervision of the Ministry of the Environment.
Loans for housing companies have a deficiency guarantee
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
from the State of Finland that covers the residual risk over
the collateral value of the respective property. When a loan
has a deficiency guarantee by the State of Finland, primary
pledge of mortgage collateral is mainly required unless
the loan is a state-subsidised housing loan granted for
municipality or joint municipal authority in which case there
is no collateral required by law. The amount of the primary
pledge must be at least 1.3 times the amount of the loan.
Under deficiency guarantee, the State of Finland is respon-
sible for the primary debt in respect of the part that is not
covered from the liquidation of the mortgage collateral.
Despite MuniFin Group’s business model, which is based
on the zero risk-weighting customers, the Group has a risk
rating system for all customers, which assigns a risk score
to the customer as part of the credit granting process.
In addition, independent Risk Management prepares an
annual analysis of all customers, which identifies their re-
spective risk rating. The annual analysis and update of the
risk rating is based on the financial statements, the report
of the board of directors and other available information.
The customer’s risk rating will affect the need for further
analysis of the customer in the process of granting financ-
ing, the financing decisions, decision-making power inside
the Group and possibly also the pricing. The Group has
customer-specific credit limits in use from the beginning
of 2020. In addition, MuniFin Group calculates the ratio
loan-to-value (LT V ) for its loans with real estate collateral
and regularly monitors the development of LTV values.
The table below shows the risk rating (of which risk rating
5 represents the best credit worthiness) distribution of
the Group’s customer financing in relation to total capital,
which includes lending, leased assets, municipal certifi-
cates and off-balance sheet credit commitments.
RISK RATING 31 Dec 2020 31 Dec 2019
5 24.7% 18.6%
4 28.0% 35.9%
3 37.9% 37.3%
2 7.7% 6.2%
1 1.8% 2.1%
Tot al 100.0% 100.0%
In addition to the above mentioned, the Group’s credit risk
management is based on proactive customer relationship
management, customer knowledge (KYC), careful
selection of counterparties, credit rating and volume limits
for counterparties, trustworthy and professional staff,
decision-making powers, comprehensive documentation
and an on-going internal monitoring and reporting.
The Group defines the non-performing exposures (NPE)
as receivables that fulfil at least one of the criteria’s below.
• Significant receivables past due more than 90 days;
• MuniFin Group’s Credit Group’s (customer financing)
or ALM Group’s (liquidity portfolio) assessment that it is
probable that the debtor is not likely to pay its obligation
in full without realisation of the collateral, regardless of
whether there have been any delays in payments or how
many days the payments have been past due.
Non-performing exposures are treated as stage 3 receiva-
bles in the calculation of expected credit losses.
Forborne exposures include exposures that have been
renegotiated due to the customer’s financial difficulties.
Details about the principles applied to forborne and mod-
ified exposures are described in the accounting policies
(Note 1) in Section Forborne and modified loans. The
non-performing and forborne exposures are disclosed in
Note 27 in table Non-performing and forborne exposures.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Impairments for loans and other financial assets, which are
classified according to IFRS 9 as amortised cost (AC) or
fair value through other comprehensive income (FVOCI),
are measured using the expected credit loss model
under IFRS 9 standard. In addition, lease agreements
and off-balance sheet credit commitments are subject
to expected credit loss calculation due to the credit risk
involved in the contracts. The methods used for calculating
expected credit losses are described in the accounting
policies (Note 1) in Section Impairment of financial assets.
Quantitative information on the Group’s expected credit
losses and their development during the financial year is
presented in the Notes 14 and 27.
The amount of the Group’s expected credit losses in
relation to the Group’s statement of financial position is
very low, 0.003% (0.001%). Expected credit losses in
relation to the total assets and commitments included
in the calculations are 0.003% (0.001%). The amount
of expected credit losses is materially influenced by the
Group’s conservative risk management principles, in
particular the guarantees and collaterals received by the
Group, as well as the customer base and the high credit
ratings of counterparties.
MuniFin Group is also exposed to credit risk from its
liquidity portfolio investments and derivative instruments.
In selecting counterparties, MuniFin evaluates credit
risk with principles and limits, approved by the Board of
Directors, based on external credit ratings. The credit
rating of investments is one of the key indicators used by
the Group to make investment decisions concerning its
liquidity portfolio. Nominal values of debt securities and
equivalent credit values of derivatives (fair value method)
are used in monitoring credit risk.
The table below presents the credit rating breakdown of
the liquidity portfolio investments.
CREDIT RATING 31 Dec 2020 31 Dec 2019
AAA 25.4% 24.4%
AA+ 59.7% 54.3%
AA 5.6% 4.5%
AA- 6.9% 12.0%
A+ 1.5% 2.3%
A 0.6% 0.9%
A- 0.3% 1.5%
Tot al 100.0% 100.0%
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
BREAKDOWN OF NOMINAL VALUE OF DERIVATIVE CONTRACTS
BY COUNTERPARTY CREDIT RATING
EUR , 31 Dec 2020 31 Dec 2019
Finnish municipalities 1,930,687 2,023,949
Central counterparty 36,721,506 27,171,984
AA 14,520,186 20,107,295
A 12,406,794 13,145,277
BBB 2,045,830 2,320,387
Tot al 67,625,003 64,768,893
GIVEN AND RECEIVED CASH COLLATERAL BASED ON CSA AGREEMENTS
EUR , 31 Dec 2020 31 Dec 2019
Given collateral -1,607,100 -686,155
Given collateral to central counterparty -243,272 -158,494
Received collateral 658,120 1,095,340
Received from central counterparty 231,180 96,239
Net collateral -961,072 346,930
The Group limits the credit risk arising from its derivative
contracts with ISDA Credit Support Annexes. MuniFin
Group has 40 derivative counterparties with which
it has valid derivative contracts. The Group has the
above-mentioned collateral agreement with all of these
counterparties.
The Credit Valuation Adjustment (CVA) that measures
counterparty credit risk and MuniFin’s own Debt Valuation
Adjustment (DVA) are both taken into account when
calculating credit risk exposures arising from derivative
counterparties. The CVA is estimated for each derivative
counterparty by calculating MuniFin’s expected positive
exposure throughout the maturity of the derivative
portfolio, taking into account the probability of default
and the estimated amount of loss in the possible event of
default. Input data for the calculation is based on the terms
of CSA agreements, generally accepted assumptions
in the markets on the loss given default and expected
probabilities of default based on historical credit rating
matrices. Similarly, the DVA is determined on the basis of
MuniFin Group’s expected negative exposures, taking into
account the probability of MuniFin’s own default and the
loss given default.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin Group uses central counterparties (CCPs) in the
clearing of standard over-the-counter (OTC) derivative
contracts, as required by the European Markets Infra-
structure Regulation (EMIR). In this model, at the end of
a clearing process, a CCP becomes the counterparty to
each cleared trade. The purpose of CCP clearing is to
reduce counterparty risk. The Group has two global banks
providing clearing broker services. The variation margin of
the derivatives with the CCPs is based on the daily margin-
ing of the cash collateral (Collateralised-to-Market, CTM).
MuniFin Group may also be exposed to settlement risks
in the course of its operations in respect to issued bonds,
customer financing, liquidity portfolio investments or
derivative transactions. Group’s customer financing
transactions are dependent on the operations of domestic
payment banks and similarly the capital market trans-
actions are dependent on the operations of the Group’s
international payment banks and clearing parties. In
order to minimise the credit risk associated with clearing
and settlement, transactions are in principle carried out
through delivery against payment.
Taking into account the nature of MuniFin Group’s
business model, the Group has acknowledged risk con-
centration in customer financing in i.e. geographical areas
(locally), customer types (municipality sector, state-sub-
sidised housing production) and collaterals (mortgages).
The Group’s largest subportfolio in the customer financing
is for municipality sector. This risk concentration on the
municipality sector is unavoidable and inherent to Muni-
Fin’s business model. In addition, a considerable portion of
the exposure to customers is indirectly related to Finnish
sovereign risk due to the deficiency guarantee in loan ar-
rangements for the state-subsidised housing production.
This is inextricably linked to MuniFin’s business model.
Furthermore MuniFin has been established specifically
to finance the municipal sector and social housing and
its operations are limited by the MGB Act. Therefore, the
concentration risk inherent in the business model cannot
be significantly modified. On the other hand, all Group’s
receivables are in the zero risk weight class in capital
adequacy calculations and therefore the concentration
risk is acceptable considering the Group’s business model
and in line with the Group’s business strategy. In addition,
in the calculation of large exposures, all receivables from
customers are zero after mitigation techniques. Due to
these factors, the Group accepts the concentration risk in
its customer financing as inherent to its business model.
Concentration risk is also inherent in the liquidity portfolio
due to investments being made in a narrow selection of
high quality liquid assets. In order to manage this to the
extent possible, MuniFin Group defines country-specific
limits on the concentration of its liquidity portfolio in any
single country. The table on the right presents the geo-
graphical distribution of the liquidity portfolio investments
(including Central bank counterparty).
COUNTRY/
COUNTERPARTY 31 Dec 2020 31 Dec 2019
Central bank 55.5% 50.2%
Finland 8.6% 9.1 %
Sweden 4.5% 5.4%
France 4.7% 5.3%
Canada 4.4% 5.1%
Norway 4.2% 4.7%
Netherlands 2.5% 3.9%
Supranational 2.8% 2.6%
Great Britain 1.6% 2.5%
Denmark 2.5% 2.3%
Germany 2.6% 2.1%
Australia 1.1% 2.1%
Belgium 1.4% 1.1%
New Zealand 1.1% 1.1%
South Korea 0.9% 1.0%
Japan 0.2% 0.5%
Luxembourg 0.6% 0.4%
Switzerland 0.5% 0.3%
Austria 0.3% 0.3%
Tot al 100.0% 100.0%
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The COVID-19 pandemic has not yet weakened MuniFin
Group’s credit risk position, and the credit risk position is
also expected to remain stable in the future in accordance
with the Group’s credit risk strategy. Few of MuniFin
Group’s customers run into economic challenges in
the spring due to the COVID-19 crisis. If the pandemic
impacted their repayment ability temporarily, MuniFin
offered them repayment holidays and concessions to
the payment terms of the loans. In addition to the model-
based expected credit losses, the Group has recorded an
additional discretionary provision (management overlay)
amounting to EUR 340 thousand to cover the deterioration
of its customers’ credit risk due to the COVID-19 pandemic,
which is not yet reflected in the Group’s internal risk ratings
which are based on the client’s 2019 financial statement
data. More information on repayment holidays and
expected credit losses is presented in Note 27 Credit risks
of financial assets and other commitments. The sudden
worsening of the pandemic could affect the Group through
a widening of credit risk premiums and through valuations
of the liquidity portfolio. In addition, an increase in
customers’ financial difficulties could increase the Group’s
credit risk and thus also the expected credit losses.
Market risk
Market risk is the risk of the Group incurring a loss as
a result of an unfavourable change in market price or
its volatility. Market risks include interest rate, foreign
exchange, share price and other price risks.
MuniFin Group has identified under RAF the following
sources of material market risks: Interest rate risk (Interest
Rate Risk in the Banking Book, IRRBB), FX risk and spread
risk as well as fair valuation risk.
The Group hedges its market risk with derivative contracts.
Derivative contracts may only be used for hedging
purposes. The Group applies fair value hedge accounting
in accordance with IFRS 9 and IAS 39 standards. The
application of hedge accounting is described in more
detail in the accounting policies (Note 1) in Section Hedge
accounting and quantitative information on current
hedging relationships and their impact on earnings is
presented in the Notes 26 Hedge accounting and 9 Net
income from hedge accounting. The Group also makes use
of the fair value option (FVO) permitted by IFRS 9 standard
in some of its hedging relationship to eliminate or to
significantly reduce accounting mismatch due to hedging.
The use of fair value option is described in the accounting
policies (Note 1) in Section Classification and measurement
of financial liabilities - Designated at fair value through profit
or loss. Quantitative information of the use of fair value
option is presented in Note 7 Financial assets and liabilities
designated at fair value through profit or loss and in Note 16
Financial assets and liabilities.
Interest rate risk
MuniFin Group manages the interest rate risk arising from
the business operations by means of derivative contracts.
Interest rate risk arises mainly from the difference in
euribor rate terms between assets and liabilities.
MuniFin Group’s strategy for interest-rate risk in the
banking book (IRRBB) is to ensure sustainable profitability
regardless of the level of interest rates. Therefore, the
focus is to stabilise earnings by minimising Earnings at
Risk (NII risk) measure. Economic Value of Equity (EVE) of
interest rate sensitivity is a secondary measure but also
kept within risk appetite.
The main principle for managing the Group’s interest rate
risk hedging is to utilise interest rate swaps to hedge fixed
rate exposures back-to-back to floating rate. The back-to-
back interest rate swaps (IRS) replicate all the details of
underlying liability, asset or portfolio of assets to offset the
risk of the underlying transaction.
However, given the strategy of earnings stabilisation, the
Group may decide on strategic mismatch position, i.e.
leave fixed rate exposures unhedged in order to steer
the Group’s net interest income towards the objective of
earnings stabilisation. The strategic mismatch position
is created using assets only, and include both fixed and
revisable rate loans as well as fixed rate investments in the
liquidity portfolio. Derivatives are not used in the creation of
the strategic mismatch.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Earnings at Risk
Earning at Risk refers to the negative impact of interest
rate changes on the Group’s net interest income. Several
different scenarios are used to measure interest rate risk,
the most unfavourable one being considered. The impact
is examined in relation to the Group’s total net interest
income for the previous year. The Group measures the
Earnings at Risk both with and without the zero floor
option. The figures below take into account the zero floor
option in the loans.
EARNINGS AT RISK
EUR , Impact
In relation to net
interest income
31 Dec 2020 -32,180 13.4%
31 Dec 2019 -14,288 6.5%
The following scenarios are used in calculating
the Earnings at Risk:
1. Parallel shock up (+100bp);
2. Parallel shock up (+200bp);
3. Parallel shock down (-100bp);
4. Parallel shock down (-200bp);
5. Steepener shock (short rates down and long rates up);
6. Flattener shock (short rates up and long rates down);
7. Short rates shock up; and
8. Short rates shock down.
Economic Value of Equity
Economic Value of Equity describes the interest rate
sensitivity of the present value of the statement of financial
position. It is measured by calculating the change in the
present value of interest rate sensitive cash flows for
different interest rate curve changes. Several interest rate
scenarios are used to measure interest rate risk, the most
unfavourable one being considered. The impact will be
examined in relation to the Group’s total own funds. The
Group measures the Economic Value of Equity both with
and without the zero floor option. The figures below take
into account the zero floor option in the loans.
ECONOMIC VALUE OF EQUITY
EUR , Impact
In relation to
own funds
31 Dec 2020 -344,620 21.2%
31 Dec 2019 -114,219 7.6%
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Basis risk
The basis risk measure captures interest rate risk that
results from narrowing or widening of tenor basis swap
spreads. The impact is examined in relation to the Group’s
total net interest income for the previous year. The figures
below take into account the zero floor option in the loans.
BASIS RISK
EUR , Impact
In relation to net
interest income
31 Dec 2020 -12,550 5.2%
31 Dec 2019 -19,348 8.8%
The worst of two scenarios is used to measure basis risk:
- Narrowing basis swap spreads assuming that
the basis swap spreads are narrowed to zero from
their current level
- Widening basis swap spreads is based on basis swap
spread changes experienced during the euro area
crises in 2011.
FX risk
MuniFin Group’s FX risk strategy is in line with its
conservative market risk management. The Group
does not bear any material foreign exchange risk. The
Group’s lending and other customer finance items are
denominated in euros. FX risk is hedged by translating
all foreign currency denominated funding and liquidity
investments into euros using derivatives. However, due to
collateral management related to Central Counterparty
clearing (CCP) activities, the Group may temporarily incur
minor FX risk. The functionality of the cross-currency
derivative markets are always assessed before entering
into new funding or liquidity investments in order to ensure
that currency hedges can be put in place according to
hedging strategy in order to hedge all transactions back
to euros. Furthermore, all foreign currency denominated
funding transactions with early call options are hedged
fully for potential call situations.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The tables below present the breakdown of the Group’s financial assets and liabilities into domestic and foreign currency denominated items.
FINANCIAL ASSETS IN DOMESTIC AND FOREIGN CURRENCIES
31 Dec 2020
EUR , Domestic currency Foreign currency To t a l
Cash and balances with central banks 5,565,801 - 5,565,801
Loans and advances to credit institutions 1,680,218 161,635 1,841,853
Loans and advances to the public and public sector entities 27,146,828 - 27,146,828
Debt securities 5,718,838 44,375 5,763,214
Shares and participations 27 - 27
Other assets 243,269 - 243,269
Tot al 40,354,982 206,010 40,560,992
FINANCIAL LIABILITIES IN DOMESTIC AND FOREIGN CURRENCIES
31 Dec 2020
EUR , Domestic currency Foreign currency To t a l
Liabilities to credit institutions 2,001,478 - 2,001,478
Liabilities to the public and public sector entities 3,796,824 87,202 3,884,026
Debt securities issued 14,027,359 18,884,547 32,911,906
Provisions and other liabilities 77,723 159,489 237,212
Tot al 19,903,384 19,131,238 39,034,622
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL ASSETS IN DOMESTIC AND FOREIGN CURRENCIES
31 Dec 2019
EUR , Domestic currency Foreign currency To t a l
Cash and balances with central banks 4,909,338 - 4,909,338
Loans and advances to credit institutions 740,664 77,659 818,323
Loans and advances to the public and public sector entities 24,152,839 - 24,152,839
Debt securities 5,552,820 163,498 5,716,318
Shares and participations 9,797 - 9,797
Other assets 158,494 - 158,494
Tot al 35,523,952 241,156 35,765,108
FINANCIAL LIABILITIES IN DOMESTIC AND FOREIGN CURRENCIES
31 Dec 2019
EUR , Domestic currency Foreign currency To t a l
Liabilities to credit institutions 1,178,256 - 1,178,256
Liabilities to the public and public sector entities 3,688,168 173,885 3,862,053
Debt securities issued 7,899,909 22,083,677 29,983,585
Provisions and other liabilities 27,951 75,676 103,627
Tot al 12,794,283 22,333,237 35,127,521
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The tables below present the currency breakdown of the Group’s financial assets and liabilities at their carrying amount and their corresponding hedges.
DISTRIBUTION OF FINANCIAL ASSETS BY CURRENCY BASED
ON CARRYING AMOUNTS AND HEDGES
31 Dec 2020
EUR , USD NOK JPY CHF Other currencies To t a l
Loans and advances to credit institutions 159,986 3 768 361 517 161,635
Debt securities 44,375 - - - - 44,375
Other assets - - - - - -
Currency risk total 204,361 3 768 361 517 206,010
Hedging derivatives -44,375 - - - - -44,375
Tot al 159,986 3 768 361 517 161,635
DISTRIBUTION OF FINANCIAL LIABILITIES BY CURRENCY
BASED ON CARRYING AMOUNTS AND HEDGES
31 Dec 2020
EUR , USD NOK JPY CHF Other currencies To t a l
Long-term funding -7,432,620 -2,012,624 -1,957,647 -1,264,680 -2,788,493 -15,456,063
Short-term funding -3,515,686 - - - - -3,515,686
Provisions and other liabilities -159,489 - - - - -159,489
Currency risk total -11,107,796 -2,012,624 -1,957,647 -1,264,680 -2,788,493 -19,131,238
Hedging derivatives 10,948,306 2,012,624 1,957,647 1,264,680 2,788,493 18,971,749
Tot al -159,489 0 0 0 0 -159,489
Net currency position 497 3 768 361 517 2,146
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
DISTRIBUTION OF ASSETS BY CURRENCY BASED
ON CARRYING AMOUNTS AND HEDGES
31 Dec 2019
EUR , USD JPY NOK CHF Other currencies To t al
Loans and advances to credit institutions 76,712 52 3 364 529 77,659
Debt securities 105,001 - - 30,282 28,214 163,497
Other assets - - - - - -
Currency risk total 181,713 52 3 30,646 28,743 241,156
Hedging derivatives -105,001 - - -30,282 -28,214 -163,497
Tot al 76,712 52 3 364 529 77,659
DISTRIBUTION OF FINANCIAL LIABILITIES BY CURRENCY
BASED ON CARRYING AMOUNTS AND HEDGES
31 Dec 2019
EUR , USD JPY NOK CHF Other currencies To t al
Long-term funding -10,414,390 -2,989,036 -1,809,795 -1,216,650 -3,300,302 -19,730,173
Short-term funding -2,468,682 - - - -58,706 -2,527,388
Provisions and other liabilities -75,676 - - - - -75,676
Currency risk total -12,958,749 -2,989,036 -1,809,795 -1,216,650 -3,359,008 -22,333,238
Hedging derivatives 12,883,073 2,989,036 1,809,795 1,216,650 3,359,008 22,257,561
Tot al -75,676 - - - - -75,676
Net currency position 1,035 52 3 364 529 1,983
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Currency position
The currency position is calculated as the euro-denominated difference between assets
and liabilities in various currencies.
CURRENCY POSITION
EUR , Currency position
31 Dec 2020 2,146
31 Dec 2019 1,983
Price risk
Price risk refers to the possibility of changes in the market values of the prefunding liquidity
investments due to a change in the market’s required return as a consequence of a change
in the investment’s risk or in the market’s risk sensitivity. The liquidity portfolio spread risk is
managed in Group’s Treasury within the portfolio management framework. Main principle
in portfolio management is to guarantee a sufficient amount of earnings within the liquidity
requirements, such as LCR, NSFR and Survival horizon.
SPREAD RISK
EUR ,
Change in
required return Impact In relation to own funds
31 Dec 2020 0.18 p.p. -22,300 1.4%
31 Dec 2019 0.22 p.p. -22,200 1.5%
The change in required return is calculated at a 99% confidence level.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Fair valuation risk
MuniFin Group has identified fair valuation risk as material
risk for its operations. Unrealised fair value changes of
financial instruments increase the volatility of profits.
In addition to the profit, the Group’s own funds are also
affected by valuations measured at fair value through
other comprehensive income (OCI). The classification
and measurement of financial instruments are described
in more detail in the accounting policies (Note 1) in
Section Classification and measurement of financial
instruments. The volatility of the fair valued instruments
arises from changes in market risk factors, such as tenor
basis spreads as the spread between different interest
rate curves changes. In accordance with the market
practice and IFRS 13 standard, the Group discounts the
financial assets and liabilities measured at fair value and
the hedged items with the swap curve and the hedging
derivatives with the OIS curve, which causes a significant
part of the Group’s valuation volatility. The unrealised fair
value changes of financial instruments are recorded in
the income statement under line item Net income from
securities and foreign exchange transactions and they are
specified in Note 6. In addition, the unrealised fair values of
financial instruments in hedge accounting (both hedged
items and hedging instruments) are recorded under line
item Net income from hedge accounting and specified in
Note 9. The Group continuously monitors and analyses
the volatility arising from valuations and prepares for its
potential profitability and solvency impacts.
The COVID-19 pandemic caused market volatility,
especially in the spring, which was also reflected in
increased valuation volatility in MuniFin Group’s profit. The
market situation has since calmed down and volatility has
not been so significant towards the end of the year due
to the pandemic. Valuations have also returned close to
the levels at the beginning of the year. The Group has also
deliberately made changes to the allocation of its liquidity
portfolio and thereby sought to further reduce its already
low risk levels.
Operational risks
Operational risk refers to the risk of loss due to insufficient
or failed internal processes, insufficient or failed policies,
systems or external factors. Operational risks also
include risks arising from failure to comply with internal
and external regulation (compliance risk), legal risks
and reputational risk. Operational risks may result in
expenses, payable compensation, loss of reputation, false
information on position, risk and financial results or the
interruption of operations.
Operational risks are recognised as part of the Group’s
operations and processes. This has been implemented
with an annual mapping of operational risk, which is
carried out by departments through a self-assessment.
The operational risk management is the responsibility
of each function and department. In addition, the Risk
Management and Compliance departments support
the other functions and departments and have the
responsibility for coordinating the management of
operational risks.
MuniFin Group uses various methods for managing
operational risks. The Group has internal policies
approved by the Board and supplementing internal
guidelines approved by the management in order to guide
operations. Operational risks are also covered by the Risk
Appetite Framework approved by the Board of Directors
of the Parent Company. Key duties and processes
have been charted and described. Internal instructions
and processes are updated on a regular basis, and the
compliance with them is supervised. The tasks related
to business activities, risk control, back office functions,
documentation and accounting are separated. The
Group has adequate substitution systems to ensure the
continuity of key functions. The expertise of the personnel
is maintained and developed through regular development
discussions and training plans. MuniFin Group has
insurance policies related to its operations and assesses
the level of insurance cover on a regular basis. The Group
has a contingency plan for situations in which business
operations are interrupted. The plan is designed to ensure
that the Group is able to continue functioning and to limit
its losses in different disruptive scenarios. The annual
mapping of operational risks and the operational risk event
report process support the Group’s continuity planning.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin Group’s Compliance function continuously
monitors the development of legislation and regulations
issued by authorities relevant to the Group’s operations
and ensures that any regulatory changes are appropriately
responded to. The legislation and regulations concerning
the operations of credit institutions have faced significant
changes during the past few years and will continue to
change in the future, which creates challenges for the
Group’s compliance. The Group has tried to minimise
the risks related to this with an active contact with the
authorities and interest groups as well as organisation
of the Group’s internal compliance function (incl. system
support, reporting, evaluation of effects).
The Group has significant information system and
business process related projects aimed at improving
the quality, efficiency and regulatory compliance of
current operations. The extent of these projects creates
operational risks that the Group strives to minimise by
developing and implementing models related to project
management and monitoring (incl. regular reporting)
and ensuring sufficient resources. The risks related
to development projects are surveyed and monitored
regularly.
The Group has an approval process for new products and
services. The process aims to ensure that all material risks
and operational requirements are taken into account when
developing new products and services. The Group has
outsourcing arrangements of which the most important
are IT and infrastructure services. The realisation of
operational risks is monitored with systematic operational
risk event reporting, which is used to change operating
principles or implement other measures to reduce
operational risks where necessary. Operational risk events
are reported to the Executive Management Team and
the Board of Directors of the Parent Company. Only small
losses from operational risks have been realised during
2020.
The effects of the COVID-19 pandemic on the Group’s
continuity and operational risks in 2020 have been small.
The organisation’s transition to remote working did not
significantly increase operational risks or the resulting
losses. The functions and processes of the various
departments have been adapted on a fast schedule to suit
continuous remote working. In addition, efforts have been
made to improve internal communication and continuity, as
well as to reduce operational risks.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 3. Interest income and expense
Notes to the income statement
EUR ,
Interest and
similar income
Interest and
similar expense Net
Assets
Amortised cost
Cash and balances with central banks - -23,479 -23,479
Loans and advances to credit institutions 51 -6,035 -5,984
Loans and advances to the public and public sector entities 193,108 - 193,108
Debt securities 369 -3,247 -2,878
Other assets 251 - 251
Fair value through other comprehensive income
Debt securities - -1,063 -1,063
Designated at fair value through profit or loss
Debt securities 13,206 - 13,206
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 955 - 955
Debt securities - - -
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 71,077 -95,237 -24,160
Derivative contracts in hedge accounting -79,399 - -79,399
Leased assets 5,986 - 5,986
Interest on non-financial other assets 6 - 6
Interest on assets 205,610 -129,061 76,549
, of which interest income/expense according to the effective interest method 193,779 -33,824
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR ,
Interest and
similar income
Interest and
similar expense Net
Liabilities
Amortised cost
Liabilities to credit institutions 8,089 - 8,089
Liabilities to the public and public sector entities - -60,239 -60,239
Debt securities issued 1,971 -255,909 -253,937
Provisions and other liabilities - -2,062 -2,062
Designated at fair value through profit or loss
Liabilities to credit institutions - -49 -49
Liabilities to the public and public sector entities - -35,494 -35,494
Debt securities issued - -139,066 -139,066
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 317,265 -138,029 179,236
Derivative contracts in hedge accounting - 481,095 481,095
Interest on liabilities 327,325 -149,753 177,572
, of which interest income/expense according to the effective interest method 10,060 -318,210
Tot al 532,935 -278,814 254,121
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Interest income on stage 3 financial assets in the expected
credit loss (ECL) calculations totalled EUR 1,340 thousand
(EUR 373 thousand) during the financial year. These are
included in the line items Loans and advances to the public
and public sector entities and Leased assets.
Interest expense on provisions and other liabilities
includes EUR 91 thousand (EUR 109 thousand) of interest
on lease liabilities recognised in accordance with IFRS 16
Leases standard.
Interest expenses on financial assets at amortised cost
on cash and balances with central banks consists of
interest paid on central bank deposits and interest on
loans and advances to credit institutions of interest on
cash collateral receivables. Interest expenses on debt
securities consists of interest paid on short-term lending.
Negative interest arises on debt securities at fair value
through other comprehensive income due to the premium
/ discount amortisation of debt securities and commercial
papers. Interest expenses on derivative contracts at fair
value through profit or loss consist of negative interest
income on derivative contracts that are not included in
hedge accounting. The derivative contracts contained in
this line item hedge financial assets which are designated
at fair value through profit or loss, derivative contracts with
municipalities and derivative contracts hedging derivatives
with municipalities, in addition to derivative contracts
used for hedging interest rate risk of the balance sheet,
for which no hedged item has been specified. Derivative
contracts in hedge accounting hedge loans and advances
to the public and public sector entities.
Interest income on financial liabilities at amortised cost
to credit institutions consists of interest received on cash
collateral liabilities as well as on TLTRO III debt and interest
income on debt securities issued consists of interest
received on ECPs. Interest income on derivative contracts
at fair value through profit or loss consists of positive
interest expense on derivatives that are not included in
hedge accounting. Derivative contracts contained in this
line item hedge financial liabilities which are designated
at fair value through profit or loss. Derivative contracts
in hedge accounting are used as hedges for liabilities to
credit institutions, liabilities to the public and public sector
entities and debt securities issued.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR ,
Interest and
similar income
Interest and
similar expense Net
Assets
Amortised cost
Cash and balances with central banks - -18,992 -18,992
Loans and advances to credit institutions 741 -3,657 -2,916
Loans and advances to the public and public sector entities 191,481 - 191,481
Debt securities 149 -1,172 -1,024
Other assets 98 - 98
Fair value through other comprehensive income
Debt securities 0 -1,690 -1,690
Designated at fair value through profit or loss
Debt securities 20,024 - 20,024
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 1,364 - 1,364
Debt securities - 0 0
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 63,986 -91,324 -27,338
Derivative contracts in hedge accounting -78,835 - -78,835
Leased assets 4,969 - 4,969
Interest on non-financial other assets 6 - 6
Interest on assets 203,981 -116,834 87,147
, of which interest income/expense according to the effective interest method 192,468 -25,510
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR ,
Interest and
similar income
Interest and
similar expense Net
Liabilities
Amortised cost
Liabilities to credit institutions 4,378 -1,569 2,809
Liabilities to the public and public sector entities - -64,333 -64,333
Debt securities issued 3,305 -362,051 -358,745
Provisions and other liabilities - -2,199 -2,199
Designated at fair value through profit or loss
Liabilities to credit institutions - -1,245 -1,245
Liabilities to the public and public sector entities - -36,018 -36,018
Debt securities issued - -103,427 -103,427
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 554,916 -335,447 219,469
Derivative contracts in hedge accounting - 496,796 496,796
Interest on liabilities 562,600 -409,492 153,107
, of which interest income/expense according to the effective interest method 7,683 -430,151
Tot al 766,581 -526,326 240,255
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 4. Commission income
Note 5. Commission expense
The following table presents commission income from the contracts with
customers divided by service type.
EUR , 2020 2019
Financial advisory services 2,158 2,903
Digital services 676 579
Other operations 0 8
Tot al 2,834 3,490
EUR 2,812 thousand (EUR 3,481 thousand) out of commission income from the contracts
with customers has been received from municipalities, joint municipal authorities and munic-
ipality-controlled entities.
MuniFin Group does not disclose segment information of IFRS 8 standard in the Consol-
idated Financial Statements as the Group operates in a single segment, which also forms
the basis of reporting to the Group’s chief operating decision-maker. Information regarding
segment reporting can be found in the accounting policies (Note 1) in Section Segment
reporting.
The commissions for advisory services are mainly charged from the customer after the ser-
vice has been performed in accordance with the terms of the agreement and commission
for digital services are charged once a year and recognised over time. Other commissions
are charged and recognised at the time of the service is provided. The accounting treatment
of the commission income from the contracts with customers is presented in the accounting
policies (Note 1) in Section Commission income and expenses.
EUR , 2020 2019
Commission fees paid 669 183
Other * 4,396 4,052
Tot al 5,066 4,235
* Line item includes paid guarantee fees, custody fees and funding programme
update costs.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 6. Net income from securities and foreign exchange transactions
EUR , Capital gains Capital losses Change in fair value Tot a l
Financial assets
Designated at fair value through profit or loss
Debt securities 853 - 16,750 17,603
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities - - -515 -515
Debt securities - - - -
Shares and participations - -111 231 119
Financial liabilities
Designated at fair value through profit or loss
Issued commercial papers - - 1,318 1,318
Liabilities to credit institutions - - 418 418
Liabilities to the public and public sector entities - - -25,235 -25,235
Debt securities issued - - 55,304 55,304
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 3,878 -1,008 -55,499 -52,629
Day 1 gain or loss - - -29 -29
Total net income from securities transactions 4,732 -1,119 -7,257 -3,644
Net income from foreign exchange transactions 37,031 -34,380 -6,797 -4,146
Tot al 41,763 -35,500 -14,053 -7,790
Net income from securities transactions includes fair value changes of financial assets and liabilities measured at fair value through profit or loss, fair value changes of derivative contracts
not included in hedge accounting (derivative contracts at fair value through profit or loss) as well as capital gains and losses related to these items. Net income from foreign exchange
transactions includes unrealised and realised translation differences for all items denominated in foreign currencies. The definition for Day 1 gain or loss is presented in the accounting
policies (Note 1) in Section Determination of fair value. The reconciliation for Day 1 gain or loss is presented in Note 17 Fair values of financial assets and liabilities.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR , Capital gains Capital losses Change in fair value To t a l
Financial assets
Designated at fair value through profit or loss
Debt securities 2,468 - -1,797 672
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities - - -79 -79
Debt securities - -1 8 7
Shares and participations 37 - 275 312
Financial liabilities
Designated at fair value through profit or loss
Issued commercial papers - - -1,941 -1,941
Liabilities to credit institutions - - 1,360 1,360
Liabilities to the public and public sector entities - - -78,173 -78,173
Debt securities issued - - -545,095 -545,095
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 6 -2,032 590,161 588,135
Total net income from securities transactions 2,511 -2,033 -35,279 -34,801
Net income from foreign exchange transactions 14,471 -10,827 -2,215 1,428
Tot al 16,982 -12,861 -37,494 -33,373
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 7. Financial assets and liabilities designated at fair value through profit or loss
FINANCIAL ASSETS AND LIABILITIES DESIGNATED AT FAIR VALUE
THROUGH PROFIT OR LOSS
EUR ,
Nominal value
31 Dec 2020
Carrying amount
31 Dec 2020
Nominal value
31 Dec 2019
Carrying amount
31 Dec 2019
Financial assets
Debt securities * 3,912,451 4,029,859 3,843,076 3,940,456
Total financial assets 3,912,451 4,029,859 3,843,076 3,940,456
Financial liabilities
Liabilities to credit institutions 25,000 24,558 - -
Liabilities to the public sector entitities 1,908,373 1,637,674 1,870,254 1,548,639
Debt securities issued 10,927,113 10,454,282 11,855,073 11,391,573
Total financial liabilities 12,860,486 12,116,514 13,725,327 12,940,212
* Debt securities designated at fair value through profit or loss are exposed to credit risk up to the carrying amounts of those securities at 31 Dec 2020 and 31 Dec 2019.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
CHANGE IN FAIR VALUE OF FINANCIAL ASSETS DESIGNATED
AT FAIR VALUE THROUGH PROFIT OR LOSS
EUR , 31 Dec 2020 1 Jan 2020
Fair value change
recognised in the
income statement
2020
, of which due
to credit risk
, of which due
to market risk
Financial assets
Debt securities 69,859 53,109 16,750 3,203 13,547
Total financial assets 69,859 53,109 16,750 3,203 13,547
Financial assets that MuniFin Group has designated at fair value through profit or loss include debt securities in the liquidity portfolio of which the interest rate risk is hedged with interest
rate and cross currency interest rate swaps. The designation is made as it significantly reduces accounting mismatch which would otherwise arise from measuring the derivative contract at
fair value through profit or loss and the debt security at fair value through other comprehensive income based on the IFRS 9 business model. MuniFin Group does not have credit derivatives
hedging these financial assets.
CHANGE IN FAIR VALUE OF FINANCIAL LIABILITIES DESIGNATED
AT FAIR VALUE THROUGH PROFIT OR LOSS
EUR , 31 Dec 2020 1 Jan 2020
Fair value change
recognised in the
income statement
2020
Change in own credit
risk recognised in the
other comprehensive
income
2020
Total fair value
change in
2020
Financial liabilities
Liabilities to credit institutions 418 - 418 - 418
Liabilities to the public sector entitities -244,146 -218,911 -25,235 -813 -26,048
Debt securities issued 385,424 328,802 56,622 -15,739 40,883
Total financial liabilities 141,696 109,891 31,805 -16,551 15,254
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
NET CHANGE IN FAIR VALUE IN NET INCOME FROM SECURITIES TRANSACTIONS
EUR ,
Cumulative change in
fair value
31 Dec 2020
Fair value change
recognised in the income
statement
2020
Financial liabilities designated at fair value through profit or loss 141,696 31,805
Derivative contracts at fair value through profit or loss hedging financial liabilities -167,847 -36,391
Net change in fair value -26,151 -4,586
MuniFin Group has designated short-term debt
instruments denominated in foreign currencies,
which have been hedged with FX swaps, at fair value
through profit or loss. The designation reduces
accounting mismatch which would otherwise arise
between the measurement of the derivative contract
and financial liability. Financial liabilities designated at fair
value through profit or loss consist of financial liabilities,
which have been hedged according to the Group’s risk
management policy, but which are not subject to IFRS 9
fair value hedge accounting. The fair value changes of
the financial liabilities impact the income statement, but
as they have been hedged, the expected profit or loss is
restricted to interest. The table above describes the net
impact of these financial liabilities and their hedges on
the income statement.
When a financial liability is designated at fair value through
profit or loss, the fair value change, with exception to
MuniFin’s own credit risk that is presented in other
comprehensive income as change of the own credit
revaluation reserve, is presented in Net income from
securities transactions.
MuniFin Group applies the income approach of IFRS 13 to
the separation of fair value changes related to changes in
own credit risk from the fair value changes of the financial
liability. For the majority of financial liabilities designated at
fair value through profit or loss, no market price is available
as there is no active secondary market. The methodology
for separation of own credit risk utilises MuniFin’s
benchmark curves, cross currency basis spreads and
credit spreads of MuniFin’s issued debt securities on
the primary market as input. Based on the aforementioned
inputs, valuation curves can be constructed for various
reporting periods for valuing financial liabilities designated
at fair value through profit or loss. By comparing fair
values calculated using the trade date and reporting date,
the impact of change in own credit risk on the fair value of
the financial liability can be determined.
Financial liabilities designated at fair value through profit or
loss are not traded.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
CHANGE IN FAIR VALUE OF FINANCIAL ASSETS DESIGNATED AT
FAIR VALUE THROUGH PROFIT OR LOSS
EUR , 31 Dec 2019 1 Jan 2019
Fair value change
recognised in the
income statement
2019
, of which due to
credit risk
, of which due to
market risk
Financial assets
Debt securities 53,109 54,906 -1,797 -2,788 991
Total financial assets 53,109 54,906 -1,797 -2,788 991
CHANGE IN FAIR VALUE OF FINANCIAL LIABILITIES DESIGNATED
AT FAIR VALUE THROUGH PROFIT OR LOSS
EUR , 31 Dec 2019 1 Jan 2019
Fair value change
recognised in the
income statement
2019
Change in own credit
risk recognised in the
other comprehensive
income
2019
Total fair value
change in
2019
Financial liabilities
Liabilities to credit institutions - -1,360 1,360 39 1,399
Liabilities to the public sector entitities -218,911 -140,738 -78,173 9,281 -68,891
Debt securities issued 328,802 875,841 -547,039 1,004 -546,035
Total financial liabilities 109,891 733,743 -623,852 10,325 -613,527
NET CHANGE IN FAIR VALUE IN NET INCOME FROM SECURITIES TRANSACTIONS
EUR ,
Cumulative change
in fair value
31 Dec 2019
Fair value change
recognised in
the income statement
2019
Financial liabilities designated at fair value through profit or loss 109,891 -623,852
Derivative contracts at fair value through profit or loss hedging financial liabilities -131,456 590,431
Net change in fair value -21,564 -33,421
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 8. Net income on financial assets at fair value through other comprehensive income
EUR , 2020 2019
Capital gains from financial assets - 36
Capital losses from financial assets -3 -11
Unrealised gains transferred from fair value reserve - 100
Unrealised losses transferred from fair value reserve - -11
Tot al -3 114
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 9. Net income from hedge accounting
EUR , 2020 2019
Unrealised gains from hedging instruments 317,380 410,768
Unrealised losses from hedging instruments -100,701 -38,098
Net income from hedging instruments 216,679 372,670
Unrealised gains from hedged items 135,530 17,021
Unrealised losses from hedged items -345,985 -408,787
Net income from hedged items -210,455 -391,767
IBOR reform related compensations * -2,041 -
Net income from hedge accounting 4,183 -19,097
* Compensations relate to the ongoing IBOR reform of which more information is presented in the accounting policies
(Note 1) in Section IBOR reform.
Unrealised gains and losses from hedged items include
fair value of the risks to which fair value hedge accounting
is applied and which are measured at fair value. The foreign
exchange difference of both hedging instruments and
hedged items are presented on line item Net income from
foreign exchange transactions in Note 6. A specification
of the net income from hedge accounting is presented in
Note 26.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 10. Impact of the reclassified financial assets and liabilities
FINANCIAL ASSETS
EUR ,
Original
measurement
category under
IAS 39
New measurement
category under
IFRS 9
Fair value
31 Dec 2020
Fair value gain
or loss for the
financial year *
EIR
determined as at
1 Jan 2018 **
Interest revenue
recognised during
2020
Loans and advances to the public and public sector entities Fair value option Amortised cost 113,143 1,119 0.14% 187
* The fair value gain or loss that would have been recognised in the income statement during the financial year if the financial assets had not been reclassified.
** Effective interest rate determined on the date of initial application.
FINANCIAL ASSETS
EUR ,
Original
measurement
category under
IAS 39
New measurement
category under
IFRS 9
Fair value
31 Dec 2019
Fair value gain
or loss for the
financial year
EIR
determined as at 1
Jan 2018
Interest revenue
recognised during
2019
Loans and advances to the public and public sector entities Fair value option Amortised cost 126,171 225 0.14% 203
The following table shows the impact of reclassification of financial assets in the
implementation of IFRS 9 standard (as of 1 Jan 2018) from at fair value through profit or loss
under IAS 39 into amortised cost under IFRS 9 standard. MuniFin Group did not reclassify
any financial liabilities from fair value through profit or loss into amortised cost.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 11. Other operating income
EUR , 2020 2019
Other income from credit institution operations * 127 135
Tot al 127 135
* Line item includes fees from lending and capital gains from sold tangible assets.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 12. Administrative expenses
EUR , 2020 2019
Personnel expenses
Wages and salaries 14,925 14,519
Pension costs 2,290 2,623
Other social security expenses 481 410
Total personnel expenses 17,696 17,553
Other personnel related costs 1,233 2,179
Marketing and communication expenses 726 1,515
IT and information expenses 12,605 10,458
Other administrative expenses 744 563
Tot al 33,004 32,268
2020 2019
PERSONNEL Average End of year Average End of year
Permanent full-time 157 154 148 155
Permanent part-time 2 3 4 4
Fixed term 8 8 10 8
Tot al 167 165 162 167
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 13. Other operating expenses
EUR , 2020 2019
Regulatory expenses
Contributions to the Single Resolution Fund 5,163 4,328
Other administrative and supervisory fees 2,227 2,179
Rental expenses 375 396
External services 5,171 9,025
Credit rating fees 894 926
Audit fees 394 274
Insurances 358 301
Other expenses from credit institution operations 28 197
Tot al 14,610 17,626
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 14. Credit losses and impairments on financial assets
MuniFin Group’s credit risks are described in Note 2 Risk management principles and the Group’s risk position in Section Credit Risk. The accounting policies of the expected credit loss
calculations and impairment stages are described in the accounting policies (Note 1) in Section Impairment of financial assets.
CREDIT LOSSES AND IMPAIRMENTS
EUR ,
Expected credit losses Realised credit losses
Additions Subtractions
Recognised in the
income statement Additions Subtractions
Recognised in the
income statement
Expected credit losses on financial assets at amortised cost
Cash and balances with central banks 0 0 0 - - -
Loans and advances to credit institutions -36 21 -15 - - -
Loans and advances to the public and public sector entities -1,026 121 -904 - - -
Leased assets in Loans and advances to the public and public sector entities -1 0 -1 - - -
Debt securities 0 0 0 - - -
Cash collateral to CCPs in Other assets -2 2 0 - - -
Credit commitments (off-balance sheet) -3 3 0 - - -
Total expected credit losses on financial assets at amortised cost -1,068 148 -920 - - -
Expected credit losses and impairments on other financial assets
Debt securities at fair value through other comprehensive income -29 92 62 - - -
Guarantee receivables from the public and public sector entities in Other assets - - - - - -
Total expected credit losses and impairments on other financial assets -29 92 62 - - -
Tot al -1,097 240 -857 - - -
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
CREDIT LOSSES AND IMPAIRMENTS
EUR ,
Expected credit losses Realised credit losses
Additions Subtractions
Recognised in the
income statement Additions Subtractions
Recognised in the
income statement
Expected credit losses on financial assets at amortised cost
Cash and balances with central banks 0 0 0 - - -
Loans and advances to credit institutions -1 24 22 - - -
Loans and advances to the public and public sector entities -159 49 -110 -180 - -180
Leased assets in Loans and advances to the public and public sector entities -1 0 -1 - - -
Debt securities 0 0 0 - - -
Cash collateral to CCPs in Other assets -1 1 0 - - -
Credit commitments (off-balance sheet) -3 2 -1 - - -
Total expected credit losses on financial assets at amortised cost -166 77 -89 -180 - -180
Expected credit losses and impairments on other financial assets
Debt securities at fair value through other comprehensive income -53 170 117 - - -
Guarantee receivables from the public and public sector entities in Other assets - - - - 180 180
Total expected credit losses and impairments on other financial assets -53 170 117 - 180 180
Tot al -219 247 28 -180 180 0
During the financial year 2019 MuniFin Group wrote-off loans and advances to the public and public sector entities totalling EUR 180 thousand. The Group has real estate collaterals and
state deficiency guarantees to fully cover these loans. The written-off receivables are shown in the statement of financial position on line Guarantee receivables from the public and public
sector entities under Other assets and shown as a decrease of the write-offs recoveries in the income statement. Thus the Group will not incur final credit losses.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 15. Income tax expense
EUR , 2020 2019
Tax based on the profit for the financial year 5,604 2,067
Tax based on the profit for previous financial years 9 -7
Deferred tax 33,228 24,247
Tot al 38,840 26,307
Profit before tax 194,141 131,239
Taxes at domestic tax rate 38,828 26,248
Other deductibles -8 -10
Non-deductible expenses 11 76
Taxes for previous financial years 9 -7
Taxes in the income statement 38,840 26,307
Income tax percentage 20.0% 20.0%
Effective tax base 20.0% 20.0%
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 16. Financial assets and liabilities
Notes to the statement of financial position and other notes
FINANCIAL ASSETS
31 Dec 2020 (EUR 1,000) Amortised cost
Fair value
through other
comprehensive
income
Designated at
fair value through
profit or loss
Mandatorily at
fair value through
profit or loss
Fair value through
profit or loss To t al Fair value
Cash and balances with central banks 5,565,801 - - - - 5,565,801 5,565,801
Loans and advances to credit institutions 1,841,853 - - - - 1,841,853 1,841,853
Loans and advances to the public and public sector
entities * 27,102,391 - - 44,438 - 27,146,828 29,643,718
Debt securities 1,310,305 423,050 4,029,859 - - 5,763,214 5,763,793
Shares and participations - - - 27 - 27 27
Derivative contracts at fair value through profit or loss - - - - 833,293 833,293 833,293
Derivative contracts in hedge accounting - - - - 1,524,870 1,524,870 1,524,870
Other assets ** 243,269 - - - - 243,269 243,269
Tot al 36,063,619 423,050 4,029,859 44,465 2,358,163 42,919,155 45,416,624
* Line item includes EUR 215,444 thousand of leased assets for which the Group applies fair value hedge accounting. Unhedged leased assets are not presented in this Note of financial
assets and liabilities as leased assets are not regarded as financial assets for the purpose of IFRS 9 classification.
** Line item includes cash collateral given to central counterparties.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL LIABILITIES
31 Dec 2020 (EUR 1,000) Amortised cost
Designated at
fair value through
profit or loss
Fair value through
profit or loss Tot a l Fair value
Liabilities to credit institutions 1,976,920 24,558 - 2,001,478 2,001,414
Liabilities to the public and public sector entities 2,246,352 1,637,674 - 3,884,026 3,906,619
Debt securities issued 22,457,624 10,454,282 - 32,911,906 32,968,471
Derivative contracts at fair value through profit or loss - - 1,403,900 1,403,900 1,403,900
Derivative contracts in hedge accounting - - 1,456,670 1,456,670 1,456,670
Provisions and other liabilities * 237,212 - - 237,212 237,212
Tot al 26,918,108 12,116,514 2,860,570 41,895,193 41,974,287
* Line item includes EUR 231,180 thousand of cash collateral received from central counterparties and EUR 6,032 thousand of lease liabilities in accordance with IFRS 16 standard.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL ASSETS
DEC EUR ,
Amortised
cost
Fair value
through other
comprehensive
income
Designated at
fair value through
profit or loss
Mandatorily at
fair value through
profit or loss
Fair value through
profit or loss Tot al Fair value
Cash and balances with central banks 4,909,338 - - - - 4,909,338 4,909,338
Loans and advances to credit institutions 818,323 - - - - 818,323 818,323
Loans and advances to the public and public sector entities * 24,101,739 - - 51,100 - 24,152,839 26,260,550
Debt securities 804,358 971,505 3,940,456 - - 5,716,318 5,716,940
Shares and participations - - - 9,797 - 9,797 9,797
Derivative contracts at fair value through profit or loss - - - - 860,695 860,695 860,695
Derivative contracts in hedge accounting - - - - 1,384,303 1,384,303 1,384,303
Other assets ** 158,494 - - - - 158,494 158,494
Tot al 30,792,252 971,505 3,940,456 60,896 2,244,997 38,010,106 40,118,439
* Line item includes EUR 182,865 thousand of leased assets for which the Group applies fair value hedge accounting.
** Line item includes cash collateral given to central counterparties.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL LIABILITIES
31 Dec 2019 (EUR 1,000) Amortised cost
Designated at
fair value through
profit or loss
Fair value through
profit or loss Tot a l Fair value
Liabilities to credit institutions 1,178,256 - - 1,178,256 1,178,371
Liabilities to the public and public sector entities 2,313,414 1,548,639 - 3,862,053 3,886,369
Debt securities issued 18,592,012 11,391,573 - 29,983,585 30,034,713
Derivative contracts at fair value through profit or loss - - 918,706 918,706 918,706
Derivative contracts in hedge accounting - - 843,304 843,304 843,304
Provisions and other liabilities * 103,627 - - 103,627 103,627
Tot al 22,187,310 12,940,212 1,762,010 36,889,532 36,965,091
* Line item includes EUR 96,239 thousand of cash collateral received from central counterparties and EUR 7,388 thousand of lease liabilities in accordance with IFRS 16 standard.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 17. Fair values of financial assets and liabilities
Fair value is the price that would be received to sell the as-
set or paid to transfer the liability in an orderly transaction
between market participants at the measurement date.
The Group measures fair values using the following fair val-
ue hierarchy, which reflects the significance of the inputs
used in making the fair value measurements:
Level 1
Inputs that are quoted market prices (unadjusted) for
identical instruments in active markets that the Group
can access at the measurement date. The market is
considered to be active if trading is frequent and price
data is regularly available. These quotes (mid) represent
the price for an orderly transaction between parties in the
market on the valuation date. Level 1 instruments comprise
mainly investments in debt securities.
Level 2
Inputs other than quoted prices included within level 1 that
are observable either directly (i.e. as prices) or indirectly
(i.e. derived from prices). This level includes instruments
valued using quoted prices for identical instruments in
markets that are considered less than active or other
valuation techniques in which all significant inputs are
directly or indirectly observable from market data.
Level 2 instruments comprise mainly OTC derivatives,
Group’s issued plain-vanilla financial liabilities and
Group’s lending agreements.
Level 3
This level includes all instruments for which the valuation
technique includes inputs that are not observable and
the unobservable inputs have a significant effect on the
instrument’s valuation. Unobservable inputs are used
only to the extent that no relevant observable inputs are
available. If the valuation input is illiquid, extrapolated
or based on historical prices, the valuation input will be
defined as a level 3 valuation input as these types of
inputs are per definition unobservable. This level includes
financial instruments with equity and FX structures due
to impact of the utilisation of inputs such as dividend
yield on the fair value measurement. In addition, level 3
contains some interest rate structures with long maturities
(exceeding e.g. 35 years) or in currencies where the
interest rate curve is not considered liquid for all maturities.
Due to the nature of MuniFin Group’s funding portfolio
(i.e. issued bond is hedged back-to-back), if a swap that
is hedging an issued bond is designated as a level 3
instrument, then the issued bond will also be designated
as a level 3 instrument. Same principle applies to other
portfolios and levels of the hierarchy as well. In addition
to financial assets and liabilities, the Group does not hold
other assets or liabilities which are measured at fair value
or assets or liabilities which are non-recurringly measured
at fair value.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The following table presents financial instruments by the level of the fair value hierarchy into which the fair value measurement is categorised.
FINANCIAL ASSETS
31 Dec 2020 (EUR 1,000) Carrying amount
Fair value
Level 1 Level 2 Level 3 To t al
At fair value
Fair value through other comprehensive income
Debt securities 423,050 321,308 101,741 - 423,050
Designated at fair value through profit or loss
Debt securities 4,029,859 3,922,131 107,728 - 4,029,859
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 44,438 - 702 43,735 44,438
Shares and participations 27 - - 27 27
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 833,293 - 753,841 79,452 833,293
Derivative contracts in hedge accounting 1,524,870 - 1,524,298 572 1,524,870
Total at fair value 6,855,536 4,243,439 2,488,310 123,787 6,855,536
In fair value hedge accounting
Amortised cost
Loans and advances to the public and public sector entities 11,829,557 - 12,614,580 - 12,614,580
Total in fair value hedge accounting 11,829,557 - 12,614,580 - 12,614,580
At amortised cost
Cash and balances with central banks 5,565,801 5,565,801 - - 5,565,801
Loans and advances to credit institutions 1,841,853 298,085 1,543,769 - 1,841,853
Loans and advances to the public and public sector entities 15,272,833 - 16,984,700 - 16,984,700
Debt securities 1,310,305 - 1,310,885 - 1,310,885
Other assets 243,269 - 243,269 - 243,269
Total at amortised cost 24,234,062 5,863,886 20,082,621 - 25,946,507
Total financial assets 42,919,155 10,107,325 35,185,512 123,787 45,416,624
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL LIABILITIES
31 Dec 2020 (EUR 1,000)
Carrying amount
Fair value
Level 1 Level 2 Level 3 To t al
At fair value
Designated at fair value through profit or loss
Liabilities to credit institutions 24,558 - 24,558 - 24,558
Liabilities to the public and public sector entities 1,637,674 - 1,413,261 224,413 1,637,674
Debt securities issued 10,454,282 - 8,328,568 2,125,714 10,454,282
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 1,403,900 - 757,607 646,293 1,403,900
Derivative contracts in hedge accounting 1,456,670 - 1,432,280 24,391 1,456,670
Total at fair value 14,977,085 - 11,956,273 3,020,811 14,977,085
In fair value hedge accounting
Amortised cost
Liabilities to credit institutions 68,800 - 68,736 - 68,736
Liabilities to the public and public sector entities 2,246,352 - 2,268,946 - 2,268,946
Debt securities issued * 22,077,489 - 22,040,007 94,048 22,134,054
Total in fair value hedge accounting 24,392,642 - 24,377,688 94,048 24,471,736
At amortised cost
Liabilities to credit institutions 1,908,120 - 1,908,120 - 1,908,120
Debt securities issued 380,134 - 380,134 - 380,134
Provisions and other liabilities 237,212 - 237,212 - 237,212
Total at amortised cost 2,525,467 - 2,525,467 - 2,525,467
Total financial liabilities 41,895,193 - 38,859,428 3,114,859 41,974,287
* MuniFin Group’s fixed-rate benchmark bond issuances are presented on level 2 due the fact that these bonds are in fair value hedge accounting with respect to the hedged risk.
Valuation of the hedged risk is based on the level 2 inputs. In the Notes of the Financial Statements the Group’s fixed-rate benchmark bonds’ fair values are adjusted to reflect fair value
based on the quoted prices from Bloomberg. The market price is a level 1 input.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL ASSETS
31 Dec 2019 (EUR 1,000) Carrying amount
Fair value
Level 1 Level 2 Level 3 To t al
At fair value
Fair value through other comprehensive income
Debt securities 971,505 798,874 172,631 - 971,505
Designated at fair value through profit or loss
Debt securities 3,940,456 3,812,154 128,302 - 3,940,456
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 51,100 - 1,072 50,028 51,100
Shares and participations 9,797 9,797 - - 9,797
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 860,695 - 727,687 133,007 860,695
Derivative contracts in hedge accounting 1,384,303 - 1,380,574 3,728 1,384,303
Total at fair value 7,217,853 4,620,824 2,410,266 186,764 7,217,853
In fair value hedge accounting
Amortised cost
Loans and advances to the public and public sector entities 8,729,122 - 9,336,784 - 9,336,784
Total in fair value hedge accounting 8,729,122 - 9,336,784 - 9,336,784
At amortised cost
Cash and balances with central banks 4,909,338 4,909,338 - - 4,909,338
Loans and advances to credit institutions 818,323 136,694 681,629 - 818,323
Loans and advances to the public and public sector entities 15,372,617 - 16,872,666 - 16,872,666
Debt securities 804,358 - 804,980 - 804,980
Other assets 158,494 - 158,494 - 158,494
Total at amortised cost 22,063,130 5,046,032 18,517,769 - 23,563,801
Total financial assets 38,010,106 9,666,857 30,264,818 186,764 40,118,439
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL LIABILITIES
31 Dec 2019 (EUR 1,000) Carrying amount
Fair value
Level 1 Level 2 Level 3 To t al
At fair value
Designated at fair value through profit or loss
Liabilities to credit institutions - - - - -
Liabilities to the public and public sector entities 1,548,639 - 1,409,955 138,684 1,548,639
Debt securities issued 11,391,573 - 8,313,844 3,077,729 11,391,573
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 918,706 - 460,463 458,243 918,706
Derivative contracts in hedge accounting 843,304 - 830,658 12,646 843,304
Total at fair value 14,702,222 - 11,014,920 3,687,302 14,702,222
In fair value hedge accounting
Amortised cost
Liabilities to credit institutions 82,916 - 83,031 - 83,031
Liabilities to the public and public sector entities 2,313,414 - 2,337,730 - 2,337,730
Debt securities issued 18,391,689 - 18,291,146 151,671 18,442,817
Total in fair value hedge accounting 20,788,019 - 20,711,908 151,671 20,863,579
At amortised cost
Liabilities to credit institutions 1,095,340 - 1,095,340 - 1,095,340
Debt securities issued 200,323 - 200,323 - 200,323
Provisions and other liabilities 103,627 - 103,627 - 103,627
Total at amortised cost 1,399,291 - 1,399,291 - 1,399,291
Total financial liabilities 36,889,532 - 33,126,119 3,838,973 36,965,091
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
All valuation models, both complex and simple models,
use market prices and other inputs. These market prices
and inputs comprise interest rates, FX rates, volatilities,
correlations, etc. The Group applies different types of
valuation inputs depending on the type and complexity
of the instruments and the related risk factors and payoff
structures. The Group’s defined categorisation to the fair
value hierarchy levels is based on the analysis performed
with regards to the valuation input, stress testing
(reasonable possible alternative assumption) and model
complexity. If the inputs used to measure fair value are
categorised into different levels on the fair value hierarchy,
the fair value measurement is categorised in its entirety on
the level of the lowest level input that is significant to the
entire measurement.
IFRS 13 classifies valuation models and techniques into
three different categories: Market approach, Income
approach and Cost approach. The Group applies the
market-based approach when the instrument has a
functioning market and public price quotations are
available. The Group uses the market approach for the
valuation of investment bonds of the liquidity portfolio.
For all level 1 assets, the Group uses market prices
available for identical assets (same ISIN). The Group
does not make use of prices for comparable assets.
Income approach is applied when valuation is based, for
example, on determining the present value of future cash
flows (discounting). Valuation methods take into account
an assessment of the credit risk, discount rates used,
the possibility of early repayment and other factors that
influence the fair value of a financial instrument reliably.
The Group uses the income approach for many of its
financial instruments, for example derivatives, lending and
funding. The Group does not use the cost approach for the
valuation of any of its financial instruments.
The Group uses widely recognised valuation models to
determine the fair value of common and simple financial
instruments, such as interest rate and currency swaps,
that use only observable market data and require little
management judgement and estimation. Observable
prices or model inputs are usually available in the market
for listed debt and equity securities and simple OTC
derivatives such as interest rate swaps. The availability
of observable market prices and model inputs reduces
the need for management judgement and estimation and
reduces the uncertainty associated with determining fair
values. The availability of observable market prices and
inputs varies depending on the products and markets and
is prone to changes based on specific events and general
conditions in the financial markets.
MuniFin Group applies different models in order to derive
the fair value of a certain type of instruments. The choice of
base models and its calibration depends on the complexity
of the financial instrument and the observability of the
relevant inputs. In line with market practice, the primary
choice of base model is contingent on the underlying
instrument classes. Additionally, instruments are broken
down into different categories granular enough to capture
the most important risk drivers and different kind of
calibration techniques. The specific combination of base
models and the different assumptions and calibrations
techniques are documented. The Group’s fair value
instruments that are subject to mark-to-model valuation
techniques consist of four asset classes:
- Interest rate instruments,
- Foreign exchange instruments,
- Equity-linked instruments and
- Hybrid instruments.
Financial instruments under FX, equity and hybrid classes
are mainly classified as level 3 instruments.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Fair value of financial instruments is generally calculated
as the net present value of the individual instruments.
This calculation is supplemented by counterparty level
adjustments. The Group incorporates credit valuation
adjustments (CVA) and debit valuation adjustments (DVA)
into derivative valuations. CVA reflects the impact of the
counterparty’s credit risk on fair value and DVA MuniFin’s
own credit quality. The Group uses the same methodology
to compute CVA and DVA. They are both assessed as the
result of three inputs: Loss Given Default (LGD), Probability
of Default (PD, own for DVA and of the counterparty for
CVA), Expected Exposure (EE).
Valuation framework
MuniFin Group has implemented a framework for the
arrangements, activities and procedures with regards
to the Group’s model risk management. The purpose of
the model risk management framework is to ensure the
effective management of model risk and mitigation of fair
value uncertainty, as well as to ensure compliance with
external and internal requirements. The Group ensures
that all aspects of the lifecycle of valuation models
(i.e. approval, design and development, testing and
maintenance, monitoring and execution) are subject to
effective governance, clear roles and responsibilities and
effective internal control.
The Group manages and maintains a model inventory
which provides a holistic view of all valuation models,
their business purpose and characteristics as well as
their applications and conditions for use. Executive
Management Team (EMT) is responsible for the approval
of new valuation models (including limitations and
conditions of use) and material changes to existing
models. All approved valuation models within the model
inventory are subject to annual review and re-approval by
the EMT.
Valuation Control Group (VCG) monitors MuniFin Group’s
fair values and is responsible for the final approval of the
Group’s fair values for financial reporting. VCG monitors
and controls MuniFin Group’s valuation process and
the performance of valuation models, decides on the
necessary measures and reports to the EMT. VCG
assesses whether the valuation models and valuation
process provide sufficiently accurate information to be
used in financial reporting and, based on the information
received, decides on possible adjustments to the values
generated by the valuation process.
The Group has implemented an efficient control and
performance monitoring framework with regards to its
valuation models, which aims to ensure the accuracy and
appropriateness of model output. The model performance
monitoring consists of four main controls:
- Counterparty valuation control (CVC),
- Fair value explanation,
- Independent price verification (IPV) and
- Independent model validation.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Counterparty valuation control (CVC) is performed daily
by Risk Management, who assesses any deviations in
valuation model output compared to MuniFin Group’s own
earlier valuations and to counterparty valuations. The
results of the assessment are reported monthly to the
VCG. Fair value explanation process consists of a daily
analysis and explanation of the changes in fair values by
Risk Management and a monthly fair value explanation
report to the VCG. The independent price verification
is performed monthly as part of MuniFin Group’s IPV
process by a third party service provider. The results of
the control activities are reported monthly to the VCG. The
independent model validation is performed annually for
a subset of MuniFin Group’s valuation models by a third-
party service provider. The results of the model validation
are reported to the VCG.
Transfers in the fair value hierarchy
MuniFin Group assesses the appropriateness and
correctness of the categorisation with regards to the fair
value hierarchy classification at initial recognition and
at the end of each reporting period. This is to determine
the initial classification of a level 1, 2 and 3 instrument and
the subsequent potential transfers between levels within
the fair value hierarchy. A transfer between the fair value
hierarchies can occur for example when a previously
assumed observed input requires an adjustment using
an unobservable input. The procedure is the same for
transfers into and out of the fair value levels. Transfers
between the levels are considered to take place at the end
of the quarter during which an event causes such transfer
or when circumstances change.
During 2020 transfers totaling EUR 205,516 thousand
have been made between level 1 and level 2.
During 2020 transfers totaling EUR 35,796 thousand have
been made between level 2 and level 3.
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Municipality Finance Plc • Annual Report 2020
LEVEL TRANSFERS
EUR , 1 Jan 2020
Change in
fair value in the
income statement
Purchases
and new
contracts
Sales and
matured
contracts
Transfers
into Level 3
Transfers
out of Level 3 31 Dec 2020
Financial assets
At fair value
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 50,028 -4,714 - -1,578 - - 43,735
Shares and participations - - - - 27 - 27
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 133,007 -12,405 -32 -41,804 686 - 79,452
Derivative contracts in hedge accounting 3,728 -2,118 117 - - -1,154 572
Financial assets in total 186,764 -19,238 84 -43,382 713 -1,154 123,787
Financial liabilities
At fair value
Designated at fair value through profit or loss
Liabilities to the public and public sector entities 138,684 9,860 49,782 - 26,088 - 224,413
Debt securities issued 3,077,729 -259,858 868,572 -1,566,659 8,617 -2,686 2,125,714
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 458,243 289,125 37,906 -139,179 378 -181 646,293
Derivative contracts in hedge accounting 12,646 18,479 1,432 - - -8,167 24,391
In fair value hedge accounting
Amortised cost
Debt securities issued 151,671 -13,650 21,314 - - -65,286 94,048
Financial liabilities in total 3,838,973 43,955 979,006 -1,705,838 35,083 -76,320 3,114,859
Level 3 financial assets and liabilities in total * 4,025,736 24,717 979,090 -1,749,220 35,796 -77,474 3,238,646
* The Group recognises these gains and losses within the line items Net income from securities and foreign exchange transactions and Net income from hedge accounting.
The fair value change due to changes in own credit risk of financial liabilities designated at fair value through profit or loss is recognised in the other comprehensive income.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Sensitivity analysis of unobservable inputs
Sensitivity analysis illustrates the impact of the
reasonably possible assumptions on the fair value of
financial instruments for which valuation is dependent on
unobservable inputs. However, it is unlikely in practice that
all unobservable inputs would simultaneously move to
extremes of reasonably possible alternatives used in the
sensitivity analysis. Hence, the impact of the sensitivity
analysis disclosed in this Note is likely to be greater than
the true uncertainty in the fair values at the financial
statement date. Furthermore, the disclosure is neither
predictive nor indicative of future movements in the fair
value of financial instruments.
Although the Group believes that its estimates of fair value
are appropriate, the use of different methodologies or
assumptions could lead to different measurements of fair
value. For fair value measurements on level 3, changing
one or more of the assumptions to the reasonably possible
alternative assumptions would have the following effects:
as of 31 December 2020, these assumptions could have
increased fair values by EUR 44.6 million or decreased fair
values by EUR 33.7 million. As of 31 December 2019, they
could have increased fair values by EUR 58.6 million or
decreased fair values by EUR 60.1 million.
SENSITIVITY ANALYSIS OF SIGNIFICANT UNOBSERVABLE INPUTS
BY INSTRUMENT TYPE
31 Dec 2020 (EUR 1,000)
Positive range
of fair value
Negative range
of fair value
Loans and advances to the public and public sector entities
Loans 542 327
Derivative contracts
Equity linked derivatives 12,416 -7,240
FX linked cross currency and interest rate derivatives 1,786 -365
Other interest rate derivatives 8,686 -10,165
Debt securities issued and Liabilities to the public and public sector entities
Equity linked liabilities 11,690 -5,248
FX linked liabilities -941 -1,681
Other liabilities 10,430 -9,276
Tot al 44,609 -33,648
The behaviour of the fair value of the unobservable inputs
on level 3 is not necessarily independent and dynamic
relationships often exist between the unobservable
inputs and the observable inputs. Such relationships,
where material to the fair value of a given instrument, are
controlled via pricing models or valuation techniques.
MuniFin Group uses stochastic models to generate
a distribution of future cash flows of each financial
instrument. The future cash flows are then discounted
back to present to get the fair value of each financial
instrument. The stochastic models used by the Group are
Hull-White model and Dupire volatility model.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The unobservable inputs used by the Group are described
below. The unobservable inputs are used only to the extent
that no relevant observable inputs are available.
Correlation parameters
If the fair value of a financial instrument is impacted by
more than one unobservable input, correlations describe
the relationship between these different underlyings. For
example for equity linked instruments, correlation has a
significant impact on fair value, if the underlying is depend-
ant on more than one equity. For FX linked cross currency
and interest rate derivatives, correlations exist between
FX rates of currencies, which impact the fair value of the
financial instrument.
If a high correlation exists between the unobservable in-
puts, it will lead to an increase in fair value. A low correlation
between the unobservable inputs will lead to a decrease in
fair value.
The majority of the financial instruments with correlation
as significant unobservable input are the Group’s funding
products and their hedging instruments.
Volatility (extrapolated or illiquid)
A financial instrument whose value is based on a
stochastic model will typically require the volatility of the
underlying instrument as an input. The Group uses Dupire
local volatility model as its stochastic valuation model. For
interest rate volatilities at-the-money implied volatility is
used. For FX and equity components (both equity indices
and single stock prices), a full volatility surface is used that
includes quotes for different strikes and maturities. The
Group uses implied volatility for the majority of the equity
linked structures. In some cases no liquid volatility surface
exists. In these cases, a proxy volatility is typically used
instead.
The majority of the financial instruments, which use
volatility as significant unobservable input, are the Group’s
funding products and their hedging instruments.
Dividend yield
The main drivers influencing the fair value of equity-linked
instruments are the dividend yield and volatility of the
underlying equities. Equity-linked instruments require a
dividend parameter as an input to the fair value. The equity
component is modelled using the Dupire local volatility
model where the underlying equity prices are assumed to
follow a random walk.
Instruments that have dividend yield as a significant unob-
servable input are the Group’s funding products and their
hedging instruments.
Interest rates (extrapolated or illiquid)
The Group uses unobservable inputs in defining fair
value of complex interest rate structures. The future cash
flows and their fair value is determined by using forward
rates and volatilities of the underlying interest rates using
Hull-White stochastic model. Financial instruments whose
payoffs are dependent on the value of complex interest
rate structures are categorised on level 3.
The majority of these instruments requiring extrapolated
or illiquid interest rates as input are the Group’s funding
products and their hedging instruments.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The table below illustrates the effect that changing one or more of the assumptions in the unobservable input (reasonably possible alternative assumptions) could have on the valuations at
the financial statement date.
SENSITIVITY ANALYSIS OF UNOBSERVABLE INPUTS
31 Dec 2020 (EUR 1,000) Fair value Valuation technique Unobservable input
Positive range
of fair value
Negative range
of fair value
Loans and advances to the public and public sector entities
Loans 43,735 Stochastic model Volatility – Extrapolated or Illiquid 542 327
Derivative contracts
Equity linked derivatives -75,037 Stochastic model
Correlation parameters 1,324 -932
Volatility – Extrapolated or Illiquid 9,142 -7,641
Dividend yield 1,951 1,333
FX linked cross currency and interest rate derivatives -517,779 Stochastic model
Correlation parameters 51 -368
Volatility – Extrapolated or Illiquid 1,642 96
Interest rates – Extrapolated or Illiquid 93 -93
Other interest rate derivatives 2,156 Stochastic model
Correlation parameters 8 -6
Volatility – Extrapolated or Illiquid 8,230 -9,711
Interest rates – Extrapolated or Illiquid 447 -448
Debt securities issued and Liabilities to the public and
public sector entities
Equity linked liabilities 885,327 Stochastic model
Correlation parameters 2,810 2,088
Volatility – Extrapolated or Illiquid 7,733 -7,746
Dividend yield 1,148 410
FX linked liabilities 1,027,104 Stochastic model
Correlation parameters 213 54
Volatility – Extrapolated or Illiquid -1,161 -1,729
Interest rates – Extrapolated or Illiquid 6 -6
Other liabilities 531,744 Stochastic model
Correlation parameters 1 -1
Volatility – Extrapolated or Illiquid 10,220 -9,066
Interest rates – Extrapolated or Illiquid 209 -209
Tot al 44,609 -33,648
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
DAY GAIN OR LOSS EUR , 2020
Opening balance 1 Jan 2020 -
Recognised gain in the income statement 242
Recognised loss in the income statement -67
Deferred gain or loss on new transactions -204
Total 31 Dec 2020 -29
The definition and amortisation method for the Day 1 gain or loss is presented in the accounting policies (Note 1) in Section Determination of fair value.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Transfers in the fair value hierarchy and sensitivity analysis 2019
During 2019 transfers totaling EUR 155,113 thousand have been made between level 1 and level 2.
During 2019 transfers totaling EUR 2,800,159 thousand have been made between level 2 and level 3.
LEVEL TRANSFERS
EUR , 1 Jan 2019
Change in
fair value in the
income statement
Purchases
and new
contracts
Sales and
matured
contracts
Transfers
into Level 3
Transfers
out of Level 3 31 Dec 2019
Financial assets
At fair value
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities - - - - 50,028 - 50,028
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 944 6,653 3,585 -944 122,769 - 133,007
Derivative contracts in hedge accounting - - 299 - 3,429 - 3,728
Financial assets in total 944 6,653 3,884 -944 176,227 - 186,763
Financial liabilities
At fair value
Designated at fair value through profit or loss
Liabilities to the public and public sector entities - - - - 138,684 - 138,684
Debt securities issued 768,448 54,249 773,030 -466,038 1,948,040 - 3,077,728
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 192,000 -46,235 31,275 -107,943 389,146 - 458,243
Derivative contracts in hedge accounting - - 67 - 12,579 - 12,646
In fair value hedge accounting
Amortised cost
Debt securities issued - - 16,187 - 135,483 - 151,671
Financial liabilities in total 960,447 8,014 820,559 -573,981 2,623,933 - 3,838,972
Level 3 financial assets and liabilities in total 961,390 14,666 824,443 -574,924 2,800,159 - 4,025,735
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
SENSITIVITY ANALYSIS OF UNOBSERVABLE INPUTS
EUR , Fair value Valuation technique Unobservable input
Positive range
of fair value
Negative range
of fair value
Loans and advances to the public and public sector entities
Loans 50,028 Stochastic model
Volatility – Extrapolated or Illiquid
50 -604
Interest rates – Extrapolated Illiquid
Derivative contracts
Equity linked derivatives -33,683 Stochastic model
Volatility – Extrapolated or Illiquid
21,111 -19,805Interest rates – Extrapolated or Illiquid
Dividend yield
FX linked cross currency and interest rate derivatives -319,759 Stochastic model
Correlation parameters
7,734 -4,547Volatility – Extrapolated or Illiquid
Interest rates – Extrapolated or Illiquid
Other interest rate derivatives 19,289 Stochastic model
Correlation parameters
4,218 -4,307Volatility – Extrapolated or Illiquid
Interest rates – Extrapolated or Illiquid
Debt securities issued and Liabilities to the public and public
sector entities
Equity linked liabilities 1,486,858 Stochastic model
Volatility – Extrapolated or Illiquid
16,459 -22,005Interest rates – Extrapolated or Illiquid
Dividend yield
FX linked liabilities 1,538,974 Stochastic model
Correlation parameters
4,691 -6,072Volatility – Extrapolated or Illiquid
Interest rates – Extrapolated or Illiquid
Other liabilities 342,250 Stochastic model
Correlation parameters
4,378 -3,452Volatility – Extrapolated or Illiquid
Interest rates – Extrapolated or Illiquid
Tot al 58,641 -60,792
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 18. Breakdown of financial assets and liabilities at carrying amount by maturity
FINANCIAL ASSETS
31 Dec 2020 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years To t al
Cash and balances with central banks 5,565,801 - - - - 5,565,801
Loans and advances to credit institutions 1,806,864 - 34,989 - - 1,841,853
Loans and advances to the public and public sector entities 361,651 1,567,812 6,373,992 6,099,127 12,744,246 27,146,828
, of which Leased assets * 8,059 19,545 64,691 37,320 85,829 215,444
Debt securities 1,474,537 761,052 2,737,816 789,809 - 5,763,214
Shares and participations - - - - 27 27
Derivative contracts 21,851 86,840 551,548 718,929 978,995 2,358,163
Other assets ** 243,269 - - - - 243,269
Tot al 9,473,973 2,415,705 9,698,345 7,607,864 13,723,269 42,919,155
* Line item includes leased assets for which the Group applies fair value hedge accounting. Unhedged leased assets are not presented in this note of the financial assets and liabilities by
maturity, as leased assets are not regarded as financial assets for the purpose of IFRS 9 classification.
** Line item includes cash collateral given to central counterparties.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL LIABILITIES
31 Dec 2020 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years To t al
Liabilities to credit institutions 658,120 1,250,000 24,558 34,106 34,694 2,001,478
Liabilities to the public and public sector entities 118,097 342,933 777,940 1,257,086 1,387,970 3,884,026
Debt securities issued 6,285,271 3,729,067 15,784,772 4,702,293 2,410,503 32,911,906
Derivative contracts 799,531 143,081 1,119,670 200,609 597,678 2,860,570
Provisions and other liabilities * 231,598 1,261 4,353 - - 237,212
, of which Lease liabilities 418 1,261 4,353 - - 6,032
Tot al 8,092,617 5,466,342 17,711,294 6,194,095 4,430,845 41,895,193
* Line item includes cash collateral received from central counterparties and lease liabilities in accordance with IFRS 16 standard.
Liabilities and hedging derivative contracts that may be called before maturity have been classified in the maturity class corresponding to the first possible call date.
The Group estimates it will call 30–50% of its callable liabilities in 2021. In 2020 the Group called 34% of its callable liabilities.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL ASSETS
31 Dec 2019 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years To t al
Cash and balances with central banks 4,909,338 - - - - 4,909,338
Loans and advances to credit institutions 794,029 - 24,293 - - 818,323
Loans and advances to the public and public sector entities 294,741 1,406,169 5,702,857 4,854,592 11,894,479 24,152,839
, of which Leased assets 6,745 18,251 58,470 35,274 64,125 182,865
Debt securities 1,213,001 1,148,481 2,844,420 510,416 - 5,716,318
Shares and participations - - - - 9,797 9,797
Derivative contracts 135,426 86,165 664,050 541,895 817,461 2,244,997
Other assets 158,494 - - - - 158,494
Tot al 7,505,030 2,640,815 9,235,621 5,906,903 12,721,737 38,010,106
FINANCIAL LIABILITIES
31 Dec 2019 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years To t al
Liabilities to credit institutions 1,095,340 - - 20,025 62,891 1,178,256
Liabilities to the public and public sector entities - 103,922 938,253 1,315,413 1,504,465 3,862,053
Debt securities issued 6,690,700 3,948,367 13,641,920 3,946,765 1,755,834 29,983,585
Derivative contracts 444,670 235,078 537,835 151,611 392,817 1,762,010
Provisions and other liabilities 96,649 1,187 5,791 - - 103,627
, of which Lease liabilities 410 1,187 5,791 - - 7,388
Tot al 8,327,358 4,288,554 15,123,800 5,433,813 3,716,007 36,889,532
Liabilities and hedging derivatives that may be called before maturity have been classified in the maturity class corresponding to the first possible call date.
In 2019 the Group called 24% of its callable liabilities.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 19. Offsetting financial assets and liabilities
The following financial assets and liabilities are subject to enforceable master netting agreements:
Cash given as collateral is included on the statement of financial position on line Loans and advances to credit institutions, excluding cash given as collateral to central counterparties,
which is presented on line Other assets. Cash received as collateral is included on the statement of financial position on line Liabilities to credit institutions, excluding cash received from
central counterparties, which is presented on line Provisions and other liabilities.
Amounts not offset in the statement of financial position
31 Dec 2020 (EUR 1,000)
Carrying amount,
gross
Offset in the statement of
financial position, gross
Carrying amount,
net
Received cash
collateral *
Given cash
collateral ** Net
Financial assets
Derivative contracts 2,358,163 - 2,358,163 889,300 - 1,468,863
Total financial assets 2,358,163 - 2,358,163 889,300 - 1,468,863
Financial liabilities
Derivative contracts 2,860,570 - 2,860,570 - 1,850,372 1,010,198
Total financial liabilities 2,860,570 - 2,860,570 - 1,850,372 1,010,198
* Includes EUR 231,180 thousand of cash collateral received from central counterparties.
** Includes EUR 243,272 thousand of cash collateral given to central counterparties.
The Group has not offset any financial assets or liabilities in its statement of financial position in 2020.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Amounts not offset in the statement of financial position
31 Dec 2019 (EUR 1,000)
Carrying amount,
gross
Offset in the statement of
financial position, gross
Carrying amount,
net
Received cash
collateral *
Given cash
collateral ** Net
Financial assets
Derivative contracts 2,244,997 - 2,244,997 1,191,579 - 1,053,418
Total financial assets 2,244,997 - 2,244,997 1,191,579 - 1,053,418
Financial liabilities
Derivative contracts 1,762,010 - 1,762,010 - 844,649 917,362
Total financial liabilities 1,762,010 - 1,762,010 - 844,649 917,362
* Includes EUR 96,239 thousand of cash collateral received from central counterparties.
** Includes EUR 158,494 thousand of cash collateral given to central counterparties.
The Group has not offset any financial assets or liabilities in its statement of financial position in 2019.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 20. Cash and cash equivalents
31 Dec 2020 (EUR 1,000) Tota l Cash and cash equivalents Expected credit losses
Cash 2 2 -
Central bank deposits payable on demand 5,565,799 5,565,799 0
Cash and balances with central banks 5,565,801 5,565,801 0
Loans and advances to credit institutions payable on demand 164,878 164,879 -1
Total cash and cash equivalents 5,730,679 5,730,680 -1
31 Dec 2019 (EUR 1,000) Tota l Cash and cash equivalents Expected credit losses
Cash 2 2 -
Central bank deposits payable on demand 4,909,336 4,909,336 0
Cash and balances with central banks 4,909,338 4,909,338 0
Loans and advances to credit institutions payable on demand 81,311 81,311 0
Total cash and cash equivalents 4,990,649 4,990,649 0
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 21. Loans and advances to credit institutions
31 Dec 2020 (EUR 1,000) Payable on demand
Other than payable
on demand * Expected credit losses To t al
Receivables from central bank 34,918 - 0 34,918
Domestic credit institutions 89,636 98,300 -11 187,925
Foreign credit institutions 75,242 1,543,800 -32 1,619,011
Tot al 199,796 1,642,100 -43 1,841,853
* Loans and advances to credit institutions other than repayable on demand does not include reverse repo agreements at the financial statement date 31 Dec 2020 or 31 Dec 2019.
31 Dec 2019 (EUR 1,000) Payable on demand
Other than payable
on demand Expected credit losses To t al
Receivables from central bank - 26,590 0 26,590
Domestic credit institutions 3,597 28,800 -7 32,390
Foreign credit institutions 77,714 681,650 -21 759,343
Tot al 81,311 737,040 -28 818,323
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 22. Loans and advances to the public and public sector entities
31 Dec 2020 31 Dec 2019
EUR , Tot a l
, of which expected
credit losses To t a l
, of which expected
credit losses
Enterprises and housing corporations 13,794,905 -983 12,647,283 -155
Public sector entities 12,772,899 -38 10,943,542 -19
Non-profit organisations 363,580 -67 379,149 -11
Leased assets 1,090,940 -2 828,458 -1
Tot al 28,022,325 -1,091 24,798,432 -186
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 23. Debt securities
DEBT SECURITIES ISSUED BY PUBLIC SECTOR ENTITIES
31 Dec 2020 (EUR 1,000) Publicly quoted Other Tota l
Expected
credit losses *
Amortised cost - 1,199,621 1,199,621 0
Commercial papers issued by other public sector entities - 1,199,621 1,199,621 0
Fair value through other comprehensive income 124,157 - 124,157 2
Bonds issued by other public sector entities 124,157 - 124,157 2
Designated at fair value through profit or loss 1,869,431 - 1,869,431 -
Government bonds 266,874 - 266,874 -
Bonds issued by other public sector entities 1,602,557 - 1,602,557 -
Tot al 1,993,588 1,199,621 3,193,209 3
, of which eligible for central bank refinancing 1,780,922 - 1,780,922 2
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
DEBT SECURITIES ISSUED BY OTHER THAN PUBLIC SECTOR ENTITIES
31 Dec 2020 (EUR 1,000) Publicly quoted Other Tota l
Expected
credit losses *
Amortised cost - 110,684 110,684 0
Commercial papers - 110,684 110,684 0
Fair value through other comprehensive income 298,893 - 298,893 39
Bank bonds 298,893 - 298,893 39
Bank commercial papers - - - -
Designated at fair value through profit or loss 2,160,427 - 2,160,427 -
Bank bonds 2,160,427 - 2,160,427 -
Tot al 2,459,320 110,684 2,570,005 39
, of which eligible for central bank refinancing 2,169,064 - 2,169,064 25
31 Dec 2020 (EUR 1,000) Publicly quoted Other Tota l
Expected
credit losses *
Debt securities total 4,452,908 1,310,305 5,763,214 42
* The expected credit losses have been recognised on debt securities, which have been
classified at fair value through other comprehensive income. Therefore, the expected
credit loss is not recognised as a deduction from the gross carrying amount of the debt
securities in the statement of financial position, but through other comprehensive income
to the fair value reserve as described in the accounting policies (Note 1) in Section
Presentation of allowance for ECL in the statement of financial position.
Debt securities do not contain any securities given as collateral for reverse repo
agreements at the financial statement date 31 Dec 2020.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
DEBT SECURITIES ISSUED BY PUBLIC SECTOR ENTITIES
31 Dec 2019 (EUR 1,000) Publicly quoted Other Tot a l
Expected
credit losses
Amortised cost - 721,585 721,585 0
Commercial paper issued by other public sector entities - 721,585 721,585 0
Fair value through other comprehensive income 58,268 - 58,268 0
Bonds issued by other public sector entities 58,268 - 58,268 0
Designated at fair value through profit or loss 1,451,716 - 1,451,716 -
Government bonds 232,178 - 232,178 -
Bonds issued by other public sector entities 1,219,537 - 1,219,537 -
Tot al 1,509,984 721,585 2,231,569 0
, of which eligible for central bank refinancing 1,345,703 - 1,345,703 0
DEBT SECURITIES ISSUED BY OTHER THAN PUBLIC SECTOR ENTITIES
31 Dec 2019 (EUR 1,000) Publicly quoted Other Tot a l
Expected
credit losses
Amortised cost - 82,772 82,772 0
Commercial papers - 82,772 82,772 0
Fair value through other comprehensive income 913,236 - 913,236 104
Bank bonds 848,196 - 848,196 101
Bank commercial papers 65,040 - 65,040 3
Designated at fair value through profit or loss 2,488,740 - 2,488,740 -
Bank bonds 2,488,740 - 2,488,740 -
Tot al 3,401,976 82,772 3,484,748 104
, of which eligible for central bank refinancing 2,743,816 - 2,743,816 77
31 Dec 2019 (EUR 1,000) Publicly quoted Other Tot a l
Expected
credit losses
Debt securities total 4,911,960 804,358 5,716,318 104
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 24. Shares and participations
31 Dec 2020 (EUR 1,000) Publicly quoted Other To t al , of which in credit institutions
Mandatorily at fair value through profit or loss - 27 27 -
Tot al - 27 27 -
31 Dec 2019 (EUR 1,000) Publicly quoted Other Tota l , of which in credit institutions
Mandatorily at fair value through profit or loss 9,769 27 9,797 -
Tot al 9,769 27 9,797 -
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 25. Derivative contracts
DERIVATIVE CONTRACTS
31 Dec 2020 (EUR 1,000)
Nominal value of underlying instrument Fair value
Remaining maturity
Less than 1 year 1–5 years Over 5 years To t a l Positive Negative
Derivative contracts in hedge accounting
Interest rate derivatives
Interest rate swaps 2,933,188 11,186,060 15,825,475 29,944,724 1,155,265 -470,736
, of which cleared by the central counterparty 1,474,582 10,182,656 13,852,888 25,510,126 684,090 -314,856
Currency derivatives
Cross currency interest rate swaps 1,577,593 7,155,034 1,105,354 9,837,981 369,605 -985,934
Total derivative contracts in hedge accounting 4,510,781 18,341,095 16,930,830 39,782,706 1,524,870 -1,456,670
Derivative contracts at fair value through profit or loss
Interest rate derivatives
Interest rate swaps 3,800,843 9,751,683 5,000,317 18,552,843 749,891 -488,850
, of which cleared by the central counterparty 2,784,644 6,910,928 1,515,808 11,211,380 5,605 -189,246
Interest rate options - 40,000 - 40,000 106 -106
Currency derivatives
Cross currency interest rate swaps 2,385,939 2,284,168 130,374 4,800,480 82,985 -713,063
Forward exchange contracts 3,516,421 - - 3,516,421 - -126,805
Equity derivatives 932,553 - - 932,553 313 -75,076
Total derivative contracts at fair value through profit or loss 10,635,756 12,075,850 5,130,691 27,842,297 833,293 -1,403,900
Total derivative contracts 15,146,537 30,416,945 22,061,521 67,625,003 2,358,163 -2,860,570
Derivative contracts at fair value through profit or loss contain all derivatives of the Group
which are not included in hedge accounting, even if they are entered into for risk management
purposes. The category contains derivative contracts used for hedging financial assets
and liabilities designated at fair value through profit or loss, all derivative contracts with
municipalities and all derivative contracts hedging derivatives with municipalities. In addition
to these, the category contains derivative contracts used for hedging interest rate risk of
the balance sheet, for which no hedged item has been specified.
Interest received or paid from derivative contracts is included in the statement of financial
position line items Accrued income and prepayments and Accrued expenses and deferred income.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
DERIVATIVE CONTRACTS
31 Dec 2019 (EUR 1,000)
Nominal value of underlying instrument Fair value
Remaining maturity
Less than 1 year 1–5 years Over 5 years To t a l Positive Negative
Derivative contracts in hedge accounting
Interest rate derivatives
Interest rate swaps 2,048,695 9,799,601 11,559,243 23,407,538 811,648 -346,270
, of which cleared by the central counterparty 934,155 7,260,466 9,065,291 17,259,913 368,439 -202,025
Currency derivatives
Cross currency interest rate swaps 2,845,533 7,733,901 1,044,699 11,624,134 572,655 -497,034
Total derivative contracts in hedge accounting 4,894,228 17,533,502 12,603,942 35,031,672 1,384,303 -843,304
Derivative contracts at fair value through profit or loss
Interest rate derivatives
Interest rate swaps 2,457,175 11,119,011 5,072,029 18,648,214 608,438 -375,507
, of which cleared by the central counterparty 518,410 8,221,487 1,172,175 9,912,071 10,769 -116,120
Interest rate options 35 40,000 - 40,035 225 -225
Currency derivatives
Cross currency interest rate swaps 4,286,054 2,351,154 271,291 6,908,499 209,582 -443,720
Forward exchange contracts 2,044,786 490,839 - 2,535,624 2,183 -25,303
Equity derivatives 1,585,879 18,969 - 1,604,848 40,268 -73,951
Total derivative contracts at fair value through profit or loss 10,373,929 14,019,972 5,343,320 29,737,220 860,695 -918,706
Total derivative contracts 15,268,157 31,553,474 17,947,262 64,768,893 2,244,997 -1,762,010
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 26. Hedge accounting
HEDGE ACCOUNTING
31 Dec 2020 (EUR 1,000) Nominal value
Fair value hedge
accounting total
IAS 39 portfolio
hedge accounting
IFRS 9 fair value
hedge accounting
IFRS 9 fair value
hedge accounting
incl. Cost-of-Hedging
Assets
Loans and advances to the public and public sector entities - Loans 11,183,657 11,614,114 11,483,819 130,295 -
Loans and advances to the public and public sector entities - Leased assets 211,223 215,444 - 215,444 -
Total assets 11,394,880 11,829,557 11,483,819 345,739 -
Liabilities
Liabilities to credit institutions 55,000 68,800 - 68,800 -
Liabilities to the public and public sector entities 1,853,956 2,246,352 - 2,181,931 64,421
Debt securities issued 21,260,721 22,077,489 - 11,898,132 10,179,357
Total liabilities 23,169,677 24,392,642 - 14,148,863 10,243,779
The interest rate and foreign exchange rate risk of
the Group are managed by entering into derivative
transactions. According to the Market Risk Policy,
the Group’s hedging strategy is mainly to hedge all material
foreign exchange and interest rate risks of financial
assets and liabilities with maturities exceeding one year.
As a result, foreign currency denominated items are
translated into euros, fixed rate and long-term reference
rates are swapped to floating interest rates with shorter
terms. The risk management principles related to the
Group’ s hedging of market risk are described in more
detail in Note 2 Risk Management principles and the
Group’s risk position.
The Group applies both fair value hedge accounting
according to IFRS 9 and fair value portfolio hedge
accounting according to IAS 39. The Group does not apply
cash flow hedge accounting. Accounting policies related
to hedge accounting are described in the accounting
polices (Note 1) in Section Hedge Accounting.
In the table below the hedged assets and liabilities are
presented according to statement of financial position
line items divided into IAS 39 portfolio hedge accounting
and IFRS 9 fair value hedge accounting, which is further
subdivided into whether hedging is subject to the
separation of the Cost-of-Hedging.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The figures presented in the following table contain the
cumulative fair value change at the beginning and end of
the financial year, in addition to the fair value change of
the hedged risk and the hedging instrument during the
financial year. The figures presented in the table do not
include the change in fair value due to foreign exchange
differences of hedging instruments and the hedged items,
which are recognised in the income statement under Net
income from securities and foreign exchange transactions.
Due to the above mentioned reason, the total amount
of the hedging instruments does not correspond to the
fair value presented in Note 25 Derivatives on line Tot a l
derivative contracts in hedge accounting. The fair value
changes of the hedged risk of the hedged items and all
other fair value changes of the hedging instruments are
recognised in the income statement under Net income
from hedge accounting. The ineffective portion of the
hedging relationship is thus shown on this line in the
income statement. Net income from securities and foreign
exchange transactions is specified in Note 6 and net
income from hedge accounting in Note 9.
In accordance with the market practice and IFRS 13
standard, the Group discounts hedged items with the
swap curve and the hedging derivatives with the OIS
curve, which causes a significant part of the Group’s hedge
ineffectiveness. In addition, ineffectiveness may also arise
to some extent from differences in notional, day count
methods or timing of the cash flows.
VALUE OF HEDGED RISK
EUR , 31 Dec 2020 1 Jan 2020
Recognised
in the income
statement 2020
Assets
IAS 39 portfolio hedge accounting
Loans and advances to the public and public sector entities 464,688 303,139 161,548
Derivative contracts in hedge accounting -428,083 -276,831 -151,252
Accumulated fair value accrual from the termination of hedge accounting 47 - 47
IAS 39 portfolio hedge accounting, net 36,653 26,308 10,344
IFRS 9 fair value hedge accounting
Loans and advances to the public and public sector entities 41,424 30,934 10,489
Derivative contracts in hedge accounting -42,044 -33,193 -8,851
IFRS 9 fair value hedge accounting, net -620 -2,258 1,638
Liabilities
IFRS 9 fair value hedge accounting
Liabilities to credit institutions -13,800 -12,916 -884
Liabilities to the public and public sector entities -481,546 -434,953 -46,593
Debt securities issued -859,986 -524,923 -335,063
Derivative contracts in hedge accounting 1,340,456 963,674 376,782
IFRS 9 fair value hedge accounting, net -14,876 -9,118 -5,757
IBOR reform related compensations * -2,041 - -2,041
Total hedge accounting 19,115 14,932 4,183
* Compensations relate to the ongoing IBOR reform of which more information is presented in the accounting policies
(Note 1) in Section IBOR reform.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The following table presents the impact of
Cost-of-Hedging of cross currency derivatives on equity in
the Cost-of-Hedging reserve. The figures are presented
net of deferred taxes.
For all foreign currency hedge relationships the Group
has elected to utilise Cost-of-Hedging. For each hedge
relationship, when the cross currency swap is designated
as a hedging instrument, the cross currency basis spread
is separated and excluded from the designation and
accounted for as Cost-of-Hedging.
The difference between the changes in fair value of
the actual derivative and the designated portion of the
derivative are recorded in other comprehensive income
as Cost-of-Hedging to the Cost-of-Hedging reserve. Thus,
changes in cross currency basis spreads will impact other
comprehensive income and do not create ineffectiveness
in the hedge relationship.
HEDGING IMPACT ON EQUITY
EUR , 31 Dec 2020 1 Jan 2020
Impact on
Cost-of-Hedging
reserve
Cost-of-Hedging
Derivative contracts in hedge accounting 15,624 28,075 -12,451
Tot al 15,624 28,075 -12,451
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The table below presents the cumulative effectiveness of hedge accounting by hedged items. In addition, the table shows the hedging instruments used.
EFFECTIVENESS OF HEDGE ACCOUNTING
31 Dec 2020 (EUR 1,000)
Gains/losses attributable to the hedged risk
Hedge ineffectivenessHEDGED ITEM Hedging instruments Hedged items Hedging instruments
Assets
IAS 39 portfolio hedge accounting
Fixed rate and revisable rate loans Interest rate derivatives 464,688 -428,083 36,605
IFRS 9 fair value hedge accounting
Structured lending Interest rate derivatives 37,203 -37,739 -537
Fixed rate and revisable rate leased assets Interest rate derivatives 4,221 -4,305 -84
Assets total 506,111 -470,126 35,985
Liabilities
IFRS 9 fair value hedge accounting
Financial liabilities denominated in EUR Interest rate derivatives -952,949 945,353 -7,596
Financial liabilities denominated in foreign currencies
Currency derivatives (Cross
currency interest rate swaps)
Interest rate derivatives -402,383 395,103 -7,280
Liabilities total -1,355,332 1,340,456 -14,876
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
HEDGE ACCOUNTING
31 Dec 2019 (EUR 1,000) Nominal value
Fair value hedge
accounting total
IAS 39 portfolio
hedge accounting
IFRS 9 fair value
hedge accounting
IFRS 9 fair value
hedge accounting
incl. Cost-of-Hedging
Assets
Loans and advances to the public and public sector entities - Loans 8,256,680 8,546,257 8,420,004 126,253 -
Loans and advances to the public and public sector entities - Leased assets 181,261 182,865 - 182,865 -
Total assets 8,437,941 8,729,122 8,420,004 309,118 -
Liabilities
Liabilities to credit institutions 70,000 82,916 - 82,916 -
Liabilities to the public and public sector entities 1,968,524 2,313,414 - 2,162,575 150,839
Debt securities issued 18,042,510 18,391,689 - 6,668,732 11,722,957
Total liabilities 20,081,034 20,788,019 - 8,914,223 11,873,796
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
VALUE OF HEDGED RISK
EUR , 31 Dec 2019 1 Jan 2019
Recognised in the income
statement 2019
Assets
IAS 39 portfolio hedge accounting
Loans and advances to the public and public sector entities 303,139 155,610 147,530
Derivative contracts in hedge accounting -276,831 -127,621 -149,210
IAS 39 portfolio hedge accounting, net 26,308 27,989 -1,681
IFRS 9 fair value hedge accounting
Loans and advances to the public and public sector entities 30,934 22,752 8,182
Derivative contracts in hedge accounting -33,193 -23,636 -9,556
IFRS 9 fair value hedge accounting, net -2,258 -884 -1,374
Liabilities
IFRS 9 fair value hedge accounting
Liabilities to credit institutions -12,916 -11,845 -1,071
Liabilities to the public and public sector entities -434,953 -339,599 -95,353
Debt securities issued -524,923 -73,869 -451,054
Derivative contracts in hedge accounting 963,674 432,237 531,436
IFRS 9 fair value hedge accounting, net -9,118 6,924 -16,042
Total hedge accounting 14,932 34,029 -19,097
HEDGING IMPACT ON EQUITY
EUR , 31 Dec 2019 1 Jan 2019
Impact on Cost-of-Hedging
reserve
Cost-of-Hedging
Derivative contracts in hedge accounting 28,075 14,235 13,840
Tot al 28,075 14,235 13,840
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EFFECTIVENESS OF HEDGE ACCOUNTING
31 Dec 2019 (EUR 1,000)
Gains/losses attributable to the hedged risk
Hedge
ineffectivenessHEDGED ITEM Hedging instruments Hedged items Hedging instruments
Assets
IAS 39 portfolio hedge accounting
Fixed rate and revisable rate loans Interest rate derivatives 303,139 -276,831 26,308
IFRS 9 fair value hedge accounting
Structured lending Interest rate derivatives 29,330 -31,086 -1,756
Fixed rate and revisable rate leased assets Interest rate derivatives 1,605 -2,107 -502
Assets total 334,074 -310,024 24,050
Liabilities
IFRS 9 fair value hedge accounting
Financial liabilities denominated in EUR Interest rate derivatives -693,747 697,685 3,938
Financial liabilities denominated in foreign currencies
Currency derivatives (Cross
currency interest rate swaps)
Interest rate derivatives -279,045 265,988 -13,057
Liabilities total -972,792 963,674 -9,118
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 27. Credit risks of financial assets and other commitments
EXPOSURES BY ASSET GROUPS AND IMPAIRMENT STAGES
31 Dec 2020 (EUR 1,000)
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3 *
Gross
carrying
amount 12-month ECL
Gross
carrying
amount Lifetime ECL
Gross
carrying
amount Lifetime ECL
Gross
carrying
amount
Expected
credit losses
Cash and balances with central banks at amortised cost 5,565,801 0 - - - - 5,565,801 0
Loans and advances to credit institutions at amortised cost 1,841,853 -43 - - - - 1,841,853 -43
Loans and advances to the public and public sector entities at amortised cost 26,606,595 -30 145,061 -835 135,291 -224 26,886,947 -1,089
Leased assets in Loans and advances to the public and public sector entities at amortised cost 1,090,768 -2 - - 173 - 1,090,940 -2
Debt securities at amortised cost 1,303,105 0 7,200 - - - 1,310,305 0
Debt securities at fair value through other comprehensive income 423,050 -42 - - - - 423,050 -42
Cash collateral to CCPs in Other assets at amortised cost 243,269 -4 - - - - 243,269 -4
Guarantee receivables from the public and public sector entities in Other assets 1,606 - - - - - 1,606 -
Credit commitments (off-balance sheet) 2,348,271 -4 4,506 0 1,201 0 2,353,978 -4
Tot al 39,424,318 -126 156,767 -835 136,665 -224 39,717,750 -1,184
* The Group has collateral and guarantee arrangements that fully cover the stage 3 receivables as described in Note 2 Risk management principles and the Group’s risk position in Section Credit risk.
The Group’s management expects that all the stage 3 reveivables will be recovered and no final credit loss will emerge. Stage 3 receivables include EUR 2,404 thousand of originated credit impaired
receivables (Purchased or Originated Credit Impaired, POCI). Expected credit losses for the POCI receivables amount to EUR 4 thousand.
MuniFin Group’s credit risks are described in Note 2 Risk management principles and the Group’s risk position in Section Credit Risk. The accounting policies of the expected credit loss calculations and
impairment stages are described in the accounting policies (Note 1) in Section Impairment of financial assets.
The table below presents exposures under expected credit loss calculations by asset groups and impairment stages.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPOSURES BY ASSET GROUPS AND IMPAIRMENT STAGES
31 Dec 2019 (EUR 1,000)
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
Gross
carrying
amount 12-month ECL
Gross
carrying
amount Lifetime ECL
Gross
carrying
amount Lifetime ECL
Gross
carrying
amount
Expected
credit losses
Cash and balances with central banks at amortised cost 4,909,338 0 - - - - 4,909,338 0
Loans and advances to credit institutions at amortised cost 818,323 -28 - - - - 818,323 -28
Loans and advances to the public and public sector entities at amortised cost 23,672,686 -24 184,586 -80 61,602 -80 23,918,874 -185
Leased assets in Loans and advances to the public and public sector entities at amortised cost 828,272 -1 186 0 - - 828,458 -1
Debt securities at amortised cost 780,667 0 23,690 0 - - 804,358 0
Debt securities at fair value through other comprehensive income 971,505 -104 - - - - 971,505 -104
Cash collateral to CCPs in Other assets at amortised cost 158,494 -4 - - - - 158,494 -4
Guarantee receivables from the public and public sector entities in Other assets 1,603 - - - - - 1,603 -
Credit commitments (off-balance sheet) 2,359,038 -4 2,285 0 - - 2,361,323 -4
Tot al 34,499,925 -167 210,747 -80 61,602 -80 34,772,275 -327
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The table below presents summary of total changes and reconciliation of expected credit losses by impairment stages during the financial year.
TOTAL EXPECTED CREDIT LOSSES BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -167 -80 -80 -327 34,772,275
New assets originated or purchased -83 -30 -13 -126 10,624,630
Assets derecognised or repaid (excluding write-offs) 119 10 43 173 -5,678,253
Transfers to Stage 1 0 30 - 30 30
Transfers to Stage 2 0 -50 9 -41 -41
Transfers to Stage 3 0 19 -7 12 12
Additional provision (Management overlay) - -340 - -340 -340
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models * and inputs ** used for ECL calculations 5 -395 -176 -566 -564
Write-offs - - - - -
Recoveries - - - - -
Total 31 Dec 2020 -126 -835 -224 -1,184 39,717,750
* Represents changes in the model.
** Represents changes to model parameters (e.g. GDP rates, unemployment rates)
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
During the second half of 2020, MuniFin Group has specified the methods for estimating
and modeling expected credit losses as well as the assumptions used in the model. The
change in the modeling methodology affected the modeling of the probability of default
over the lifetime of the loan and thus affected the amount of expected credit losses on
stages 2 and 3, which increased by approximately EUR 0.5 million due to the change.
In addition, MuniFin Group has recorded an additional discretionary provision
(management overlay) of EUR 340 thousand to take into account the financial effects of the
COVID-19 pandemic. Year 2020 can be said to have been financially exceptionally weak
for certain customer segments such as the arts sector and the operation of sports halls.
However, the deteriorating financial situation is not yet reflected in the Group’s internal
risk ratings, which have been mainly updated based on the 2019 financial statements. As
the credit risk of certain customer segments is estimated to have increased since then,
MuniFin Group’s management decided to record an additional discretionary provision
based on a group-specific assessment. The additional provision relates to the statement of
financial position line item Loans and advances to the public and public sector entities. The
additional provision has not been allocated to contract level.
The assessment of the need for additional provisions is based on the fact that MuniFin
Group’s management estimates that due to the increase in credit risk (not yet reflected in
the internal risk ratings), part of the exposures would transfer to stage 2 in the expected
credit loss calculations. More detailed information on the financial situation of the
companies subject to the additional provision will be available after the completion of their
2020 financial statements, so that any change in expected credit losses can be allocated
to individual contracts and determined according to the normal ECL calculation process.
MuniFin Group’s total credit risk has remained low and the amount of expected credit
losses (ECL) remains low. The Group’s customer exposures have zero risk weight in
MuniFin Group’s capital adequacy calculation because they are from Finnish municipalities
or involve a municipal guarantee or a state deficiency guarantee supplementing the real
estate collateral, as described in Note 2 Risk management principles and the Group’s risk
position under Section Credit risk. The Group’s management estimates that all receivables
will be recovered in full and therefore no final credit loss will arise. On 31 December 2020,
the Group has a total of EUR 24 million (EUR 2 million) in guarantee receivables from
the public sector due to the insolvency of customers. The growth is due to individual
customers. Credit risk of the liquidity portfolio has remained of good quality with the
average rating of AA+.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
TOTAL EXPECTED CREDIT LOSSES BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -295 -59 - -355 32,612,768
New assets originated or purchased -49 -48 -28 -126 7,569,678
Assets derecognised or repaid (excluding write-offs) 200 10 - 210 -5,410,336
Transfers to Stage 1 0 16 - 16 16
Transfers to Stage 2 0 -20 - -20 -20
Transfers to Stage 3 0 21 -52 -30 -30
Changes to contractual cash flows due to modifications not resulting in derecognition 0 - - 0 199
Changes to models and inputs used for ECL calculations -22 - - -22 0
Write-offs - - - - -180
Recoveries - - - - 180
Total 31 Dec 2019 -167 -80 -80 -327 34,772,275
During the financial year 2019, the Group specified the methods for estimating expected credit losses and the assumptions used in the model. The revaluation had no material impact on the
amount of expected of credit losses.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Tables below present changes and reconciliation of expected credit losses by impairment stages and asset groups during the financial year.
EXPECTED CREDIT LOSSES ON CASH AND BALANCES WITH
CENTRAL BANKS AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 0 - - 0 4,909,338
New assets originated or purchased 0 - - 0 656,463
Assets derecognised or repaid (excluding write-offs) 0 - - 0 0
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2020 0 - - 0 5,565,801
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO
CREDIT INSTITUTIONS AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -28 - - -28 818,323
New assets originated or purchased -35 - - -35 1,687,210
Assets derecognised or repaid (excluding write-offs) 21 - - 21 -663,679
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations -1 - - -1 -1
Total 31 Dec 2020 -43 - - -43 1,841,853
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO THE PUBLIC AND
PUBLIC SECTOR ENTITIES AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -24 -80 -80 -185 23,918,874
New assets originated or purchased -15 -30 -13 -58 4,825,655
Assets derecognised or repaid (excluding write-offs) 3 10 43 56 -1,856,679
Transfers to Stage 1 0 30 - 30 30
Transfers to Stage 2 0 -50 9 -41 -41
Transfers to Stage 3 0 19 -7 12 12
Additional provision (Management overlay) - -340 - -340 -340
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models and inputs used for ECL calculations 6 -395 -176 -564 -564
Write-offs - - - - -
Total 31 Dec 2020 -30 -835 -224 -1,089 26,886,947
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON LEASED ASSETS IN LOANS AND
ADVANCES TO THE PUBLIC AND PUBLIC SECTOR ENTITIES AT
AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -1 0 - -1 828,458
New assets originated or purchased -1 - 0 -1 318,638
Assets derecognised or repaid (excluding write-offs) 0 - - 0 -56,155
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - 0 - 0 0
Changes to models and inputs used for ECL calculations 0 - - 0 0
Total 31 Dec 2020 -2 0 0 -2 1,090,940
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT AMORTISED COST
BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 0 0 - 0 804,358
New assets originated or purchased 0 0 - 0 1,310,305
Assets derecognised or repaid (excluding write-offs) 0 0 - 0 -804,358
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2020 0 0 - 0 1,310,305
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT FAIR VALUE THROUGH
OTHER COMPREHENSIVE INCOME BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -104 - - -104 971,505
New assets originated or purchased -28 - - -28 159,570
Assets derecognised or repaid (excluding write-offs) 92 - - 92 -708,025
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations -2 - - -2
Total 31 Dec 2020 -42 - - -42 423,050
The loss allowance for expected credit losses on debt instruments at fair value through other comprehensive income is recognised in fair value reserve. The accumulated loss allowance
is reclassified to the income statement upon derecognition of the assets. More details regarding the presentation of allowance for expected credit losses is presented in the accounting
policies (Note 1) in Section Presentation of allowance in the statement of financial position.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON CASH COLLATERAL TO CCPS IN
OTHER ASSETS AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -4 - - -4 158,494
New assets originated or purchased -2 - - -2 84,772
Assets derecognised or repaid (excluding write-offs) 1 - - 1 1
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations 2 - - 2 2
Total 31 Dec 2020 -4 - - -4 243,269
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON GUARANTEE RECEIVABLES FROM THE PUBLIC
AND PUBLIC SECTOR ENTITIES IN OTHER ASSETS BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 - - - - 1,603
New assets originated or purchased - - - - 184
Assets derecognised or repaid (excluding write-offs) - - - - -180
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Recoveries - - - - -
Total 31 Dec 2020 - - - - 1,606
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON CREDIT COMMITMENTS
OFFBALANCE SHEET BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -4 0 - -4 2,361,323
New assets originated or purchased -3 - 0 -3 1,581,833
Assets derecognised or repaid (excluding write-offs) 3 0 - 3 -1,589,178
Transfers to Stage 1 - - - -
Transfers to Stage 2 0 0 - 0
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations 0 0 - 0
Total 31 Dec 2020 -4 0 0 -4 2,353,978
The loss allowance on binding credit commitments is recognised under Provisions and other liabilities. More details regarding the presentation of allowance for expected credit losses is
presented in the accounting policies (Note 1) in Section Presentation of allowance in the statement of financial position.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON CASH AND BALANCES WITH CENTRAL BANKS
AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 0 - - 0 3,522,200
New assets originated or purchased 0 - - 0 1,387,140
Assets derecognised or repaid (excluding write-offs) 0 - - 0 -1
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations 0 - - 0 0
Total 31 Dec 2019 0 - - 0 4,909,338
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO
CREDIT INSTITUTIONS AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -51 - - -51 1,380,544
New assets originated or purchased -1 - - -1 37,003
Assets derecognised or repaid (excluding write-offs) 24 - - 24 -599,225
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations 0 - - 0 0
Total 31 Dec 2019 -28 - - -28 818,323
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO THE PUBLIC AND
PUBLIC SECTOR ENTITIES AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -15 -59 - -75 22,297,288
New assets originated or purchased -11 -48 -28 -88 3,261,510
Assets derecognised or repaid (excluding write-offs) 2 10 - 12 -1,639,908
Transfers to Stage 1 0 16 - 16 16
Transfers to Stage 2 0 -20 - -20 -20
Transfers to Stage 3 0 21 -52 -30 -30
Changes to contractual cash flows due to modifications not resulting in derecognition 0 - - 0 199
Changes to models and inputs used for ECL calculations - - - 0 -
Write-offs - - - - -180
Total 31 Dec 2019 -24 -80 -80 -185 23,918,874
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON LEASED ASSETS IN LOANS AND ADVANCES
TO THE PUBLIC AND PUBLIC SECTOR ENTITIES AT AMORTISED COST
BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -1 0 - -1 614,022
New assets originated or purchased -1 0 - -1 258,164
Assets derecognised or repaid (excluding write-offs) 0 - - 0 -43,728
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations 0 - - 0 0
Total 31 Dec 2019 -1 0 - -1 828,458
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT AMORTISED COST
BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 0 0 - 0 725,587
New assets originated or purchased 0 0 - 0 804,358
Assets derecognised or repaid (excluding write-offs) 0 0 - 0 -725,587
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2019 0 0 - 0 804,358
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT FAIR VALUE THROUGH
OTHER COMPREHENSIVE INCOME BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -221 - - -221 1,434,383
New assets originated or purchased -31 - - -31 215,461
Assets derecognised or repaid (excluding write-offs) 170 - - 170 -678,340
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations -22 - - -22
Total 31 Dec 2019 -104 - - -104 971,505
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON CASH COLLATERAL TO CCPS IN
OTHER ASSETS AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -4 - - -4 164,341
New assets originated or purchased -1 - - -1 45,499
Assets derecognised or repaid (excluding write-offs) 1 - - 1 -51,346
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2019 -4 - - -4 158,494
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON GUARANTEE RECEIVABLES FROM THE PUBLIC
AND PUBLIC SECTOR ENTITIES IN OTHER ASSETS BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 - - - - 1,800
New assets originated or purchased - - - - -
Assets derecognised or repaid (excluding write-offs) - - - - -377
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Recoveries - - - - 180
Total 31 Dec 2019 - - - - 1,603
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON CREDIT COMMITMENTS
OFFBALANCE SHEET BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -3 0 - -3 2,472,604
New assets originated or purchased -3 0 - -3 1,560,543
Assets derecognised or repaid (excluding write-offs) 2 - - 2 -1,671,824
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations - - - -
Total 31 Dec 2019 -4 - - -4 2,361,323
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Forward-looking information
In the assessment of whether the credit risk of an
instrument has significantly increased (SICR) and in the
measurement of expected credit losses, forward-looking
information and macroeconomic scenarios are included in
the model. The scenarios for Finland have been updated
by the Chief Economist and Scenario Design Team of
MuniFin Group to take into account the effect of COVID-19
pandemic. The macroeconomic projections cover a three-
year period and as no reliable macroeconomic projections
exceeding a three-year time horizon are available,
forward-looking adjustment will be limited to a three-year
period. Mainly three scenarios are used; base, optimistic
and adverse. Scenarios include probability weights. Due to
uncertainty caused by the COVID-19 pandemic, MuniFin
Group has given a larger weight to the adverse scenario.
The scenario probability weightings are as following:
SCENARIO
31 Dec 2020 31 Dec 2019
2021 2022 2023 2020 2021 2022
Adverse 50% 40% 40% 5% 5% 5%
Base 40% 40% 40% 75% 75% 75%
Optimistic 10% 20% 20% 20% 20% 20%
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The Group has identified key drivers of credit losses
for each portfolio that share similar kind of credit risk
characteristics and estimated the relationship between
macroeconomic variables and credit losses. ECL model
consists of the following macroeconomic variables
for Finnish counterparties of financial assets; Finnish
government long-term rate, the development of residential
housing prices and unemployment rate. For non-Finnish
financial assets, stress test scenarios published by the
European Central Bank are employed in the model and
scenario parameters. Each variable covers an estimate
over a period of three years. The following table presents
the macroeconomic variables and their forecasts over the
three-year forecast period.
MACROECONOMIC VARIABLES Scenario
31 Dec 2020 31 Dec 2019
2021 2022 2023 2020 2021 2022
10Y Fin Government rate, %
Adverse 0.1 -0.25 0.0 0.94 1.14 1.3
Base -0.37 -0.25 0.1 0.25 0.75 1.0
Optimistic
0.0 0.3 0.6 0.85 1 .1 1.35
Residential Real Estate
(selling price, YoY change), %
Adverse -12.5 -2.5 2.0 -9.0 -12.0 -5.0
Base 0.5 1.0 2.0 1.5 1.5 2.0
Optimistic
2.0 2.5 2.0 2.8 3.0 2.5
Unemployment rate, %
Adverse 9.5 9.2 8.7 7.8 9.5 9.2
Base 8.2 7.8 7.6 6.5 6.4 6.3
Optimistic
7.7 7.2 6.9 6.1 5.8 5.2
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The outbreak of COVID-19 pandemic led to a sharp decline in global GDP in the first
half of 2020. Output started recovering in May–June 2020 as countries reopened their
economies. Towards the end of the year, however, the second wave of the pandemic
renewed the pressure on economic activity. In MuniFin Group’s base scenario, the Finnish
GDP to contract is 3.5% in 2020. COVID-19 pandemic will still have a negative impact on
the economy during the winter and early spring of 2021. By summer, recovery will gain
more momentum as wider vaccination programs support economic confidence. MuniFin
Group expects output to grow 2.0% in 2021 and 3.5% in 2022. From 2023 onwards,
the economy gradually converges to its long-term growth path and the annual pace of
expansion is around 1.3–1.5%. In the base scenario, unemployment rate peaks at 8.2% in
2021. Unemployment will remain several years above its structural level, which is estimated
to be around 6.5–7.0%. Negative output gap keeps price pressures subdued. CPI inflation is
assumed to recover rather slowly in 2021–2022. The European Central Bank is committed
to a very accommodative monetary policy stance and interest rate expectations will rise
only gradually in line with economic recovery. On the national level, housing prices are
expected to rise only marginally in 2020–2021. After the pandemic, from 2022 onwards,
housing prices inflation accelerates moderately as rising personal income supports home
buying intentions.
Compared to the base scenario, the optimistic scenario factors in slightly less severe
economic effects from the COVID-19 pandemic and assumes somewhat faster recovery
in global trade and investment spending. As a result, the Finnish GDP would decline less in
2020 and grow more in the subsequent years. In the optimistic scenario, unemployment
peaked already in 2020. Consumer and housing prices rise at about 2.0–2.5% pace in
2021–2022. Narrowing output gap and reviving inflation expectations lead to somewhat
higher interest rates than in the base scenario.
The adverse scenario represents an outcome where the COVID-19 pandemic causes
significant and persistent damage to the productive capacity. Economic recession
continues well into 2021. Unemployment rises more and remains high much longer than in
the base scenario. Deflationary pressures keep CPI inflation very low in 2020–2021. Lack
of demand in the housing market leads to relatively sharp declines in housing price indices.
Prolonged global recession creates tensions in financial markets, which gives rise to wider
risk premiums in asset pricing.
The table below presents the sensitivity of the expected credit losses assuming 100%
weight for adverse scenario until 2023.
SENSITIVITY ANALYSIS
31 Dec 2020 (EUR 1,000) Weighted scenario
Adverse scenario
(100%)
ECL 844 1,083
Proportion of the exposure in Stage 2 and 3 0.75% 1.04%
The sensitivity analysis does not include the additional discretionary provision
(management overlay) recorded on 31 Dec 2020.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Non-performing and forborne exposures
Non-performing and forborne exposures refer to receivables that are more than 90 days
past due, other receivables classified as risky and forborne exposures due to the
customer’s financial difficulties.
Forbearance measures are concessions to original contractual payment terms agreed
at the customers’ initiative to help the customer through temporary payment difficulties.
Performing forborne exposures include forborne exposures reclassified as performing
during their probation period or forbearance measures made into a performing loan.
Loan modifications due to reasons other than the customer’s financial difficulties are
not classified as forborne exposures. The Group considers a loan forborne when such
concessions or modifications are provided as a result of the borrower’s present or
expected financial difficulties and the Group would not have agreed to them if the borrower
had been financially healthy.
NONPERFORMING AND FORBORNE EXPOSURES
31 Dec 2020 (EUR 1,000)
Performing
exposures (gross)
Non-performing
exposures (gross)
Total exposures
(gross)
Total expected credit
losses
Total exposures
(net)
Over 90 days past due - - - - -
Unlikely to be paid - 116,263 116,263 -162 116,102
Forborne exposures 68,715 19,584 88,299 -288 88,010
Tot al 68,715 135,847 204,562 -450 204,112
NONPERFORMING AND FORBORNE EXPOSURES
31 Dec 2019 (EUR 1,000)
Performing
exposures (gross)
Non-performing
exposures (gross)
Total exposures
(gross)
Total expected credit
losses Total exposures (net)
Over 90 days past due - - - - -
Unlikely to be paid - 61,682 61,682 -80 61,602
Forborne exposures 27,854 4,968 32,822 -27 32,795
Tot al 27,854 66,650 94,505 -107 94,398
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The COVID-19 pandemic affected the financial situation and liquidity of MuniFin Group’s
customers. The Group therefore offered concessions to the payment terms of the loans
to customers whose finances have been temporarily affected by the pandemic. The
granted repayment holidays concerned the year 2020 and were mainly between 6–9
months in length. The uncollected installments were mainly transferred to the end of
the loan term to be paid in connection with the last installment. Most of the repayment
holidays were granted during April and May. No lease concessions were granted to
Group's leasing customers.
During the financial year, customers were granted repayment holidays (concessions to
contractual payment terms) for loans with a remaining notional amounting to EUR 226
million (82 individual loans), most of which, EUR 208 million (72 loans), were repayment
holidays due to COVID-19 pandemic. Of the loans with granted repayment holidays, EUR
82 million (57 loans) were classified as forborne exposures, of which EUR 64 million (35
loans) were performing forborne exposures (stage 2 in the measurement of expected
credit losses) and EUR 18 million (22 loans) non-performing forborne exposures (stage
3 in the measurement of expected credit losses).
Realised credit losses
The Group has not had any final realised credit losses during the financial year or
the comparison year.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 28. Intangible assets
Note 29. Tangible assets
EUR , 31 Dec 2020 31 Dec 2019
IT systems 17,346 14,704
, of which assets not yet available for use 6,592 1,425
Tot al 17,346 14,704
EUR , 31 Dec 2020 31 Dec 2019
Real estate 299 299
Office renovation expenses 12 16
Right-of-use assets 5,955 7,340
Other tangible assets 4,098 1,387
Tot al 10,364 9,041
The intangible assets not yet available for use consists
of ongoing development projects of IT systems.
The principles of MuniFin Group’s impairment testing
for intangible assets not yet available for use are
described in the accounting policies (Note 1) in Section
Intangible assets.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 30. Changes in intangible and tangible assets during the financial year
EUR ,
Intangible assets Tangible assets
Tota l Other real estate Other tangible assets Right-of-use assets To t a l
Acquisition cost 1 Jan 2020 25,706 299 5,649 8,942 14,890
+ Additions 5,924 - 3,644 296 3,939
– Disposals - - -343 -85 -428
Acquisition cost 31 Dec 2020 31,630 299 8,950 9,152 18,401
Accumulated depreciation 1 Jan 2020 11,002 - 4,247 1,602 5,849
– Accumulated depreciation on disposals - - -252 -72 -324
+ Depreciation for the financial year 3,281 - 845 1,667 2,513
Accumulated depreciation 31 Dec 2020 14,283 - 4,840 3,197 8,037
Carrying amount 31 Dec 2020 17,346 299 4,110 5,955 10,364
EUR ,
Intangible assets Tangible assets
Tota l Other real estate Other tangible assets Right-of-use assets To t a l
Acquisition cost 1 Jan 2019 23,528 299 6,389 8,737 15,424
+ Additions 3,739 - 289 206 495
– Disposals -1,561 - -1,029 - -1,029
Acquisition cost 31 Dec 2019 25,706 299 5,649 8,942 14,890
Accumulated depreciation 1 Jan 2019 8,678 - 4,261 - 4,261
– Accumulated depreciation on disposals -1,561 - -709 - -709
+ Depreciation for the financial year 3,886 - 695 1,602 2,298
Accumulated depreciation 31 Dec 2019 11,002 - 4,247 1,602 5,849
Carrying amount 31 Dec 2019 14,704 299 1,402 7,340 9,041
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 31. Other assets
Note 32. Accrued income and prepayments
EUR , 31 Dec 2020 31 Dec 2019
Invoiced leasing payments 11,185 8,984
Given cash collateral to CCPs * 243,269 158,494
Other 5,331 2,881
Tot al 259,785 170,359
* Cash collaterals include expected credit loss amounting to EUR 4 thousand (EUR 4 thousand).
The Group did not have receivables related to payment transfers as at 31 Dec 2020 or at 31 Dec 2019.
EUR , 31 Dec 2020 31 Dec 2019
Accrued interest income 198,057 231,777
Other accrued income * 5,637 9,1 89
Prepayments -147 1,484
Tot al 203,547 242,450
* Line item includes mainly tax receivables.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 33. Deferred tax
DEFERRED TAX LIABILITIES
EUR , 1 Jan 2020
Recognised in the
income statement
Recognised
in the other
comprehensive
income
Recognised in
equity
Paid during the
financial year 31 Dec 2020
On fair value reserve 10,467 - -6,413 - - 4,054
On change in cumulative depreciation difference 2,732 1,373 - - - 4,105
On change in voluntary provisions 240,906 28,600 - - - 269,506
On reversing the accrued interest of the AT1 capital loan recorded in the financial
statements of the Parent Company 2,358 3,156 - -3,150 - 2,364
On reversing the amortisation of the AT1 capital loan transaction expenses recorded in
the financial statements of the Parent Company -221 98 - - - -123
On right-of-use assets -1 0 - - - -1
Tot al 256,241 33,228 -6,413 -3,150 - 279,906
DEFERRED TAX LIABILITIES
EUR , 1 Jan 2019
Recognised in the
income statement
Recognised
in the other
comprehensive
income
Recognised in
equity
Paid during the
financial year 31 Dec 2019
On fair value reserve 4,922 - 5,545 - - 10,467
On change in cumulative depreciation difference 1,726 1,006 - - - 2,732
On change in voluntary provisions 220,906 20,000 - - - 240,906
On reversing the accrued interest of the AT1 capital loan recorded in the financial
statements of the Parent Company 2,364 3,144 - -3,150 - 2,358
On reversing the amortisation of the AT1 capital loan transaction expenses recorded in
the financial statements of the Parent Company -319 98 - - - -221
On right-of-use assets - -1 - - - -1
On revaluation of financial assets and liabilities in IFRS 9 transition 1 Jan 2018 5,707 - - - -5,707 0
Tot al 235,307 24,247 5,545 -3,150 -5,707 256,241
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 34. Liabilities to credit institutions
EUR , 31 Dec 2020 31 Dec 2019
Bilateral loans to credit institutions 93,358 82,916
TLTRO * 1,250,000 -
Received collateral on derivatives 658,120 1,095,340
Tot al 2,001,478 1,178,256
* In September 2020 MuniFin Group participated in ECB’s third series of targeted
longer-term refinancing operation that is, the so-called TLTRO III operation with EUR 1.25
billion. According to the terms of the TLTRO III operation, if eligible net lending is positive
during the reference period (1 March 2020–31 March 2021) the interest rate for TLTRO
III debt is 0.5% lower than the average deposit facility rate for borrowings between 24
June 2020 and 23 June 2021. This would currently equate to an all-in rate of -1%. On 10
December 2020, the ECB issued an update to the terms and conditions so that the low-
interest period was extended from 24 June 2021 to 23 June 2022, if the conditions for net
lending were met in the reference period from 1 October 2020 to 31 December 2021.
Based on the historical development of MuniFin Group’s lending portfolio as well as
business forecast for future years, the Group expects to meet the conditions of positive
net lending in the reference period and recognises the interests with the -1% rate. Although
the interest rate for the TLTRO III debt described above is favorable for MuniFin Group, it
is assessed not to differ from the Group’s other funding price to the extent that the Group
would have received a government grant in accordance with IAS 20. Therefore, the Group
treats TLTRO III debt in its entirety as an IFRS 9 financial liability.
Note 35. Liabilities to the public and public sector entities
EUR , 31 Dec 2020 31 Dec 2019
Liabilities to the public and public sector entities 3,884,026 3,862,053
Tot al 3,884,026 3,862,053
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 36. Debt securities issued
31 Dec 2020 31 Dec 2019
EUR , Carrying amount Nominal value Carrying amount Nominal value
Bonds 29,016,086 28,671,412 27,255,873 27,361,959
Other * 3,895,820 3,896,421 2,727,712 2,735,624
Tot al 32,911,906 32,567,833 29,983,585 30,097,583
* Line item contains short-term funding issued by MuniFin.
MuniFin’s funding is guaranteed by the Municipal Guarantee Board.
BENCHMARK ISSUANCES DURING THE YEAR Value date Maturity date Interest-%
Nominal value
(1,000) Currency
Fixed rate benchmark bond, issued under the MTN programme 15 Jan 2020 15 Nov 2024 0.000% 1,500,000 EUR
Fixed rate benchmark bond, issued under the MTN programme 22 Apr 2020 22 Apr 2025 0.000% 1,000,000 EUR
Fixed rate benchmark bond, issued under the MTN programme 14 Oct 2020 14 Oct 2030 0.000% 500,000 EUR
Fixed rate benchmark bond, issued under the MTN programme 1 Jul 2020 1 Sep 2023 0.375% 1,000,000 USD
Fixed rate benchmark bond, issued under the MTN programme 10 Sep 2020 10 Sep 2035 0.050% 500,000 EUR
In the above table, the benchmark issuances are included by the settlement date. The offering circular is available in English on the website at www.munifin.fi/investor-relations.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 37. Reconciliation of the carrying amount of the issued debt
EUR , Liabilities to credit institutions
Liabilities to the public
and public sector entities Debt securities issued
Carrying amount 1 Jan 2020 82,916 3,862,053 29,983,585
Cash flow changes from operating activities
Additions to issued debt "bonds" 1,288,567 108,792 9,031,390
Additions to debt securities issued "other" - - 14,442,817
Additions total 1,288,567 108,792 23,474,207
Deductions to issued debt "bonds" -34,608 -155,105 -6,619,454
Deductions to debt securities issued "other" - - -13,274,709
Deductions total -34,608 -155,105 -19,894,163
Cash flow changes from operating activities in total 1,253,959 -46,314 3,580,044
Changes in the balance sheet value including valuations and FX revaluations 6,483 68,287 -651,724
Carrying amount 31 Dec 2020 1,343,358 3,884,026 32,911,906
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR , Liabilities to credit institutions
Liabilities to the public
and public sector entities Debt securities issued
Carrying amount 1 Jan 2019 83,244 3,870,918 26,901,998
Cash flow changes from operating activities
Additions to issued debt "bonds" 62,891 19,832 6,948,465
Additions to debt securities issued "other" - - 9,611,202
Additions total 62,891 19,832 16,559,666
Deductions to issued debt "bonds" -50,375 -220,667 -4,620,310
Deductions to debt securities issued "other" - - -9,945,314
Deductions total -50,375 -220,667 -14,565,624
Cash flow changes from operating activities in total 12,517 -200,835 1,994,043
Changes in the balance sheet value including valuations and FX revaluations -12,845 191,970 1,087,544
Carrying amount 31 Dec 2019 82,916 3,862,053 29,983,585
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 38. Provisions and other liabilities
EUR , 31 Dec 2020 31 Dec 2019
Provisions
Restructuring provision 562 -
Other liabilities
Lease liabilities 6,032 7,388
Cash collateral taken from CCPs 231,180 96,239
Other 9,247 12,747
Tot al 247,021 116,374
The restructuring provision is related to the reorganisation of the Group’s operations and the co-operation negotiations conducted during the financial year 2020 due to the reorganisation.
EUR , Restructuring provision
Carrying amount 1 Jan 2020 -
Increase in provisions 641
Provisions used -79
Carrying amount 31 Dec 2020 562
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 39. Accrued expenses and deferred income
EUR , 31 Dec 2020 31 Dec 2019
Accrued interest expenses 132,030 164,531
Other accrued expenses 7,193 5,386
Deferred income * 13,175 10,999
Tot al 152,398 180,917
* Item consists mainly of leasing income.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 40. Equity
The shares of the Parent Company, Municipality Finance Plc, are divided into A and B
shares. The two types are equal in terms of voting rights and the distribution of profit. Each
share entitles its holder to one vote. The shares have no nominal value. The acquisition
of shares is restricted through the consent and redemption clauses of the Articles of
Association. All issued shares have been paid in full.
Reserves in equity
Reserve fund is restricted equity referred to in Chapter 8, Section 1 of the Limited Liability
Companies Act. Fair value reserve of investments contains the fair value changes of
financial instruments at fair value through other comprehensive income. Own credit
revaluation reserve contains the changes in own credit risk of financial liabilities designated
at fair value through profit or loss. Cost-of-Hedging reserve contains the impact of Cost-of-
Hedging of derivatives in fair value hedge accounting. The proportion of payment made for
shares that is not recorded in share capital is recognised in the Reserve for invested non-
restricted equity. Under the terms of the Parent Company’s 2009 share issue, the funds
collected through the share issue are recorded in the Reserve for invested non-restricted
equity. Retained earnings contains the profit of previous periods.
Other issued equity instruments
Other issued equity instruments contains a EUR 350 million unsecured debenture loan
with special terms designed to fulfil the requirements set for so-called AT1 capital loans
in the Capital Requirements Regulation (EU 575/2013). The debenture loan is included
in Additional Tier 1. The loan does not have a maturity date. Interest on the loan may
only be paid out of distributable funds in accordance with the terms set in the Capital
Requirements Regulation, and MuniFin will decide whether interest will be paid on the
interest payment date. The cancellation of interest payments is final, and unpaid interest
will not be added to the loan capital. MuniFin has the right but not the obligation to repay
the loan on 1 April 2022 or, after that, annually on the interest payment date, as long as the
buy-back is approved in advance by the regulatory authority. Due to terms stated above
AT1 capital loan is recognised as equity in the Consolidated Financial Statements.
The terms of the instruments included in equity are described in further detail in the Pillar
III Disclosure Report which is separate from the Report of the Board of Directors and the
Financial Statements. The Pillar III Disclosure Report is available on MuniFin’s website in
English.
EUR , Number of shares Share capital
1 Jan 2019 39063 798 42,583
31 Dec 2019 39063 798 42,583
31 Dec 2020 39063 798 42,583
There were no changes to the number of shares during the financial year.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
, EUR 31 Dec 2020 31 Dec 2019
Share capital 42,583 42,583
Reserve fund 277 277
Fair value reserve of investments 847 807
Own credit revaluation reserve -255 12,985
Cost-of-Hedging reserve 15,624 28,075
Reserve for invested non-restricted equity 40,366 40,366
Retained earnings 1,258,224 1,121,774
Total equity attributable to Parent Company equity holders 1,357,666 1,246,868
Other equity instruments issued 350,000 350,000
Transaction costs deducted from other equity instruments issued -2,546 -2,546
Total other equity instruments issued 347,454 347,454
Total equity 1,705,120 1,594,321
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 41. Contingent assets and liabilities
The accrued interest on the Parent Company’s AT1 capital loan is a contingent liability,
totalling EUR 9,459 thousand on the financial statement date 31 Dec 2020. The contingent
liability will be realised as a deduction of equity once MuniFin decides on the payment of
interest. In the comparative period of 2019, MuniFin had a contingent liability of EUR 9,433
thousand, which realised upon interest payment on 1 April 2020. The Group has no
contingent assets on the financial statement date 31 Dec 2020 or 31 Dec 2019.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 42. Collateral given
GIVEN COLLATERALS ON BEHALF OF OWN LIABILITIES AND COMMITMENTS
EUR , 31 Dec 2020 31 Dec 2019
Loans and advances to credit institutions to the counterparties of derivative contracts * 1,607,069 686,129
Loans and advances to credit institutions to the central bank ** 34,918 26,590
Loans and advances to the public and public sector entities to the central bank ** 5,181,646 2,765,089
Loans and advances to the public and public sector entities to the Municipal Guarantee Board *** 10,997,495 11,521,134
Other assets to the counterparties of derivative contracts * 243,269 158,494
Tot al 18,064,396 15,157,436
* MuniFin Group has pledged a sufficient amount of collateral to the counterparties of
derivative contracts based on the CSA agreements of the derivative contracts
(ISDA/Credit Support Annex).
** MuniFin is a monetary policy counterparty approved by the central bank (the Bank of
Finland) and for this purpose, a sufficient amount of collateral has been pledged to the
central bank for possible operations related to this counterparty position.
*** MuniFin Group has pledged a sufficient amount of loans shown in the table to the
Municipal Guarantee Board. The Municipal Guarantee Board guarantees MuniFin’s
funding and MuniFin places collateral for the Municipal Guarantee Board’s guarantees
as defined in the Act on the Municipal Guarantee Board.
Collateral given is presented at the carrying amounts of the financial statement date.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 44. Related-party transactions
MuniFin Group’s related parties include MuniFin’s shareholders whose ownership and
corresponding voting rights in the Company exceed 20%. In addition, the Group’s related
parties consist of the key management personnel including the CEO, the Deputy to the
CEO, other members of the Executive Management Team, members of the Board of
Directors, as well as the spouses, children and dependents of these persons and the
children and dependents of these persons’ spouses. In addition, MuniFin Group’s related
parties are entities, which are directly or indirectly controlled or jointly controlled by the
above-mentioned persons or where these persons have significant influence. MuniFin’s
related party is also its Subsidiary Financial Advisory Services Inspira Ltd.
The Group’s operations are restricted by the Act on the Municipal Guarantee Board and the
framework agreement concluded between MuniFin and the Municipal Guarantee Board,
pursuant to which MuniFin may only grant loans to parties stipulated by law (municipalities,
joint municipal authorities, corporations that are wholly owned by municipalities or under
their control and corporations designated by government authorities and engaged in the
renting or production and maintenance of housing on social grounds).
The Group has carried out only employment-based remuneration transactions with the
related party persons. The Group does not have loan or financial receivables from these
related parties. Transactions with Inspira comprise fees related to administrative and
advisory services MuniFin has purchased from Inspira.
There have been no material changes in the related party transactions and relationships
during the financial year.
TRANSACTIONS WITH THE SUBSIDIARY
EUR , 2020 2019
Sales 38 22
Purchases 681 551
INTRAGROUP RECEIVABLES AND LIABILITIES
EUR , 31 Dec 2020 31 Dec 2019
Receivables 4 -
Liabilities 53 26
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 45. Salaries and remuneration
The salaries and remuneration shown in the table include both the fixed remuneration and
paid variable remuneration. According to regulation on credit institutions, the payment
of variable remuneration earned each year is delayed and paid over the following years
if a person’s remuneration exceeds EUR 50,000. More information on the salary and
remuneration principles is available on MuniFin’s website in the Remuneration Report for
the year 2020 which is a separate document of the Financial Statements. The salaries
and remuneration consist of short-term employee benefits excluding termination benefits.
Such termination benefits have not occurred in the financial year 2020 (EUR 191 thousand).
The Group has provided to those members of the Executive Management Team (EMT)
that have been appointed as members (including CEO and the Deputy to the CEO) before
21 Dec 2017 with a contribution-based group pension insurance. Members of the EMT are
entitled to pension from the insurance after they have turned 63 years.
In the event of a termination of the employment on MuniFin’s initiative, the CEO and Deputy
to the CEO are entitled to a severance payment of six times the total monthly salary. The
period of notice for termination of employment is six months for the CEO and the Deputy to
the CEO. Employee benefits for the CEO and the Deputy to the CEO are terminated at the
end of the period of notice.
The CEO of MuniFin is Mr Esa Kallio and Executive Vice President Ms Mari Tyster acts as
a Deputy to the CEO. Figures reported in this note include remuneration paid to Esa Kallio
under President and CEO and respectively remuneration paid to Mari Tyster under Deputy
to the CEO.
The retirement age for the CEO and the Deputy to the CEO is stipulated by the Employees
Pensions Act.
Employee benefits for management
Salaries and remuneration paid to MuniFin’s CEO, Deputy to the CEO and other members
of the Executive Management Team subject to withholding tax:
SALARIES AND REMUNERATION EUR , 2020 2019
President and CEO 412 420
Deputy to the CEO 251 251
Other members of the Executive Management Team in total 1,122 1,384
Tot al 1,785 2,055
MuniFin has paid the following statutory pension contributions related to the CEO,
the Deputy to the CEO and other members of the Executive Management Team.
STATUTORY PENSION CONTRIBUTIONS EUR , 2020 2019
President and CEO 71 73
Deputy to the CEO 43 43
Other members of the Executive Management Team in total 194 240
Tot al 308 356
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
SALARIES AND REMUNERATION EUR ,
MEMBERS OF THE BOARD OF DIRECTORS 2020 2019
Helena Walldén, Chair 56 52
Tuula Saxholm, Vice Chair 36 33
Maaria Eriksson, elected 28 March 2019 32 23
Fredrik Forssell, member until 28 March 2019 - 9
Raija-Leena Hankonen, elected 28 March 2019,
member until 21 February 2020 6 23
Minna Helppi, member until 25 March 2020 9 32
Markku Koponen 46 39
Jari Koskinen, member until 25 March 2020 9 30
Kari Laukkanen 45 39
Vivi Marttila 34 32
Denis Strandell, elected 25 March 2020 25 -
Kimmo Viertola, elected 25 March 2020 24 -
Tot al 318 311
Remuneration of the Board of Directors
During financial years 2020–2021 the members of the Board of Directors of the Parent
Company are paid an annual remuneration as well as remuneration for each meeting in
accordance with the decision of the Annual General Meeting. The annual remuneration
is EUR 35,000 for the Chair of the Board, EUR 23,000 for the Vice Chair, EUR 25,000
for the Chairs of Committees and EUR 20,000 for the other members of the Board.
The remuneration paid for Board and Committee meetings is EUR 800 per meeting for
the Chair of the Board and the Chairs of Committees and EUR 500 per meeting for the
other members. In addition, meeting remuneration is paid for the meetings required by
the supervisory authorities. These remunerations are valid from 25 March 2020. Prior to
this, the annual remuneration was EUR 35,000 for the Chair of the Board, EUR 25,000
for the Vice Chair and EUR 20,000 for the other members of the Board. The meeting
remunerations have remained unchanged.
Salaries and remuneration
The remuneration paid to the management and employees of MuniFin Group consists of
a fixed remuneration (base salary and fringe benefits) and a variable remuneration based
on the conditions of the remuneration system. Principles of the remuneration system are
confirmed by the Board of Directors on an annual basis. The Remuneration Committee of
the Board of Directors is responsible for preparatory work concerning the matters of the
remuneration system. More information about salaries and remuneration is available on
MuniFin’s website www.munifin.fi.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 46. Events after the reporting period
MuniFin’s Board of Directors is not aware of any events having taken place after the end of
the reporting period that would have a material effect on the Group’s financial standing.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Parent Company
Financial Statements
Parent Company Financial Statements
(FAS)
Emoyhtiön tilinpäätös
EUR , Note 1 Jan–31 Dec 2020 1 Jan –31 Dec 2019
Interest income (2) 526,949 761,612
Net income from leasing operations (3) 5,986 4,969
Interest expense (2) -295,078 -542,525
Net interest income 237,857 224,056
Commission income (5) 677 588
Commission expense (5) -5,060 -4,230
Net income from securities and foreign exchange transactions (6, 7) -7,790 -33,373
Net income from securities -3,644 -34,801
Net income from foreign exchange transactions -4,146 1,428
Net income on financial assets at fair value through fair value reserve (8) -3 114
Net income from hedge accounting (9, 24) 4,183 -19,097
Other operating income (11) 165 157
Administrative expenses -31,811 -30,884
Personnel expenses (47) -16,598 -16,336
Salaries and fees -13,991 -13,511
Personnel-related costs -2,607 -2,825
Pension costs -2,147 -2,431
Other personnel-related costs -460 -394
Other administrative expenses -15,213 -14,548
Depreciation and impairment on tangible and intangible assets (12) -5,679 -6,073
Other operating expenses (13) -13,880 -16,485
Expected credit loss on financial assets at amortised cost (14) -920 -89
Expected credit loss and impairments on other financial assets (14) 62 117
Net operating profit 177,802 114,802
Appropriations -149,866 -105,031
Income taxes -5,599 -2,020
Profit for the financial year 22,336 7,750
Income Statement
Income statement
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Balance sheet
EUR , Note 31 Dec 2020 31 Dec 2019
Assets
Cash and balances with central banks 5,565,801 4,909,338
Cash 2 2
Central bank receivables payable on demand 5,565,799 4,909,336
Debt securities eligible for central bank refinancing (19) 3,949,985 4,089,519
Other 3,949,985 4,089,519
Loans and advances to credit institutions (17) 1,840,980 817,462
Payable on demand 164,005 80,450
Other 1,676,975 737,012
Loans and advances to the public and public sector entities (18) 26,931,384 23,969,974
Leased assets (20) 1,090,940 828,458
Debt securities (19) 1,813,228 1,626,798
From public sector entities 1,199,621 741,772
From others 613,607 885,026
Shares and participations (22) 27 9,797
Shares and participations in Group companies (22) 656 656
Derivative contracts (23) 2,358,163 2,244,997
Intangible assets (25, 27) 17,358 14,719
Tangible assets (26, 27) 9,980 8,539
Other tangible assets 9,980 8,539
Other assets (28) 259,635 170,063
Accrued income and prepayments (29) 203,542 242,428
Total assets (16, 36, 37, 39) 44,041,681 38,932,749
Balance Sheet
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR , Note 31 Dec 2020 31 Dec 2019
Liabilities and equity
Liabilities
Liabilities to credit institutions and central banks 2,001,478 1,178,256
To central banks 1,250,000 -
To credit institutions 751,478 1,178,256
Other 751,478 1,178,256
Liabilities to the public and public sector entities 3,884,026 3,862,053
Other liabilities 3,884,026 3,862,053
Debt securities issued (31) 32,911,906 29,983,585
Bonds 29,016,086 27,255,873
Other 3,895,820 2,727,712
Derivative contracts (23) 2,860,570 1,762,010
Other liabilities (32) 246,543 115,686
Accrued expenses and deferred income (33) 163,963 192,343
Subordinated liabilities (34) 349,388 348,896
Deferred tax liabilities (30) 4,054 10,467
Total liabilities (16, 36, 37, 39) 42,421,929 37,453,297
Appropriations
Depreciation difference 20,524 13,658
Taxation based provisions 1,347,530 1,204,530
Total appropriations 1,368,054 1,218,188
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR , Note 31 Dec 2020 31 Dec 2019
Equity (41, 42, 43)
Share capital 43,008 43,008
Other restricted reserves 16,493 42,145
Reserve fund 277 277
Fair value reserve 16,216 41,868
Change in fair value 16,216 41,868
Non-restricted reserves 40,743 40,743
Reserve for invested non-restricted equity 40,743 40,743
Retained earnings 129,118 127,618
Profit for the financial year 22,336 7,750
Total equity 251,698 261,264
Total liabilities and equity 44,041,681 38,932,749
Off-balance sheet commitments (46)
Irrevocable commitments given in favour of customer 2,353,978 2,361,323
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Statement of cash flows
Statement of cash flows
EUR , 1 Jan–31 Dec 2020 1 Jan–31 Dec 2019
Cash flow from operating activities 756,147 1,428,303
Net change in long-term funding 3,702,396 1,951,565
Net change in short-term funding 1,257,523 -298,985
Net change in long-term loans -3,074,492 -1,701,327
Net change in short-term loans -506,296 -79,193
Net change in investments 462,373 227,376
Net change in collaterals -1,287,941 1,048,093
Interest on assets 83,394 103,697
Interest on liabilities 145,647 199,363
Other income 59,925 53,819
Payments of operating expenses -84,361 -67,960
Taxes paid -2,020 -8,145
Cash flow from investing activities -8,236 -3,646
Acquisition of tangible assets -3,644 -271
Proceeds from sale of tangible assets 165 382
Acquisition of intangible assets -4,758 -3,757
Cash flow from financing activities -7,892 -7,821
Dividends paid -6,250 -6,250
Total cash flow from leases -1,642 -1,571
Change in cash and cash equivalents 740,019 1,416,835
Cash and cash equivalents at 1 January 4,989,788 3,572,953
Cash and cash equivalents at 31 December 5,729,806 4,989,788
Cash and cash equivalents include the following balance sheet items:
Cash and balances with central banks and Loans and advances to credit institutions payable
on demand.
EUR 1,000 31 Dec 2020 31 Dec 2019
Cash and balances with central banks 5,565,801 4,909,338
Loans and advances to credit institutions 164,005 80,450
Total cash and cash equivalents 5,729,806 4,989,788
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Notes to the Parent
Company Financial
Statements
Notes to the Parent Company Financial Statements
Note 1. Significant accounting policies of the Parent
Company Financial Statements, FAS
Notes to the income statement
Note 2. Interest income and expense
Note 3. Net income from leasing operations
Note 4. Income from equity investments
Note 5. Commission income and expense
Note 6. Net income from securities and foreign
exchange transactions
Note 7. Financial assets and liabilities designated at
fair value through profit or loss
Note 8. Net income on financial assets at fair value
through fair value reserve
Note 9. Net income from hedge accounting
Note 10. Impact of the reclassified financial assets
and liabilities
Note 11. Other operating income
Note 12. Depreciation and impairment on tangible
and intangible assets
Note 13. Other operating expenses
Note 14. Credit losses and impairments on financial
assets
Note 15. Information on business areas and
geographical market
Notes to the balance sheet
Note 16. Financial assets and liabilities
Note 17. Loans and advances to credit institutions
Note 18. Loans and advances to the public and
public sector entities
Note 19. Debt securities
Note 20. Leased assets
Note 21. Credit risks of financial assets and other
commitments
Note 22. Shares and participations
Note 23. Derivative contracts
Note 24. Hedge accounting
Note 25. Intangible assets
Note 26. Tangible assets
Note 27. Changes in intangible and tangible assets
during the financial year
Note 28. Other assets
Note 29. Accrued income and prepayments
Note 30. Deferred tax assets and liabilities
Note 31. Debt securities issued
Note 32. Other liabilities
Note 33. Accrued expenses and deferred income
Note 34. Subordinated liabilities
Note 35. Act on the Resolution of Credit Institutions
(1194/2014)
Note 36. Breakdown of financial assets and liabilities
at carrying amount by maturity
Note 37. Breakdown of balance sheet items into
domestic and foreign currency
Note 38. Repurchase agreements
Note 39. Fair values and carrying amounts of financial
assets and liabilities
Note 40. Fair value hierarchy of financial assets and
liabilities
Note 41. Equity
Note 42. Share capital
Note 43. Largest shareholders
Notes on collateral and contingent liabilities
Note 44. Collateral given
Note 45. Pension liabilities
Note 46. O-balance sheet commitments
Notes on personnel and management
Note 47. Personnel
Related party transactions
Note 48. Loans and other financial receivables from
the related parties
Holdings in other companies
Note 49. Holdings in other companies
Other notes
Note 50. Audit and other fees paid to the audit firm
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 1. Significant accounting policies of the Parent Company Financial Statements, FAS
Notes to the Parent Company Financial Statements
Municipality Finance Plc (MuniFin) prepares its Financial
Statements in accordance with the Act on Credit
Institutions, the Ministry of Finance Decree on Credit
Institutions and the Financial Supervisory Authority
Regulations and Guidelines 2/2016. The Company reports
regularly on its operations to the European Central Bank,
the Finnish Financial Supervisory Authority, the Bank of
Finland, the Municipal Guarantee Board and Statistics
Finland. Municipality Finance Plc is the Parent Company
of Municipality Finance Group (MuniFin Group). The
significant accounting policies and the presentation of the
Financial Statements of the Parent Company, Municipality
Finance Plc, correspond to the accounting policies of
the Consolidated Financial Statements (Note 1) with the
exceptions described below.
Debt securities
Debt securities are presented in the Parent Company’s
Financial Statements under two balance sheet items:
Debt securities eligible for central bank refinancing
and Debt securities, so that Debt securities eligible for
central bank refinancing, contains as the name implies,
debt securities eligible for central bank refinancing.
Leases
Leases in which MuniFin acts as the lessee are treated in
the Parent Company in accordance with the accounting
policies described in the Consolidated Financial
Statements. Leases in which MuniFin is a lessor, have been
classified as finance leases in the Financial Statements of
both the Group and the Parent Company. The accounting
treatment of finance leases does not differ from Group
to Parent Company, but the leased assets are presented
on line Loans and advances to the public and public sector
entities in the Consolidated Financial Statements. In
the Parent Company, they are presented on line Leased
assets. Income related to leasing operations is presented
under the income statement item Net income from leasing
operations. In the Consolidated Financial Statements, this
income is presented under Interest and similar income.
Other long-term expenses
Other long-term expenses include expenses intended
to generate income in several financial years that are not
objects, separately transferable rights or other assets.
MuniFin’s other long-term expenses consist of renovation
expenses for leased premises. These items are presented
in the Parent Company’s Financial Statements as part of
Intangible assets under item Other intangible assets and in
the Consolidated Financial Statements as part of Tangible
assets under item Office renovation expenses. The
depreciation period for the renovation expenses of the
leased premises is consistent with the lease term.
Appropriations
The difference between the depreciation according to plan
and the depreciation of assets in taxation (Depreciation
difference), and the voluntary credit loss provision (Taxation
based provisions) are presented under Total appropriations
in the balance sheet of the Parent Company. In the income
statement, the change in depreciation difference and
credit loss provision is shown on line Appropriations. The
voluntary credit loss provision and depreciation difference
recognised under the Finnish Accounting Standards do not
meet the recognition criteria set out in IAS 37 Provisions,
Contingent Liabilities and Contingent Assets, and the credit
loss provision and depreciation difference are thus released
in the Consolidated Financial Statements into equity and
deferred tax liability in accordance with IAS 12 Income
Tax. The Parent Company’s credit loss provisions are
recognised in accordance with tax law (Act on the Taxation
of Business Income 46§).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Fair value reserve
According to the Act on Credit Institutions certain fair
value changes are required to be recorded in the fair value
reserve within equity. The fair value reserve corresponds
to term other comprehensive income used in IFRS 9 and
in the Note 1 Summary of significant accounting policies
of the Consolidated Financial Statements. The following
fair value changes are presented in fair value reserve: fair
value changes of financial assets at fair value through
other comprehensive income, changes in fair value due to
changes in own credit risk of financial liabilities designated
at fair value through profit or loss and Cost-of-Hedging
from fair value hedge accounting, consisting of cross
currency basis spread which has been separated and
excluded from the hedge relationship.
AT1 capital loan
MuniFin has issued an AT1 capital loan, which is an
unsecured debenture loan included under Additional
Tier 1 capital, with special terms designed to fulfil the
requirements set for so-called AT1 capital loans in the
Capital Requirements Regulation (EU 575/2013). The loan
does not have a maturity date. Interest on the loan may
only be paid out of distributable funds in accordance with
the terms set in the Capital Requirements Regulation, and
the Company will decide whether interest will be paid on
the interest payment date. The cancellation of interest
payments is final, and unpaid interest will not be added to
the loan capital. The loan capital, interest payments and
other repayments shall take lower priority than all other
higher-level debts in case of the Company’s dissolution or
bankruptcy. The loan terms and conditions are disclosed
in Note 34 Subordinated liabilities. In the Parent Company’s
Financial Statements the AT1 capital loan is recognised as
debt under the balance sheet item Subordinated liabilities.
Interest paid on the AT1 capital loan is recognised in the
income statement under Interest expense. AT1 capital
loan is recognised as equity in the Consolidated Financial
Statements. Interest payments are recognised in the
Consolidated Financial Statements as a deduction from
equity in accordance with the issuer’s interest payment
decisions.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Notes to the income statement
The Company has not combined any items in the income statement under Chapter 2, Section 14(4), of the Ministry of Finance Decree.
Note 2. Interest income and expense
EUR ,
Interest and
similar income
Interest and
similar expense Net
Assets
Amortised cost
Cash and balances with central banks - -23,479 -23,479
Loans and advances to credit institutions 51 -6,030 -5,980
Loans and advances to the public and public sector entities 193,108 - 193,108
Debt securities 369 -3,247 -2,878
Other assets 251 - 251
Fair value through fair value reserve
Debt securities - -1,063 -1,063
Designated at fair value through profit or loss
Debt securities 13,206 - 13,206
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 955 - 955
Debt securities - - -
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 71,077 -95,237 -24,160
Derivative contracts in hedge accounting -79,399 - -79,399
Leased assets 5,986 - 5,986
Interest on non-financial other assets 6 - 6
Interest on assets 205,610 -129,057 76,553
, of which interest income/expense according to the effective interest method 193,779 -33,819
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR ,
Interest and
similar income
Interest and
similar expense Net
Liabilities
Amortised cost
Liabilities to credit institutions 8,089 - 8,089
Liabilities to the public and public sector entities - -60,239 -60,239
Debt securities issued 1,971 -255,909 -253,937
Subordinated liabilities - -16,274 -16,274
Other liabilities - -2,057 -2,057
Designated at fair value through profit or loss
Liabilities to credit institutions - -49 -49
Liabilities to the public and public sector entities - -35,494 -35,494
Debt securities issued - -139,066 -139,066
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 317,265 -138,029 179,236
Derivative contracts in hedge accounting - 481,095 481,095
Interest on liabilities 327,325 -166,021 161,304
, of which interest income/expense according to the effective interest method 10,060 -334,478
Tot al 532,935 -295,078 237,857
, of which interest income from leasing operations 5,986
Total interest income excluding interest income from leasing operations 526,949
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Interest income on stage 3 financial assets in the expected
credit loss (ECL) calculations totalled EUR 1,340 thousand
(EUR 373 thousand) during the financial year. These are
included in the line items Loans and advances to the public
and public sector entities and Leased assets.
Interest expense on other liabilities includes EUR 85
thousand (EUR 102 thousand) of interest on lease liabilities
recognised in accordance with IFRS 16 Leases standard.
Interest expenses on financial assets at amortised cost on
cash and balances with central banks consists of interest
paid on central bank deposits and interest on loans and
advances to credit institutions of interest on cash collateral
receivables. Interest expenses on debt securities consists
of interest paid on short-term lending. Negative interest
arises on debt securities at fair value through fair value
reserve due to the premium / discount amortisation of
debt securities and commercial papers. Interest expenses
on derivative contracts at fair value through profit or loss
consist of negative interest income on derivative contracts
that are not included in hedge accounting. The derivative
contracts contained in this line item hedge financial assets
which are designated at fair value through profit or loss,
derivative contracts with municipalities and derivative
contracts hedging derivatives with municipalities, in
addition to derivative contracts used for hedging interest
rate risk of the balance sheet, for which no hedged
item has been specified. Derivative contracts in hedge
accounting hedge loans and advances to the public and
public sector entities.
Interest income on financial liabilities at amortised cost
to credit institutions consists of interest received on cash
collateral liabilities as well as on TLTRO III debt and interest
income on debt securities issued consists of interest
received on ECPs. Interest income on derivative contracts
at fair value through profit or loss consists of positive
interest expense on derivatives that are not included in
hedge accounting. The derivatives contained in this line
item hedge financial liabilities which are designated at
fair value through profit or loss. Derivative contracts in
hedge accounting are used as hedges for liabilities to
credit institutions, liabilities to the public and public sector
entities and debt securities issued.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR ,
Interest and
similar income
Interest and
similar expense Net
Assets
Amortised cost
Cash and balances with central banks - -18,992 -18,992
Loans and advances to credit institutions 741 -3,654 -2,913
Loans and advances to the public and public sector entities 191,481 - 191,481
Debt securities 149 -1,172 -1,024
Other assets 98 - 98
Fair value through fait value reserve
Debt securities 0 -1,690 -1,690
Designated at fair value through profit or loss
Debt securities 20,024 - 20,024
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 1,364 - 1,364
Debt securities - 0 0
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 63,986 -91,324 -27,338
Derivative contracts in hedge accounting -78,835 - -78,835
Leased assets 4,969 - 4,969
Interest on non-financial other assets 6 - 6
Interest on assets 203,981 -116,832 87,150
, of which interest income/expense according to the effective interest method 192,468 -25,508
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EUR ,
Interest and
similar income
Interest and
similar expense Net
Liabilities
Amortised cost
Liabilities to credit institutions 4,378 -1,569 2,809
Liabilities to the public and public sector entities - -64,333 -64,333
Debt securities issued 3,305 -362,051 -358,745
Subordinated liabilities - -16,208 -16,208
Other liabilities - -2,192 -2,192
Designated at fair value through profit or loss
Liabilities to credit institutions - -1,245 -1,245
Liabilities to the public and public sector entities - -36,018 -36,018
Debt securities issued - -103,427 -103,427
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 554,916 -335,447 219,469
Derivative contracts in hedge accounting - 496,796 496,796
Interest on liabilities 562,600 -425,693 136,907
, of which interest income/expense according to the effective interest method 7,683 -446,352
Tot al 766,581 -542,525 224,056
, of which interest income from leasing operations 4,969
Total interest income excluding interest income from leasing operations 761,612
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 3. Net income from leasing operations
Note 4. Income from equity investments
EUR , 2020 2019
Leasing income 59,427 49,993
Depreciation on leased assets according to plan -53,509 -45,056
Capital gains and losses on leased assets 69 32
Tot al 5,986 4,969
The Company has not received dividend income from its subsidiary in financial years 2020 and 2019.
Note 5. Commission income and expense
COMMISSION INCOME EUR , 2020 2019
From other operations 677 588
Tot al 677 588
COMMISSION EXPENSE EUR , 2020 2019
Commission fees paid 664 178
Other * 4,396 4,052
Tot al 5,060 4,230
* Line item includes paid guarantee fees, custody fees and funding programme update costs.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 6. Net income from securities and foreign exchange transactions
EUR ,
Capital gains and
losses (net)
Changes in
fair value Tot al
Derivative contracts at fair value through profit or loss 853 48,555 49,408
Designated at fair value through profit or loss 2,870 -55,499 -52,629
Mandatorily at fair value through profit or loss -111 -284 -395
Day 1 gain or loss - -29 -29
Total net income from securities transactions 3,612 -7,257 -3,644
Net income from foreign exchange transactions 2,651 -6,797 -4,146
Tot al 6,263 -14,053 -7,790
EUR ,
Capital gains and
losses (net)
Changes in
fair value Tot al
Derivative contracts at fair value through profit or loss -2,026 590,161 588,135
Designated at fair value through profit or loss 2,504 -625,440 -622,936
Total net income from securities transactions 478 -35,279 -34,801
Net income from foreign exchange transactions 3,643 -2,215 1,428
Tot al 4,121 -37,494 -33,373
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 7. Financial assets and liabilities designated at fair value
through profit or loss
FINANCIAL ASSETS AND LIABILITIES DESIGNATED AT FAIR VALUE
THROUGH PROFIT OR LOSS
EUR ,
Nominal value
31 Dec 2020
Carrying amount
31 Dec 2020
Nominal value
31 Dec 2019
Carrying amount
31 Dec 2019
Financial assets
Debt securities * 3,912,451 4,029,859 3,843,076 3,940,456
Total financial assets 3,912,451 4,029,859 3,843,076 3,940,456
Financial liabilities
Liabilities to credit institutions 25,000 24,558 - -
Liabilities to the public sector entitities 1,908,373 1,637,674 1,870,254 1,548,639
Debt securities issued 10,927,113 10,454,282 11,855,073 11,391,573
Total financial liabilities 12,860,486 12,116,514 13,725,327 12,940,212
* Debt securities designated at fair value through profit or loss are exposed to credit risk up to the carrying amounts of those securities at 31 Dec 2020 and 31 Dec 2019.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
CHANGE IN FAIR VALUE OF FINANCIAL ASSETS DESIGNATED AT FAIR VALUE
THROUGH PROFIT OR LOSS
EUR , 31 Dec 2020 1 Jan 2020
Fair value change
recognised in the
income statement
2020
, of which due to
credit risk
, of which due to
market risk
Financial assets
Debt securities 69,859 53,109 16,750 3,203 13,547
Total financial assets 69,859 53,109 16,750 3,203 13,547
CHANGE IN FAIR VALUE OF FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE
THROUGH PROFIT OR LOSS
EUR , 31 Dec 2020 1 Jan 2020
Fair value change
recognised in the
income statement
2020
Change in own
credit risk recognised
in the own credit
revaluation reserve
2020
Total fair value
change in
2020
Financial liabilities
Liabilities to credit institutions 418 - 418 - 418
Liabilities to the public sector entitities -244,146 -218,911 -25,235 -813 -26,048
Debt securities issued 385,424 328,802 56,622 -15,739 40,883
Total financial liabilities 141,696 109,891 31,805 -16,551 15,254
Financial assets that MuniFin has designated at fair value through profit or loss include debt
securities in the liquidity portfolio of which the interest rate risk is hedged with interest rate
and cross currency interest rate swaps. The designation is made as it significantly reduces
accounting mismatch which would otherwise arise from measuring the derivative contract
at fair value through profit or loss and the debt security at fair value through fair value re-
serve based on the IFRS 9 business model. The Company does not have credit derivatives
hedging these financial assets.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin has designated short-term debt instruments denominated in foreign currencies,
which have been hedged with FX swaps, at fair value through profit or loss. The designation
reduces accounting mismatch which would otherwise arise between the measurement of
the derivative and financial liability. The financial liabilities designated at fair value through
profit or loss consist of financial liabilities, which have been hedged according to the
Company’s risk management policy, but which are not subject to IFRS 9 fair value hedge
accounting. The fair value changes of the financial liabilities impact the income statement,
but as they have been hedged, the expected profit or loss is restricted to interest. The table
above describes the net impact of these financial liabilities and their hedges on the
income statement.
When a financial liability is designated at fair value through profit or loss, the fair value
change, with exception to MuniFin’s own credit risk that is presented as change of the
Own credit revaluation reserve, is presented in Net income from securities transactions.
MuniFin applies the income approach of IFRS 13 to the separation of fair value changes
related to changes in own credit risk from the fair value changes of the financial liability.
For the majority of financial liabilities designated at fair value through profit or loss, no
market price is available as there is no active secondary market. The methodology for
separation of own credit risk utilises MuniFin’s benchmark curves, cross currency basis
spreads and credit spreads of MuniFin’s issued debt securities on the primary market
as input. Based on the aforementioned inputs, valuation curves can be constructed for
various reporting periods for valuing financial liabilities designated at fair value through
profit or loss. By comparing fair values calculated using the trade date and reporting
date, the impact of change in own credit risk on the fair value of the financial liability can
be determined.
Financial liabilities designated at fair value through profit or loss are not traded.
NET CHANGE IN FAIR VALUE IN NET INCOME FROM SECURITIES TRANSACTIONS
EUR ,
Cumulative change in fair value
31 Dec 2020
Fair value change recognised in
the income statement
2020
Financial liabilities designated at fair value through profit or loss 141,696 31,805
Derivative contracts at fair value through profit or loss hedging financial liabilities -167,847 -36,391
Net change in fair value -26,151 -4,586
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
CHANGE IN FAIR VALUE OF FINANCIAL ASSETS DESIGNATED AT FAIR VALUE
THROUGH PROFIT OR LOSS EUR , 31 Dec 2019 1 Jan 2019
Fair value change
recognised in the
income statement
2019
, of which due to
credit risk
, of which due to
market risk
Financial assets
Debt securities 53,109 54,906 -1,797 -2,788 991
Total financial assets 53,109 54,906 -1,797 -2,788 991
CHANGE IN FAIR VALUE OF FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE
THROUGH PROFIT OR LOSS EUR , 31 Dec 2019 1 Jan 2019
Fair value change
recognised in the
income statement
2019
Change in
own credit risk
recognised in
the own credit
revaluation
reserve 2019
Total fair value
change in
2019
Financial liabilities
Liabilities to credit institutions - -1,360 1,360 39 1,399
Liabilities to the public sector entitities -218,911 -140,738 -78,173 9,281 -68,891
Debt securities issued 328,802 875,841 -547,039 1,004 -546,035
Total financial liabilities 109,891 733,743 -623,852 10,325 -613,527
NET CHANGE IN FAIR VALUE IN NET INCOME FROM SECURITIES TRANSACTIONS
EUR ,
Cumulative change in fair value
31 Dec 2019
Fair value change recognised in
the income statement
2019
Financial liabilities designated at fair value through profit or loss 109,891 -623,852
Derivative contracts at fair value through profit or loss hedging financial liabilities -131,456 590,431
Net change in fair value -21,564 -33,421
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 8. Net income on financial assets at fair value through fair value reserve
Note 9. Net income from hedge accounting
EUR , 2020 2019
Capital gains from financial assets - 36
Capital losses from financial assets -3 -11
Unrealised gains transferred from fair value reserve - 100
Unrealised losses transferred from fair value reserve - -11
Tot al -3 114
EUR , 2020 2019
Net income from hedging instruments 216,679 372,670
Net income from hedged items -210,455 -391,767
IBOR reform related compensations * -2,041 -
Tot al 4,183 -19,097
* Compensations relate to the ongoing IBOR reform of which more information is presented in the accounting policies of the Consolidated Financial Statements (Note 1) in Section IBOR reform.
Unrealised gains and losses include fair value of the risks to which fair value hedge accounting is applied and which are measured at fair value. The foreign exchange difference of both hedging
instruments and hedged items are presented on line item Net income from foreign exchange transactions in Note 6. A specification of the net income from hedge accounting is presented in
Note 24.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 10. Impact of the reclassified financial assets and liabilities
FINANCIAL ASSETS
EUR ,
Original measurement
category under IAS 39
New measurement
category under IFRS 9
Fair value
31 Dec 2020
Fair value gain or loss
for the financial year *
EIR determined as at
1 Jan 2018 **
Interest revenue
recognised during
2020
Loans and advances to the public and public sector entities Fair value option Amortised cost 113,143 1,119 0.14% 187
* The fair value gain or loss that would have been recognised in the income statement during the financial year if the financial assets had not been reclassified.
** Effective interest rate determined on the date of initial application.
FINANCIAL ASSETS
EUR ,
Original measurement
category under IAS 39
New measurement
category under IFRS 9
Fair value
31 Dec 2019
Fair value gain or loss
for the financial year
EIR determined as at
1 Jan 2018
Interest revenue
recognised during
2019
Loans and advances to the public and public sector entities Fair value option Amortised cost 126,171 225 0.14% 203
The following table shows the impact of reclassification of financial assets in the
implementation of IFRS 9 standard (as of 1 Jan 2018) from at fair value through profit or
loss under IAS 39 into amortised cost under IFRS 9 standard. MuniFin did not reclassify
any financial liabilities from fair value through profit or loss into amortised cost.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 11. Other operating income
Note 12. Depreciation and impairment on tangible and intangible assets
EUR , 2020 2019
Other income from credit institution operations 165 157
Tot al 165 157
EUR , 2020 2019
Depreciation on tangible assets 2,394 2,131
Depreciation on intangible assets 3,285 3,942
Tot al 5,679 6,073
Impairments for tangible or intangible assets have not been recognised during financial year 2020 or 2019.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 13. Other operating expenses
EUR , 2020 2019
Regulatory expenses
Contributions to the single resolution fund 5,163 4,328
Other administrative and supervisory fees 2,227 2,179
Rental expenses 381 391
External services 4,466 7,925
Credit rating fees 894 926
Audit fees 389 271
Insurances 348 287
Other expenses from credit institution operations 11 179
Tot al 13,880 16,485
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 14. Credit losses and impairments on financial assets
MuniFin’s credit risks are described in the Consolidated Financial Statements’ Note 2 Risk management principles and the Group’s risk position in Section Credit Risk. The accounting
policies of the expected credit loss calculations and impairment stages are described in the accounting policies of the Consolidated Financial Statements (Note 1) in Section Impairment of
financial assets.
CREDIT LOSSES AND IMPAIRMENTS
EUR ,
Expected credit losses Realised credit losses
Additions Subtractions
Recognised
in the income
statement Additions Subtractions
Recognised
in the income
statement
Expected credit losses on financial assets at amortised cost
Cash and balances with central banks 0 0 0 - - -
Loans and advances to credit institutions -36 21 -15 - - -
Loans and advances to the public and public sector entities -1,026 121 -904 - - -
Leased assets -1 0 -1 - - -
Debt securities 0 0 0 - - -
Cash collateral to CCPs in Other assets -2 2 0 - - -
Credit commitments (off-balance sheet) -3 3 0 - - -
Total expected credit losses on financial assets at amortised cost -1,068 148 -920 - - -
Expected credit losses and impairments on other financial assets
Debt securities at fair value through fair value reserve -29 92 62 - - -
Guarantee receivables from the public and public sector entities in Other assets - - - - - -
Total expected credit losses and impairments on other financial assets -29 92 62 - - -
Tot al -1,097 240 -857 - - -
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
CREDIT LOSSES AND IMPAIRMENTS
EUR ,
Expected credit losses Realised credit losses
Additions Subtractions
Recognised
in the income
statement Additions Subtractions
Recognised
in the income
statement
Expected credit losses on financial assets at amortised cost
Cash and balances with central banks 0 0 0 - - -
Loans and advances to credit institutions -1 24 22 - - -
Loans and advances to the public and public sector entities -1 59 49 -110 -1 80 - -180
Leased assets -1 0 -1 - - -
Debt securities 0 0 0 - - -
Cash collateral to CCPs in Other assets -1 1 0 - - -
Credit commitments (off-balance sheet) -3 2 -1 - - -
Total expected credit losses on financial assets at amortised cost -166 77 -89 -180 - -180
Expected credit losses and impairments on other financial assets
Debt securities at fair value through fair value reserve -53 170 117 - - -
Guarantee receivables from the public and public sector entities in Other assets - - - - 180 180
Total expected credit losses and impairments on other financial assets -53 170 117 - 180 180
Tot al -219 247 28 -180 180 0
During the financial year 2019 MuniFin wrote-off loans and advances to the public and public sector entities totalling EUR 180 thousand. The Company has real estate collaterals and state
deficiency guarantees to fully cover these loans. The written-off receivables are shown in the balance sheet on line Guarantee receivables from the public and public sector entities under
Other assets and shown as a decrease of the write-offs recoveries in the income statement. Thus the Company will not incur final credit loss.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 15. Information on business areas and geographical market
Municipality Finance Plc’s operating segment is credit institution operations and the market for lending is Finland.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 16. Financial assets and liabilities
Notes to the balance sheet
The Company has not combined any items on the balance sheet under Chapter 2, Section 14(4), of the Ministry of Finance Decree.
FINANCIAL ASSETS
31 Dec 2020 (EUR 1,000) Amortised cost
Fair value through
fair value reserve
Designated at
fair value through
profit or loss
Mandatorily at
fair value through
profit or loss
Fair value through
profit or loss To t al Fair value
Cash and balances with central banks 5,565,801 - - - - 5,565,801 5,565,801
Loans and advances to credit institutions 1,840,980 - - - - 1,840,980 1,840,980
Loans and advances to the public and public sector entities 26,886,947 - - 44,438 - 26,931,384 29,415,707
Leased assets * 215,444 - - - - 215,444 228,011
Debt securities 1,310,305 423,050 4,029,859 - - 5,763,214 5,763,793
Shares and participations - - - 27 - 27 27
Shares and participations in Group companies - - - 656 - 656 656
Derivative contracts at fair value through profit or loss - - - - 833,293 833,293 833,293
Derivative contracts in hedge accounting - - - - 1,524,870 1,524,870 1,524,870
Other assets ** 243,269 - - - - 243,269 243,269
Tot al 36,062,746 423,050 4,029,859 45,121 2,358,163 42,918,938 45,416,406
* Line item includes leased assets for which MuniFin applies fair value hedge accounting. Unhedged leased assets are not presented in this Note of financial assets and liabilities as leased
assets are not regarded as financial assets for the purpose of IFRS 9 classification.
** Line item includes cash collateral given to central counterparties.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL LIABILITIES
31 Dec 2020 (EUR 1,000) Amortised cost
Designated at fair value
through profit or loss
Fair value through
profit or loss Tot a l Fair value
Liabilities to credit institutions 1,976,920 24,558 - 2,001,478 2,001,414
Liabilities to the public and public sector entities 2,246,352 1,637,674 - 3,884,026 3,906,619
Debt securities issued 22,457,624 10,454,282 - 32,911,906 32,968,471
Derivative contracts at fair value through profit or loss - - 1,403,900 1,403,900 1,403,900
Derivative contracts in hedge accounting - - 1,456,670 1,456,670 1,456,670
Other liabilities * 236,840 - - 236,840 236,840
Subordinated liabilities 349,388 - - 349,388 367,455
Tot al 27,267,124 12,116,514 2,860,570 42,244,209 42,341,369
* Line item includes EUR 231,180 thousand of cash collateral received from central counterparties and EUR 5,660 thousand of lease liabilities in accordance with IFRS 16 standard.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL ASSETS
31 Dec 2019 (EUR 1,000) Amortised cost
Fair value through
fair value reserve
Designated at
fair value through
profit or loss
Mandatorily at
fair value through
profit or loss
Fair value through
profit or loss To t al Fair value
Cash and balances with central banks 4,909,338 - - - - 4,909,338 4,909,338
Loans and advances to credit institutions 817,462 - - - - 817,462 817,462
Loans and advances to the public and public sector entities 23,918,874 - - 51,100 - 23,969,974 26,067,416
Leased assets * 182,865 - - - - 182,865 193,134
Debt securities 804,358 971,505 3,940,456 - - 5,716,318 5,716,940
Shares and participations - - - 9,797 - 9,797 9,797
Shares and participations in Group companies - - - 656 - 656 656
Derivative contracts at fair value through profit or loss - - - - 860,695 860,695 860,695
Derivative contracts in hedge accounting - - - - 1,384,303 1,384,303 1,384,303
Other assets ** 158,494 - - - - 158,494 158,494
Tot al 30,791,391 971,505 3,940,456 61,552 2,244,997 38,009,900 40,118,234
* Line item includes leased assets for which MuniFin applies fair value hedge accounting.
** Line item includes cash collateral given to central counterparties.
FINANCIAL LIABILITIES
31 Dec 2019 (EUR 1,000) Amortised cost
Designated at fair value
through profit or loss
Fair value through
profit or loss Tot a l Fair value
Liabilities to credit institutions 1,178,256 - - 1,178,256 1,178,371
Liabilities to the public and public sector entities 2,313,414 1,548,639 - 3,862,053 3,886,369
Debt securities issued 18,592,012 11,391,573 - 29,983,585 30,034,713
Derivative contracts at fair value through profit or loss - - 918,706 918,706 918,706
Derivative contracts in hedge accounting - - 843,304 843,304 843,304
Other liabilities * 103,144 - - 103,144 103,144
Subordinated liabilities 348,896 - - 348,896 382,160
Tot al 22,535,723 12,940,212 1,762,010 37,237,945 37,346,768
* Line item includes EUR 96,239 thousand of cash collateral received from central counterparties and EUR 6,906 thousand of lease liabilities in accordance with IFRS 16 standard.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 17. Loans and advances to credit institutions
31 Dec 2020 (EUR 1,000) Payable on demand
Other than payable
on demand Expected credit losses Tot a l
Receivables from central bank - 34,918 0 34,918
Domestic credit institutions 88,763 98,300 -11 187,052
Foreign credit institutions 75,242 1,543,800 -32 1,619,011
Tot al 164,005 1,677,018 -43 1,840,980
31 Dec 2019 (EUR 1,000) Payable on demand
Other than payable
on demand Expected credit losses Tot a l
Receivables from central bank - 26,590 0 26,590
Domestic credit institutions 2,736 28,800 -7 31,529
Foreign credit institutions 77,714 681,650 -21 759,343
Tot al 80,450 737,040 -28 817,462
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 18. Loans and advances to the public and public sector entities
EUR ,
31 Dec 2020 31 Dec 2019
Tota l
, of which expected
credit losses To t a l
, of which expected
credit losses
Enterprises and housing corporations 13,794,905 -983 12,647,283 -155
Public sector entities 12,772,899 -38 10,943,542 -19
Non-profit organisations 363,580 -67 379,149 -11
Tot al 26,931,384 -1,089 23,969,974 -185
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 19. Debt securities
DEBT SECURITIES ISSUED BY PUBLIC SECTOR ENTITIES
31 Dec 2020 (EUR 1,000) Publicly quoted Other To t a l Expected credit losses *
Amortised cost - 1,199,621 1,199,621 0
Commercial papers issued by other public sector entities - 1,199,621 1,199,621 0
Fair value through fair value reserve 124,157 - 124,157 2
Bonds issued by other public sector entities 124,157 - 124,157 2
Designated at fair value through profit or loss 1,869,431 - 1,869,431 -
Government bonds 266,874 - 266,874 -
Bonds issued by other public sector entities 1,602,557 - 1,602,557 -
Tot al 1,993,588 1,199,621 3,193,209 3
, of which eligible for central bank refinancing 1,780,922 - 1,780,922 2
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
DEBT SECURITIES ISSUED BY OTHER THAN PUBLIC SECTOR ENTITIES
31 Dec 2020 (EUR 1,000) Publicly quoted Other To t a l Expected credit losses *
Amortised cost - 110,684 110,684 0
Commercial papers - 110,684 110,684 0
Fair value through fair value reserve 298,893 - 298,893 39
Bank bonds 298,893 - 298,893 39
Bank commercial papers - - - -
Designated at fair value through profit or loss 2,160,427 - 2,160,427 -
Bank bonds 2,160,427 - 2,160,427 -
Tot al 2,459,320 110,684 2,570,005 39
, of which eligible for central bank refinancing 2,169,064 - 2,169,064 25
31 Dec 2020 (EUR 1,000) Publicly quoted Other To t a l Expected credit losses *
Debt securities total 4,452,908 1,310,305 5,763,214 42
* The expected credit losses have been recognised on debt securities, which have been
classified at fair value through fair value reserve. Therefore, the expected credit loss is not
recognised as a deduction from the gross carrying amount of the debt securities in the
balance sheet, but from the fair value reserve as described in the accounting policies of the
Consolidated Financial Statements (Note 1) in Section Presentation of allowance for ECL in
the statement of financial position.
Debt securities do not contain any securities given as collateral for reverse repo
agreements at the financial statement date 31 Dec 2020.
At the financial statement date 31 Dec 2020 MuniFin has no debt securities measured
mandatorily at fair value through profit or loss.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
DEBT SECURITIES ISSUED BY PUBLIC SECTOR ENTITIES
31 Dec 2019 (EUR 1,000) Publicly quoted Other To t a l Expected credit losses
Amortised cost - 721,585 721,585 0
Commercial papers issued by other public sector entities - 721,585 721,585 0
Fair value through fair value reserve 58,268 - 58,268 0
Government bonds - - - -
Bonds issued by other public sector entities 58,268 - 58,268 0
Designated at fair value through profit or loss 1,451,716 - 1,451,716 -
Government bonds 232,178 - 232,178 -
Bonds issued by other public sector entities 1,219,537 - 1,219,537 -
Tot al 1,509,984 721,585 2,231,569 0
, of which eligible for central bank refinancing 1,345,703 - 1,345,703 0
DEBT SECURITIES ISSUED BY OTHER THAN PUBLIC SECTOR ENTITIES
31 Dec 2019 (EUR 1,000) Publicly quoted Other To t a l Expected credit losses
Amortised cost - 82,772 82,772 0
Commercial papers - 82,772 82,772 0
Fair value through fair value reserve 913,236 - 913,236 104
Bank bonds 848,196 - 848,196 101
Bank commercial papers 65,040 - 65,040 3
Designated at fair value through profit or loss 2,488,740 - 2,488,740 -
Bank bonds 2,488,740 - 2,488,740 -
Tot al 3,401,976 82,772 3,484,748 104
, of which eligible for central bank refinancing 2,743,816 - 2,743,816 77
31 Dec 2019 (EUR 1,000) Publicly quoted Other To t a l Expected credit losses
Debt securities total 4,911,960 804,358 5,716,318 104
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 20. Leased assets
EUR , 31 Dec 2020 31 Dec 2019
Prepayments 415,943 339,726
Machinery and equipment 230,343 200,556
Fixed assets and buildings 444,378 288,062
Other assets 278 116
Expected credit losses -2 -1
Tot al 1,090,940 828,458
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 21. Credit risks of financial assets and other commitments
EXPOSURES BY ASSET GROUPS AND IMPAIRMENT STAGES
31 Dec 2020
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3 *
Gross
carrying
amount 12-month ECL
Gross
carrying
amount Lifetime ECL
Gross
carrying
amount Lifetime ECL
Gross
carrying
amount
Expected
credit losses
Cash and balances with central banks at amortised cost 5,565,801 0 - - - - 5,565,801 0
Loans and advances to credit institutions at amortised cost 1,840,980 -43 - - - - 1,840,980 -43
Loans and advances to the public and public sector entities at
amortised cost 26,606,595 -30 145,061 -835 135,291 -224 26,886,947 -1,089
Leased assets at amortised cost 1,090,768 -2 - - 173 - 1,090,940 -2
Debt securities at amortised cost 1,303,105 0 7,200 - - - 1,310,305 0
Debt securities at fair value through fair value reserve 423,050 -42 - - - - 423,050 -42
Cash collateral to CCPs in Other assets at amortised cost 243,269 -4 - - - - 243,269 -4
Guarantee receivables from the public and public sector entities in
Other assets 1,606 - - - - - 1,606 -
Credit commitments (off-balance sheet) 2,348,271 -4 4,506 0 1,201 0 2,353,978 -4
Tot al 39,423,445 -126 156,767 -835 136,665 -224
39,716,876
-1,184
* MuniFin has collateral and guarantee arrangements that fully cover the stage 3 receivables as described in the Consolidated Financial Statements’ Note 2 Risk management principles
and the Group’s risk position in Section Credit risk. MuniFin’s management expects that all the stage 3 receivables will be recovered and no final credit loss will emerge. Stage 3 receivables
include EUR 2,404 thousand of originated credit impaired receivables (Purchased or Originated Credit Impaired, POCI). Expected credit losses for the POCI-receivables amount to EUR 4
thousand.
MuniFin’s credit risks are described in the Consolidated Financial Statements’s Note 2 Risk
management principles and the Group’s risk position in Section Credit Risk. The expected
credit loss calculations and impairment stages are described in the accounting policies of the
Consolidated Financial Statements (Note 1) in Section Impairment of financial assets.
The table below presents exposures under expected credit loss calculations by asset
groups and impairment stages.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPOSURES BY ASSET GROUPS AND IMPAIRMENT STAGES
31 Dec 2019
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
Gross
carrying
amount 12-month ECL
Gross
carrying
amount Lifetime ECL
Gross
carrying
amount Lifetime ECL
Gross
carrying
amount
Expected
credit losses
Cash and balances with central banks at amortised cost 4,909,338 0 - - - - 4,909,338 0
Loans and advances to credit institutions at amortised cost 817,462 -28 - - - - 817,462 -28
Loans and advances to the public and public sector entities at
amortised cost 23,672,686 -24 184,586 -80 61,602 -80 23,918,874 -185
Leased assets at amortised cost 828,272 -1 186 0 - - 828,458 -1
Debt securities at amortised cost 780,667 0 23,690 0 - - 804,358 0
Debt securities at fair value through fair value reserve 971,505 -104 - - - - 971,505 -104
Cash collateral to CCPs in Other assets at amortised cost 158,494 -4 - - - - 158,494 -4
Guarantee receivables from the public and public sector entities in
Other assets 1,603 - - - - - 1,603 -
Credit commitments (off-balance sheet) 2,359,038 -4 2,285 0 - - 2,361,323 -4
Tot al 34,499,064 -167 210,747 -80 61,602 -80 34,771,414 -327
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The table below presents summary of total changes and reconciliation of expected credit losses by impairment stages during the financial year.
TOTAL EXPECTED CREDIT LOSSES BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -167 -80 -80 -327 34,771,414
New assets originated or purchased -83 -30 -13 -126 10,624,618
Assets derecognised or repaid (excluding write-offs) 119 10 43 173 -5,678,253
Transfers to Stage 1 0 30 - 30 30
Transfers to Stage 2 0 -50 9 -41 -41
Transfers to Stage 3 0 19 -7 12 12
Additional provision (Management overlay) - -340 - -340 -340
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models * and inputs ** used for ECL calculations 5 -395 -176 -566 -564
Write-offs - - - - -
Recoveries - - - - -
Total 31 Dec 2020 -126 -835 -224 -1,184 39,716,876
* Represents changes in the model.
** Represents changes to model parameters (e.g. GDP rates, unemployment rates)
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
During the second half of 2020, MuniFin has specified
the methods for estimating and modeling expected credit
losses as well as the assumptions used in the model.
The change in the modeling methodology affected the
modeling of the probability of default over the lifetime
of the loan and thus affected the amount of expected
credit losses on stages 2 and 3, which increased by
approximately EUR 0.5 million due to the change.
In addition, MuniFin has recorded an additional
discretionary provision (management overlay) of EUR
340 thousand to take into account the financial effects of
the COVID-19 pandemic. Year 2020 can be said to have
been financially exceptionally weak for certain customer
segments such as the arts sector and the operation of
sports halls. However, the deteriorating financial situation
is not yet reflected in MuniFin’s internal risk ratings, which
have been mainly updated based on the 2019 financial
statements. As the credit risk of certain customer
segments is estimated to have increased since then,
MuniFin’s management decided to record an additional
discretionary provision based on a group-specific
assessment. The additional provision relates to the
balance sheet line item Loans and advances to the public
and public sector entities. The additional provision has not
been allocated to contract level.
The assessment of the need for additional provisions is
based on the fact that MuniFin’s management estimates
that due to the increase in credit risk (not yet reflected
in the internal risk ratings), part of the exposures would
transfer to stage 2 in the expected credit loss calculations.
More detailed information on the financial situation of
the companies subject to the additional provision will
be available after the completion of their 2020 financial
statements, so that any change in expected credit losses
can be allocated to individual contracts and determined
according to the normal ECL calculation process.
MuniFin’s total credit risk has remained low and the
amount of expected credit losses (ECL) remains low.
MuniFin’s customer exposures have zero risk weight in
the capital adequacy calculation because they are from
Finnish municipalities or involve a municipal guarantee or a
state deficiency guarantee supplementing the real estate
collateral as described in the Consolidated Financial
Statements’ Note 2 Risk management principles and
the Group’s risk position under Section Credit risk. The
Company’s management estimates that all receivables will
be recovered in full and therefore no final credit loss will
arise. On 31 December 2020, MuniFin has a total of EUR
24 million (EUR 2 million) in guarantee receivables from
the public sector due to the insolvency of customers. The
growth is due to individual customers. Credit risk of the
liquidity portfolio has remained of good quality with the
average rating of AA+.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
TOTAL EXPECTED CREDIT LOSSES BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -295 -59 - -355 32,612,515
New assets originated or purchased -49 -48 -28 -126 7,569,070
Assets derecognised or repaid (excluding write-offs) 200 10 - 210 -5,410,336
Transfers to Stage 1 0 16 - 16 16
Transfers to Stage 2 0 -20 - -20 -20
Transfers to Stage 3 0 21 -52 -30 -30
Changes to contractual cash flows due to modifications not resulting in derecognition 0 - - 0 199
Changes to models and inputs used for ECL calculations -22 - - -22 0
Write-offs - - - - -180
Recoveries - - - - 180
Total 31 Dec 2019 -167 -80 -80 -327 34,771,414
During the financial year 2019, MuniFin specified the methods for estimating expected credit losses and the assumptions used in the model. The revaluation had no material impact on
the amount of expected of credit losses.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Tables below present changes and reconciliation of expected credit losses by impairment stages and asset groups during the financial year.
EXPECTED CREDIT LOSSES ON CASH AND BALANCES WITH CENTRAL BANKS
AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 0 - - 0 4,909,338
New assets originated or purchased 0 - - 0 656,463
Assets derecognised or repaid (excluding write-offs) 0 - - 0 0
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2020 0 - - 0 5,565,801
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO CREDIT INSTITUTI
ONS AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -28 - - -28 817,462
New assets originated or purchased -35 - - -35 1,687,198
Assets derecognised or repaid (excluding write-offs) 21 - - 21 -663,679
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations -1 - - -1 -1
Total 31 Dec 2020 -43 - - -43 1,840,980
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO THE PUBLIC AND
PUBLIC SECTOR ENTITIES AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -24 -80 -80 -185 23,918,874
New assets originated or purchased -15 -30 -13 -58 4,825,655
Assets derecognised or repaid (excluding write-offs) 3 10 43 56 -1,856,679
Transfers to Stage 1 0 30 - 30 30
Transfers to Stage 2 0 -50 9 -41 -41
Transfers to Stage 3 0 19 -7 12 12
Additional provision (Management overlay) - -340 - -340 -340
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models and inputs used for ECL calculations 6 -395 -176 -564 -564
Write-offs - - - - -
Total 31 Dec 2020 -30 -835 -224 -1,089 26,886,947
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON LEASED ASSETS AT AMORTISED COST BY
IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -1 0 - -1 828,458
New assets originated or purchased -1 - 0 -1 318,638
Assets derecognised or repaid (excluding write-offs) 0 - - 0 -56,155
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - 0 - 0 0
Changes to models and inputs used for ECL calculations 0 - - 0 0
Total 31 Dec 2020 -2 0 0 -2 1,090,940
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT AMORTISED COST BY
IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 0 0 - 0 804,358
New assets originated or purchased 0 0 - 0 1,310,305
Assets derecognised or repaid (excluding write-offs) 0 0 - 0 -804,358
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2020 0 0 - 0 1,310,305
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT FAIR VALUE THROUGH
FAIR VALUE RESERVE BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -104 - - -104 971,505
New assets originated or purchased -28 - - -28 159,570
Assets derecognised or repaid (excluding write-offs) 92 - - 92 -708,025
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations -2 - - -2
Total 31 Dec 2020 -42 - - -42 423,050
The loss allowance on debt instruments classified at fair value through fair value reserve is
recognised in fair value reserve. The accumulated loss allowance is recognised to the profit
or loss upon derecognition of the assets. More details regarding presentation of allowance
for expected credit losses is presented in the accounting policies of the Consolidated
Financial Statements (Note 1) in Section Presentation of allowance in the statement of
financial position.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON CASH COLLATERAL TO CCPS IN OTHER ASSETS
AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -4 - - -4 158,494
New assets originated or purchased -2 - - -2 84,772
Assets derecognised or repaid (excluding write-offs) 1 - - 1 1
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations 2 - - 2 2
Total 31 Dec 2020 -4 - - -4 243,269
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON GUARANTEE RECEIVABLES
FROM THE PUBLIC AND PUBLIC SECTOR ENTITIES IN OTHER ASSETS BY
IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 - - - - 1,603
New assets originated or purchased - - - - 184
Assets derecognised or repaid (excluding write-offs) - - - - -180
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Recoveries - - - - -
Total 31 Dec 2020 - - - - 1,606
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON CREDIT COMMITMENTS
OFFBALANCE SHEET BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2020 -4 0 - -4 2,361,323
New assets originated or purchased -3 - 0 -3 1,581,833
Assets derecognised or repaid (excluding write-offs) 3 0 - 3 -1,589,178
Transfers to Stage 1 - - - -
Transfers to Stage 2 0 0 - 0
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations 0 0 - 0
Total 31 Dec 2020 -4 0 0 -4 2,353,978
The loss allowance on binding credit commitments is recognised under Other liabilities.
More details regarding presentation of allowance for expected credit losses is presented
in the accounting policies of the Consolidated Financial Statements (Note 1) in Section
Presentation of allowance in the statement of financial position.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON CASH AND BALANCES WITH CENTRAL BANKS
AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 0 - - 0 3,522,200
New assets originated or purchased 0 - - 0 1,387,140
Assets derecognised or repaid (excluding write-offs) 0 - - 0 -1
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations 0 - - 0 0
Total 31 Dec 2019 0 - - 0 4,909,338
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO CREDIT
INSTITUTIONS AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -51 - - -51 1,380,291
New assets originated or purchased -1 - - -1 36,395
Assets derecognised or repaid (excluding write-offs) 24 - - 24 -599,225
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations 0 - - 0 0
Total 31 Dec 2019 -28 - - -28 817,462
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO THE PUBLIC AND
PUBLIC SECTOR ENTITIES AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -15 -59 - -75 22,297,288
New assets originated or purchased -11 -48 -28 -88 3,261,510
Assets derecognised or repaid (excluding write-offs) 2 10 - 12 -1,639,908
Transfers to Stage 1 0 16 - 16 16
Transfers to Stage 2 0 -20 - -20 -20
Transfers to Stage 3 0 21 -52 -30 -30
Changes to contractual cash flows due to modifications not resulting in derecognition 0 - - 0 199
Changes to models and inputs used for ECL calculations - - - 0 -
Write-offs - - - - -180
Total 31 Dec 2019 -24 -80 -80 -185 23,918,874
EXPECTED CREDIT LOSSES ON LEASED ASSETS AT AMORTISED COST BY
IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -1 0 - -1 614,022
New assets originated or purchased -1 0 - -1 258,164
Assets derecognised or repaid (excluding write-offs) 0 - - 0 -43,728
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations 0 - - 0 0
Total 31 Dec 2019 -1 0 - -1 828,458
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT AMORTISED COST BY
IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 0 0 - 0 725,587
New assets originated or purchased 0 0 - 0 804,358
Assets derecognised or repaid (excluding write-offs) 0 0 - 0 -725,587
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2019 0 0 - 0 804,358
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT FAIR VALUE THROUGH
FAIR VALUE RESERVE BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -221 - - -221 1,434,383
New assets originated or purchased -31 - - -31 215,461
Assets derecognised or repaid (excluding write-offs) 170 - - 170 -678,340
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations -22 - - -22
Total 31 Dec 2019 -104 - - -104 971,505
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON CASH COLLATERAL TO CCPS IN OTHER ASSETS
AT AMORTISED COST BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -4 - - -4 164,341
New assets originated or purchased -1 - - -1 45,499
Assets derecognised or repaid (excluding write-offs) 1 - - 1 -51,346
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2019 -4 - - -4 158,494
EXPECTED CREDIT LOSSES ON GUARANTEE RECEIVABLES FROM THE PUBLIC
AND PUBLIC SECTOR ENTITIES IN OTHER ASSETS BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 - - - - 1,800
New assets originated or purchased - - - - -
Assets derecognised or repaid (excluding write-offs) - - - - -377
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Recoveries - - - - 180
Total 31 Dec 2019 - - - - 1,603
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EXPECTED CREDIT LOSSES ON CREDIT COMMITMENTS
OFFBALANCE SHEET BY IMPAIRMENT STAGES
EUR ,
Not credit-impaired Credit-impaired
Tota l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL Gross carrying amount
Opening balance 1 Jan 2019 -3 0 - -3 2,472,604
New assets originated or purchased -3 0 - -3 1,560,543
Assets derecognised or repaid (excluding write-offs) 2 - - 2 -1,671,824
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations - - - -
Total 31 Dec 2019 -4 - - -4 2,361,323
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Forward-looking information
In the assessment of whether the credit risk of an
instrument has significantly increased (SICR) and in the
measurement of expected credit losses, forward-looking
information and macroeconomic scenarios are included in
the model. The scenarios for Finland have been updated
by MuniFin’s Chief Economist and Scenario Design Team
to take into account the effect of COVID-19 pandemic. The
macroeconomic projections cover a three-year period
and as no reliable macroeconomic projections exceeding
a three-year time horizon are available, forward-looking
adjustment will be limited to a three-year period. Mainly
three scenarios are used; base, optimistic and adverse.
Scenarios include probability weights. Due to uncertainty
caused by the COVID-19 pandemic, MuniFin has given a
larger weight to the adverse scenario.
The scenario probability weightings are as following:
SCENARIO
31 Dec 2020 31 Dec 2019
2021 2022 2023 2020 2021 2022
Adverse 50% 40% 40% 5% 5% 5%
Base 40% 40% 40% 75% 75% 75%
Optimistic 10% 20% 20% 20% 20% 20%
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
MuniFin has identified key drivers of credit losses
for each portfolio that share similar kind of credit risk
characteristics and estimated the relationship between
macroeconomic variables and credit losses. ECL model
consists of the following macroeconomic variables
for Finnish counterparties of financial assets; Finnish
government long-term rate, the development of residential
housing prices and unemployment rate. For non-Finnish
financial assets, stress test scenarios published by the
European Central Bank are employed in the model and
scenario parameters. Each variable covers an estimate
over a period of three years.
The table below presents the macroeconomic variables and their forecasts over the three-year forecast period.
MACROECONOMIC VARIABLES Scenario
31 Dec 2020 31 Dec 2019
2021 2022 2023 2020 2021 2022
10Y Fin Government rate, %
Adverse 0.1 -0.25 0.0 0.94 1.14 1.3
Base -0.37 -0.25 0.1 0.25 0.75 1.0
Optimistic
0.0 0.3 0.6 0.85 1 .1 1.35
Residential Real Estate
(selling price, YoY change), %
Adverse -12.5 -2.5 2.0 -9.0 -12.0 -5.0
Base 0.5 1.0 2.0 1.5 1.5 2.0
Optimistic
2.0 2.5 2.0 2.8 3.0 2.5
Unemployment rate, %
Adverse 9.5 9.5 8.7 7.8 9.5 9.2
Base 8.2 7.8 7.6 6.5 6.4 6.3
Optimistic
7.7 7.2 6.9 6.1 5.8 5.2
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The outbreak of COVID-19 pandemic led to a sharp decline in global GDP in the first half of
2020. Output started recovering in May–June 2020 as countries reopened their economi-
es. Towards the end of the year, however, the second wave of the pandemic renewed the
pressure on economic activity. In MuniFin’s base scenario, the Finnish GDP to contract is
3.5 percent in 2020. COVID-19 pandemic will still have a negative impact on the economy
during the winter and early spring of 2021. By summer, recovery will gain more momentum
as wider vaccination programs support economic confidence. MuniFin expects output to
grow 2.0% in 2021 and 3.5% in 2022. From 2023 onwards, the economy gradually conver-
ges to its long-term growth path and the annual pace of expansion is around 1.3–1.5%. In
the base scenario, unemployment rate peaks at 8.2% in 2021. Unemployment will remain
several years above its structural level, which is estimated to be around 6.5–7.0%. Negative
output gap keeps price pressures subdued. CPI inflation is assumed to recover rather
slowly in 2021–2022. The European Central Bank is committed to a very accommodative
monetary policy stance and interest rate expectations will rise only gradually in line
with economic recovery. On the national level, housing prices are expected to rise only
marginally in 2020-2021. After the pandemic, from 2022 onwards, housing prices inflation
accelerates moderately as rising personal income supports home buying intentions.
Compared to the base scenario, the optimistic scenario factors in slightly less severe
economic effects from the COVID-19 pandemic and assumes somewhat faster recovery
in global trade and investment spending. As a result, the Finnish GDP would decline less in
2020 and grow more in the subsequent years. In the optimistic scenario, unemployment
peaked already in 2020. Consumer and housing prices rise at about 2.0–2.5% pace in
2021–2022. Narrowing output gap and reviving inflation expectations lead to somewhat
higher interest rates than in the base scenario.
The adverse scenario represents an outcome where the COVID-19 pandemic causes
significant and persistent damage to the productive capacity. Economic recession
continues well into 2021. Unemployment rises more and remains high much longer than in
the base scenario. Deflationary pressures keep CPI inflation very low in 2020–2021. Lack
of demand in the housing market leads to relatively sharp declines in housing price indices.
Prolonged global recession creates tensions in financial markets, which gives rise to wider
risk premiums in asset pricing.
The table below presents the sensitivity of the expected credit losses assuming 100%
weight for adverse scenario until 2023.
SENSITIVITY ANALYSIS
31 Dec 2020 (EUR 1,000) Weighted scenario
Adverse scenario
(100%)
ECL 844 1,083
Proportion of the exposure in Stage 2 and 3 0.75% 1.04%
The sensitivity analysis does not include the additional discretionary provision
(management overlay) recorded on 31 Dec 2020.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Non-performing and forborne exposures
Non-performing and forborne exposures refer to receivables that are more than 90 days
past due, other receivables classified as risky and forborne exposures due to the
customer’s financial difficulties.
Forbearance measures are concessions to original contractual payment terms agreed at
the customers’ initiative to help the customer through temporary payment difficulties. Per-
forming forborne exposures include forborne exposures reclassified as performing during
their probation period or forbearance measures made into a performing loan. Loan modifi-
cations due to reasons other than the customer’s financial difficulties are not classified as
forborne exposures. MuniFin considers a loan forborne when such concessions or modifi-
cations are provided as a result of the borrower’s present or expected financial difficulties
and MuniFin would not have agreed to them if the borrower had been financially healthy.
NONPERFORMING AND FORBORNE EXPOSURES
31 Dec 2020 (EUR 1,000)
Performing exposures
(gross)
Non-performing
exposures (gross)
Total exposures
(gross)
Total expected
credit losses
Total exposures
(net)
Over 90 days past due - - - - -
Unlikely to be paid - 116,263 116,263 -162 116,102
Forborne exposures 68,715 19,584 88,299 -288 88,010
Tot al 68,715 135,847 204,562 -450 204,112
NONPERFORMING AND FORBORNE EXPOSURES
31 Dec 2019 (EUR 1,000)
Performing exposures
(gross)
Non-performing
exposures (gross)
Total exposures
(gross)
Total expected
credit losses
Total exposures
(net)
Over 90 days past due - - - - -
Unlikely to be paid - 61,682 61,682 -80 61,602
Forborne exposures 27,854 4,968 32,822 -27 32,795
Tot al 27,854 66,650 94,505 -107 94,398
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The COVID-19 pandemic affected the financial situation and liquidity of MuniFin’s
customers. MuniFin therefore offered concessions to the payment terms of the loans to
customers whose finances have been temporarily affected by the pandemic. The granted
repayment holidays concerned the year 2020 and were mainly between 6–9 months in
length. The uncollected installments were mainly transferred to the end of the loan term
to be paid in connection with the last installment. Most of the repayment holidays were
granted during April and May. No lease concessions were granted to MuniFin’s leasing
customers.
During the financial year, customers were granted repayment holidays (concessions to
contractual payment terms) for loans with a remaining notional amounting to EUR 226
million (88 individual loans), most of which, EUR 208 million (72 loans), were repayment
holidays due to COVID-19 pandemic. Of the loans with granted repayment holidays, EUR
82 million (57 loans) were classified as forborne exposures, of which EUR 64 million (35
loans) were performing forborne exposures (stage 2 in the measurement of expected
credit losses) and EUR 18 million (22 loans) non-performing forborne exposures (stage 3 in
the measurement of expected credit losses).
Realised credit losses
MuniFin has not had any final realised credit losses during the financial year or
the comparison year.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 22. Shares and participations
31 Dec 2020 (EUR 1,000) Publicly quoted Other Tot a l
, of which in credit
institutions
Mandatorily at fair value through profit or loss - 27 27 -
Shares and participations in Group companies - 656 656 -
Tot al - 683 683 -
, of which at acquisition cost - 656 656 -
MuniFin does not have equity instruments valued at fair value through fair value reserve. MuniFin does not have shares and participations subject to securities lending.
31 Dec 2019 (EUR 1,000) Publicly quoted Other To t al
, of which in credit
institutions
Mandatorily at fair value through profit or loss 9,769 27 9,797 -
Shares and participations in Group companies - 656 656 -
Tot al 9,769 683 10,452 -
, of which at acquisition cost - 656 656 -
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 23. Derivative contracts
DERIVATIVE CONTRACTS
31 Dec 2020 (EUR 1,000)
Nominal value of underlying instrument
Fair value
Remaining maturity
Less than 1 year 1–5 years Over 5 years Tot a l Positive Negative
Derivative contracts in hedge accounting
Interest rate derivatives
Interest rate swaps 2,933,188 11,186,060 15,825,475 29,944,724 1,155,265 -470,736
, of which cleared by the central counterparty 1,474,582 10,182,656 13,852,888 25,510,126 684,090 -314,856
Currency derivatives
Cross currency interest rate swaps 1,577,593 7,155,034 1,105,354 9,837,981 369,605 -985,934
Total derivative contracts in hedge accounting 4,510,781 18,341,095 16,930,830 39,782,706 1,524,870 -1,456,670
Derivative contracts at fair value through profit or loss
Interest rate derivatives
Interest rate swaps 3,800,843 9,751,683 5,000,317 18,552,843 749,891 -488,850
, of which cleared by the central counterparty 2,784,644 6,910,928 1,515,808 11,211,380 5,605 -189,246
Interest rate options - 40,000 - 40,000 106 -106
Currency derivatives
Cross currency interest rate swaps 2,385,939 2,284,168 130,374 4,800,480 82,985 -713,063
Forward exchange contracts 3,516,421 - - 3,516,421 - -126,805
Equity derivatives 932,553 - - 932,553 313 -75,076
Total derivative contracts at fair value through profit or loss 10,635,756 12,075,850 5,130,691 27,842,297 833,293 -1,403,900
Total derivative contracts 15,146,537 30,416,945 22,061,521 67,625,003 2,358,163 -2,860,570
Derivative contracts at fair value through profit or loss contain all derivatives of the Company which are not included in hedge accounting, even if they are entered into for risk management
purposes. The category contains derivative contracts used for hedging financial assets and liabilities designated at fair value through profit or loss, all derivative contracts with municipa-
lities and all derivative contracts hedging derivatives with municipalities. In addition to these, the category contains derivative contracts used for hedging interest rate risk of the balance
sheet, for which no hedged item has been specified.
Interest received or paid from derivative contracts is included in the balance sheet line items Accrued income and prepayments and Accrued expenses and deferred income.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
DERIVATIVE CONTRACTS
31 Dec 2019 (EUR 1,000)
Nominal value of underlying instrument
Fair value
Remaining maturity
Less than 1 year 1–5 years Over 5 years Tot a l Positive Negative
Derivative contracts in hedge accounting
Interest rate derivatives
Interest rate swaps 2,048,695 9,799,601 11,559,243 23,407,538 811,648 -346,270
, of which cleared by the central counterparty 934,155 7,260,466 9,065,291 17,259,913 368,439 -202,025
Currency derivatives
Cross currency interest rate swaps 2,845,533 7,733,901 1,044,699 11,624,134 572,655 -497,034
Total derivative contracts in hedge accounting 4,894,228 17,533,502 12,603,942 35,031,672 1,384,303 -843,304
Derivative contracts at fair value through profit or loss
Interest rate derivatives
Interest rate swaps 2,457,175 11,119,011 5,072,029 18,648,214 608,438 -375,507
, of which cleared by the central counterparty 518,410 8,221,487 1,172,175 9,912,071 10,769 -116,120
Interest rate options 35 40,000 - 40,035 225 -225
Currency derivatives
Cross currency interest rate swaps 4,286,054 2,351,154 271,291 6,908,499 209,582 -443,720
Forward exchange contracts 2,044,786 490,839 - 2,535,624 2,183 -25,303
Equity derivatives 1,585,879 18,969 - 1,604,848 40,268 -73,951
Total derivative contracts at fair value through profit or loss 10,373,929 14,019,972 5,343,320 29,737,220 860,695 -918,706
Total derivative contracts 15,268,157 31,553,474 17,947,262 64,768,893 2,244,997 -1,762,010
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 24. Hedge accounting
HEDGE ACCOUNTING
31 Dec 2020 (EUR 1,000) Nominal value
Fair value hedge
accounting total
IAS 39 portfolio
hedge accounting
IFRS 9 fair value
hedge accounting
IFRS 9 fair value
hedge accounting
incl. Cost-of-Hedging
Assets
Loans and advances to the public and public sector entities 11,183,657 11,614,114 11,483,819 130,295 -
Leased assets 211,223 215,444 - 215,444 -
Total assets 11,394,880 11,829,557 11,483,819 345,739 -
Liabilities
Liabilities to credit institutions 55,000 68,800 - 68,800 -
Liabilities to the public and public sector entities 1,853,956 2,246,352 - 2,181,931 64,421
Debt securities issued 21,260,721 22,077,489 - 11,898,132 10,179,357
Total liabilities 23,169,677 24,392,642 - 14,148,863 10,243,779
The interest rate and foreign exchange rate risk of the Company are managed by
entering into derivative transactions. According to the Market Risk Policy, the Company’s
hedging strategy is mainly to hedge all material foreign exchange and interest rate risks
of financial assets and liabilities with maturities exceeding one year. As a result, foreign
currency denominated items are translated into euros, fixed rate and long-term reference
rates are swapped to floating interest rates with shorter terms. The risk management
principles related to the Company’s hedging of market risk are described in more detail
in the Consolidated Financial Statements’s Note 2 Risk Management principles and
the Group’s risk position.
The Company applies both fair value hedge accounting according to IFRS 9 and fair value
portfolio hedge accounting according to IAS 39. The Company does not apply cash flow
hedge accounting. Accounting policies related to hedge accounting are described in the
accounting polices of the Consolidated Financial Statements (Note 1) in Section Hedge
Accounting.
In the table below the hedged assets and liabilities are presented according to balance
sheet line items divided into IAS 39 portfolio hedge accounting and IFRS 9 fair value hedge
accounting, which is further subdivided into whether hedging is subject to the separation of
the Cost-of-Hedging.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The figures presented in the following table contain the
cumulative fair value change at the beginning and end of
the financial year, in addition to the fair value change of
the hedged risk and the hedging instrument during the
financial year. The figures presented in the table do not
include the change in fair value due to foreign exchange
differences of hedging instruments and the hedged
items, which are recognised in the income statement
under Net income from securities and foreign exchange
transactions. Due to the above mentioned reason, the total
amount of the hedging instruments does not correspond
to the fair value presented in Note 23 Derivatives on line
Total derivative contracts in hedge accounting. The fair
value changes of the hedged risk of the hedged items and
all other fair value changes of the hedging instruments are
recognised in the income statement under Net income
from hedge accounting. The ineffective portion of the
hedging relationship is thus shown on this line in the
income statement. Net income from securities and foreign
exchange transactions is specified in Note 6 and net
income from hedge accounting in Note 9.
In accordance with the market practice and IFRS 13
standard, MuniFin discounts hedged items with the
swap curve and the hedging derivatives with the OIS
curve, which causes a significant part of MuniFin’s hedge
ineffectiveness. In addition, ineffectiveness may also arise
to some extent from differences in notional, day count
methods or timing of the cash flows.
VALUE OF HEDGED RISK
EUR , 31 Dec 2020 1 Jan 2020
Recognised in
the income
statement 2020
Assets
IAS 39 portfolio hedge accounting
Loans and advances to the public and public sector entities 464,688 303,139 161,548
Derivative contracts in hedge accounting -428,083 -276,831 -151,252
Accumulated fair value accrual from the termination of hedge accounting 47 - 47
IAS 39 portfolio hedge accounting, net 36,653 26,308 10,344
IFRS 9 fair value hedge accounting
Loans and advances to the public and public sector entities 37,203 29,330 7,873
Leased assets 4,221 1,605 2,616
Derivative contracts in hedge accounting -42,044 -33,193 -8,851
IFRS 9 fair value hedge accounting, net -620 -2,258 1,638
Liabilities
IFRS 9 fair value hedge accounting
Liabilities to credit institutions -13,800 -12,916 -884
Liabilities to the public and public sector entities -481,546 -434,953 -46,593
Debt securities issued -859,986 -524,923 -335,063
Derivative contracts in hedge accounting 1,340,456 963,674 376,782
IFRS9 fair value hedge accounting, net -14,876 -9,118 -5,757
IBOR reform related compensations * -2,041 - -2,041
Total hedge accounting 19,115 14,932 4,183
* Compensations relate to the ongoing IBOR reform of which more information is presented in the accounting policies of
the Consolidated Financial Statements (Note 1) in Section IBOR reform.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The following table presents the impact of Cost-of-
Hedging of cross currency derivatives on equity in the
Cost-of-Hedging reserve. The figures are presented
net of deferred taxes.
For all foreign currency hedge relationships MuniFin
has elected to utilise Cost-of-Hedging. For each hedge
relationship, when the cross currency swap is designated
as a hedging instrument, the cross currency basis spread
is separated and excluded from the designation and
accounted for as Cost-of-Hedging.
The difference between the changes in fair value of
the actual derivative and the designated portion of
the derivative are recorded as Cost-of-Hedging to
the Cost-of-Hedging reserve. Thus, changes in cross
currency basis spreads do not create ineffectiveness in
the hedge relationship.
HEDGING IMPACT ON EQUITY
EUR , 31 Dec 2020 1 Jan 2020
Impact on
Cost-of-Hedging reserve
Cost-of-Hedging
Derivative contracts in hedge accounting 15,624 28,075 -12,451
Tot al 15,624 28,075 -12,451
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The table below presents the cumulative effectiveness of hedge accounting by hedged items. In addition, the table shows the hedging instruments used.
EFFECTIVENESS OF HEDGE ACCOUNTING
31 Dec 2020 (EUR 1,000)
Hedging instruments
Gains/losses attributable to the hedged risk
Hedge
ineffectivenessHEDGED ITEM Hedged items Hedging instruments
Assets
IAS 39 portfolio hedge accounting
Fixed rate and revisable rate loans Interest rate derivatives 464,688 -428,083 36,605
IFRS 9 fair value hedge accounting
Structured lending Interest rate derivatives 37,203 -37,739 -537
Fixed rate and revisable rate leased assets Interest rate derivatives 4,221 -4,305 -84
Assets total 506,111 -470,126 35,985
Liabilities
IFRS 9 fair value hedge accounting
Financial liabilities denominated in EUR Interest rate derivatives -952,949 945,353 -7,596
Financial liabilities denominated in foreign currencies
Currency derivatives (cross
currency interest rate swaps)
Interest rate derivatives -402,383 395,103 -7,280
Liabilities total -1,355,332 1,340,456 -14,876
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
HEDGE ACCOUNTING
31 Dec 2019 (EUR 1,000) Nominal value
Fair value hedge
accounting total
IAS 39 portfolio
hedge accounting
IFRS 9 fair value
hedge accounting
IFRS 9 fair value
hedge accounting
incl. Cost-of-hedging
Assets
Loans and advances to the public and public sector entities 8,256,680 8,546,257 8,420,004 126,253 -
Leased assets 181,261 182,865 - 182,865 -
Total assets 8,437,941 8,729,122 8,420,004 309,118 -
Liabilities
Liabilities to credit institutions 70,000 82,916 - 82,916 -
Liabilities to the public and public sector entities 1,968,524 2,313,414 - 2,162,575 150,839
Debt securities issued 18,042,510 18,391,689 - 6,668,732 11,722,957
Total liabilities 20,081,034 20,788,019 - 8,914,223 11,873,796
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
VALUE OF HEDGED RISK
EUR , 31 Dec 2019 1 Jan 2019
Recognised in the income
statement 2019
Assets
IAS 39 portfolio hedge accounting
Loans and advances to the public and public sector entities 303,139 155,610 147,530
Derivative contracts in hedge accounting -276,831 -127,621 -149,210
IAS 39 portfolio hedge accounting, net 26,308 27,989 -1,681
IFRS 9 fair value hedge accounting
Loans and advances to the public and public sector entities 29,330 21,574 7,755
Leased assets 1,605 1,178 427
Derivative contracts in hedge accounting -33,193 -23,636 -9,556
IFRS 9 fair value hedge accounting, net -2,258 -884 -1,374
Liabilities
IFRS 9 fair value hedge accounting
Liabilities to credit institutions -12,916 -11,845 -1,071
Liabilities to the public and public sector entities -434,953 -339,599 -95,353
Debt securities issued -524,923 -73,869 -451,054
Derivative contracts in hedge accounting 963,674 432,237 531,436
IFRS9 fair value hedge accounting, net -9,118 6,924 -16,042
Total hedge accounting 14,932 34,029 -19,097
HEDGING IMPACT ON EQUITY
EUR , 31 Dec 2019 1 Jan 2019
Impact on
Cost-of-Hedging reserve
Cost-of-Hedging
Derivative contracts in hedge accounting 28,075 14,235 13,840
Tot al 28,075 14,235 13,840
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
EFFECTIVENESS OF HEDGE ACCOUNTING
31 Dec 2019 (EUR 1,000)
Hedging instruments
Gains/losses attributable to the hedged risk
Hedge
ineffectivenessHEDGED ITEM Hedged items Hedging instruments
Assets
IAS 39 portfolio hedge accounting
Fixed rate and revisable rate loans Interest rate derivatives 303,139 -276,831 26,308
IFRS 9 fair value hedge accounting
Structured lending Interest rate derivatives 29,330 -31,086 -1,756
Fixed rate and revisable rate leased assets Interest rate derivatives 1,605 -2,107 -502
Assets total 334,074 -310,024 24,050
Liabilities
IFRS 9 fair value hedge accounting
Financial liabilities denominated in EUR Interest rate derivatives -693,747 697,685 3,938
Financial liabilities denominated in foreign currencies
Currency derivatives (Cross
currency interest rate swaps)
Interest rate derivatives -279,045 265,988 -13,057
Liabilities total -972,792 963,674 -9,118
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 25. Intangible assets
Note 26. Tangible assets
EUR , 31 Dec 2020 31 Dec 2019
IT systems 17,346 14,704
Other intangible assets 12 16
Tot al 17,358 14,719
Intangible assets do not include other development costs or goodwill.
EUR , 31 Dec 2020 31 Dec 2019
Real estate corporation shares 299 299
Right-of-use assets 5,588 6,860
Other tangible assets 4,093 1,380
Tot al 9,980 8,539
MuniFin does not have investment properties.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 27. Changes in intangible and tangible assets during the financial year
Intangible assets Tangible assets
EUR , Tot al Other real estate Other tangible assets Right-of-use assets To t a l
Acquisition cost 1 Jan 2020 27,266 299 4,062 8,355 12,716
+ Additions 5,924 - 3,644 295 3,939
– Disposals - - -343 -79 -422
Acquisition cost 31 Dec 2020 33,190 299 7,363 8,570 16,233
Accumulated depreciation 1 Jan 2020 12,547 - 2,682 1,494 4,177
– Accumulated depreciation on disposals - - -252 -66 -318
+ Depreciation for the financial year 3,285 - 840 1,554 2,394
Accumulated depreciation 31 Dec 2020 15,831 - 3,271 2,982 6,253
Carrying amount 31 Dec 2020 17,358 299 4,093 5,588 9,980
Intangible assets Tangible assets
EUR , Tot al Other real estate Other tangible assets Right-of-use assets To t a l
Acquisition cost 1 Jan 2019 25,070 299 4,820 8,188 13,307
+ Additions 3,757 - 271 167 438
– Disposals -1,561 - -1,029 - -1,029
Acquisition cost 31 Dec 2019 27,266 299 4,062 8,355 12,716
Accumulated depreciation 1 Jan 2019 10,166 - 2,755 - 2,755
– Accumulated depreciation on disposals -1,561 - -709 - -709
+ Depreciation for the financial year 3,942 - 637 1,494 2,131
Accumulated depreciation 31 Dec 2019 12,547 - 2,682 1,494 4,177
Carrying amount 31 Dec 2019 14,719 299 1,380 6,860 8,539
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 28. Other assets
EUR , 31 Dec 2020 31 Dec 2019
Invoiced leasing 11,185 8,984
Given cash collateral to CCPs * 243,269 158,494
Other 5,181 2,585
Tot al 259,635 170,063
* Cash collaterals include expected credit loss amounting to EUR 4 thousand (EUR 4 thousand).
MuniFin did not have receivables related to payment transfers as at 31 Dec 2020 or 31 Dec 2019.
Note 29. Accrued income and prepayments
EUR , 31 Dec 2020 31 Dec 2019
Accrued interest income 198,057 231,777
Other accrued income * 5,637 9,182
Prepayments -152 1,470
Tot al 203,542 242,428
* Line item includes mainly tax receivables.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 30. Deferred tax assets and liabilities
DEFERRED TAX LIABILITIES
EUR , 1 Jan 2020
Recognised in the
income statement Recognised in equity
Paid during the
financial year 31 Dec 2020
On fair value reserve 10,467 - -6,413 - 4,054
Tot al 10,467 - -6,413 - 4,054
Voluntary credit loss provision and depreciation difference include EUR 273,611 thousand in non-recognised deferred tax liabilities.
The Company did not have deferred tax assets as at 31 December 2020.
DEFERRED TAX LIABILITIES
EUR , 1 Jan 2019
Recognised in the
income statement Recognised in equity
Paid during the
financial year 31 Dec 2019
On fair value reserve 4,922 - 5,545 - 10,467
On revaluation of financial assets and liabilities in IFRS 9 transition 1 Jan 2018 5,707 - - -5,707 -
Tot al 10,629 - 5,545 -5,707 10,467
Voluntary credit loss provision and depreciation difference include EUR 243,638 thousand in non-recognised deferred tax liabilities.
The Company did not have deferred tax assets as at 31 December 2019.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 31. Debt securities issued
EUR ,
31 Dec 2020 31 Dec 2019
Carrying amount Nominal value Carrying amount Nominal value
Bonds 29,016,086 28,671,412 27,255,873 27,361,959
Other * 3,895,820 3,896,421 2,727,712 2,735,624
Tot al 32,911,906 32,567,833 29,983,585 30,097,583
* Line item contains short-term funding issued by MuniFin.
MuniFin’s funding is guaranteed by the Municipal Guarantee Board.
BENCHMARK ISSUANCES DURING THE YEAR Value date Maturity date Interest-%
Nominal value
(1,000) Currency
Fixed rate benchmark bond, issued under the MTN programme 15 Jan 2020 15 Nov 2024 0.000% 1,500,000 EUR
Fixed rate benchmark bond, issued under the MTN programme 22 Apr 2020 22 Apr 2025 0.000% 1,000,000 EUR
Fixed rate benchmark bond, issued under the MTN programme 14 Oct 2020 14 Oct 2030 0.000% 500,000 EUR
Fixed rate benchmark bond, issued under the MTN programme 1 Jul 2020 1 Sep 2023 0.375% 1,000,000 USD
Fixed rate benchmark bond, issued under the MTN programme 10 Sep 2020 10 Sep 2035 0.050% 500,000 EUR
In the above table, the benchmark issuances are included by the settlement date. The offering circular is available in English on the website at www.munifin.fi/investor-relations.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
RECONCILIATION OF THE CARRYING AMOUNT OF ISSUED DEBT
EUR , Liabilities to credit institutions
Liabilities to the public
and public sector entities Debt securities issued
Carrying amount 1 Jan 2020 82,916 3,862,053 29,983,585
Cash flow changes from operating activities
Additions to issued debt "bonds" 1,288,567 108,792 9,031,390
Additions to debt securities issued "other" - - 14,442,817
Additions total 1,288,567 108,792 23,474,207
Deductions to issued debt "bonds" -34,608 -155,105 -6,619,454
Deductions to debt securities issued "other" - - -13,274,709
Deductions total -34,608 -155,105 -19,894,163
Cash flow changes from operating activities in total 1,253,959 -46,314 3,580,044
Changes in the balance sheet value including valuations and FX revaluations 6,483 68,287 -651,724
Carrying amount 31 Dec 2020 1,343,358 3,884,026 32,911,906
RECONCILIATION OF THE CARRYING AMOUNT OF ISSUED DEBT
EUR , Liabilities to credit institutions
Liabilities to the public and
public sector entities Debt securities issued
Carrying amount 1 Jan 2019 83,244 3,870,918 26,901,998
Cash flow changes from operating activities
Additions to issued debt "bonds" 62,891 19,832 6,948,465
Additions to debt securities issued "other" - - 9,611,202
Additions total 62,891 19,832 16,559,666
Deductions to issued debt "bonds" -50,375 -220,667 -4,620,310
Deductions to debt securities issued "other" - - -9,945,314
Deductions total -50,375 -220,667 -14,565,624
Cash flow changes from operating activities in total 12,517 -200,835 1,994,043
Changes in the balance sheet value including valuations and FX revaluations -12,845 191,970 1,087,544
Carrying amount 31 Dec 2019 82,916 3,862,053 29,983,585
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 32. Other liabilities
EUR , 31 Dec 2020 31 Dec 2019
Mandatory provisions
Restructuring provision 504 -
Other liabilities
Lease liabilities 5,660 6,906
Cash collateral taken from CCPs 231,180 96,239
Other 9,199 12,542
Tot al 246,543 115,686
The restructuring provision is related to the reorganisation of MuniFin’s operations and the co-operation negotiations conducted during the financial year 2020 due to the reorganisation.
EUR , Restructuring provision
Carrying amount 1 Jan 2020 -
Increase in provisions 578
Provisions used -74
Carrying amount 31 Dec 2020 504
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 33. Accrued expenses and deferred income
EUR , 31 Dec 2020 31 Dec 2019
Accrued interest expenses 143,853 176,322
Other accrued expenses 6,935 5,022
Deferred income * 13,175 10,999
Tot al 163,963 192,343
* Item consists mainly of leasing prepayments.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 34. Subordinated liabilities
31 Dec 2020 (EUR 1,000) Currency Nominal value Book value Interest rate Earliest repayment
AT1 capital loan EUR 350,000 349,388 Fixed 1 April 2022
Tot al 350,000 349,388
31 Dec 2019 (EUR 1,000) Currency Nominal value Book value Interest rate Earliest repayment
AT1 capital loan EUR 350,000 348,896 Fixed 1 April 2022
Tot al 350,000 348,896
The loan is an unsecured debenture loan included under Additional Tier 1 capital, with
special terms designed to fulfil the requirements set for so-called AT1 capital loans in the
Capital Requirements Regulation (EU 575/2013). The loan does not have a maturity date.
Interest on the loan may only be paid out of distributable funds in accordance with the
terms set in the Capital Requirements Regulation, and the Company will decide whether
interest will be paid on the interest payment date. The cancellation of interest payments is
final and unpaid interest will not be added to the loan capital. The loan capital will be written
off if the proportion of the Company’s Common Equity Tier 1 (CET1) capital to risk-weighted
assets falls below 5.125%. The Company may decide to re-book the loan capital partially
or entirely if the Capital Requirements Regulation permits this based on an improvement
in the Company’s finances. The Company has the right but not the obligation to repay the
loan on 1 April 2022 or, after that, annually on the interest payment date, as long as the
buy-back is approved in advance by the regulatory authority. The regulatory authority may
authorise the repayment of the loan also for particular reasons, for example if legislation
or regulatory practice should change in such a way that the Company loses the right
to deduct the interest in full, or if the Company should be forced to make the additional
payments mentioned in the loan terms. The authorities may also permit repayment of
the loan if the loan’s official classification changes in such a way that the loan would be
likely to be excluded from the Company’s own funds, or if it is reclassified as lower-value
funds. The loan capital, interest payments and other repayments shall take lower priority
than all other higher-level debts in case of the Company’s dissolution or bankruptcy. AT1
capital loan is recognised as equity in the Consolidated Financial Statements. In the Parent
Company’s Financial Statements AT1 capital loan is recognised under balance sheet item
Subordinated liabilities.
Loan terms and conditions:
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 35. Act on the Resolution of Credit Institutions (1194/2014)
MuniFin’s crisis resolution authority is the EU’s Single Resolution Board (SRB). The SRB
is expected to impose a binding minimum requirement for own funds and eligible liabilities
(MREL) on MuniFin. MuniFin expects the decision to be made in early 2021 and take effect
in 2022. MuniFin expects its own funds and eligible liabilities to exceed the minimum
requirements by a wide margin.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 36. Breakdown of financial assets and liabilities at carrying amount by maturity
FINANCIAL ASSETS
31 Dec 2020 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years To t al
Cash and balances with central banks 5,565,801 - - - - 5,565,801
Debt securities eligible for central bank refinancing 275,640 493,648 2,448,794 731,904 - 3,949,985
Loans and advances to credit institutions 1,805,991 - 34,989 - - 1,840,980
Loans and advances to the public and public sector entities 353,592 1,548,268 6,309,301 6,061,806 12,658,418 26,931,384
Leased assets * 8,059 19,545 64,691 37,320 85,829 215,444
Debt securities 1,198,896 267,405 289,022 57,905 - 1,813,228
Shares and participations - - - - 27 27
Shares and participations in group companies - - - - 656 656
Derivative contracts 21,851 86,840 551,548 718,929 978,995 2,358,163
Other assets ** 243,269 - - - - 243,269
Tot al 9,473,100 2,415,705 9,698,345 7,607,864 13,723,925 42,918,938
* Line item includes leased assets for which MuniFin applies fair value hedge accounting. Unhedged leased assets are not presented in this Note as leased assets are not regarded as
financial assets for the purpose of IFRS 9 classification.
** Line item includes cash collateral given to central counterparties.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL LIABILITIES
31 Dec 2020 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years To t al
Liabilities to credit institutions 658,120 1,250,000 24,558 34,106 34,694 2,001,478
Liabilities to the public and public sector entities 118,097 342,933 777,940 1,257,086 1,387,970 3,884,026
Debt securities issued 6,285,271 3,729,067 15,784,772 4,702,293 2,410,503 32,911,906
Derivative contracts 799,531 143,081 1,119,670 200,609 597,678 2,860,570
Other liabilities * 231,570 1,177 4,093 - - 236,840
, of which lease liabilities 390 1,177 4,093 - - 5,660
Subordinated liabilities - - 349,388 - - 349,388
Tot al 8,092,589 5,466,259 18,060,422 6,194,095 4,430,845 42,244,209
* Line item includes cash collateral received from central counterparties and lease liabilities in accordance with IFRS 16 standard.
Liabilities and hedging derivatives that may be called before maturity have been classified in the maturity class corresponding to the first possible call date.
The Company estimates it will call 30-50% of its callable liabilities in 2021. In 2020, the Company called 34% of its callable liabilities.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL ASSETS
31 Dec 2019 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years To t al
Cash and balances with central banks 4,909,338 - - - - 4,909,338
Debt securities eligible for central bank refinancing 326,938 763,054 2,520,163 479,365 - 4,089,519
Loans and advances to credit institutions 793,168 - 24,293 - - 817,462
Loans and advances to the public and public sector entities 287,996 1,387,918 5,644,387 4,819,318 11,830,354 23,969,974
Leased assets 6,745 18,251 58,470 35,274 64,125 182,865
Debt securities 886,063 385,427 324,257 31,051 - 1,626,798
Shares and participations - - - - 9,797 9,797
Shares and participations in group companies - - - - 656 656
Derivative contracts 135,426 86,165 664,050 541,895 817,461 2,244,997
Other assets 158,494 - - - - 158,494
Tot al 7,504,169 2,640,815 9,235,621 5,906,903 12,722,392 38,009,900
FINANCIAL LIABILITIES
31 Dec 2019 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years To t al
Liabilities to credit institutions 1,095,340 - - 20,025 62,891 1,178,256
Liabilities to the public and public sector entities - 103,922 938,253 1,315,413 1,504,465 3,862,053
Debt securities issued 6,690,700 3,948,367 13,641,920 3,946,765 1,755,834 29,983,585
Derivative contracts 444,670 235,078 537,835 151,611 392,817 1,762,010
Other liabilities 96,621 1,104 5,420 - - 103,144
, of which lease liabilities 382 1,104 5,420 - - 6,906
Subordinated liabilities - - 348,896 - - 348,896
Tot al 8,327,330 4,288,470 15,472,325 5,433,813 3,716,007 37,237,945
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 37. Breakdown of balance sheet items into domestic and foreign currency
ASSETS
31 Dec 2020 (EUR 1,000) Domestic currency Foreign currency To t al , of which intra-group
Debt securities eligible for central bank refinancing 3,949,985 - 3,949,985 -
Loans and advances to credit institutions 1,679,345 161,635 1,840,980 -
Loans and advances to the public and public sector entities 26,931,384 - 26,931,384 -
Leased assets 1,090,940 - 1,090,940 -
Debt securities 1,768,853 44,375 1,813,228 -
Derivative contracts 2,199,419 158,744 2,358,163 -
Other assets incl. cash and balances in central banks 6,056,999 - 6,056,999 656
Tot al 43,676,926 364,755 44,041,681 656
LIABILITIES AND EQUITY
31 Dec 2020 (EUR 1,000) Domestic currency Foreign currency To t al , of which intra-group
Liabilities to credit institutions 2,001,478 - 2,001,478 -
Liabilities to the public and public sector entities 3,796,824 87,202 3,884,026 -
Debt securities issued 14,027,359 18,884,547 32,911,906 -
Derivative contracts 2,734,091 126,479 2,860,570 -
Other liabilities incl. appropriations and equity 1,874,810 159,503 2,034,313 53
Subordinated liabilities 349,388 - 349,388 -
Tot al 24,783,950 19,257,731 44,041,681 53
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
ASSETS
31 Dec 2019 (EUR 1,000) Domestic currency Foreign currency To t al , of which intra-group
Debt securities eligible for central bank refinancing 4,080,114 9,406 4,089,519 -
Loans and advances to credit institutions 739,803 77,659 817,462 -
Loans and advances to the public and public sector entities 23,969,974 - 23,969,974 -
Leased assets 828,458 - 828,458 -
Debt securities 1,472,706 154,092 1,626,798 -
Derivative contracts 1,319,007 925,990 2,244,997 -
Other assets incl. cash and balances in central banks 5,355,540 - 5,355,540 656
Tot al 37,765,602 1,167,146 38,932,749 656
LIABILITIES AND EQUITY
31 Dec 2019 (EUR 1,000) Domestic currency Foreign currency To t al , of which intra-group
Liabilities to credit institutions 1,178,256 - 1,178,256 -
Liabilities to the public and public sector entities 3,688,168 173,885 3,862,053 -
Debt securities issued 7,899,909 22,083,677 29,983,585 -
Derivative contracts 706,278 1,055,732 1,762,010 -
Other liabilities incl. appropriations and equity 1,722,272 75,676 1,797,948 26
Subordinated liabilities 348,896 - 348,896 -
Tot al 15,543,779 23,388,969 38,932,749 26
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 38. Repurchase agreements
The Company did not have any receivables or liabilities related to repurchase agreements as at 31 Dec 2020 or 31 Dec 2019.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 39. Fair values and carrying amounts of financial assets and liabilities
FINANCIAL ASSETS
EUR ,
31 Dec 2020 31 Dec 2019
Carrying amount Fair value Carrying amount Fair value
Cash and balances with central banks 5,565,801 5,565,801 4,909,338 4,909,338
Debt securities eligible for central bank refinancing 3,949,985 3,949,985 4,089,519 4,089,519
Loans and advances to credit institutions 1,840,980 1,840,980 817,462 817,462
Loans and advances to the public and public sector entities 26,931,384 29,415,707 23,969,974 26,067,416
Leased assets * 215,444 228,011 182,865 193,134
Debt securities 1,813,228 1,813,808 1,626,798 1,627,420
Shares and participations 27 27 9,797 9,797
Shares and participations in group companies 656 656 656 656
Derivative contracts 2,358,163 2,358,163 2,244,997 2,244,997
Other assets ** 243,269 243,269 158,494 158,494
Tot al 42,918,938 45,416,406 38,009,900 40,118,234
* Line item includes leased assets for which MuniFin applies fair value hedge accounting. Unhedged leased assets are not presented in this Note as leased assets are not regarded as
financial assets for the purpose of IFRS 9 classification.
** Line item includes cash collateral given to central counterparties.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL LIABILITIES
EUR ,
31 Dec 2020 31 Dec 2019
Carrying amount Fair value Carrying amount Fair value
Liabilities to credit institutions 2,001,478 2,001,414 1,178,256 1,178,371
Liabilities to the public and public sector entities 3,884,026 3,906,619 3,862,053 3,886,369
Debt securities issued 32,911,906 32,968,471 29,983,585 30,034,713
Derivative contracts 2,860,570 2,860,570 1,762,010 1,762,010
Other liabilities * 236,840 236,840 103,144 103,144
Subordinated liabilities 349,388 367,455 348,896 382,160
Tot al 42,244,209 42,341,369 37,237,945 37,346,768
* Line item includes cash collateral received from central counterparties and lease liabilities in accordance with IFRS 16 standard.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 40. Fair value hierarchy of financial assets and liabilities
Fair value is the price that would be received to sell
the asset or paid to transfer the liability in an orderly
transaction between market participants at the
measurement date. The Company measures fair values
using the following fair value hierarchy, which reflects the
significance of the inputs used in making the fair value
measurements:
Level 1
Inputs that are quoted market prices (unadjusted) for
identical instruments in active markets that the Company
can access at the measurement date. The market is
considered to be active if trading is frequent and price
data is regularly available. These quotes (mid) represent
the price for an orderly transaction between parties in the
market on the valuation date. Level 1 instruments comprise
mainly investments in debt securities.
Level 2
Inputs other than quoted prices included within level 1 that
are observable either directly (i.e. as prices) or indirectly
(i.e. derived from prices). This level includes instruments
valued using quoted prices for identical instruments in
markets that are considered less than active or other
valuation techniques in which all significant inputs are
directly or indirectly observable from market data. Level 2
instruments comprise mainly OTC derivatives, Company’s
issued plain-vanilla financial liabilities and lending
agreements.
Level 3
This level includes all instruments for which the valuation
technique includes inputs that are not observable and
the unobservable inputs have a significant effect on the
instrument’s valuation. Unobservable inputs are used
only to the extent that no relevant observable inputs are
available. If the valuation input is illiquid, extrapolated
or based on historical prices, the valuation input will be
defined as a level 3 valuation input as these types of
inputs are per definition unobservable. This level includes
financial instruments with equity and FX structures due
to impact of the utilisation of inputs such as dividend
yield on the fair value measurement. In addition, level 3
contains some interest rate structures with long maturities
(exceeding e.g. 35 years) or in currencies where the
interest rate curve is not considered liquid for all maturities.
Due to the nature of MuniFin’s funding portfolio (i.e. issued
bond is hedged back-to-back), if a swap that is hedging an
issued bond is designated as a level 3 instrument, then the
issued bond will also be designated as a level 3 instrument.
Same principle applies to other portfolios and levels of
the hierarchy as well. In addition to financial assets and
liabilities, the Company does not hold other assets or
liabilities which are measured at fair value or assets or
liabilities which are non-recurringly measured at fair value.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The following table presents financial instruments by the level of the fair value hierarchy into which the fair value measurement is categorised.
FINANCIAL ASSETS
31 Dec 2020 (EUR 1,000) Carrying amount
Fair value
Level 1 Level 2 Level 3 Tot a l
At fair value
Fair value through fair value reserve
Debt securities 423,050 321,308 101,741 - 423,050
Designated at fair value through profit or loss
Debt securities 4,029,859 3,922,131 107,728 - 4,029,859
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 44,438 - 702 43,735 44,438
Shares and participations 27 - - 27 27
Shares and participations in Group companies 656 - - 656 656
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 833,293 - 753,841 79,452 833,293
Derivative contracts in hedge accounting 1,524,870 - 1,524,298 572 1,524,870
Total at fair value 6,856,192 4,243,439 2,488,310 124,443 6,856,192
In fair value hedge accounting
Amortised cost
Loans and advances to the public and public sector entities 11,614,114 - 12,386,569 - 12,386,569
Leased assets 215,444 - 228,011 - 228,011
Total in fair value hedge accounting 11,829,557 - 12,614,580 - 12,614,580
At amortised cost
Cash and balances with central banks 5,565,801 5,565,801 - - 5,565,801
Loans and advances to credit institutions 1,840,980 297,211 1,543,769 - 1,840,980
Loans and advances to the public and public sector entities 15,272,833 - 16,984,700 - 16,984,700
Debt securities 1,310,305 - 1,310,885 - 1,310,885
Other assets 243,269 - 243,269 - 243,269
Total at amortised cost 24,233,188 5,863,012 20,082,621 - 25,945,634
Total financial assets 42,918,938 10,106,452 35,185,512 124,443 45,416,407
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL LIABILITIES
31 Dec 2020 (EUR 1,000) Carrying amount
Fair value
Level 1 Level 2 Level 3 Tot a l
At fair value
Designated at fair value through profit or loss
Liabilities to credit institutions 24,558 - 24,558 - 24,558
Liabilities to the public and public sector entities 1,637,674 - 1,413,261 224,413 1,637,674
Debt securities issued 10,454,282 - 8,328,568 2,125,714 10,454,282
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 1,403,900 - 757,607 646,293 1,403,900
Derivative contracts in hedge accounting 1,456,670 - 1,432,280 24,391 1,456,670
Total at fair value 14,977,085 - 11,956,273 3,020,811 14,977,085
In fair value hedge accounting
Amortised cost
Liabilities to credit institutions 68,800 - 68,736 - 68,736
Liabilities to the public and public sector entities 2,246,352 - 2,268,946 - 2,268,946
Debt securities issued * 22,077,489 - 22,040,007 94,048 22,134,054
Total in fair value hedge accounting 24,392,642 - 24,377,688 94,048 24,471,736
At amortised cost
Liabilities to credit institutions 1,908,120 - 1,908,120 - 1,908,120
Debt securities issued 380,134 - 380,134 - 380,134
Other liabilities 236,840 - 236,840 - 236,840
Subordinated liabilities 349,388 - 367,455 - 367,455
Total at amortised cost 2,874,482 - 2,892,549 - 2,892,549
Total financial liabilities 42,244,209 - 39,226,510 3,114,859 42,341,369
* MuniFin’s fixed-rate benchmark bond issuances are presented on level 2 due the fact that these bonds are in fair value hedge accounting with respect to the hedged risk. Valuation of the
hedged risk is based on the level 2 inputs. In the Notes of the Financial Statements the Company’s fixed-rate benchmark bonds fair value is adjusted to reflect fair value based on the quoted
prices from Bloomberg. The market price is a level 1 input.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL ASSETS
31 Dec 2019 (EUR 1,000) Carrying amount
Fair value
Level 1 Level 2 Level 3 Tot a l
At fair value
Fair value through fair value reserve
Debt securities 971,505 798,874 172,631 - 971,505
Designated at fair value through profit or loss
Debt securities 3,940,456 3,812,154 128,302 - 3,940,456
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 51,100 - 1,072 50,028 51,100
Shares and participations 9,797 9,797 - - 9,797
Shares and participations in Group companies 656 - - 656 656
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 860,695 - 727,687 133,007 860,695
Derivative contracts in hedge accounting 1,384,303 - 1,380,574 3,728 1,384,303
Total at fair value 7,218,509 4,620,824 2,410,266 187,420 7,218,509
In fair value hedge accounting
Amortised cost
Loans and advances to the public and public sector entities 8,546,257 - 9,143,650 - 9,143,650
Leased assets 182,865 - 193,134 - 193,134
Total in fair value hedge accounting 8,729,122 - 9,336,784 - 9,336,784
At amortised cost
Cash and balances with central banks 4,909,338 4,909,338 - - 4,909,338
Loans and advances to credit institutions 817,462 135,833 681,629 - 817,462
Loans and advances to the public and public sector entities 15,372,617 - 16,872,666 - 16,872,666
Debt securities 804,358 - 804,980 - 804,980
Other assets 158,494 - 158,494 - 158,494
Total at amortised cost 22,062,269 5,045,171 18,517,769 - 23,562,940
Total financial assets 38,009,900 9,665,995 30,264,818 187,420 40,118,234
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
FINANCIAL LIABILITIES
31 Dec 2019 (EUR 1,000) Carrying amount
Fair value
Level 1 Level 2 Level 3 Tot a l
At fair value
Designated at fair value through profit or loss
Liabilities to credit institutions - - - - -
Liabilities to the public and public sector entities 1,548,639 - 1,409,955 138,684 1,548,639
Debt securities issued 11,391,573 - 8,313,844 3,077,729 11,391,573
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 918,706 - 460,463 458,243 918,706
Derivative contracts in hedge accounting 843,304 - 830,658 12,646 843,304
Total at fair value 14,702,222 - 11,014,920 3,687,302 14,702,222
In fair value hedge accounting
Amortised cost
Liabilities to credit institutions 82,916 - 83,031 - 83,031
Liabilities to the public and public sector entities 2,313,414 - 2,337,730 - 2,337,730
Debt securities issued * 18,391,689 - 18,291,146 151,671 18,442,817
Total in fair value hedge accounting 20,788,019 - 20,711,908 151,671 20,863,579
At amortised cost
Liabilities to credit institutions 1,095,340 - 1,095,340 - 1,095,340
Debt securities issued 200,323 - 200,323 - 200,323
Other liabilities 103,144 - 103,144 - 103,144
Subordinated liabilities 348,896 - 382,160 - 382,160
Total at amortised cost 1,747,704 - 1,780,968 - 1,780,968
Total financial liabilities 37,237,945 - 33,507,796 3,838,973 37,346,768
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
All valuation models, both complex and simple models,
use market prices and other inputs. These market prices
and inputs comprise interest rates, FX rates, volatilities,
correlations, etc. The Company applies different types of
valuation inputs depending on the type and complexity
of the instruments and the related risk factors and payoff
structures. The Company’s defined categorisation to the
fair value hierarchy levels is based on the analysis per-
formed with regards to the valuation input, stress testing
(reasonable possible alternative assumption) and model
complexity. If the inputs used to measure fair value are
categorised into different levels on the fair value hierarchy,
the fair value measurement is categorised in its entirety on
the level of the lowest level input that is significant to the
entire measurement.
IFRS 13 classifies valuation models and techniques into
three different categories: Market approach, Income
approach and Cost approach. The Company applies the
market-based approach when the instrument has a fun-
ctioning market and public price quotations are available.
The Company uses the market approach for the valuation
of investment bonds of the liquidity portfolio. For all level
1 assets, the Company uses market prices available for
identical assets (same ISIN). The Company does not make
use of prices for comparable assets. Income approach is
applied when valuation is based, for example, on determi-
ning the present value of future cash flows (discounting).
Valuation methods take into account an assessment of
the credit risk, discount rates used, the possibility of early
repayment and other factors that influence the fair value
of a financial instrument reliably. The Company uses the
income approach for many of its financial instruments, for
example derivatives, lending and funding. The Company
does not use the cost approach for the valuation of any of
its financial instruments.
The Company uses widely recognised valuation models
to determine the fair value of common and simple financial
instruments, such as interest rate and currency swaps,
that use only observable market data and require little ma-
nagement judgement and estimation. Observable prices
or model inputs are usually available in the market for listed
debt and equity securities and simple OTC derivatives
such as interest rate swaps. The availability of observable
market prices and model inputs reduces the need for
management judgement and estimation and reduces the
uncertainty associated with determining fair values. The
availability of observable market prices and inputs varies
depending on the products and markets and is prone to
changes based on specific events and general conditions
in the financial markets.
MuniFin applies different models in order to derive the fair
value of a certain type of instruments. The choice of base
models and its calibration depends on the complexity of
the financial instrument and the observability of the rele-
vant inputs. In line with market practice, the primary choice
of base model is contingent on the underlying instrument
classes. Additionally, instruments are broken down into
different categories granular enough to capture the most
important risk drivers and different kind of calibration
techniques. The specific combination of base models and
the different assumptions and calibrations techniques
are documented. The Company’s fair value instruments
that are subject to mark-to-model valuation techniques
consists out of four asset classes:
- Interest rate instruments,
- Foreign exchange instruments,
- Equity-linked instruments and
- Hybrid instruments.
Financial instruments under FX, equity and hybrid classes
are mainly classified as level 3 instruments.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Fair value of financial instruments is generally calculated
as the net present value of the individual instruments.
This calculation is supplemented by counterparty level
adjustments. The Company incorporates credit valuation
adjustments (CVA) and debit valuation adjustments (DVA)
into derivative valuations. CVA reflects the impact of the
counterparty’s credit risk on fair value and DVA MuniFin’s
own credit quality. The Company uses the same methodo-
logy to compute CVA and DVA. They are both assessed as
the result of three inputs: Loss Given Default (LGD), Proba-
bility of Default (PD, own for DVA and of the counterparty
for CVA), Expected Exposure (EE).
Valuation framework
MuniFin has implemented a framework for the arran-
gements, activities and procedures with regards to the
Company’s model risk management. The purpose of
the model risk management framework is to ensure the
effective management of model risk and mitigation of fair
value uncertainty, as well as to ensure compliance with
external and internal requirements. The Company ensures
that all aspects of the lifecycle of valuation models (i.e.
approval, design and development, testing and mainte-
nance, monitoring and execution) are subject to effective
governance, clear roles and responsibilities and effective
internal control.
The Company manages and maintains a model inventory
which provides a holistic view of all valuation models, their
business purpose and characteristics as well as their
applications and conditions for use. Executive Manage-
ment Team (EMT) is responsible for the approval of new
valuation models (including limitations and conditions of
use) and material changes to existing models. All approved
valuation models within the model inventory are subject to
annual review and re-approval by the EMT.
Valuation Control Group (VCG) monitors MuniFin’s fair va-
lues and is responsible for the final approval of Company’s
fair values for financial reporting. VCG monitors and cont-
rols MuniFin’s valuation process and the performance of
valuation models, decides on the necessary measures and
reports to the EMT. VCG assesses whether the valuation
models and valuation process provide sufficiently accurate
information to be used in financial reporting and, based on
the information received, decides on possible adjustments
to the values generated by the valuation process.
The Company has implemented an efficient control and
performance monitoring framework with regards to its
valuation models, which aims to ensure the accuracy and
appropriateness of model output. The model performance
monitoring consists of four main controls:
- Counterparty valuation control (CVC),
- Fair value explanation,
- Independent price verification (IPV) and
- Independent model validation.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Counterparty valuation control (CVC) is performed daily
by Risk Management, who assesses any deviations in
valuation model output compared to MuniFin’s own earlier
valuations and to counterparty valuations. The results of
the assessment are reported monthly to the VCG. Fair
value explanation process consists of daily analysis and
explain of the changes in fair values by Risk Management
and a monthly fair value explanation report to the VCG.
The independent price verification is performed monthly
as part of MuniFin’s IPV process by a third party service
provider. The results of the control activities are reported
monthly to the VCG. The independent model validation
is performed annually for a subset of MuniFin’s valuation
models by a third-party service provider. The results of the
model validation are reported to the VCG.
Transfers in the fair value hierarchy
MuniFin assesses the appropriateness and correctness of
the categorisation with regards to the fair value hierarchy
classification at initial recognition and at the end of each
reporting period. This is to determine the initial classifi-
cation of a level 1, 2 and 3 instrument and the subsequent
potential transfers between levels within the fair value
hierarchy. A transfer between the fair value hierarchies can
occur for example when a previously assumed observed
input requires an adjustment using an unobservable input.
The procedure is the same for transfers into and out of the
fair value levels. Transfers between the levels are consi-
dered to take place at the end of the quarter during which
an event causes such transfer or when circumstances
change.
During 2020 transfers totaling EUR 205,516 thousand
have been made between level 1 and level 2.
During 2020 transfers totaling EUR 35,796 thousand have
been made between level 2 and level 3.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
LEVEL TRANSFERS
EUR , 1 Jan 2020
Change in
fair value in the
income statement
Purchases and new
contracts
Sales and matured
contracts
Transfers into
Level 3
Transfers out
of Level 3 31 Dec 2020
Financial assets
At fair value
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 50,028 -4,714 - -1,578 - - 43,735
Shares and participations - - - - 27 - 27
Shares and participations in Group companies 656 - - - - - 656
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 133,007 -12,405 -32 -41,804 686 - 79,452
Derivative contracts in hedge accounting 3,728 -2,118 117 - - -1,154 572
Financial assets in total 187,420 -19,238 84 -43,382 713 -1,154 124,443
Financial liabilities
At fair value
Designated at fair value through profit or loss
Liabilities to the public and public sector entities 138,684 9,860 49,782 - 26,088 - 224,413
Debt securities issued 3,077,729 -259,858 868,572 -1,566,659 8,617 -2,686 2,125,714
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 458,243 289,125 37,906 -139,179 378 -181 646,293
Derivative contracts in hedge accounting 12,646 18,479 1,432 - - -8,167 24,391
In fair value hedge accounting
Amortised cost
Debt securities issued 151,671 -13,650 21,314 - - -65,286 94,048
Financial liabilities in total 3,838,973 43,955 979,006 -1,705,838 35,083 -76,320 3,114,859
Level 3 financial assets and liabilities in total * 4,026,391 24,717 979,090 -1,749,220 35,796 -77,474 3,239,302
* The Company recognises these gains and losses within the line items Net income from securities and foreign exchange transactions and Net income from hedge accounting.
The fair value change due to changes in own credit risk of financial liabilities designated at fair value through profit or loss is recognised in the Own credit revalution reserve.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Sensitivity analysis of unobservable inputs
Sensitivity analysis illustrates the impact of the reasonably
possible assumptions on the fair value of financial instru-
ments for which valuation is dependent on unobservable
inputs. However, it is unlikely in practice that all unobser-
vable inputs would simultaneously move to extremes of
reasonably possible alternatives used in the sensitivity
analysis. Hence, the impact of the sensitivity analysis
disclosed in this Note is likely to be greater than the true
uncertainty in the fair values at the financial statement
date. Furthermore, the disclosure is neither predictive nor
indicative of future movements in the fair value of financial
instruments.
Although the Company believes that its estimates of fair
value are appropriate, the use of different methodologies
or assumptions could lead to different measurements of
fair value. For fair value measurements on level 3, changing
one or more of the assumptions to the reasonably possible
alternative assumptions would have the following effects:
as of 31 December 2020, these assumptions could have
increased fair values by EUR 44.6 million or decreased fair
values by EUR 33.7 million. As of 31 December 2019, they
could have increased fair values by EUR 58.6 million or
decreased fair values by EUR 60.1 million.
SENSITIVITY ANALYSIS OF SIGNIFICANT UNOBSERVABLE INPUTS
BY INSTRUMENT TYPE
31 Dec 2020 (EUR 1,000)
Positive range
of fair value
Negative range
of fair value
Loans and advances to the public and public sector entities
Loans 542 327
Derivative contracts
Equity linked derivatives 12,416 -7,240
FX linked cross currency and interest rate derivatives 1,786 -365
Other interest rate derivatives 8,686 -10,165
Debt securities issued and Liabilities to the public and public sector entities
Equity linked liabilities 11,690 -5,248
FX linked liabilities -941 -1,681
Other liabilities 10,430 -9,276
Tot al 44,609 -33,648
The behaviour of the fair value of the unobservable inputs
on level 3 is not necessarily independent and dynamic
relationships often exist between the unobservable inputs
and the observable inputs. Such relationships, where ma-
terial to the fair value of a given instrument, are controlled
via pricing models or valuation techniques.
MuniFin uses stochastic models to generate a distribution
of future cash flows of each financial instrument. The futu-
re cash flows are then discounted back to present to get
the fair value of each financial instrument. The stochastic
models used by the Company are Hull-White model and
Dupire volatility model.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The unobservable inputs used by the Company are
described below. The unobservable inputs are used
only to the extent that no relevant observable inputs
are available.
Correlation parameters
If the fair value of a financial instrument is impacted by
more than one unobservable input, correlations describe
the relationship between these different underlyings.
For example for equity linked instruments, correlation
has a significant impact on fair value, if the underlying is
dependant on more than one equity. For FX linked cross
currency and interest rate derivatives, correlations exist
between FX rates of currencies, which impact the fair
value of the financial instrument.
If a high correlation exists between the unobservable
inputs, it will lead to an increase in fair value. A low
correlation between the unobservable inputs will lead to a
decrease in fair value.
The majority of the financial instruments with correlation
as significant unobservable input are the Company’s
funding products and their hedging instruments.
Volatility (extrapolated or illiquid)
A financial instrument whose value is based on a
stochastic model will typically require the volatility of the
underlying instrument as an input. The Company uses
Dupire local volatility model as its stochastic valuation
model. For interest rate volatilities at-the-money implied
volatility is used. For FX and equity components (both
equity indices and single stock prices), a full volatility
surface is used that includes quotes for different strikes
and maturities. The Company uses implied volatility for
the majority of the equity linked structures. In some cases
no liquid volatility surface exists. In these cases, a proxy
volatility is typically used instead.
The majority of the financial instruments, which
use volatility as significant unobservable input, are
the Company’s funding products and their hedging
instruments.
Dividend yield
The main drivers influencing the fair value of equity-linked
instruments are the dividend yield and volatility of the
underlying equities. Equity linked instruments require a
dividend parameter as an input to the fair value. The equity
component is modelled using the Dupire local volatility
model where the underlying equity prices are assumed to
follow a random walk.
Instruments that have divident yield as a significant
unobservable input are the Company’s funding products
and their hedging instruments.
Interest rates (extrapolated or illiquid)
The Company uses unobservable inputs in defining fair
value of complex interest rate structures. The future cash
flows and their fair value is determined by using forward
rates and volatilities of the underlying interest rates using
Hull-White stochastic model. Financial instruments whose
payoffs are dependent on the value of complex interest
rate structures are categorised on level 3.
The majority of these instruments requiring extrapolated
or illiquid interest rates as input are the Company’s funding
products and their hedging instruments.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The table below illustrates the effect that changing one or more of the assumptions in the unobservable input (reasonably possible alternative assumptions) could have on the valuations at
the financial statement date:
SENSITIVITY ANALYSIS OF UNOBSERVABLE INPUTS
31 Dec 2020 (EUR 1,000) Fair value Valuation technique Unobservable input
Positive range
of fair value
Negative range
of fair value
Loans and advances to the public and public sector entities
Loans 43,735 Stochastic model Volatility – Extrapolated or Illiquid 542 327
Derivative contracts
Equity linked derivatives -75,037 Stochastic model
Correlation parameters 1,324 -932
Volatility – Extrapolated or Illiquid 9,142 -7,641
Dividend yield 1,951 1,333
FX linked cross currency and interest rate derivatives -517,779 Stochastic model
Correlation parameters 51 -368
Volatility – Extrapolated or Illiquid 1,642 96
Interest rates – Extrapolated or Illiquid 93 -93
Other interest rate derivatives 2,156 Stochastic model
Correlation parameters 8 -6
Volatility – Extrapolated or Illiquid 8,230 -9,711
Interest rates – Extrapolated or Illiquid 447 -448
Debt securities issued and Liabilities to the public and public
sector entities
Equity linked liabilities 885,327 Stochastic model
Correlation parameters 2,810 2,088
Volatility – Extrapolated or Illiquid 7,733 -7,746
Dividend yield 1,148 410
FX linked liabilities 1,027,104 Stochastic model
Correlation parameters 213 54
Volatility – Extrapolated or Illiquid -1,161 -1,729
Interest rates – Extrapolated or Illiquid 6 -6
Other liabilities 531,744 Stochastic model
Correlation parameters 1 -1
Volatility – Extrapolated or Illiquid 10,220 -9,066
Interest rates – Extrapolated or Illiquid 209 -209
Tot al 44,609 -33,648
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
DAY GAIN OR LOSS EUR , 2020
Opening balance 1 Jan 2020 -
Recognised gain in the income statement 242
Recognised loss in the income statement -67
Deferred gain or loss on new transactions -204
Total 31 Dec 2020 -29
The definition and amortisation method for the Day 1 gain or loss is presented in the accounting policies of the Consolidated Financial Statements (Note 1) in Section
Determination of fair value.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Transfers in the fair value hierarchy and sensitivity analysis 2019
During 2019 transfers totaling EUR 155,113 thousand have been made between level 1 and level 2.
During 2019 transfers totaling EUR 2,800,159 thousand have been made between level 2 and level 3.
LEVEL TRANSFERS
EUR , 1 Jan 2019
Change in
fair value in the
income statement
Purchases
and new
contracts
Sales and
matured
contracts
Transfers
into Level 3
Transfers
out of Level 3 31 Dec 2019
Financial assets
At fair value
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities - - - - 50,028 - 50,028
Shares and participations in Group companies 656 - - - - - 656
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 944 6,653 3,585 -944 122,769 - 133,007
Derivative contracts in hedge accounting - - 299 - 3,429 - 3,728
Financial assets in total 1,600 6,653 3,884 -944 176,227 - 187,419
Financial liabilities
At fair value
Designated at fair value through profit or loss
Liabilities to the public and public sector entities - - - - 138,684 - 138,684
Debt securities issued 768,448 54,249 773,030 -466,038 1,948,040 - 3,077,728
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 192,000 -46,235 31,275 -107,943 389,146 - 458,243
Derivative contracts in hedge accounting - - 67 - 12,579 - 12,646
In fair value hedge accounting
Amortised cost
Debt securities issued - - 16,187 - 135,483 - 151,671
Financial liabilities in total 960,447 8,014 820,559 -573,981 2,623,933 - 3,838,972
Level 3 financial assets and liabilities in total 962,046 14,666 824,443 -574,924 2,800,159 - 4,026,391
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
SENSITIVITY ANALYSIS OF UNOBSERVABLE INPUTS
EUR , Fair value Valuation technique Unobservable input
Positive range
of fair value
Negative range
of fair value
Loans and advances to the public and public sector entities
Loans 50,028 Stochastic model
Volatility – Extrapolated or Illiquid
50 -604
Interest rates – Extrapolated Illiquid
Derivative contracts
Equity linked derivatives -33,683 Stochastic model
Volatility – Extrapolated or Illiquid
21,111 -19,805Interest rates – Extrapolated or Illiquid
Dividend yield
FX linked cross currency and interest rate derivatives -319,759 Stochastic model
Correlation parameters
7,734 -4,547Volatility – Extrapolated or Illiquid
Interest rates – Extrapolated or Illiquid
Other interest rate derivatives 19,289 Stochastic model
Correlation parameters
4,218 -4,307Volatility – Extrapolated or Illiquid
Interest rates – Extrapolated or Illiquid
Debt securities issued and Liabilities to the public and
public sector entities
Equity linked liabilities 1,486,858 Stochastic model
Volatility – Extrapolated or Illiquid
16,459 -22,005Interest rates – Extrapolated or Illiquid
Dividend yield
FX linked liabilities 1,538,974 Stochastic model
Correlation parameters
4,691 -6,072Volatility – Extrapolated or Illiquid
Interest rates – Extrapolated or Illiquid
Other liabilities 342,250 Stochastic model
Correlation parameters
4,378 -3,452Volatility – Extrapolated or Illiquid
Interest rates – Extrapolated or Illiquid
Tot al 58,641 -60,792
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 41. Equity
EUR , Share capital Reserve fund
Fair value reserve
of investments
Own credit
revaluation reserve
Cost-of-Hedging
reserve
Reserve for invested
non-restricted equity
Retained
earnings Tot al
Carrying amount 1 Jan 2020 43,008 277 807 12,985 28,075 40,743 135,368 261,264
+ Increase - - 40 - - - 22,336 22,376
– Decrease - - - -13,241 -12,451 - -6,250 -31,942
Carrying amount 31 Dec 2020 43,008 277 847 -255 15,624 40,743 151,454 251,698
EUR , Share capital Reserve fund
Fair value reserve
of investments
Own credit
revaluation reserve
Cost-of-Hedging
reserve
Reserve for invested
non-restricted equity
Retained
earnings Tot al
Carrying amount 1 Jan 2019 43,008 277 726 4,726 14,235 40,743 133,868 237,583
+ Increase - - 82 8,260 13,840 - 7,750 29,931
– Decrease - - - - - - -6,250 -6,250
Carrying amount 31 Dec 2019 43,008 277 807 12,985 28,075 40,743 135,368 261,264
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 42. Share capital Note 43. Largest shareholders
The shares of Municipality Finance Plc are divided into A and B shares. The two types are
equal in terms of voting rights and the distribution of profit. Each share entitles its holder
to one vote. The shares have no nominal value. The acquisition of shares is restricted
through the consent and redemption clauses of the Articles of Association. At the end of
2020, the Company’s share capital, paid up and recorded in the Trade Register, amounted
to EUR 43,008 thousand. The total number of shares is 39,063,798 which is divided to A
shares (26,331,646) and B shares (12,732,152).
The ten largest shareholders in terms of voting rights and the number of shares held by
them, their portion of all shares in the credit institution and of all votes carried by the shares
as well as the total number of shareholders:
31 Dec 2020 No. of shares Per cent
1. Keva 11,975,550 30.66%
2. Republic of Finland 6,250,000 16.00%
3. City of Helsinki 4,066,525 10.41%
4. City of Espoo 1,547,884 3.96%
5. VAV Asunnot Oy * 963,048 2.47%
6. City of Tampere 919,027 2.35%
7. City of Oulu 903,125 2.31%
8. City of Turku 763,829 1.96%
9. City of Kuopio 592,028 1.52%
10. City of Lahti 537,926 1.38%
* VAV Asunnot Oy is fully owned by City of Vantaa.
The total number of shareholders is 277 (277).
The number of shares in this table does not include possible shares held by the
shareholders’ group companies.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 44. Collateral given
Notes on collateral and contingent liabilities
GIVEN COLLATERALS ON BEHALF OF OWN LIABILITIES AND COMMITMENTS
EUR , 31 Dec 2020 31 Dec 2019
Loans and advances to credit institutions to the counterparties of derivative contracts * 1,607,069 686,129
Loans and advances to credit institutions to the central bank ** 34,918 26,590
Loans and advances to the public and public sector entities to the central bank ** 5,181,646 2,765,089
Loans and advances to the public and public sector entities to the Municipal Guarantee Board *** 10,997,495 11,521,134
Other assets to the counterparties of derivative contracts * 243,269 158,494
Tot al 18,064,396 15,157,436
* MuniFin has pledged a sufficient amount of collateral to the counterparties of derivative contracts based on the CSA agreements of
the derivative contracts (ISDA/Credit Support Annex).
** MuniFin is a monetary policy counterparty approved by the central bank (the Bank of Finland) and for this purpose, a sufficient amount of
collateral has been pledged to the central bank for possible operations related to this counterparty position.
*** MuniFin has pledged a sufficient amount of loans to the Municipal Guarantee Board. The Municipal Guarantee Board guarantees MunFin’s
funding and MuniFin places collateral for the Municipal Guarantee Board’s guarantees as defined in the Act on the Municipal Guarantee Board.
Collateral given is presented at the carrying amounts of the financial statement date.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 45. Pension liabilities
Note 46. Off-balance sheet commitments
Pension coverage has been arranged via an external pension insurance company. Pension plans are classified as defined contribution plans.
EUR , 31 Dec 2020 31 Dec 2019
Credit commitments 2,353,978 2,361,323
Tot al 2,353,978 2,361,323
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 47. Personnel
Notes on personnel and management
2020 2019
Average End of year Average End of year
Permanent full-time 146 143 137 144
Permanent part-time 2 3 4 4
Fixed term 8 8 10 8
Tot al 156 154 151 156
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Employee benefits for management
Salaries and remuneration paid to the CEO, Deputy to the CEO and other members of
the Executive Management Team (EMT) subject to withholding tax:
SALARIES AND REMUNERATION EUR , 2020 2019
President and CEO 412 420
Deputy to the CEO 251 251
Other members of the Executive Management Team in total 1,122 1,384
Tot al 1,785 2,055
MuniFin has provided to those members of the EMT that have been appointed as
members (including CEO and the Deputy to the CEO) before 21 Dec 2017 with a
contribution-based group pension insurance. Members of the EMT are entitled to
pension from the insurance after they have turned 63 years.
The Company has paid the following statutory pension contributions related to the CEO,
the Deputy to the CEO and other members of the EMT:
STATUTORY PENSION CONTRIBUTIONS EUR , 2020 2019
President and CEO 71 73
Deputy to the CEO 43 43
Other members of the Executive Management Team in total 194 240
Tot al 308 356
Remuneration of the Board of Directors
During financial years 2020–2021 the members of the Board of Directors of the Company
are paid an annual remuneration as well as remuneration for each meeting in accordance
with the decision of the Annual General Meeting. The annual remuneration is EUR 35,000
for the Chair of the Board, EUR 23,000 for the Vice Chair, EUR 25,000 for the Chairs of
Committees and EUR 20,000 for the other members of the Board. The remuneration paid
for Board and Committee meetings is EUR 800 per meeting for the Chair of the Board and
the Chairs of Committees and EUR 500 per meeting for the other members. In addition,
meeting remuneration is paid for the meetings required by the supervisory authorities.
These remunerations are valid from 25 March 2020. Prior to this, the annual remuneration
was EUR 35,000 for the Chair of the Board, EUR 25,000 for the Vice Chair and EUR
20,000 for the other members of the Board. The meeting remunerations have remained
unchanged.
SALARIES AND REMUNERATION EUR ,
MEMBERS OF THE BOARD OF DIRECTORS
Helena Walldén, Chair 56 52
Tuula Saxholm, Vice Chair 36 33
Maaria Eriksson, elected 28 March 2019 32 23
Fredrik Forssell, member until 28 March 2019 - 9
Raija-Leena Hankonen, elected 28 March 2019,
member until 21 February 2020 6 23
Minna Helppi, member until 25 March 2020 9 32
Markku Koponen 46 39
Jari Koskinen, member until 25 March 2020 9 30
Kari Laukkanen 45 39
Vivi Marttila 34 32
Denis Strandell, elected 25 March 2020 25 -
Kimmo Viertola, elected 25 March 2020 24 -
Tot al 318 311
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 48. Loans and other financial receivables from the related parties
Related party transactions
MuniFin does not have any loan or financial receivables, or other receivables referred to in Chapter 15 Section 13 (2) of the Act on Credit Institutions from related parties.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 49. Holdings in other companies
Holdings in other companies
EUR ,
2020 2019
Proportion of
all shares (%) Carrying amount
Proportion of
all shares (%) Carrying amount
Subsidiaries
Financial Advisory Services Inspira Ltd 100.0 656 100.0 656
Tot al 100.0 656 100.0 656
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Note 50. Audit and other fees paid to the audit firm
Other notes
EUR , 2020 2019
Audit 306 345
Assignments as referred to in Subparagraph 2, Paragraph 1 Section 1 of the Auditing Act 7 -
Tax advisory services 10 90
Other services 103 375
Tot al 427 810
Amounts do not include VAT. Part of the other services paid to the audit firm is recognised as part of the intangible assets in accordance with MuniFin’s accounting policies for
the recognition of intangible assets.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Signatures to the Report of the Board of
Directors and Financial Statements
Signatures to the Report of the Board of Directors
and Financial Statements
Helsinki, 15 February 2021
MUNICIPALITY FINANCE PLC
Helena Walldén
Chair of the Board
Tuula Saxholm
Vice Chair of the Board
Maaria Eriksson
Member of the Board
Markku Koponen
Member of the Board
Kari Laukkanen
Member of the Board
Vivi Marttila
Member of the Board
Denis Strandell
Member of the Board
Kimmo Viertola
Member of the Board
Esa Kallio
President and CEO
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Auditor’s Report
To the Annual General Meeting of Municipality Finance Plc
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Municipality Finance
Plc (business identity code 1701683-4) for the year ended
31 December 2020. The financial statements comprise the the
consolidated statement of financial position, income statement,
statement of comprehensive income, statement of changes in
equity, statement of cash flows and notes, including a summary of
significant accounting policies, as well as the parent company’s ba-
lance sheet, income statement, statement of cash flows and notes.
In our opinion
— the consolidated financial statements give a true and fair
view of the group’s financial position, financial performance
and cash flows in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU
— the financial statements give a true and fair view of the parent
company’s financial performance and financial position in
accordance with the laws and regulations governing the
preparation of financial statements in Finland and comply
with statutory requirements.
Our opinion is consistent with the additional report submitted to
the Audit Committee.
Basis for Opinion
We conducted our audit in accordance with good auditing prac-
tice in Finland. Our responsibilities under good auditing practice
are further described in the Auditor’s Responsibilities for the Audit
of the Financial Statements section of our report.
We are independent of the parent company and of the group
companies in accordance with the ethical requirements that are
applicable in Finland and are relevant to our audit, and we have
fulfilled our other ethical responsibilities in accordance with these
requirements.
In our best knowledge and understanding, the non-audit services
that we have provided to the parent company and group com-
panies are in compliance with laws and regulations applicable
in Finland regarding these services, and we have not provided
any prohibited non-audit services referred to in Article 5(1) of
regulation (EU) 537/2014. The non-audit services that we have
provided have been disclosed in note 50 to the parent company’s
financial statements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Materiality
The scope of our audit was influenced by our application of ma-
teriality. The materiality is determined based on our professional
judgement and is used to determine the nature, timing and extent
of our audit procedures and to evaluate the effect of identified
misstatements on the financial statements as a whole. The level
of materiality we set is based on our assessment of the magnitu-
de of misstatements that, individually or in the aggregate, could
reasonably be expected to have influence on the economic deci-
sions of the users of the financial statements. We have also taken
into account misstatements and/or possible misstatements that
in our opinion are material for qualitative reasons for the users of
the financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period. These matters were addressed
in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a se-
parate opinion on these matters. The significant risks of material
misstatement referred to in the EU Regulation No 537/2014 point
(c) of Article 10(2) are included in the description of key audit
matters below.
We have also addressed the risk of management override of in-
ternal controls. This includes consideration of whether there was
evidence of management bias that represented a risk of material
misstatement due to fraud.
Municipality Finance Plc
Auditor’s Report
for the year ended 31 December 2020
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
THE KEY AUDIT MATTER HOW THE MATTER WAS ADDRESSED IN THE AUDIT
Financial assets and financial liabilities measured at fair value (notes 1, 2, 3, 6, 7, 8, 10, 16, 17, ja 25)
— The carrying amount of financial assets measured at fair value totaled EUR 6.9 billion and that
of financial liabilities measured at fair value EUR 15 billion
— Fair values of financial instruments carried at fair value are determined using either prices
quoted in an active market or Municipality Finance’s own valuation techniques where no active
market exists. Determining fair values involves management judgements, especially in respect
of those instruments for which market-based data is not available.
— COVID-19 pandemic impacted on market values of financial assets and liabilities during the
financial year.
— Financial assets and financial liabilities measured at fair value account for a substantial part
of assets and liabilities in the consolidated statement of financial position. Changes in market
interest rates and foreign exchange rates may have a significant impact on the result for the
financial year and equity. Consequently, the accounting of fair valued financial assets and
liabilities was considered a key audit matter.
— We analysed the appropriateness of the accounting principles and valuation methodologies
applied by Municipality Finance as well as tested key controls over the valuation process.
— We assessed the appropriateness of the valuation methodologies and models applied.
In respect of derivative instruments we considered the appropriateness of the accounting
treatment by reference to the IFRS requirements..
— We utilised data analyses to test the accuracy of valuation of financial assets and financial
liabilities. We also assessed the inputs used in valuation models on a sample basis by
comparing with market information at the financial year-end. We examined the accuracy
of the inputs used in valuations and assessed the reasonableness of the estimates and
assumptions applied.
— Furthermore, we considered the appropriateness of the notes provided on financial assets and
financial liabilities measured at fair value.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Hedge accounting (notes 1, 2, 9, 25 ja 26)
— Municipality Finance applies hedge accounting to hedge against interest rate and currency
risks related to financial assets and financial liabilities, and to reduce the accounting mismatch.
— Municipality Finance applies fair value hedge accounting under IFRS 9 and fair value portfolio
hedge accounting under IAS 39.
— Due to the application of hedge accounting, the carrying amounts of those financial assets and
financial liabilities to which hedge accounting is applied, include unrealised fair value change
related to hedged risks.
— The hedge accounting process includes various accounting phases and hedge accounting has
a significant impact on the consolidated financial statements. Accordingly hedge accounting
was considered as key audit matter.
— We evaluated the hedge accounting practices applied for compliance with the relevant
financial reporting standards with the assistance of our IFRS and financial instrument
specialists.
— We assessed the hedge effectiveness testing and the appropriateness of the related
documentation prepared by Municipality Finance.
— Finally, we considered the appropriateness of the related notes to the financial statements.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Responsibilities of the Board of Directors and
the Managing Director for the Financial Statements
The Board of Directors and the Managing Director are
responsible for the preparation of consolidated financial
statements that give a true and fair view in accordance with
International Financial Reporting Standards (IFRS) as adopted
by the EU, and of financial statements that give a true and fair
view in accordance with the laws and regulations governing
the preparation of financial statements in Finland and comply
with statutory requirements. The Board of Directors and the
Managing Director are also responsible for such internal control
as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Board of Directors
and the Managing Director are responsible for assessing the
parent company’s and the group’s ability to continue as a going
concern, disclosing, as applicable, matters relating to going
concern and using the going concern basis of accounting.
The financial statements are prepared using the going concern
basis of accounting unless there is an intention to liquidate
the parent company or the group or cease operations, or there
is no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of
the Financial Statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with good auditing prac-
tice will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken
on the basis of the financial statements.
As part of an audit in accordance with good auditing practice,
we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
— Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal control.
— Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the parent
company’s or the group’s internal control.
— Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by management.
— Conclude on the appropriateness of the Board of Directors’
and the Managing Director’s use of the going concern basis
of accounting and based on the audit evidence obtained,
whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the parent
company’s or the group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditor’s report
to the related disclosures in the financial statements or, if
such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or
conditions may cause the parent company or the group to
cease to continue as a going concern.
— Evaluate the overall presentation, structure and content
of the financial statements, including the disclosures, and
whether the financial statements represent the underlying
transactions and events so that the financial statements
give a true and fair view.
— Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities
within the group to express an opinion on the consolidated
financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during
our audit.
We also provide those charged with governance with a
statement that we have complied with relevant ethical
requirements regarding independence, and communicate with
them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because
the adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefits of
such communication.
Other Reporting Requirements
Information on our audit engagement
KPMG Oy Ab was first appointed as audit firm by the Annual
General Meeting in 2001, and our appointment represents a
total period of uninterrupted engagement of 20 years.
Other Information
The Board of Directors and the Managing Director are
responsible for the other information. The other information
comprises the report of the Board of Directors and the
information included in in the Annual Report, but does not
include the financial statements and our auditor’s report
thereon. We have obtained the report of the Board of Directors
prior to the date of this auditor’s report, and the Annual Report
is expected to be made available to us after that date. Our
opinion on the financial statements does not cover the other
information.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be
materially misstated. With respect to the report of the Board of
Directors, our responsibility also includes considering whether
the report of the Board of Directors has been prepared in
accordance with the applicable laws and regulations.
In our opinion, the information in the report of the Board of
Directors is consistent with the information in the financial
statements and the report of the Board of Directors has
been prepared in accordance with the applicable laws and
regulations.
If, based on the work we have performed on the other
information that we obtained prior to the date of this auditor’s
report, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have
nothing to report in this regard.
Other Opinion
We support that the financial statements should be adopted.
The proposal by the Board of Directors regarding the use of
the profit shown in the balance sheet and the profit distribution
is in compliance with the Limited Liability Companies Act.
We support that the Members of the Board of Directors, the
Managing Director and the Deputy Managing Director should
be discharged from liability for the financial period audited by us.
Helsinki 15th February 2021
KPMG OY AB
TIIA KATAJA
Authorised Public Accountant, KHT
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
Independent Auditor’s Reasonable Assurance Report on
Municipality Finance Plc’s ESEF Financial Statements
To the Shareholders of Municipality Finance Plc
We have undertaken a reasonable assurance engagement
on the iXBRLmarking up of the consolidated financial
statements for the year ended December 31,2020
included in the Municipality Finance Plc’s digital files
529900HEKOENJHPNN480-2020-12-31.zip prepared
in accordance with the requirements of Article 4 of EU
Delegated Regulation 2018/815 (ESEF RTS).
The Responsibility of the Board of Directors and
Managing Director
The Board of Directors and Managing Director are
responsible for preparing the report of the Board of
Directors and financial statements (ESEF financial
statements) that comply with the requirements of ESEF
RTS. This responsibility includes:
— preparation of ESEF financial statements in XHTML
format in accordance with Article 3 of the ESEF RTS
— marking up the consolidated financial statements
included in the ESEF financial statements with iXBRL
tags in accordance with Article 4 of the ESEF RTS; and
— ensuring consistency between ESEF financial
statements and audited financial statements.
The Board of Directors and the Managing Director are
also responsible for such internal control as they deem
necessary to prepare the ESEF financial statements in
accordance with the requirements of the ESEF RTS.
Auditor’s Independence and Quality Control
We are independent of the company in accordance with
the ethical requirements applicable in Finland, which apply
to the engagement we have performed, and we have
fulfilled our other ethical obligations in accordance with
these requirements.
The auditor applies International Standard on Quality
Control 1 and accordingly maintains a comprehensive
system of quality control including documented policies
and procedures regarding compliance with ethical
requirements, professional standards and applicable legal
and regulatory requirements.
Auditor’s Responsibility
In accordance with the Engagement Letter our
responsibility is to express an opinion on whether the
marking up of the consolidated financial statements
included in the ESEF financial statements comply in all
material respects with the Article 4 of the ESEF RTS. We
conducted our reasonable assurance engagement in
accordance with International Standard on Assurance
Engagements 3000.
This document is an English translation of the Finnish Independent Auditor’s Reasonable Assurance report. Only the Finnish version of the report is legally binding.
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Report of the Board of Directors Consolidated Financial Statements Parent Company Financial Statements
Municipality Finance Plc • Annual Report 2020
The engagement involves procedures to obtain evidence
whether;
— the consolidated financial statements included in
the ESEF financial statements are, in all material
respects, marked up with iXBRL tags in accordance
with Article 4 of the ESEF RTS, and;
— the ESEF financial statements and the audited
financial statements are consistent with each other.
The nature, timing and the extent of procedures selected
depend on practitioner’s judgement. This includes
the assessment of the risks of material departures from
the requirements set out in the ESEF RTS, whether due to
fraud or error.
We believe that the evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the consolidated financial
statements included in the ESEF financial
statements of Municipality Finance Plc identified as
529900HEKOENJHPNN480-2020-12-31.zip for the
year ended December 31, 2020 are marked up, in all
material respects, in compliance with the ESEF Regulatory
Technical Standard.
Our audit opinion relating to the consolidated financial
statements of Municipality Finance Plc for the year ended
December 31, 2020 is set out in our Auditor’s Report.
In this report, we do not express an audit opinion, review
conclusion or any other assurance conclusion on the
consolidated financial statements.
Helsinki March 1, 2021
KPMG OY AB
TIIA KATAJA
Authorised Public Accountant, KHT
Municipality Finance Plc
Jaakonkatu 3 A, P.O. Box 744
00101 Helsinki
Tel. +358 9 6803 5666
www.munifin.fi
firstname.lastname@munifin.fi