MuniFin Group’s Half Year Report January–June 2021: demand for financing decreased but favourable interest rate environment boosted the result

Source: OMX
MuniFin Group’s Half Year Report January–June 2021: demand for financing decreased but favourable interest rate environment boosted the result

Municipality Finance Plc
Half Year Report
5 August 2021 at 3:00 pm (EEST)

MuniFin Group’s Half Year Report January–June 2021: demand for financing decreased but favourable interest rate environment boosted the result

This release is a summary of MuniFin Group’s Half Year Report published on 5 August 2021. The complete Half Year Report with tables is attached to this release and available at www.munifin.fi.

MuniFin Group will publish its Pillar III Half Year Disclosure Report 2021 the week of August 9 in accordance with Regulation (EU) No 575/2013 and Directive 2013/36/EU.

In brief: MuniFin Group in the first half of 2021

  • The Group’s net operating profit excluding unrealised fair value changes amounted to EUR 108 million (EUR 93 million) and it increased by 15.6% (3.6%) in January–June. The net interest income totalled EUR 138 million (EUR 123 million). The growth was 12.0% (5.3%). Costs in the reporting period amounted to EUR 34 million (EUR 32 million), making the figure 6.7% (3.2%) greater than in the first half of 2020.
  • The net operating profit amounted to EUR 127 million (EUR 62 million). In this reporting period, the unrealised fair value changes amounted to EUR 20 million (EUR -31 million).
  • Changes to the regulation of banks’ capital adequacy (CRR II and CRD V) were applied at the end of June. The Group’s leverage ratio was 12.6% (3.9%) at the end of June, with the updated EU Capital Requirements Regulation, CRR II, increasing the leverage ratio by 8.8 percentage points. MuniFin fulfils the CRR II definition of a public development credit institution and may therefore deduct all credit receivables from the central government and municipalities in the calculation of its leverage ratio.
  • At the end of June, the Group’s CET1 capital ratio remained very strong, 91.1% (104.3%). Tier 1 and total capital ratio were 114.7% (132.7%). The new CRR II regulation lowered the capital ratio mainly due to the changes in calculation of counterparty credit risk and CVA VaR. CET1 capital ratio nevertheless exceeded the total requirement of 13.4% by almost seven times with capital buffers accounted for.
  • In early 2021, the Finnish economy began to recover from the COVID-19 pandemic. The demand for financing in the municipal sector remained lower than expected due to surprisingly good economic development and the Government’s temporary COVID-19 recovery measures in 2020. Nevertheless, the pandemic had only a minor effect on the Group’s net operating profit and capital adequacy.
  • Long-term customer financing, including both long-term loans and leased assets was EUR 28,582 million (EUR 28,022 million) at the end of the reporting period and it grew by 2.0% (7.8%). New lending in January–June amounted to EUR 1,601 million (EUR 2,543 million). The loan portfolio’s growth trend returned to normal levels from the previous year, which saw particularly strong growth due to the COVID-19 pandemic. Short-term customer financing reached EUR 1,482 million (EUR 1,310 million) and grew by 13.1% (139.0%) from the comparison period.
  • At the end of June, of all long-term customer financing, the amount of green finance aimed at environmentally sustainable investments totalled EUR 2,120 million (EUR 1,786 million) and the amount of social finance aimed at investments promoting equality and communality totalled EUR 833 million (EUR 589 million). Green and social finance have been well received by customers and the amount of finance increased by 24.3% from year-end.
  • In January–June, new long-term funding reached EUR 6,025 million (EUR 5,504 million). At the end of June, total funding was EUR 40,281 million (EUR 38,139 million), of which long-term funding made up for EUR 36,436 million (EUR 34,243 million).
  • The Group’s liquidity has remained at a very good level. At the end of June, total liquidity amounted to EUR 11,736 million (EUR 10,089 million). The Liquidity Coverage Ratio (LCR) stood at 300.2% (264.4%) and the Net Stable Funding Ratio (NSFR) at 122.7% (116.4%).
  • In March 2021, the Annual General Meeting authorised the Board of Directors to decide on the dividend payment of a maximum of EUR 0.52 per share, totalling EUR 20,313,174.96. This authorisation is valid until the next Annual General Meeting. The Group follows the ECB’s recommendation on dividend distribution, which allows for dividend distribution after 30 September 2021. MuniFin’s Board of Directors refrains from deciding on the distribution of dividends before the recommendation is lifted.
  • Changes to the outlook for the second half of 2021: The Group expects its net operating profit excluding unrealised fair value changes to remain at the same level as or higher than in 2020 (Financial Statements Bulletin 2020: at the same level). A more detailed outlook is presented in the section Outlook for the second half of 2021.

Comparison figures deriving from the income statement and figures describing the change during the reporting period are based on figures reported for the corresponding period in 2020. Comparison figures deriving from the balance sheet and other cross-sectional items are based on the figures of 31 December 2020 unless otherwise stated.


President and CEO of MuniFin, Esa Kallio:

“In 2020, municipalities reached a better financial performance than expected thanks to the Government’s COVID-19 support package and increased tax revenues. As a result, the financing needs of municipalities were lower in the reporting period than they were last year.

MuniFin is by far the largest single provider of financing for its customer segment and retained its strong position also in the first half of 2021. MuniFin’s new lending in January–June was clearly at a lower level than in comparison period. The municipal sector’s demand for financing was lower in the first half of 2021 than it was in the comparison period, but the demand for financing for state-subsidised housing production remained stable.

However, the investment needs of municipalities remain high, and Finland’s upcoming health and social services reform passed by the Finnish Parliament in June is unlikely to make the situation much easier. The reform will transfer the responsibility for organizing healthcare and social welfare from municipalities to larger autonomous regions known as the wellbeing services counties. This will affect different-sized municipalities in different ways, especially in the long-term.

Changes to the regulation of bank’s capital adequacy applied in June 2021 increased the leverage ratio of public development credit institutions, including MuniFin, and decreased the capital requirement, thus lowering the profit requirement required to maintain a strong capital level.

Our funding activities in January–June were highly successful. Thanks to the stimulus policies of central banks, liquidity was easily available and we managed to acquire affordable funding for our customers from the international capital markets.”

Key figures (Group)

  30 Jun 2021 30 Jun 2020 31 Dec 2020
Net operating profit excluding unrealised fair value changes (EUR million) * 108 93 197
Net operating profit (EUR million)* 127 62 194
Net interest income (EUR million)* 138 123 254
New lending (EUR million)* 1,601 2,543 4,764
Long-term customer finance (EUR million)* 28,582 26,743 28,022
New long-term funding (EUR million)* 6,025 5,504 10,966
Balance sheet total (EUR million) 45,658 41,288 44,042
CET1 capital (EUR million) 1,346 1,172 1,277
Tier 1 capital (EUR million) 1,694 1,519 1,624
Total own funds (EUR million) 1,694 1,519 1,624
CET1 capital ratio, %** 91.1 87.8 104.3
Tier 1 capital ratio, %** 114.7 113.8 132.7
Total capital ratio, %** 114.7 113.8 132.7
Leverage ratio, %** 12.6 3.8 3.9
Return on equity (ROE), %* 11.7 6.2 9.4
Cost-to-income ratio* 0.2 0.3 0.2
Personnel 163 167 165
       

* Alternative performance measure.

** Figures for the reporting period calculated in accordance with CRR II. Comparison periods have not been adjusted to reflect the updated capital requirements regulation.


MUNICIPALITY FINANCE PLC

Further information:

Esa Kallio
President and CEO
tel. +358 50 337 7953

Harri Luhtala
CFO
+358 50 592 9454

MuniFin (Municipality Finance Plc) is one of Finland’s largest credit institutions: the Group’s balance sheet totals close to EUR 46 billion. The company is owned by Finnish municipalities, the public sector pension fund Keva and the Republic of Finland.

MuniFin builds a better and more sustainable future with its customers. MuniFin's customers are Finnish municipalities, municipal federations, municipally controlled entities and non-profit housing organisations. Lending is used for environmentally and socially responsible investment targets such as public transportation, sustainable buildings, hospitals and healthcare centres, schools and day care centres, and homes for people with special needs.

MuniFin's customers are domestic but the company operates in a completely global business environment. It is an active Finnish bond issuer in international capital markets and the first Finnish green and social bond issuer. The funding is exclusively guaranteed by the Municipal Guarantee Board.

The Municipality Finance Group also includes the subsidiary company, Financial Advisory Services Inspira Ltd.

Read more: www.munifin.fi

 

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