MuniFin issues the second Euro benchmark of the year

The mandate for the EUR 500 million 7-year Euro benchmark was released at 09:00 CET. The investor demand started out strong and the order book grew steadily reaching a total of EUR 907 million.

The successful benchmark was priced at 14:50 CET with a re-offer spread of MS -6bps, yielding -0.224% with re-offer price of 101.582%. This is equivalent to a spread of 30.3bps over the DBR 0.5% due 15 February 2028.

– This is our second Euro benchmark of the year. We were very pleased to see strong investor demand again together with a minimal new issue premium. In the future we are planning to use this line for taps, says Antti Kontio, Head of Funding and Sustainability at MuniFin.

A total of 33 investors participated in the transaction with 86% allocation to European and 14% to Asian investors. Central banks took the largest 41% allocation and banks were a close second with 38% allocation. The final 21% allocation went to asset managers.

In 2021 MuniFin forecasts to issue EUR 10-11 billion of long-term funding. After this EUR 500 million benchmark MuniFin has reached 43% of the total target.

Issuer:Municipality Finance Plc (“MuniFin”)
Rating:Aa1 / AA+ (Moody’s/S&P – both stable)
Issuer Size:EUR 0,5bn
Payment Date:21st April 2021 (T+5)
Maturity Date:21st April 2028
Re-offer Price:101.5820%
Re-offer Yield:-0.224 %
Re-offer vs. Mid Swaps:-6bps
Re-offer vs. Benchmark:DBR 0.50% due 15 February 2028 +30.3bp
Lead Managers:Danske/LBBW/Morgan Stanley/Nordea

Further information

Antti Kontio, Head of Funding and Sustainability, MuniFin
Tel. +358 500 3700285

Class A all the way

In early summer, a group of lucky performing artists and other professionals in the industry will move to a building designed for them in the Kaleva district in Tampere. Situated right next to the new tramway line, the building is a collaboration between the Live Music Foundation ELMU and M2‑Kodit, a company owned by the Y‑Foundation Group offering affordable state-subsidised rental housing.

In 2015, the two foundations found that they share similar values, and 2017 saw the completion of their first collaboration project, the Jallukka building in Helsinki. In Jallukka Helsinki, some of the apartments are earmarked for musicians, and some are regular rental apartments that are rented out by M2‑Kodit. In Tampere, the Jallukka building only inhabits music industry and performing arts professionals.

“Tampere is an important music and theatre city, but it doesn’t have an artist house. This made it a natural choice for the second Jallukka”, explains ELMU’s chair Juha Tynkkynen.

The choice of location was spurred by the Tampere Tramway, which will start operating this year and make the city more interconnected. But luck also played a role.

“The MAL agreement on land use, housing and transport stipulates that 30% of the housing production in Tampere must be state-subsidised. We won a plot with a great location and the project moved forward quickly”, says Pekka Kampman, development director at the Y‑Foundation.

A convenient location with good connections is important for musicians and performing artists who often work late at night.

“The Tullikamari concert and events venue is within crawling distance”, jokes Tynkkynen.

Rehearsal spaces accessible in slippers

Jallukka Tampere has 39 apartments in total. Of these, 17 are earmarked for music industry professionals, and their tenants are chosen by the ELMU foundation. The remaining 22 apartments are earmarked for other performing artists, and they are administered by the Y‑Foundation’s company M2‑Kodit, which also chooses the tenants to these apartments. The demand is great.

“We received about 250 applications for the M2‑Kodit rental apartments”, says Kari Komu, CFO at the Y‑Foundation.

Based on the experiences of the Jallukka building in Helsinki, Jallukka Tampere will also have soundproof band rehearsal spaces and other shared facilities, such as club rooms and saunas. Each apartment has its own storeroom, but residents can also rent out storage spaces for their instruments. Although these special facilities bring extra costs, they are considered important.

“Performing artists appreciate having a studio outside their home, but one that they can access by elevator, for example in their slippers. This is why we wanted to include rehearsal spaces in the building, although we had to cover the costs ourselves”, explain Kampman and Tynkkynen.

The apartments themselves are regular rental apartments and fairly small in size. Sleeping lofts provide extra space in top-floor apartments, which are particularly sought after among artists with families.

Strategy dictates choices

The Y‑Foundation’s strategy is connected to the UN Sustainable Development Goals. The foundation’s three spearhead objectives are the eradication of homelessness, the economic and social well-being of tenants, and a fair transition towards carbon neutral living. The Y‑Foundation seeks to achieve carbon neutrality by 2035.

“Our strategy states that in new construction, we build energy class A residential properties that are implemented with a high level of material efficiency”, Kampman says.

Jallukka Tampere also represents energy efficiency class A, and it has been financed with MuniFin’s green finance.

“Green finance offers us an interest benefit of a few basis points. This difference may not seem significant at an annual level, but over long loan periods, green finance actually saves us hundreds of thousands”, explains Komu.

Savings are also achieved through AI-controlled heat regulation, which anticipates peaks in heating and keeps indoor air in the apartments at an optimal level.

“The apartments have sensors for monitoring temperature and other indoor air conditions. Based on the data, AI finds the most energy-efficient solution to heating. Thanks to this smart solution, we have already been able to bring our annual heating costs down by 5–10% in our other buildings”, Komu says.

The Y‑Foundation owns more than 17,300 rental apartments in over 50 cities across Finland, so this reduction translates to significant savings.

The Y‑Foundation is also committed to improving the energy efficiency of its existing properties by making renovations and upgrades focused on energy consumption and by increasing the use of renewable energy in heating.

“In the future, we will focus heavily on recycling construction materials. Our goal is to increase the recovery rate of non-hazardous construction and demolition waste”, explains Kampman.

The Y‑Foundation’s sustainable ideology is also seen in how the foundation encourages its tenants to adopt low carbon means of transport. Jallukka Tampere does not have parking spaces for all tenants, but residents have access to a communal car or van that they can hire. The building also has a designated room for servicing and maintaining bicycles, just like Jallukka Helsinki does.

“We are offering residents carsharing in Jallukka Tampere for the first time, but we will offer this option in our other new properties in the future”, promises Kampman.

Meeting places wanted

Jallukka Helsinki has received praise for the restaurant and bar that operates on the bottom floor of the building and offers residents an easy place to meet. In Jallukka Tampere, a spacious club room on the first floor will serve as a convenient meeting place.

“People value a sense of community. The residents of Jallukka Helsinki have organised barbeques together and also with other residents in the quarter. However, the building also offers peace and quiet for those that prefer it”, says Tynkkynen.

Inspired by the Jallukka buildings, the Y‑Foundation will start to include lobbies and club rooms in its other new buildings as well. According to Kampman, the use of shared sauna facilities is on the decrease, as the hopes and wants of residents are shifting.

“Our role is to offer facilities for communal activities. We are also planning to include completely novel and innovative shared spaces in our buildings, such as remote work facilities and a small apartment that residents can book for their short-term visitors.”

What about the ELMU foundation’s plans: will there be more Jallukka buildings?

“The demand seems great, especially in the Helsinki region. We are a small foundation with limited resources, so we’ll take one Jallukka at a time”, muses Tynkkynen.

Written by Hannele Borra

MuniFin wins Green bond of the year 2021 award by Environmental Finance

The Green bond of the year award was given to MuniFin by Environmental Finance, which is an online news and analysis service. Environmental Finance reports on sustainable investment, green finance and the people and companies active in the environmental markets.

 – We are delighted and honored to win this award, which is highly valued by market participants. This award is a testimony to our long-term commitment in the field of sustainability. Our ultimate goal is to promote Finland’s climate targets, where local governments play a key role, says Antti Kontio, Head of Funding and Sustainability at MuniFin.

This is not the first time MuniFin ‘s green bonds have received recognition from Environmental Finance. In 2018 MuniFin was awarded in the categories of Green Bond of the Year (SSA) and Biggest issuer (local authority).

MuniFin promotes the achievement of Finland’s climate targets and encourages its customers to achieve theirs by offering green finance for investments that have positive environmental effects. MuniFin is a pioneer in promoting environmentally sustainable development by being the first Finnish issuer of green bonds in 2016. The total amount of outstanding green bonds issued by MuniFin is currently approximately EUR 2 billion.

Green finance is offered to selected projects that promote the transition to low-carbon and climate resilient growth in seven categories. These include sustainable buildings, sustainable public transportation, water and wastewater management, renewable energy, energy efficiency, waste management and environmental management. MuniFin offers a margin discount of 0–10 basis points to approved green finance projects evaluated by an independent expert group.

Second opinion provider Cicero has awarded MuniFin’s Green Bond Framework with its second-best ‘Medium Green’ rating. The Framework has been drafted in accordance to the Green Bond Principles of the International Capital Markets Association (ICMA).

MuniFin has recently set a goal for 20% of its long-term customer finance portfolio to be labelled green and social finance by 2024, standing at around 9% at the end 2020.

Exceptionally strong investor demand

MuniFin issued the award winning green bond on Tuesday 6 October 2020. The 10-year EUR 500 million green bond was the fourth public benchmark green bond issued by MuniFin. Investor interest was exceptionally strong: the order book grew to EUR 3.4 billion, which is the largest green bond order book to date for MuniFin.

The amount of ESG focused investors also grew to 55%, which is the highest allocation to this investor group seen in MuniFin’s green bonds.

Issuer:Municipality Finance Plc (MuniFin)
Rating:Aa1 / AA+ (Moody’s/S&P – both stable)
Issue size:EUR 500mn (no-grow)
Payment date:14th October 2020 (T+6)
Maturity date:14th October 2030
Re-offer price:101.992%
Re-offer yield:-0.1970%
Re-offer vs. mid swaps:+2bps
Re-offer vs. benchmark:DBR 0% 08/2030 + 30.7bps
Lead managers:Danske Bank, NatWest Markets, Nomura, Nordea

Further information

Antti Kontio
Head of Funding and Sustainability, MuniFin
Tel. +358 500 3700285

Written by Jenni Heikkilä

MuniFin wins SSA Structured Notes Issuer of the Year award by Mtn-i

MuniFin has been able to maintain its strong presence in the structured notes market despite the overall market shrinking considerably each year. With structured notes, MuniFin aims to serve a broader investor base.

– This award is a recognition of the long-term work we have done both internally and externally. For a decade, MuniFin has been a household name for both retail investors in Japan and institutional investors globally. Our target is to remain as an active issuer in structured notes and continue to serve investors in this product category, says Funding Manager Martin Svedholm.

In 2020, MuniFin issued a total of EUR2.4bn of structured notes, which was 20% of all long-term funding. Thanks to MuniFin’s brand and high credit rating, MuniFin is a well-known and appreciated issuer in the structured notes market and has regularly been recognised with several awards in different categories.

Read more about the MTN Awards

Timo Vesala: The pandemic will slow down the Finnish economy in the spring, but the summer is expected to bring new growth

According to newest data releases, Finland’s GDP shrank by 2.8%  in 2020. The shift to remote work was handled successfully, the core functions of the economy have been kept running with relatively few people working at offices, and Finnish industries proved to be surprisingly resilient against the pandemic.

“Finland employed several different strategies to fend off the economic downturn resulting from the COVID‑19 pandemic. The Finnish economy survived the first year of the pandemic better than expected, but now the rising number of active cases and the measures required to slow down the spread of the virus are delaying the revival of domestic demand. It now seems that the economy will start picking up again in the second half of the year”, estimates Timo Vesala, Chief Economist at MuniFin.

“Finnish industries managed to avoid major pandemic disasters. At first, production kept running thanks to long order books, and then demand started to pick up again towards the end of the year. Industries were expected to suffer heavily from COVID-19, but thankfully that did not happen”, Vesala comments.

Exports acted as a buffer for economic downtrend, and Finland’s shrinking GDP in 2020 was purely due to the suppression of domestic consumption and investment. Employment rates recovered rapidly during the summer, but the growing trend dwindled in late autumn. The COVID-19 situation has worsened recently, creating a risk of increased lay-offs and long-term unemployment.

Domestic market recovery delayed – possible boost from exports

As the COVID-19 situation escalates and calls for increased shut-down measures, economic recovery is delayed. The domestic market can fully recover only after risk groups have been vaccinated.

Once the pent-up demand is released, private consumption will begin to drive economic recovery. Another cornerstone of economic recovery is exports, which will benefit from revitalised global economy. As more people are vaccinated, companies become more confident in making investments.

Although there is still plenty of uncertainty about how the course of the pandemic will play out, the upside and downside risks in the forecasts are now better balanced than before.

“The substantial growth expectation in the US may speed up the global economy and perhaps surprise us positively here in Finland as well”, Vesala notes.

On the other hand, heavy recovery measures in the US also raise concerns of economic overheating and inflation. In the euro area, these risks are substantially smaller because the European recovery measures are moderate compared to the US and also not as intensely focused on stimulating consumption. In Europe, the risk of permanently accelerating inflation is much smaller, and the fundamentals of the euro area economy do not provoke rapid increases in interest rates.

Record year gave municipalities tools to manage the pandemic after-effects

Esa Kallio

Municipal economy strengthened substantially in 2020, largely because of governmental support measures. With the year turning out better than anticipated, municipalities are now in a place where they have better ground for managing the after-effects of the pandemic.

“A financial buffer may prove useful. Government pandemic support will eventually end, and if prolonged, the pandemic may push unemployment into a new upward trend. The financial buffer gained last year needs to suffice also for handling the after-effects of the pandemic, such as care debt”, says Esa Kallio, President and CEO at MuniFin.

Municipal income is already returning to the normal level. The need for investments is expected to continue as usual, and municipalities are expected to start borrowing again.

Due to Finland’s age structure and the trends of internal migration, municipalities are pushed to collaborate even more closely. New cooperation models must be developed in order to mitigate certain risks: for example, the unit costs of early childhood education and basic education may rise significantly due to falling birth rates.

“Municipalities compete against each other for the active population, which is proportionally shrinking, and this may lead to a zero-sum game that needlessly bloats the service structure. Municipalities should focus more on cooperation and less on competition”, Kallio summarises.

Additional information

Timo Vesala, Chief Economist, MuniFin
Tel. +358 50 5320 702

Esa Kallio, President and CEO, MuniFin
Tel. +358 50 3377 953

Photos: Sami Lamberg

The pandemic highlighted MuniFin’s role in 2020 – Annual Report and Sustainable Bonds Impact Report published

MuniFin’s CEO Esa Kallio and Executive Vice President Aku Dunderfelt discuss the year 2020 at MuniFin.

Overall growth and very strong investor interest in social finance

In 2020, the demand for funding among MuniFin customers increased substantially. Our finance for new projects totalled EUR 4,699 million, increasing by as much as 52% from 2019.

The COVID-19 pandemic prompted us to quickly adapt to remote work, but we were able to serve our customers without interruptions by creating new customer service channels and expanding our digital services.

“The economic reports by our chief economist and the training on our digital services have been highly popular”, Kallio notes.

The social finance we launched in early 2020 received a highly positive reception, and we granted a total of 589 million euros across 27 projects. We also issued the first Nordic social bond in the SSA category for international investors. The social bond had a EUR 500 million issue size and was overbooked by nearly four times, signalling overwhelming demand for this product.

Even though capital markets were unstable, particularly in the spring, our own funding continued without interruption throughout 2020. Our long-term funding rose to EUR 11 billion.

“The success of our benchmark bonds during this period of uncertainty shows that we have a successful funding strategy and good reputation in the international capital market. The year 2020 further highlighted MuniFin’s core mandate”, says Kallio happily.

In 2020, we continued to reform our organisation and operating practices. We will continue to further develop our operations and digital services.

“In all we do, we aim to provide even better and even more efficient service for our customers”, Kallio concludes.

Further information:

Heidi Penttinen, Communications Specialist, Tel. +358 45 2139 3229

Customers continue to have very high trust in MuniFin

According to the latest survey, our customers are extremely satisfied with us. Trust in MuniFin’s ability to handle the pandemic was 6.3 on a scale of 1 to 7, and as many as 80% of respondents considered reliability as MuniFin’s strong point. Compared to other companies in the financial sector, MuniFin also scored exceptionally high on the Net Promoter Score (NPS), a traditional way of measuring how likely customers are to recommend the company.

Customers look for competitive pricing and convenience

The survey also charted what customers most value in a financing partner. The top-ranking qualities were competitive pricing, services that are easy to use, suitable financing solutions and responsibility. According to 86% of the respondents, pricing was one of MuniFin’s strong points.

Customer service was rated as MuniFin’s strength by 71% of the respondents. In particular, our customers commended our contact persons, whose expertise and level of commitment scored an extremely high rating of 6.5 on a scale of 1 to 7. Our customers also saw us as more than just a lender, considering our service offering in financial planning and financing management as our strong points.

Digital services valued

In digital services, our customers valued both their ease of use and the broader outlook they offer on the total economy of a municipality or company. Of the respondents, 54% considered MuniFin’s digital services as a strong point and 43% rated them as neutral, meaning that they represent the industry standard.

Our customers’ opinions matter a great deal to us, and the survey results strongly steer the direction in which we continue to develop our services and products.

MuniFin’s customer experience survey was conducted as an email survey and telephone interviews between 1 and 22 December 2020, with more than 200 participants who manage the finances of municipalities and state-subsidised housing companies. The survey was conducted by EPSI Rating Group.

MuniFin issues the first Euro benchmark of the year

The mandate for the transaction was released at noon London time on Monday 22 February. The books opened the following morning. The orderbook grew quickly, which resulted MuniFin to tighten the final pricing.

The EUR 1 billion 10-year benchmark was priced at 13.15 pm London time with a re-offer spread of MS-3bps, offering a re-offer yield of -0.021% and a re-offer price of 100.210%. This is equivalent to a spread of 28.7bps over the DBR 0.00% due 15 February 2031.

106 investors participated in the transaction with 89% allocation to European investors and 52% allocation to bank treasuries, 24% to asset managers and 23% to central banks and other official institutions.

“We are delighted to see such a strong investor support for our first EUR benchmark this year. The demand has once again been overwhelming and we can only thank the investors for this outcome. We remain committed to maintain a presence in the EUR market and this new 10y line is a welcomed addition to our existing curve”, says Joakim Holmström, the Head of Capital Markets and Sustainability at MuniFin.

In 2021 MuniFin forecasts to issue EUR 10-11 billion of long-term funding. After this EUR 1 billion benchmark MuniFin has reached 36% of the total target.

Issuer: Municipality Finance Plc (“MuniFin”)
Rating: Aa1 / AA+ (Moody’s/S&P – both stable)
Issuer Size:EUR 1bn
Payment Date: 2nd March 2021 (T+5)
Maturity Date:2nd March 2031
Re-offer Price:100.210%
Re-offer Yield:-0.021 % 
Re-offer vs. Mid Swaps:-3bps
Re-offer vs. Benchmark:DBR 0.00% due 15 February 2031 +28.7bp
Lead Managers:Barclays / Citi / HSBC / Swedbank

Comments from the bookrunners

 “What a great deal – MuniFin built a large, high quality orderbook, 3.8x oversubscribed, in what has been a very competitive market recently.  The success is a testament to how well the issuer has presented itself to the EUR market over recent years, their rarity and excellent support from the global investor base.”  

Lee Cumbes, Head of Public Sector, Barclays

“A stellar result for MuniFin, garnering their second largest orderbook to date for their first Euro benchmark of 2021. The issuer’s ability to move quickly following the sell-off in rates enabled them to capture the attention of a broad range of high-quality investors. Congratulations to the MuniFin team for the strong outcome, Citi is delighted to have been involved in the transaction.”

Ebba Wexler, Managing Director, Public Sector DCM, Citi

“MuniFin was able to capitalize on constructive market conditions to execute its first EUR benchmark transaction of 2021. Today’s orderbook highlights the strong following MuniFin receives from the global investor base, with the deal more than 3x oversubscribed, allowing pricing to move 2bps through execution and to price flat to fair value. HSBC is proud to have helped lead this transaction. Congratulations to the MuniFin team.”

Asif Sherani, Head of DCM Syndicate EMEA, HSBC

“Great to see MuniFin enter the Euro market in 2021 with such a strong, well received, transaction. A smooth process, with a well oversubscribed book, enabled MuniFin to price with zero NIC, despite the recent volatility seen in the market. A true testament to the depth and commitment of the MuniFin investor base. Swedbank is very proud to have been part of this transaction and would like to congratulate the entire MuniFin team on the successful deal.”

Linda Lindblad, Head of SSA Origination, Swedbank 

Further information

Joakim Holmström
Executive Vice President, Capital Markets and Sustainability, MuniFin
Tel. +358 50 4443 638

Antti Kontio
Head of Funding and Sustainability, MuniFin
Tel. +358 500 3700 285

Municipality Finance Plc Financial Statements Bulletin 1 January–31 December 2020

Municipality Finance Plc
Financial Statements Bulletin                                       
15 February 2021 at 1 pm (EET)

Municipality Finance Plc Financial Statements Bulletin 1 January–31 December 2020

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.
  • 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.

Key figures (Group)

 31 Dec 202031 Dec 2019
Net operating profit excluding unrealised fair value changes (EUR million)*197186
Net operating profit (EUR million)*194131
Net interest income (EUR million)*254240
New lending (EUR million)*4,7643,175
Long-term customer finance (EUR million)*28,02224,798
New long-term funding (EUR million)*10,9667,385
Balance sheet total (EUR million)44,04238,934
CET1 capital (EUR million)1,2771,162
Tier 1 capital (EUR million)1,6241,510
Total own funds (EUR million)1,6241,510
CET1 capital ratio, %104.383.1
Tier 1 capital ratio, %132.7107.9
Total capital ratio, %132.7107.9
Leverage ratio, %3.94.0
Return on equity (ROE), %*9.46.8
Cost-to-income ratio*0.20.3

*Alternative performance measure.

All figures presented in the Financial Statements Bulletin are those of MuniFin Group, unless otherwise stated.

Comment on the 2020 financial year by President and CEO Esa Kallio

The COVID-19 pandemic strained the economy in 2020, but the worst of the predicted crisis scenarios did not materialise. The first wave of the pandemic caught the households, corporates and markets by surprise, but swift recovery measures by governments and central banks brought the situation quickly under control.

Overall, Finland managed to prevent the spread of the virus relatively well; in the end, economic activity and tax revenues fell less than we initially feared. The most significant economic effects caused by the pandemic have accumulated at the municipal level, especially in large cities and tourism-heavy northern regions.

In 2020, MuniFin’s customers required substantially more financing. Uncertainty caused an unusual spike in demand from March to May, when especially our customers in municipality sector prepared for the expected increase in expenditure while reducing their income caused by the pandemic. At the same time, the supply of financing to our customers decreased as other credit institutions focused on financing private sector. Housing production was largely unaffected by the pandemic, and the demand for financing of the non-profit housing production remained unchanged.

The situation on the international capital markets changed rapidly in the spring of 2020 due to the uncertainty caused by the COVID-19, and funding operations in general were more challenging. However, thanks to MuniFin’s long-term cooperation with investors and reputation as a reliable and responsible partner, we were able to continue our own funding without interruption during the whole year. 

International investors have shown growing interest in responsible and safe investments. In 2020, we added social financing to our portfolio of responsible financing products. Social financing is targeted at projects that yield particularly effective and wide-ranging benefits for the society. 

We continued to further develop our digital services as planned and even speed up the process somewhat due to the increased demand caused by the pandemic. During this exceptional year, we also managed to find new ways to meet our customers. Good examples of these are i.e. expanding the digital services, digital services training that proved very popular and our chief economist’s webinars for different stakeholder groups.

The year 2020 highlighted MuniFin’s core mandate. We successfully met our customers’ greatly increased demand for financing despite the challenging market environment. For this I want to thank our staff, who have shown exceptional ability in adapting to the new situation. I would also like to thank our customers, who were open to adopting new practices and enabled our close collaboration to continue throughout this unusual year. 

Information on Group results

Consolidated income statement01–12/202001–12/2019Change, %
(EUR million)
Net interest income2542405.8
Other income26-57.0
Income excluding unrealised fair value changes2572464.3
Commission expenses-5-419.6
Personnel expenses-18-180.8
Other items in administrative expenses-15-154.0
Depreciation and impairment on tangible and intangible assets-6-6-6.3
Other operating expenses-15-18-17.1
Credit loss and impairments on financial assets-10<-100.0
Net operating profit excluding unrealised fair value changes1971866.2
Unrealised fair value changes-3-54-94.3
Net operating profit19413147.9
Profit for the financial year15510548.0

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 costs 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.

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 finance, successful funding operations and a favourable interest rate environment. The Group’s net interest income does not include the 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, the 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 of 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 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+.

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 totalled 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 the 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 at the latest by the end of the contract period.

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).

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 the MuniFin Group’s operations.

Webcast for investors and other stakeholders

MuniFin Group’s results for the year 2020 will be presented to investors and other stakeholders in a webcast held on 16 February 2021 at 2 pm EET. The webcast is available at A video recording will be published at MuniFin’s website after the webcast.

Municipality Finance Plc

Further information:

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

Harri Luhtala, Executive Vice President, Finance, CFO, tel. +358 50 592 9454

MuniFin (Municipality Finance Plc) is one of Finland’s largest credit institutions: the company’s balance sheet totals EUR 44 billion. The company is owned by Finnish municipalities, the public sector pension fund Keva and the Republic of Finland.

MuniFin’s mission is to build a better future in line with the principles of responsibility and in cooperation with its customers. MuniFin’s customers are Finnish municipalities, municipal federations, municipally controlled 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 the most 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.

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Invitation: MuniFin’s results webcast on 16 February 2021


  • Esa Kallio, President and CEO 
  • Timo Vesala, Chief Economist  
  • Joakim Holmström, Head of Capital Markets and Sustainability 

There will be a Q&A session after the presentations. 

Please register for the webcast at A link to join the webcast will be sent to the registered e-mail. A video recording will be available there after the webcast.

MuniFin (Municipality Finance Plc) is one of Finland’s largest credit institutions: the company’s balance sheet totals nearly EUR 41 billion. The company is owned by Finnish municipalities, the public sector pension fund Keva and the Republic of Finland.

MuniFin’s mission is to build a better future in line with the principles of responsibility and in cooperation with its customers. MuniFin’s customers are Finnish municipalities, municipal federations, municipally controlled 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 the most 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: