MuniFin has released its first financed emissions report, disclosing the greenhouse gas emissions associated with its lending and investment portfolios. The report provides emissions data for 2020, 2021, and 2022, and the calculations for 2023 are ongoing.
“We are happy to disclose these calculations, and the results show that we are on the right track in reducing the emissions from financed buildings. However, the work continues and the development of reporting will proceed as part of implementing the CSRD directive”, says Mikko Noronen, Sustainability Manager at MuniFin.
MuniFin joined the Partnership for Carbon Accounting Financials (PCAF) in 2022, committing to measure and disclose the greenhouse gas emissions associated to its lending and liquidity portfolios by 2025.
PCAF is a collaborative, industry-led initiative with more than 400 members, aimed at developing and implementing a harmonised approach to assessing and disclosing greenhouse gas emissions from loans and investments. The goal is to align financial portfolios with the Paris Agreement.
Sustainability Agenda sets the direction until 2035
In October 2023, MuniFin published its Sustainability Agenda, committing to support a sustainable welfare society and promote climate-friendly and environmentally sustainable investments. The agenda includes increasing the proportion of sustainable finance in its lending portfolio and setting emission reduction targets for financed buildings.
Financed emissions represent 99% of all emissions associated with our business. By focusing on reducing these indirect emissions rather than just our direct impact, the scale of our influence is much larger.
“Our customers play a key role in achieving Finland’s climate targets. In our operations, the largest impacts are through the financing we provide to our customers. To succeed in our goals, we need to continue supporting our customers in their ambitious work towards a greener future”, Noronen concludes.
MuniFin, rated AA+, made history with its fifth benchmark of the year. The green 5-year benchmark garnered an astonishing USD 5.5 billion order book, representing the largest one ever for MuniFin.
On Tuesday, 1 October, MuniFin announced a mandate for a new USD 1 billion (no-grow) green bond with initial price thoughts in the MS+50 bps area. The demand was exceptionally strong from the outset, and the spread was tightened twice by 2 bps the following morning, setting it at +46 bps.
The books eventually closed above USD 5.5 billion, setting a record for MuniFin.
“We are excited to return to the green USD market with a 1 billion benchmark, reflecting the continuous growth of our green finance portfolio. The strong investor demand reaffirms the USD market’s strength. Thank you to our investors and joint lead managers for making this happen”, says MuniFin’s Senior Analyst Aaro Koski.
“Congratulations to the MuniFin team on a well-timed and executed USD green transaction. The depth and diversity of the order book are a testament to MuniFin’s global appeal and longstanding conventional and ESG investor bases. We are delighted to have supported them on this exercise”, said Adrien de Naurois, Joint Lead Manager on the transaction from BofA Securities.
Investor demand was driven by good-quality accounts. Central banks and official institutions took 61% of the allocations, bank treasuries took 25%, and the remaining 14% went to fund managers and insurance or pension funds. Geographically, the distribution was well diversified across EMEA (Europe, the Middle East and Africa), the Americas and Asia.
MuniFin has now completed approximately EUR 8 billion out of its 9 billion long-term funding target for the year.
Green bonds fuel Finland’s green transition
MuniFin’s green finance, funded with green bonds, is offered to select projects across Finland that are friendly for the climate and environment. Our green finance has four project categories: buildings, transportation, renewable energy and water and wastewater management.
Transaction details
Final terms, 2nd October 2024
Issuer
Municipality Finance Plc (“MuniFin”)
Issue rating
Aa1 / AA+ (Moody’s / S&P) (all stable)
Issue amount
USD 1,000,000,000.00
Pricing date
2nd October 2024
Settlement date
9th October 2024 (T+5)
Maturity date
9th October 2029
Re-offer price / yield
99.557% / 3.723%
Coupon
3.625% (semi-annual)
Re-offer spread
Mid-swaps +46bps
Spread vs benchmark
UST 3.5% Due September 2029 +16.1bps
ISIN
XS2914674408 / US62628PAG19
Joint lead managers
BofA Securities, Nomura, RBC Capital Markets, TD Global Finance
Distribution by type
Distribution by region
Comments from joint lead managers
“Municipality Finance (MuniFin) returned to the USD market with a bang, extending their curve out to Oct-2029s. The $1bn no-grow 5-year garnered a $5.5bn book, utilising their Green assets for the transaction, their first time in the USD market for 8 years. The transaction witnessed phenomenal traction and provided USD investors the rare opportunity to engage in a Munifin Green Bond. The result is a testament to Munifin’s credit quality and standing with the global investor base. Congratulations!”
Mark Yeomans, Managing Director, Public Sector DCM, Nomura
Congratulations to the MuniFin team on a very successful USD 5-Year Green transaction; reacting swiftly to print their first USD Green Benchmark since 2016. The final orderbook in excess of $5.5bn marks MuniFin’s record for a USD transaction; a reflection of the high-quality credit and a recognition of the team’s efforts on global investor engagement. RBC was delighted to be involved and it was a pleasure working with the team on this transaction.”
James Taunton, Head of Public Sector Origination, Europe, RBC
“Congratulations to the MuniFin team on an outstanding result with their 5yr USD Green transaction. The team managed to take advantage of robust execution conditions in the USD market and pick an excellent execution window resulting in a phenomenal outcome!”
Laura Quinn, Managing Director, Global Co-Head of SSA and Head of Dublin Debt Capital Markets, TD Global Finance
MuniFin is Finland’s pioneer in sustainable finance
In 2016, MuniFin launched green finance for projects that are friendly for the climate and environment. We were the first Finnish financial institution to issue green bonds and offer green finance.
In 2020, we complemented green finance by launching social finance, which is offered for projects that promote equality, communality, safety, welfare or regional vitality. We were the first issuer of social bonds in Finland.
These bonds are an integral part of our funding strategy. Both green and social bonds have their own frameworks.
MuniFin plans to complete EUR 9 billion of long-term funding this year. But what kind of projects do we finance? Join Senior Analyst Aaro Koski and Senior Manager Karoliina Kajova on their visit to Blominmäki wastewater treatment plant—one of our green finance projects powered by green bonds—and find out what to expect next.
Read more
Before releasing the video, MuniFin issued its 4th benchmark of the year on Thursday, 22 August 2024.
Returning from a short summer break, MuniFin issued its second EUR benchmark of the year on Thursday, 22 August. The successful 5-year, EUR 1 billion benchmark attracted a high-quality and geographically diverse orderbook.
MuniFin announced a new mandate on Wednesday, 21 August 2024, and opened the books the following morning. Investor demand grew steadily, and the books eventually closed in excess of EUR 1.35 billion at 12:45 CET. The final spread was confirmed at MS+17bps.
The orderbook comprised high-quality investors, with central banks and official institutions taking 42.9% of the allocations, followed by banks at 35.4%. In terms of geography, distribution was well diversified across Europe and Asia.
“Euro benchmarks are the backbone of our funding programme. Our second EUR benchmark of the year had high investor quality, and we are pleased to have achieved our desired pricing point in 5-year maturity. Thank you to all investors who participated and our lead managers for this successful transaction”, says Antti Kontio, Head of Funding and Sustainability.
“Congratulations to the MuniFin team on another successful EUR benchmark transaction. With this trade MuniFin have reopened the post summer market for their Nordic SSA peers and have set the standard for competitive pricing and high-quality diversified demand. NatWest are proud to have been involved”, said Karen Manku, Director, SSA DCM, NatWest Markets.
With this transaction, MuniFin has now completed approximately 70% of its EUR 9 billion long-term funding target for the year.
Transaction details
Issuer
Municipality Finance Plc (“MuniFin”)
Issue rating
Aa1 / AA+ (Moody’s / S&P) (all stable)
Issue amount
EUR 1,000,000,000.00
Pricing date
22nd August 2024
Settlement date
29th August 2024 (T+5)
Maturity date
29th August 2029
Re-offer price/Yield
99.431% / 2.623%
Annual coupon
2.5000%
Re-offer spread
Mid-swaps +17bps
Spread vs benchmark
OBL 2.5% Due October 2029 +47.8bps
ISIN
XS2889897885
Joint Lead Managers
DZ Bank AG, J.P. Morgan SE, NatWest Markets N.V., Société Générale
Distribution by type
Distribution by region
Comments from Joint Lead Managers
“Congratulations to the MuniFin team for a strong return to the EUR market post summer break. DZ Bank is very proud to be part of MuniFin`s fixed rate EUR 1bn 5yr transaction which priced just 10bp back of Finland. The number and quality of investors fosters MuniFin’s reputation in the SSA market.”
Philipp Bergmann, SSA – DCM Nordics
“Congratulations to the MuniFin team for their successful return to the EUR market since January with a well-executed 5-year benchmark transaction. As the first Nordic agency issuer to access the market post-summer, the high-quality orderbook and demand underscore MuniFin’s robust credit standing and market leadership. We are delighted to be involved in this landmark transaction.”
Ioannis Rallis, Executive Director, Head of SSA DCM, J.P. Morgan
“Congratulations to the MuniFin team on another successful EUR benchmark transaction. With this trade MuniFin have reopened the post summer market for their Nordic SSA peers and have set the standard for competitive pricing and high-quality diversified demand. NatWest are proud to have been involved.”
Karen Manku, Director, SSA DCM, NatWest Markets
“With this new successful Euro 5y transaction, MunFin has not only added a new liquid benchmark to it Euro curve, it has also shown agility in picking the right window, and managed to mobilize international investors across several continents post the summer lull. The book built steadily in quality despite a pretty tight spread versus its sovereign counterpart. It confirms the strong value of MuniFin as a borrower in the international capital markets.”
Olivier Vion, Head of SSA Capital Market at Société Générale
MuniFin Group maintained steady operations in the first half of 2024 despite the challenges in the operating environment.
The Group’s net operating profit excluding unrealised fair value changes amounted to EUR 89 million, growing from the comparison period and exceeding the previous year’s figure by 9.6%. The increase in net operating profit was boosted mostly by rising short-term market rates and lower expenses than in the comparison period.
New long-term customer financing increased in January–June and amounted to EUR 2.4 billion. Long-term customer financing (long-term loans and leased assets) excluding unrealised fair value changes totalled EUR 34.3 billion at the end of June and saw an increase of 4.0% in the reporting period. The total amount of green finance aimed at environmentally sustainable investments and social finance aimed at investments promoting equality and communality increased by 15.7% during the reporting period. The ratio of green and social finance to long-term customer financing excluding unrealised fair value changes grew to 23.7%.
In January–June, new long-term funding reached EUR 4.9 billion. At the end of June, the total funding was EUR 44.5 billion. The Group’s total liquidity is very strong. The Group’s leverage ratio also remained at a strong level, standing at 12.0% at the end of June. At the end of June, the Group’s CET1 capital ratio was very strong at 102.4%.
“The first half of 2024 was marked by continued economic uncertainty and inflation concerns. The challenges in the operating environment did not affect MuniFin’s performance, and we were able to successfully carry out our core mandate of ensuring the availability of affordable financing for our customers. In the first half of the year, municipalities had slightly lower demand for financing than expected, whereas the affordable social housing sector had high financing needs”, notes Esa Kallio, President and CEO at MuniFin.
The Group also published a separate Pillar III report on risk management and capital adequacy.
Read and download the Half Year Report
Our half year report for January–June 2024 can be read and downloaded in the reports and publications section of our website.
Three months following the record-breaking USD 1.5 billion issuance in January, MuniFin returns to the USD market with another 1 billion benchmark. The 3-year bond successfully gathered a high-quality orderbook.
On Tuesday 16 April, MuniFin issued a new 3-year USD 1 billion benchmark with initial price guidance of MS+33 basis points. Investor demand continued to grow throughout the morning and books closed a few hours later in excess of USD 1.5 billion.
The bond was priced at MS +33 basis points, consistent with the initial guidance, with a coupon of 4.875%, a reoffer price of 99.708% and a re-offer yield of 4.981%. It carries a spread of 18 basis points over the CT 3 4.500% due 15 April 2027.
The final orderbook was geographically diverse with 48 high-quality accounts participating. Central banks took 57% of the allocations, followed by Banks and bank treasuries (40%), and Asset Managers, taking the remaining 3%.
“Investor demand started to accumulate after a moderate start, eventually reaching over USD 1.5 billion. We were particularly pleased with the quality of the final orderbook, as majority was allocated to central banks and official institutions. We have now successfully secured a little less than half of our funding target for the year”, says Analyst Aaro Koski.
After this transaction, MuniFin has now completed EUR 4.5 billion of its EUR 9–10 billion funding programme for 2024.
Aaro Koski, Analyst at MuniFin’s Funding and Sustainability team.
Distribution
Transaction details
Issuer:
Municipality Finance Plc (“MuniFin”)
Rating:
Aa1 / AA+ (Moody’s/S&P – both stable)
Issue Size:
USD 1 billion
Payment Date:
23 April 2024 (T+5)
Maturity Date:
23 April 2027
Coupon:
4.875%
Re-offer Price:
99.667%
Re-offer Yield:
4.996%
Re-offer vs. Mid Swaps:
+33bps
Re-offer vs. Benchmark:
CT 3 4.500% due 15 April 2027 +18bps
ISIN:
XS2807531657 / US62630CEL19
Lead Managers
J.P. Morgan SE, Morgan Stanley Co & International PLC, Nomura Financial Products Europe GmbH, TD Global Finance unlimited company
Comments from Lead Managers
Ben Adubi, Managing Director, Head of SSA, Morgan Stanley:
“Another successful outing in the USD market for MuniFin following their strong 5-year issued earlier this year. Taking advantage of the favourable move in swap spreads and recent sell-off in rates, the deal amassed a high-quality and granular orderbook with 57% of allocations to CB/OIs, which is a testament to the strength of MuniFin’s credit quality and their opportunistic funding strategy. Congratulations to the MuniFin team on a stellar start to Q2, following on from an impressive start to the year, Morgan Stanley is delighted to have been involved!”
Mark Yeomans, Managing Director, Nomura:
“Yet another strong USD outing from MuniFin; with the new 3-year benchmark complementing the 5-year issued earlier in January. MuniFin took advantage of the global back up in rates to deliver another record 4.875% coupon for investors, as witnessed in their previous 3-year from last October. The quality of the orderbook is a testament to the investor following that MuniFin enjoys as a safe haven asset and the diligent investor outreach of the entire funding team. Nomura were delighted to be a part of such an important transaction.”
Ioannis Rallis, Executive Director, Head of SSA DCM, J.P. Morgan:
“Congratulations to the MuniFin team for printing another solid USD benchmark this year! Despite uncertain geopolitical backdrop and busy pipeline in the week, MuniFin was successfully able to achieve its tightest spread vs SOFR MS (+33bps) for a MuniFin USD 3-year benchmark. The high quality of the orderbook reflected in the 57% allocation to CB/OIs is a testament to investor confidence in MuniFin’s name. We are delighted to be involved in this transaction.”
Laura Quinn, Managing Director, Global Co-Head of SSA and Head of Dublin Debt Capital Markets:
“Congratulations to the MuniFin team on a successful USD benchmark transaction, launching their first 3-year USD benchmark in 2024 and second USD benchmark this year. MuniFin secured an efficient funding window this week to ensure they could complete their USD 1 billion funding exercise. The exceptionally high-quality orderbook is a testament to MuniFin’s standing in the fixed income market.”
We have published our annual report for 2023. We have also published the impact reports on our green and social finance and the Pillar III disclosure report on capital adequacy.
The year 2023 was the fourth consecutive year marked by instability. In these uncertain times, our role as our customers’ trusted financing partner has grown even more important. At MuniFin, 2023 was a year when we put sustainability even more front and centre as we revised our strategy and published our first sustainability agenda.
The volatile operating environment did not significantly affect our performance. Our operations remained stable, and we were again able to successfully carry out our core mandate of providing affordable long-term financing for our customers.
Our long-term customer finance increased by about 10% from the previous year. Our new long-term customer financing remained on a par with 2022, totalling EUR 4.4 billion. Our profitability was slightly higher than in 2022.
The amount of our sustainable finance, i.e. our green and social finance, grew by about EUR 2 billion in 2023. Our sustainable finance products are our way of encouraging our customers to make more responsible investments. Read more about the impacts of our sustainable finance in the green and social impact reports published today.
MuniFin’s GBP 250 million issue on February 29 was well received in the market, with particularly strong participation from central banks and official institutions. With this transaction, MuniFin has now printed one third of its EUR 9–10 billion funding programme for the year 2024.
Distribution of the transaction was once again broad both in terms of investor types and geographics, which is testament to MuniFin’s strong position in the global investor community.
Central banks and official institutions were the largest investor component, taking 59% of the final book. The participation was also strong from banks and bank treasuries (39%), with fund managers, pension funds and insurance accounts representing 2%. In terms of geography, the transaction was broadly diversified across UK (41%), Asia (34%) and EMEA ex. UK (25%) investors.
“This was our first GBP line of the year, and it was great to extend our GBP issuance curve today. We are grateful for the investor following we have in the Sterling market and it has been a pleasure to be able to be on the screens again”, says Senior Manager Karoliina Kajova from MuniFin’s funding and sustainability team.
“Congratulations to the MuniFin team for a strong return to the GBP market, taking advantage of a clear issuance window to extend their GBP curve with a new benchmark. The strong support from a diverse group of investors and the competitive price point is a testament to MuniFin’s standing in the international market. We’re delighted to be involved!” Tina Nguyen, Vice President, SSA DCM, J.P. Morgan
“Congratulations to the MuniFin team on the new GBP Oct-28 Benchmark. Taking advantage of a clear issuance window, MuniFin were able to extend their GBP Benchmark curve and maintain their regular presence in the Sterling SSA market. RBC were delighted to be a part of the transaction.” James Taunton, Director, SSA DCM, RBC Capital Markets
“We are delighted to be involved in MuniFin’s successful return to the Sterling market with their first GBP Benchmark of the year. This syndication is a clear demonstration of their global support from a diversified investor base. Congratulations to the MuniFin team on an excellent trade.” Paul Eustace, Managing Director, Global Co-Head of SSA and Head of Europe and Asia Syndicate, TD Securities
Further information
Joakim Holmström Executive Vice President, Capital Markets and Sustainability +358 50 4443 638
Antti Kontio Head of Funding and Sustainability +358 50 3700 285
MuniFin’s inaugural NOK social bond was issued on 13 February. Despite ample supply from SSA issuers in the NOK market, the demand for the NOK 2 billion issue was strong, with a high quality investor base.
The issue marked both MuniFin’s first ESG labelled bond and the first NOK trade this year. The books built very quickly and were closed at a spread of +25 bps over 3-month Nibor.
“Over the past years, MuniFin has established themselves as a frequent issuer in the Nordic market, popular amongst a wide array of investors. The new issue marks the first social bond issued by MuniFin in Norway and the label was a significant contributor to the great investor demand”, says Hedda Giæver, Head of IG International, DBN Bank ASA.
The strong investor base showcased significant interest from bank treasuries, as well as domestic and foreign real money, including pension insurance and asset managers.
80% of the issue was allocated to Norwegian investors.
“We are extremely happy to have been able to return to the Norwegian Krona market. What’s even more pleasing is to be able to do it with a social bond. It is in the very core of our Sustainability Agenda to provide financing to social projects and increase their share in our lending portfolio. We are ever grateful for the support from our investors”, says Aaro Koski, MuniFin’s Funding Analyst.
Transaction details
Issuer:
Municipality Finance (KUNTA, MuniFin)
Issue Rating:
Aa1/AA+
Status:
Senior unsecured
Reoffer Price:
99.631% / 4.083%
Reoffer Spread:
3mN+25bps
Issue Size:
NOK 2bn
Settlement:
20 February 2024
Maturity:
20 February 2029
Coupon:
4% Fixed, Annual, Act/Act Icma Unadjusted Following
Listing:
Nasdaq Helsinki
ISIN:
XS2769883955
Lead Manager:
DNB Markets
Further information
Joakim Holmström, Executive Vice President, Capital Markets and Sustainability, +358 50 4443 638 Antti Kontio, Head of Funding and Sustainability, +358 50 3700 285 Karoliina Kajova, Senior Manager, Funding, +358 50 5767 707 Lari Toppinen, Senior Analyst, Funding, +358 50 4079 300 Aaro Koski, Analyst, Funding, +358 45 138 746
The Group’s net operating profit excluding unrealised fair value changes in January–December increased by 3.2% and amounted to EUR 176 million (EUR 170 million). The net interest income grew by 7.5% propelled by rising short-term market rates and totalled EUR 259 million (EUR 241 million). The growth in result was slowed down by an increase in costs.
Net operating profit amounted to EUR 139 million (EUR 215 million). Unrealised fair value changes amounted to EUR -37 million (EUR 45 million) 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.
Costs in the financial year amounted to EUR 82 million (EUR 73 million). The growth in costs was primarily driven by the almost quadrupled guarantee commission of EUR 13 million (EUR 4 million) paid to the Municipal Guarantee Board, which resulted from a change in the calculation method. The guarantee commission is a compensation for the guarantees the Municipal Guarantee Board grants to MuniFin’s funding.
The Group’s leverage ratio continued to strengthen, standing at 12.0% (11.6%) at the end of December.
At the end of December, the Group’s CET1 capital ratio was very strong at 103,4% (97.6%). CET1 capital ratio was well over the total requirement of 13.9%, with capital buffers accounted for. Because MuniFin Group only has CET1 capital, Tier 1 and total capital ratios are the same with the CET1 capital ratio, 103.4% (97.6%).
The Russian invasion of Ukraine has not had a significant effect on the Group’s operations. The war has accelerated inflation and pushed up market interest rates, which has had a positive effect on the Group’s net interest income, but also increased costs. Because of the geopolitical uncertainty caused by the war, the Group has maintained strong liquidity buffers. Otherwise, the war has had only a minor effect on the Group’s operations.
Long-term customer financing (long-term loans and leased assets) excluding unrealised fair value changes totalled EUR 32,948 million (EUR 30,660 million) at the end of December and saw an increase of 7.5% (5.5%). New long-term customer financing in January–December was at the same level as in the previous year and amounted to EUR 4,370 million (EUR 4,375 million). Short-term customer financing totalled EUR 1,575 million (EUR 1,457 million).
Of all long-term customer financing, the amount of green finance aimed at environmentally sustainable investments totalled EUR 4,795 million (EUR 3,251 million) and the amount of social finance aimed at investments promoting equality and communality totalled EUR 2,234 million (EUR 1,734 million) at the end of December. The total amount of this financing increased by 41.0% (42.9%) from the previous year. The ratio of green and social finance to long-term customer financing excluding unrealised fair value changes grew by 5.1 percentage points to 21.3%. In late 2023, the Group published its sustainability agenda, which extends to the year 2035. By the end of 2030, the Group’s goal is to increase the share of green and social financing to one third of all long-term customer financing, and by the end of 2035 reduce emissions from financed properties by 38% from the 2022 level.
In 2023, new long-term funding reached EUR 10,087 million (EUR 8,827 million). At the end of December, the total funding was EUR 43,320 million (EUR 40,210 million), of which long-term funding made up EUR 39,332 million (EUR 35,560 million). In March and in June 2023, the Group decided to repay the debt related to the European Central Bank’s targeted longer-term refinancing operations (TLTROIII). The debt totalled EUR 2,000 million.
The Group’s total liquidity remained very strong, standing at EUR 11,633 million (EUR 11,506 million) at the end of the financial year. The liquidity coverage ratio (LCR) stood at 409% (257%) and the net stable funding ratio (NSFR) at 124% (120%) at the end of the year.
The Board of Directors proposes to the Annual General Meeting to be held in spring 2024 a dividend of EUR 1.69 per share, totalling EUR 66.0 million. The total dividend payment in 2023 was EUR 1.73 per share, totalling EUR 67.6 million.
Outlook for 2024: The Group expects its net operating profit excluding unrealised fair value changes to be at the same level or higher than in 2023. The Group expects its capital adequacy ratio and leverage ratio to remain strong. The valuation principles set in the IFRS framework may cause significant but temporary unrealised fair value changes, some of which increase the volatility of net operating profit and make it more difficult to estimate. A more detailed outlook is presented in the section Outlook for 2024.
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 2022. Comparison figures deriving from the balance sheet and other cross-sectional items are based on the figures of 31 December 2022 unless otherwise stated.
Key figures
Jan–Dec 2023
Jan–Dec 2022
Change, %
Net operating profit excluding unrealised fair value changes (EUR million)*
176
170
3.2
Net operating profit (EUR million)*
139
215
-35.5
Net interest income (EUR million)*
259
241
7.5
New long-term customer financing (EUR million)*
4,370
4,375
-0.1
New long-term funding (EUR million)*
10,087
8,827
14.3
Cost-to-income ratio, %*
32.4
23.9
35.7
Return on equity (ROE), %*
6.6
9.9
-33.5
31 Dec 2023
31 Dec 2022
Change, %
Long-term customer financing (EUR million)*
32,022
29,144
9.9
Balance sheet total (EUR million)
49,736
47,736
4.2
CET1 capital (EUR million)
1,550
1,482
4.6
Tier 1 capital (EUR million)
1,550
1,482
4.6
Total own funds (EUR million)
1,550
1,482
4.6
CET1 capital ratio, %
103.4
97.6
5.9
Tier 1 capital ratio, %
103.4
97.6
5.9
Total capital ratio, %
103.4
97.6
5.9
Leverage ratio, %
12.01
11.6
3.8
Personnel
185
175
5.7
* Alternative performance measure. All figures presented in the Financial Statements Bulletin are those of MuniFin Group, unless otherwise stated
Comment on the 2023 financial year by President and CEO Esa Kallio
The year 2023 was the fourth consecutive year marked by instability. The rising geopolitical tensions and market volatility did not significantly affect MuniFin’s performance, and we were able to successfully carry out our core mandate of ensuring the availability of affordable long-term financing for our customers.
In 2023, the inflation exacerbated by the Russian invasion of Ukraine in 2022 took a downward turn, and interest rate hikes tapered off. Geopolitical tensions increased across the world throughout the year, and expectations of central bank measures caused uncertainty in the capital markets.
In Finland, the first half of the year was characterised by the parliamentary elections held in April and the ensuing government formation talks that stretched into June. The new government programme is unlikely to affect municipal operations directly. In the housing sector, our customers have been concerned about the government programme’s entries concerning right-of-occupancy housing and state-subsidised housing production. In this uncertain operating environment, our role as our customers’ trusted partner has grown even more important.
The demand for financing from our customers in the municipality sector was quiet at the beginning of the year, but demand picked up towards the end of the year close to the previous year’s level. Temporary tax benefits boosted municipal finances, causing municipalities to have lower financing needs. In municipal finances, 2023 was still a relatively good year, but started to weaken at the end of the year.
In the affordable social housing sector, financing needs were higher than in the year before. Our housing sector customers have suffered from rising construction costs for several years now, which has decreased the start of new building contracts. Rising interest expenses have taken a further toll on them since 2022. Towards the end of the year, however, the demand for financing started to pick up as construction costs levelled off and right-of-occupancy project starts were rushed because of the new government programme’s entries.
The new wellbeing services counties started their operations on 1 January 2023, and we financed the wellbeing services counties within the limits set by the Municipal Guarantee Board (MGB). The EUR 400 million limit for long-term finance set by the MGB was reached before the end of the year, and we could no longer fulfil wellbeing services counties’ financing requests for 2023 after that.
Our funding operations were a success despite the fluctuation in the capital markets. Our issuances were well-timed, and all our transactions were successful. We continued to keep our liquidity at a strong level throughout the year to ensure the availability of financing for our customers in all conditions.
Our operations continued in the usual manner in 2023, and our profitability was slightly higher than in 2022.
In 2023, we revised our strategy to further underline our core mandate. Our revised strategy highlights sustainability and our role as an enabler of sustainable welfare in society. We also made efforts to better assess and measure the impact of our operations. In October, we published our sustainability agenda, which sets the framework and goals for our long-term sustainability work. The agenda focuses on our business operations, i.e. the products and services offered to our customers, and the long-term impact achieved through them.
Outlook for 2024
The global economy is starting 2024 in a weakening economic cycle. The demand-slowing effects of interest rate hikes are reaching their peak and making sources of growth scarce, while fiscal policies are contracting as governments need to curb their debt. The geopolitical environment continues to remain unpredictable. On the upside, the cooling economy is helping to cushion cost pressures, and inflation is falling towards the ECB’s target of 2% in the euro area. The ECB is expected to commence interest rate cuts in 2024.
In Finland, the combined effect of factors saddling growth will peak in the first half of 2024. As the months pass and inflation eases, consumer purchasing power increases and interest rates start to come down moderately, the domestic market will gradually kick off economic recovery. Towards the end of the year, the export market may also start to contribute to recovery. Because of the low starting level, Finland’s GDP growth may nevertheless remain slightly in the negative in 2024.
The economic downturn will inevitably reflect on employment. In many sectors, Finland is suffering from such high structural labour shortages that strong growth in unemployment seems unlikely, but the employment outlook is nevertheless looking risky. It remains difficult to estimate how severe the construction sector’s recession will become and what multiplier effects this will have in other sectors. The euro area’s inflation trajectory is also looking somewhat uncertain. If inflation proves more persistent than anticipated and expected interest rate cuts are postponed, the downturn may drag on and push unemployment up more than expected.
Although Finland’s government programme sports ambitious fiscal efforts, public finances are projected to continue to show a significant deficit and high levels of debt in the coming years. The higher-than-expected increase in health and social services expenditure and financing costs and the cyclical decrease in tax income are making public finances difficult to balance. After a few exceptionally strong years, the municipal sector will return into serious deficit as various positive non-recurring items cancel out, costs increase and central government transfers decrease. The main uncertainties in municipal finances stem from the general economic development, the upcoming changes to central government transfers and the potential additional costs arising from the transfer of employment and economic development services (TE services) to municipalities.
Considering the above-mentioned circumstances, the Group expects its net operating profit excluding unrealised fair value changes to be at the same level as or higher than in 2023. The Group expects its capital adequacy ratio and leverage ratio to remain strong. The valuation principles set in the IFRS framework may cause significant but temporary unrealised fair value changes, some of which increase the volatility of net operating profit and make it more difficult to estimate.
These estimates are based on a current assessment of the development of MuniFin Group’s operations and the operating environment.
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
Download the full Financial Statements Bulletin 1 January–31 December 2023
MuniFin’s annual report 2023 will be published around 7 March 2024. On the same date, MuniFin Groupwill also publish the Pillar III disclosure based on the Capital Requirements Regulation, and the Corporate Governance Statement.
