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MuniFin looks to finance municipal energy companies to strengthen the security of supply

MuniFin’s funding is guaranteed by the Municipal Guarantee Board (MGB). On 7 September 2022, the MGB decided to submit a notification to the European Commission seeking for permission to use funding guaranteed by the MGB to grant loans to energy companies controlled by Finnish municipalities. This arrangement will strengthen Finland’s security of supply by ensuring that energy companies are able to keep operating despite the unusual circumstances. If the Commission accepts the arrangement, MuniFin can grant loans directly to the energy companies.

The Municipal Guarantee Board (MGB) will submit its notification to the European Commission in cooperation with MuniFin and the Ministry of Economic Affairs and Employment. The current circumstances in the energy markets have led to a situation where the supply of energy has fallen substantially, leading to sharply increasing collateral requirements on derivatives used by energy companies. This severely endangers the continuity of their operations.

MuniFin has already announced that it stands ready to quickly start providing financing for municipalities that own energy companies to ensure the continuity of energy production. So far, EU rules on state aid have mostly prohibited MuniFin from directly financing energy companies operating in competitive markets. Financing of municipal energy companies will be established based on MuniFin’s standard business model, and thus possible loans to energy companies will still require a 100% municipal guarantee, as is required for any other company loans by MuniFin.

“The spiralling collateral requirements in the electricity market and the reduced energy supply have together created a crisis and given rise to a need to ensure the availability of essential services for citizens. Under the circumstances, we consider the proposed arrangement to be in accordance with competition laws”, says Esa Kallio, MuniFin’s CEO.

Measured by its balance sheet, MuniFin is one of Finland’s largest credit institutions. It has been able to continue its international funding operations also under exceptional circumstances, for example during the start of the Russian war on Ukraine, the COVID pandemic and the financial crisis.

MuniFin has never recognised any final credit losses in its customer financing. The purpose of banks’ international capital regulation is to minimise the risks related to banking operations. MuniFin’s CET1 capital exceeds the ECB’s requirements by more than six times.

“It is difficult to estimate how long the Commission will take to process the notification. The timeline will also depend on whether the MGB or MuniFin will be required to provide further information”, Kallio notes.

MuniFin’s funding is guaranteed by the Municipal Guarantee Board (MGB), a public law institution operating under the Act on the Municipal Guarantee Board (487/1996). The MGB’s members consist of all municipalities in mainland Finland.