MuniFin’s Financial Statements Bulletin 1 January–31 December 2022 is published

In brief: MuniFin Group in 2022

  • The Group’s net operating profit excluding unrealised fair value changes amounted to EUR 170 million (EUR 213 million). As expected, it decreased from the comparison year’s exceptionally good result and was 20.0% lower than in the year before (8.0% growth in 2021). This drop was influenced by the change in credit terms applied in late 2021 for the benefit of the Group’s customers. The Group’s net interest income totalled EUR 241 million (EUR 280 million) in January–December. Costs in the financial year amounted to EUR 73 million (EUR 72 million). Costs excluding non-recurring items totalled EUR 69 million (EUR 61 million] and making the figure 12.2% greater than in the previous year. The costs increased the most in fees collected by authorities.
  • The net operating profit amounted to EUR 215 million (EUR 240 million). Unrealised fair value changes amounted to EUR 45 million (EUR 27 million) in the financial year.
  • The Group’s leverage ratio was 11.6% (12.8%) at the end of December. The reduction in the leverage ratio is mostly explained by the Group redeeming its only AT1 capital loan in April, which decreased Tier 1 capital by EUR 347 million.
  • At the end of December, the Group’s CET1 capital ratio was very strong at 97.6% (95.0%). CET1 capital ratio exceeded the total requirement of 13.8% by over seven times, with capital buffers accounted for. The repayment of the AT1 capital loan decreased Tier 1 and total capital ratio to 97.6% (118.4%), bringing them currently on a par with the CET1 capital ratio.
  • Russia’s invasion of Ukraine has not had a significant negative effect on the Group’s operations. Despite the market turbulence, the Group continued to acquire funding without interruption during the year. Because of the uncertainty arising from the war and the inflation outlook, the Group has nevertheless maintained larger than normal liquidity buffers as a precaution. The market interest rates that have risen due to the accelerating inflation have had a positive effect on the Group’s net interest income.
  • Long-term customer financing (long-term loans and leased assets) excluding fair value changes totalled EUR 30,660 million (EUR 29,063 million) at the end of December and saw an increase of 5.5% (5.6%). Long-term customer financing decreased by 0.2% (4.3%) due to the unrealised fair value changes. New long-term customer financing in January–December amounted to EUR 4,375 million (EUR 3,671 million). Short-term customer financing increased by 33.8% (previous year’s drop was 16.9%) and reached EUR 1,457 million (EUR 1,089 million).
  • Of all long-term customer financing, the amount of green finance aimed at environmentally sustainable investments totalled EUR 3,251 million (EUR 2,328 million) and the amount of social finance aimed at investments promoting equality and communality EUR 1,734 million (EUR 1,161 million) at the end of December. Green and social finance have been extremely well received by customers, and the total amount of this financing increased by 42.9% (46.9%) from the previous year.
  • In 2022, new long-term funding reached EUR 8,827 million (EUR 9,395 million). At the end of December, the total funding was EUR 40,210 million (EUR 40,712 million), of which long-term funding made up EUR 35,560 million (EUR 36,893 million). The amount of total funding decreased due to the growth in unrealised fair value changes which was caused by the increase on the market rates.
  • The Group’s total liquidity is very strong, and it was EUR 11,506 million (EUR 12,222 million) at the end of the financial year. The Liquidity Coverage Ratio (LCR) stood at 257% (335%) and the Net Stable Funding Ratio (NSFR) at 120% (124%) at the end of the year.
  • The Board of Directors proposes to the Annual General Meeting to be held in spring 2023 a dividend of EUR 1.73 per share for 2022, totalling EUR 67,580,370.54. The total dividend payment in 2022 was EUR 40,235,711.94.
  • Outlook for 2023: The Group expects its net operating profit excluding unrealised fair value changes to remain at the same level as in the previous year. 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 2023.

Comparison figures deriving from the income statement and figures describing the change during the financial year are based on figures reported for the corresponding period in 2021. Comparison figures deriving from the balance sheet and other cross-sectional items are based on the figures of 31 December 2021 unless otherwise stated.

Key figures

 Jan–Dec 2022Jan–Dec 2021Change, %
Net operating profit excluding unrealised fair value changes (EUR million)*170213-20.0
Net operating profit (EUR million)*215240-10.3
Net interest income (EUR million)*241280-13.9
New long-term customer financing (EUR million)*4,3753,67119.2
New long-term funding (EUR million)*8,8279,395-6.0
 31 Dec 202231 Dec 2021Change, %
Long-term customer financing (EUR million)*29,14429,214-0.2
Balance sheet total (EUR million)47,73646,3603.0
CET1 capital (EUR million)1,4821,4085.2
Tier 1 capital (EUR million)1,4821,756-15.6
Total own funds (EUR million)1,4821,756-15.6
CET1 capital ratio, %97.695.02.7
Tier 1 capital ratio, %97.6118.4-17.6
Total capital ratio, %97.6118.4-17.6
Leverage ratio, %11.612.8-9.5
Return on equity (ROE), %*9.910.7-7.9
Cost-to-income ratio*

* Alternative performance measure.

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

Comment on the 2022 financial year by President and CEO Esa Kallio

Finland’s geopolitical and geoeconomical position upended in early 2022. Russia’s war of aggression against Ukraine exacerbated inflation and hampered the availability of raw materials. Russian gas cut-offs plunged Europe into an energy crisis and sent energy prices soaring. This made collateral requirements in the electricity markets spiral, causing energy companies to face a liquidity crunch.

In October, the European Commission approved an aid scheme that allows MuniFin to finance Finnish municipality-owned energy companies under the EU State Aid Temporary Crisis Framework. This subsidised loan and guarantee scheme was designed to help cover the liquidity needs arising from the increased collateral requirements in the electricity derivatives market. In December, the scheme was extended to provide municipal energy companies’ other financing needs arising from potential crisis situations. Offering financing for the energy sector is our contribution to safeguarding the energy sector’s performance and Finland’s security of supply.

In 2022, the demand for our financing was slightly lower than expected. In the municipal sector, customers had less demand for finance because their income was higher than expected due to various non-recurring items, such as the central government’s pandemic recovery measures and funds they acquired from the sale of their health and social services properties before the reform took effect. Tax cuts related to the reform will not be fully implemented until 2024, which also affected the demand for financing. In the housing sector, the materials shortage and the rising cost of raw materials slowed down construction projects. The volatile market situation also resulted in longer processing times for interest subsidy loan decisions.

Hospital districts and joint municipal authorities sought funding more actively than we had expected, wanting to dispel uncertainty around the financing of their long-term investments and secure necessary funding on time before the health and social services reform entered into force.

The Act on the Municipal Guarantee Board was amended in the spring of 2022, allowing MuniFin also to finance new investments by the wellbeing services counties. However, the Municipal Guarantee Board set a limit to the amount of finance MuniFin can grant to wellbeing services counties, as wellbeing services counties are not members of the Municipal Guarantee Board and are not liable for the guarantees for MuniFin’s funding. In 2023, we can finance the long-term investments of wellbeing services counties by EUR 400 million and grant them up to EUR 900 million in short-term financing. Our estimate is that wellbeing services counties will have considerably larger financing needs than the limit allocated to us. The limit set by the Municipal Guarantee Board only applies to new financing granted by MuniFin.

The economic and geopolitical upheaval of 2022 has not had immediate, significant effects on MuniFin’s profitability. As expected, our result was lower in 2022 than in 2021 mostly due to planned changes in pricing, but also due to some unexpected expenses. For example, our contribution to the Single Resolution Fund in 2022 shot up by almost 40% from the previous year even though our risk position remained unchanged. On the other hand, rising interest rates boosted our profitability towards the end of the year.

Our funding remained stable even under the exceptional circumstances of 2022, and we continued to enjoy strong investor demand. We kept our liquidity at a high level throughout the year to ensure the availability of financing for our customers in all conditions.

The past year was again marked by general economic uncertainty, even after the exceptional uncertainty of the COVID years. In these uncertain times, our role in ensuring our customers’ operations and acting as our customers’ trusted partner has grown even more important. I wish to thank our customers for their confidence and forward-facing collaboration and our staff for their wonderful work and commitment to our shared goal.

Outlook for 2023

The economic outlook has deteriorated markedly in all MuniFin’s main economic areas. In the United States, the main reason for the slowdown in growth is the rapidly tightening monetary policy, and in the euro area, the energy crisis and the surge in the cost of living. In China, the growth outlook is weighed down by the country’s COVID situation and property sector crisis. The euro area is expected to slide into a recession in early 2023, but the downturn in economy is projected to be relatively short-lived and shallow because businesses have adjusted to the energy crisis faster than expected, and many households still have some extra savings accumulated during the pandemic.

Inflation continues to pose the biggest challenge in global macroeconomy. The fastest rise in consumer prices is likely to calm down during the coming winter months, but it may take a few years for inflation to return to the central banks’ target level. Interest rate hikes will probably continue throughout the first half of 2023, other contractive monetary policy measures for much longer. Central bank key interest rates are predicted to rise to about 5% in the United States and over 3% in the euro area.

The Finnish economy is also sinking into a mild recession as real incomes are being eroded and businesses are more cautious in their investment decisions. The outlook has deteriorated especially in retail business and construction. General economic uncertainty and rising interest rates are a difficult combination for the housing market. Trends in building permits indeed suggest that the number of residential building projects will fall clearly in 2023.

It is to be expected that the cooling economic cycle will eventually also affect the labour market: employment growth will halt, and the unemployment rate will turn to a moderate rise. However, many sectors are currently facing such extensive labour shortages that strong growth in unemployment seems unlikely.

Finland’s public finances will continue to show a significant deficit in the coming years. Due to new cost pressures, especially the central government will run into much more debt than was previously estimated. Municipal finances, however, are looking exceptionally strong in 2023. Municipalities will not bear the full burden of the tax cuts introduced by the health and social services reform until in 2024, but they will experience the relief of their health and social services spending being eliminated immediately at the start of 2023. Thanks to the temporary tax benefit, the financial position of Finnish municipalities is expected to show a surplus of more than EUR 1 billion. The main uncertainties in municipal finances stem from the general economic development, the energy crisis and the yet unknown true cost of municipalities’ new responsibilities, such as the local government pilots on employment and the extension of compulsory education.

Considering the above-mentioned circumstances, the Group expects its net operating profit excluding unrealised fair value changes to be at the same level as in the previous year. 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

MuniFin’s annual report 2022 will be published around 7 March 2023. On the same date, MuniFin Group will also publish the Pillar III disclosure based on the Capital Requirements Regulation, and the Corporate Governance Statement.

MuniFin’s first social finance projects have been selected: they include housing for special groups, a wellbeing centre and a comprehensive school

Social finance is available to MuniFin’s customers, i.e. the local government organisations and operators within non-profit housing production. The projects to be financed must belong to one of the eligible project categories within MuniFin’s framework of social finance: housing, wellbeing or education. Another requirement is that the projects promote equality, a sense of community, wellbeing or the vitality of the municipalities or areas.

– MuniFin’s customers are responsible for a significant portion of the investments made in building the Finnish society and its infrastructure. We need to examine the need for investments, as well as the benefits and economic effects of investments broadly and in the long term, not only from the point of view of their economic, but also social and environmental impacts, says MuniFin’s Head of Customer Finance Aku Dunderfelt.

– Social investments have a much more extensive impact than most people realise. A library or public swimming pool, for example, influence people’s overall wellbeing and the community in multiple ways, Dunderfelt explains.

The first social financing projects were approved at the end of May. The projects are assessed and approved by a three-member evaluation team that comprises Jouni Parkkonen, Executive Directorof Association for Advocating Affordable Rental Housing – KOVA, researcher of municipalities Jenni Airaksinen from Tampere University and Financial Specialist in charge of social funding, Päivi Petäjäniemi, from MuniFin.

– The first approved projects for social finance are excellent examples of the spectrum of investments with a strong impact. Well-designed schools and student housing, for example, can have a wide-ranging impact on children and young people’s sense of security and community. Good design increases wellbeing but also prevents social exclusion, Päivi Petäjäniemi says.

Approved social finance projects

  • Foundation for Student Housing in the Helsinki Region (Hoas), several buildings
    Investing in the long life cycle of buildings constitutes sustainable urban construction that takes environmental impacts into account. Communal, high-quality housing for students plays an important role in supporting young people at a significant turning point in their lives and helps to create the preconditions for building an active, healthy everyday life and for preventing social exclusion.
  • Karstula comprehensive school, Karstula
    Well-functioning, healthy and safe facilities for early childhood education and teaching are a foundation for the well-being of children, teenagers and teaching staff alike. Solutions that support safety and a sense of community can have a significant effect on children and teenagers’ self-esteem and later life. Using the school as a venue for village events will bring vitality to the village andstrengthen community spirit and add to the municipality’s attractiveness.
  • Housing by Setlementtiasunnot, Jousenpuistonkatu, Espoo
    Setlementtiasunnot is a producer of housing whose housing concept is truly praiseworthy, as it diversifies the concept of ‘normal’, integrates members of special groups into the rest of society and supports the strengthening of all the residents’ sense of community.
    Communal housing solutions allow special groups to become involved with the wider community, which reduces loneliness, increases participation, prevents social exclusion and decreases the need for institutional housing and care. Some of the residents of these buildings are immigrants, and the project may profoundly promote their integration.
  • Sodankylä municipality, Sopukka Wellbeing Centre
    The evaluation team found the justification for the project very well founded. The circumstances in Northern Finland are exceptional due to the long distances, and regional challenges are considerable. Sopukka Wellbeing Centre’s operating model will boost the use of expert resources, make the healthcare supply chain more effective, considerably improve the safety of the region’s inhabitants and increase the region’s attractiveness. 
  • Turku Student Village Foundation, Tyyssija student housing, Turku
    Tyyssija is an ambitious sustainable development project that will impact the environment and community spirit in a versatile way. Communal, high-quality housing for students plays an important role in supporting young people at a significant turning point in their lives and helps to create the preconditions for building an active, healthy everyday life and for preventing social exclusion.
  • Versonsilmu Oy, Versokoti housing complex
    Safe and well-functioning housing solutions improve disabled children and teenagers’ access to education. Living close to the necessary services will increase their self-reliance and help them be more active, which in turn will considerably improve their mental and physical wellbeing. It will also make it easier for them to integrate with the rest of society, which will have long-term effects on the residents’ adult life.

Forerunner of responsible financing in Finland

MuniFin was the first Finnish credit institution to offer green finance back in 2016. It was also the first financial institution to provide social finance in the Nordic countries.

Responsible investment opportunities are more and more in demand in international capital markets. Resources for social finance are acquired through bonds earmarked for social projects, which are the focus of great investor demand. In 2016, MuniFin was the first Finnish green bond issuer. It is also at the front line of European financial institutions to issue social bonds.

Further information:

Päivi Petäjäniemi
Financial Specialist, Social Finance Specialist, MuniFin
Tel. +358 40 761 7665

Soili Helminen
Manager, Communications and Corporate Social Responsibility, MuniFin
Tel. +358 400 204 853

About MuniFin social bonds