MuniFin Group’s Half Year Report January–June 2024: MuniFin’s business operations remained strong during the first half of the year
Municipality Finance Plc
Half Year Report
13 August 2024 at 1:00 pm (EEST)
This release is a summary of MuniFin Group’s Half Year Report published on 13 August 2024. The complete Half Year Report with tables is attached to this release and available at www.kuntarahoitus.fi/en.
MuniFin Group has published its Pillar III Half Year Disclosure Report 2024 in accordance with Regulation (EU) No 575/2013 and Directive 2013/36/EU. The report is available at www.kuntarahoitus.fi/en.
In brief: MuniFin Group in the first half of 2024
- The Group’s net operating profit excluding unrealised fair value changes* increased by 9.6% (9.3%) in January–June and amounted to EUR 89 million (EUR 81 million). Net interest income* grew by 3.4% (2.2%) propelled mostly by rising short-term market rates and totalled EUR 129 million (EUR 124 million). Net operating profit excluding unrealised fair value changes was also boosted by lower expenses than in comparison period.
- Net operating profit* amounted to EUR 105 million (EUR 77 million). Unrealised fair value changes* amounted to EUR 16 million (EUR -5 million) in the reporting period. 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 reporting period amounted to EUR 41 million (EUR 43 million). The decrease in costs was driven by the fact that there is no contribution fee to the Single Resolution Fund in 2024.
- The Group’s leverage ratio remained at strong level, standing at 12.0% (12.0%) at the end of June.
- At the end of June, the Group’s CET1 capital ratio was very strong at 102.4% (103.4%). CET1 capital ratio was well over the total requirement of 15.0%, with capital buffers accounted for. Because MuniFin Group only has CET1 capital, the Group’s Tier 1 and total capital ratios are the same as the CET1 capital ratio.
- Long-term customer financing (long-term loans and leased assets) excluding unrealised fair value changes* totalled EUR 34,276 million (EUR 32,948 million) at the end of June and saw an increase of 4.0% (2.8%) in the reporting period. New long-term customer financing* increased in January–June and amounted to EUR 2,416 million (EUR 1,909 million). Short-term customer financing* totalled EUR 1,292 million (EUR 1,575 million).
- Of all long-term customer financing, the amount of green finance* aimed at environmentally sustainable investments totalled EUR 5,688 million (EUR 4,795 million) and the amount of social finance* aimed at investments promoting equality and communality totalled EUR 2,443 million (EUR 2,234 million) at the end of June. The total amount of this financing increased by 15.7% (14.1%) during the reporting period. The ratio of green and social finance to long-term customer financing excluding unrealised fair value changes* grew by 2.4 percentage points to 23.7%.
- In January–June, new long-term funding* reached EUR 4,942 million (EUR 7,118 million). At the end of June, the total funding* was EUR 44,478 million (EUR 43,320 million), of which long-term funding* made up EUR 41,353 million (EUR 39,332 million).
- The Group’s total liquidity* is very strong, standing at EUR 11,931 million (EUR 11,633 million) at the end of June. The liquidity coverage ratio (LCR) stood at 423% (409%) and the net stable funding ratio (NSFR) at 126% (124%) at the end of June.
- In early 2024, MuniFin reviewed the future and development potential of the consulting services offered by its subsidiary company Financial Advisory Services Inspira Plc (Inspira) and decided to discontinue Inspira’s consulting services during the review period.
- Revised outlook for the second half of 2024: The Group expects its net operating profit excluding unrealised fair value changes to be at the same level in 2024 (Financial Statements Bulletin 2023: 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.
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 2023. Comparison figures deriving from the balance sheet and other cross-sectional items are based on the figures of 31 December 2023 unless otherwise stated.
* Alternative performance measure
President and CEO of MuniFin, Esa Kallio:
”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.
Municipal finances are expected to deteriorate in 2024 as temporary non-recurring benefits that strengthened the municipal finances fade out. With tax income growing more slowly than expected and operating margins decreasing markedly, municipalities are not short of financial challenges. In the largest growth centres, municipal investment levels have remained high, which has helped soften the blow from the sharp fall in private investments. In the first half of the year, the demand for financing in municipalities was slightly lower than expected.
We finance wellbeing services counties within the yearly EUR 400 million limit set for us by the Municipal Guarantee Board. In a survey conducted by us, wellbeing services counties’ CFOs expressed their concern over the limit’s negative effects on the price and availability of financing. After the first 18 months of operations, the wellbeing services counties are in a difficult financial position.
In the affordable social housing sector, financing needs were high. Projects started in the first half of the year helped breathe some new life into the struggling construction sector. The past few years’ rise in construction costs and interest expenses has caused problems with some housing organisations, especially small organisations operating in areas with declining population. The demand for financing in the affordable housing sector was boosted by construction costs levelling out, the Housing Finance and Development Centre of Finland (Ara) being able to grant more government subsidies and speed up application processing, and the Finnish Government deciding to remove subsidies given to new right-of-occupancy homes by the end of 2025.
The demand for sustainable finance remained strong in the first half of the year and developed in the desired direction overall. In construction, the emphasis should be placed increasingly on the lifecycle costs of projects: even if sustainable solutions cost more at the construction stage, they will pay themselves back through lower operating costs. Finland’s regulation on state-subsidised housing production and the affordable social housing production system currently do not adequately account for this.
In the capital markets, the situation remained stable in the first half of the year despite the prevailing geopolitical tensions. Predicted interest rate cuts boosted investor demand. Our new funding amounted to about EUR 5 billion, which constitutes more than half of our target amount for 2024.
In line with our revised strategy from 2023, we continue to focus even more decidedly on our core mandate: ensuring the availability of affordable financing. In 2024, we have adjusted our pricing to reflect this. And yet again, even in these uncertain times, we have been able to ensure that our customers have access to affordable financing despite the changing market conditions.”
Key Figures (Group):
| Jan–Jun 2024 | Jan–Jun 2023 | Change, % | Jan–Dec 2023 | |
| Net operating profit excluding unrealised fair value changes (EUR million)* | 89 | 81 | 9.6 | 176 |
| Net operating profit (EUR million)* | 105 | 77 | 37.2 | 139 |
| Net interest income (EUR million)* | 129 | 124 | 3.4 | 259 |
| New long-term customer financing (EUR million)* | 2,416 | 1,909 | 26.6 | 4,319 |
| New long-term funding (EUR million)* | 4,942 | 7,118 | -30.6 | 10,087 |
| Cost-to-income ratio, %* | 23.7 | 31.8 | -25.2** | 32.2 |
| Return on equity (ROE), %* | 9.5 | 7.5 | 26.1** | 6.6 |
| 30 Jun 2024 | 30 Jun 2023 | Change, % | 31 Dec 2023 | Change, % | |
| Long-term customer financing (EUR million)* | 33,300 | 30,129 | 10.5 | 32,022 | 4.0 |
| Green and social finance (EUR million)* | 8,130 | 5,689 | 42.9 | 7,029 | 15.7 |
| Balance sheet total (EUR million) | 50,954 | 48,377 | 5.3 | 49,736 | 2.4 |
| CET1 capital (EUR million) | 1,586 | 1,500 | 5.7 | 1,550 | 2.3 |
| Tier 1 capital (EUR million) | 1,586 | 1,500 | 5.7 | 1,550 | 2.3 |
| Total own funds (EUR million) | 1,586 | 1,500 | 5.7 | 1,550 | 2.3 |
| CET1 capital ratio, % | 102.4 | 101.3 | 1.0** | 103.4 | -1.0** |
| Tier 1 capital ratio, % | 102.4 | 101.3 | 1.0** | 103.4 | -1.0** |
| Total capital ratio, % | 102.4 | 101.3 | 1.0** | 103.4 | -1.0** |
| Leverage ratio, % | 12.0 | 11.9 | 1.3** | 12.0 | -0.2** |
| Personnel | 196 | 186 | 5.4 | 185 | 5.9 |
* Alternative performance measure.
** Change in ratio.
MUNICIPALITY FINANCE PLC
Further information:
Esa Kallio
President and CEO
+358 50 337 7953
Harri Luhtala
CFO
+358 50 592 9454
MuniFin (Municipality Finance Plc) is one of Finland’s largest credit institutions. The company is owned by Finnish municipalities, the public sector pension fund Keva and the Republic of Finland. The Group’s balance sheet totals over EUR 50 billion.
MuniFin’s customers include municipalities, joint municipal authorities, wellbeing services counties, corporate entities under their control, and non-profit organisations nominated by the Housing Finance and Development Centre of Finland (ARA). 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. The company is an active Finnish bond issuer in international capital markets and the first Finnish green and social bond issuer. The funding is exclusively guaranteed by the Municipal Guarantee Board.
Read more: www.kuntarahoitus.fi/en
Attachment
