2017-02-10 13:00:24 CET
2017-02-10 13:00:24 CET
SÄÄNNELTY TIETO
Kuntarahoitus Oyj - Financial Statement Release
Municipality Finance Plc Financial Statements Bulletin
Municipality Finance Plc
Financial Statements Bulletin
10 February 2017, at 2:00 p.m. (EET)
Municipality Finance Plc Financial Statements Bulletin
1 January-31 December 2016
2016 in Brief
* The Group's net interest income grew by 19.7% year-on-year, totalling EUR
206.1 million (2015: EUR 172.2 million).
* The Group's net operating profit amounted to EUR 174.2 million (2015: EUR
151.8 million). The growth over the previous year was 14.8%.
* The balance sheet total was EUR 34,052 million (2015: EUR 33,889 million).
The growth compared to the end of 2015 was 0.5%.
* The Group's capital adequacy continued to strengthen, with the ratio of
total own funds to risk-weighted assets being 66.89% at the end of 2016
(2015: 64.61%), and the ratio of Common Equity Tier 1 (CET1) to risk-
weighted assets being 46.21% (2015: 41.49%).
* The leverage ratio at the end of 2016 was 3.54% (2015: 3.15 %).
* The total of new loans withdrawn amounted to EUR 2,924 million (2015: EUR
2,687 million). The lending portfolio increased to EUR 20,910 million
(2015: EUR 20,088 million). This represented a growth of 4.1% from the end
of 2015.
* At the end of the year, the leasing portfolio stood at EUR 286 million
(2015: EUR 187 million), showing a growth of 52.9% year-on-year.
* Total funding acquisition for 2016 amounted to EUR 6,702 million (2015: EUR
7,297 million). A total of EUR 7,045 million was issued in short-term debt
instruments under the Euro Commercial Paper programme in 2016 (2015: EUR
4,824 million).
* At the end of 2016, total liquidity was EUR 7,505 million. Investments
totalled EUR 7,732 million, down by 2.9% from a year earlier.
* The turnover of Municipality Finance's subsidiary Inspira was EUR 2.2
million (2015: EUR 2.3 million). Inspira's net operating profit at the end
of 2016 totalled EUR 0.1 million (2015: EUR 0.2 million).
+------------------------------------------------------+-----------+-----------+
|Key Figures (Consolidated): |31 Dec 2016|31 Dec 2015|
+------------------------------------------------------+-----------+-----------+
|Net interest income (EUR million) |206.1 |172.2 |
| | | |
+------------------------------------------------------+-----------+-----------+
|Net operating profit (EUR million) |174.2 |151.8 |
| | | |
+------------------------------------------------------+-----------+-----------+
|New loans issued (EUR million) |2,924 |2,687 |
| | | |
+------------------------------------------------------+-----------+-----------+
|New long-term funding (EUR million) |6,702 |7,297 |
+------------------------------------------------------+-----------+-----------+
|Balance sheet total (EUR million) |34,052 |33,889 |
| | | |
+------------------------------------------------------+-----------+-----------+
|Common Equity Tier 1 (CET1) (EUR million) |776.6 |686.3 |
+------------------------------------------------------+-----------+-----------+
|Tier 1 capital (EUR million) |1,124.1 |1,033.8 |
+------------------------------------------------------+-----------+-----------+
|Total own funds (EUR million) |1,124.1 |1,068.8 |
| | | |
+------------------------------------------------------+-----------+-----------+
|Ratio of Common Equity Tier 1 (CET 1) to risk-weighted|46.21 |41.49 |
|assets, % | | |
+------------------------------------------------------+-----------+-----------+
|Ratio of Tier 1 capital to risk-weighted assets, % |66.89 |62.49 |
+------------------------------------------------------+-----------+-----------+
|Ratio of total own funds to risk-weighted assets, % |66.89 |64.61 |
+------------------------------------------------------+-----------+-----------+
|Leverage ratio, % |3.54 |3.15 |
+------------------------------------------------------+-----------+-----------+
|Return on equity (ROE), % |12.51 |14.84 |
+------------------------------------------------------+-----------+-----------+
|Cost-to-income ratio |0.17 |0.16 |
+------------------------------------------------------+-----------+-----------+
|Personnel |106 |95 |
+------------------------------------------------------+-----------+-----------+
Comment on the Financial Year by President and CEO Pekka Averio:
The year 2016 marked a new beginning for Municipality Finance. It was also a
very busy year due to the transfer of Municipality Finance under the supervision
of the European Central Bank, market uncertainty and the major structural
reforms prepared by the Finnish Government.
Despite the continuous change and challenging conditions, Municipality Finance
performed well in 2016.
Our funding was very successful, and in line with our mission we were able to
offer financing at competitive rates to the local government sector and to
state-subsidised housing production.
Municipality Finance is a key operator in the municipalities' funding
acquisition system, since it channels financing from the international capital
markets. Similarly, the Municipal Guarantee Board plays an important role as a
guarantor of this funding.
This joint funding system of the municipalities has secured competitive
financing for its customers in all market conditions for more than 25 years. In
the implementation of the health, social services and regional government
reform, appropriate framework conditions must be ensured in order to strengthen
the finances of municipalities and counties while safeguarding the continuity of
the necessary investments.
In 2016, we were the first Finnish company to introduce green financing, a
concept that encourages customers to make environmentally friendly investments.
This received an excellent response from both customers and investors. I am
confident that responsible funding will be further emphasised in the years to
come - also beyond the context of environmental impacts. We will continue to
develop our operations and human resources in order to ensure that we will be
able to serve our customers flexibly, efficiently and responsibly also in the
future.
Operating Environment in 2016
As in previous years, Municipality Finance's operating environment in 2016 was
characterised by a number of economic uncertainties. In the euro area, market
rates fell to record-low levels. Instead of an accelerating effect on economic
growth, the ECB's sizable purchase programmes have substantially increased
market liquidity and even distorted the financial markets. At the end of the
second quarter, Europe's economic and political structures were shaken by the
UK's decision to leave the European Union. The Brexit decision has weakened the
economic outlook of the entire continent and increased financial instability.
Furthermore, the political fluctuations caused by the U.S. presidential
elections have strongly affected the volatility of international capital
markets. In Finland, particularly the long-prepared health, social services and
regional government reform and the open questions related to its implementation
have increased the uncertainty about the future among Municipality Finance's
customers and affected their willingness to invest. The company has actively
monitored the changes taking place in the operation environment. Consequently,
there are, however, not yet seen the need for significant changes.
Municipality Finance has a central role in the basic financial structure of
Finnish society. It is the only credit institution in Finland specialising in
financing the local government sector and state-subsidised housing production.
Customers' interest in Municipality Finance's financial services remained high
in 2016. The total of loans withdrawn increased slightly year-on-year, and
Municipality Finance continued to be by far the most important financier for its
customers.
Since 1 January 2016, Municipality Finance has been under the direct supervision
of the European Central Bank (ECB). Municipality Finance succeeded well in
responding to the supervisory requirements, and is developing its operations to
further streamline its reporting to the authorities. Municipality Finance has
proactively improved its capital adequacy for many years now.
Moody's and Standard & Poor's changed their ratings and outlook on Municipality
Finance. This was attributable to similar changes in their credit ratings for
Finland. In October 2016, Standard & Poor's changed the outlook for Municipality
Finance's AA+ credit rating from negative to stable. In June 2016, Moody's
downgraded Municipality Finance's credit rating from the best possible rating of
Aaa to Aa1 with a stable outlook.
+-------------------------+-----------------+-------+------------------+-------+
|Rating Agency |Long-term funding|Outlook|Short-term funding|Outlook|
+-------------------------+-----------------+-------+------------------+-------+
|Moody's Investors Service|Aa1 |Stable |P-1 |Stable |
+-------------------------+-----------------+-------+------------------+-------+
|Standard & Poor's |AA+ |Stable |A-1+ |Stable |
+-------------------------+-----------------+-------+------------------+-------+
Income Statement and Statement of Financial Position
Municipality Finance Group
The Group's business operations remained strong during 2016. The Group's
operating profit before tax amounted to EUR 174.2 million (2015: EUR 151.8
million). The profit includes EUR 2.7 million of unrealised changes in the fair
value of financial items (2015: EUR -2.7 million). These value changes are
related to fluctuations in interest rates, the credit risk arising from
counterparties in derivative transactions (CVA) and the market conditions of own
derivative liabilities (DVA). The CVA and DVA value changes accounted for EUR
-1.9 million of the total value changes (2015: EUR -1.7 million). Despite the
zero-risk status of municipalities, in CVA calculations, capital reserves need
to be established for derivative contracts concluded with municipalities and
corporations guaranteed by municipalities, whereas this is not needed in
financing granted to municipalities.
Net interest income continued developing well, with a growth of 19.7%. The total
net interest income at the end of the year was EUR 206.1 million (2015: EUR
172.2 million). The improvement in net interest income was attributable to the
growth in business volume and favourable funding. Net interest income includes
EUR 1.2 million in commissions from the repurchase of own bonds (2015: EUR 1.4
million). In consolidated accounts, the AT1 capital loan is treated as an own
equity instrument. The related interest expenses are not recognised through
profit or loss in the consolidated accounts, but they are treated similarly to
dividend distribution, i.e. as a decrease in retained earnings under
shareholders' equity, upon realisation of payment on an annual basis.
The Group's commission expenses totalled EUR 4.0 million at the end of the year
(2015: EUR 3.8 million). Operating expenses increased by 24.9% to EUR 31.1
million during the year (2015: EUR 24.9 million). This was mainly due to
financial supervision costs paid to the ECB and to the Financial Supervisory
Authority, contributions paid to EU-level crisis resolution fund and the ongoing
information system projects. Administrative expenses came to EUR 18.8 million
(2015: EUR 16.7 million), of which personnel expenses comprised EUR 11.9 million
(2015: EUR 10.9 million). Depreciation of tangible and intangible assets
amounted to EUR 1.8 million (2015: EUR 1.6 million). Other operating expenses
were EUR 10.5 million (2015: EUR 6.6 million).
The Group's balance sheet total stood at EUR 34,052 million at the end of 2016,
compared to EUR 33,889 million at the end of the previous year. During the
financial year, a total of EUR 6.3 million in accumulated interest related to
the AT1 capital instrument was paid from the Group's equity in accordance with
the contractual terms.
Municipality Finance Plc
Municipality Finance's total net interest income at year-end was EUR 189.9
million (2015: EUR 168.2 million) and net operating profit stood at EUR 158.0
million (2015: EUR 147.7 million). The interest expenses of EUR 16.3 million
for 2016 on the AT1 capital loan, which forms part of Additional Tier 1 capital
in capital adequacy calculation, have been taken into account in full in the
parent company's net interest income (2015: EUR 4.0 million). In the parent
company, the AT1 capital loan has been recorded under the balance sheet item
Subordinated liabilities.
Financial Advisory Services Inspira Ltd.
The turnover of Municipality Finance's subsidiary Inspira was EUR 2.2 million
(2015: EUR 2.3 million), and its net operating profit was EUR 0.1 million (2015:
EUR 0.2 million).
Financing and other services for customers
The operating environment of Municipality Finance's customers continued to be
affected by a large number of uncertainty factors. In particular, the long-
prepared health, social services and regional government reform and the open
questions related to its implementation have affected the willingness to invest
among Municipality Finance's customers.
In 2016, Municipality Finance launched a financial product intended for
environmentally friendly investments. It attracted a great deal of interest
among customers. Municipality Finance's green financing is in many respects a
trailblazer in the Finnish financial market, and it is believed to increase the
municipal sector's environmental investments. Whether or not a project fits the
green financing framework is assessed by an evaluation team comprising external
experts. By the end of the year, Municipality Finance had granted a total of EUR
500 million of green financing, which was more than anticipated. In 2016, a
growing number of customers implemented the versatile and flexible Apollo
service for managing their financial portfolio. Moreover, the demand for leasing
financing continued to grow, with the growth in popularity particularly of
leasing solutions for real estate.
Customers' interest in Municipality Finance's financial services remained high
in 2016. The total of loans withdrawn increased year-on-year, and Municipality
Finance continued to be by far the most important financier for its customers.
The total volume of loan quotation requests received by MuniFin was lower during
the year and was EUR 4,168 million at the end of year (2015: EUR 4,834
million). The total amount of new loans withdrawn in 2016 was higher than in
the previous year, EUR 2,924 million (2015: EUR 2,687 million). At the end of
the year, the company's long-term loan portfolio stood at EUR 20,910 million
(2015: EUR 20,088 million). This represents an increase of 4.1% on the previous
year.
There was also continued demand for Municipality Finance's short-term financing.
At the end of 2016, the total value of municipal commercial paper and municipal
company commercial paper programmes concluded with Municipality Finance was EUR
4,368 million (2015: EUR 4,087 million). At the end of the year, the company
had EUR 973 million in municipal papers and municipal commercial papers on its
balance sheet (2015: EUR 1,115 million) and during the entire year, customers
acquired EUR 7,942 million in financing under short-term programmes (2015: EUR
9,231 million).
In addition to loans, Municipality Finance offers municipalities, municipal
federations and municipal enterprises derivative contracts tailored to their
needs for the management of interest rate risk. As interest rates stayed low,
customers increased their hedging against possible future increases in market
rates.
Municipality Finance has offered leasing financing to municipalities, municipal
federations and municipality-controlled entities since 2010. Long-term work has
been carried out to ensure maximum transparency in the service model and its
pricing. Demand for leasing solutions grew solidly in 2016. The group's
customers are particularly interested in leasing-based solutions for real estate
financing. The leasing portfolio grew by 52.9% during the year and stood at EUR
286 million at year-end (2015: EUR 187 million).
As part of the group's customer service model, during 2016 Municipality Finance
strengthened its collaboration with its subsidiary Inspira, which offers
advisory services.
Demand for Inspira's services increased in 2016, and the company concluded a
total of 123 commission agreements (2015: 89). Inspira's turnover in 2016 was
EUR 2.2 million (2015: EUR 2.3 million). Net operating profit for the period
totalled EUR 0.1 million (2015: EUR 0.2 million). In 2016, Inspira provided
financial advisory services in several lifecycle projects. In addition,
investment projects related to energy savings and renewable energy played a
major role in 2016. Inspira also acted as the advisor of the Ministry of
Employment and the Economy in the allocation of funds from the European Fund for
Strategic Investments (EFSI) to Finland, and participated in the assessment of
the alternative courses of action for municipalities and municipal federations
in the ongoing health and social services reform.
Operations in international capital markets
The international capital markets were characterised by high liquidity in 2016,
especially in the first six months and Municipality Finance's funding operations
were very successful. Thanks to the diversification, funding is effective, which
ensures obtaining financing to Municipality Finance's customers at competitive
prices. Municipality Finance's name is widely known in international capital
markets, and Municipality Finance is one of the most flexible, reliable and
fastest partners for investors in capital markets.
In 2016, EUR 6,702 million was acquired in long-term funding (2015: EUR 7,297
million). In March 2016, Municipality Finance issued its first euro-denominated
benchmark bond in thirteen years in order to further diversify its funding
sources. The issue of EUR 1 billion was successful, and it was very well
received on the market. In July, company issued a USD 1 billion benchmark bond,
which was oversubscribed by nearly 200 per cent.
During the first half of 2016, Municipality Finance carried out the preparations
for the issuance of its first ever green bond. The preparations included
collecting an environmental project portfolio and granting more low-cost lending
and financial leasing for environmental projects that fit the green financing
framework. The initiatives eligible for green financing are selected by an
evaluation team comprising external experts. Municipality Finance's and
Finland's first ever green bond of USD 500 million was successfully launched in
the autumn, further expanding Municipality Finance's investor base.
In 2016, a total of EUR 7,045 million was issued in short-term debt instruments
under the Euro Commercial Paper programme (2015: EUR 4,824 million), and total
funding under the programme amounted to EUR 1,139 million at year end (2015: EUR
1,230 million).
Total funding at the end of the year amounted to EUR 28,662 million (2015: EUR
28,419 million). Of this total amount, 21% was denominated in euros (2015:
18%) and 79% was denominated in foreign currencies (2015: 82%). During the
year, the company issued bonds denominated in 13 different currencies (2015: 12
currencies).
Municipality Finance currently obtains all of its funds from the international
capital market, where the group is a well-known, valued and active operator. The
total of long-term funding arrangements made in 2016 was 204 (2015: 315).
Municipality Finance's funding strategy is to diversify its funding sources,
which aims to ensure the continuity of its funding under all market conditions.
This has been proven to be a successful approach. Municipality Finance has
various diversification strategies: by market, geographically, by issuing bonds
targeted at different investor groups, and by varying maturities. Active, long-
term collaboration with investors has increased the company's visibility in
various markets, and investor relations are increasingly progressing towards the
maintenance of key accounts.
The company's liquidity remained excellent during 2016. Municipality Finance's
investment operations mostly comprise the management of funds obtained through
ex ante funding. The funds are invested in liquid and highly rated financial
instruments so as to ensure the stability of the company's operations in all
market conditions. According to the company's liquidity policy, its liquidity
must be sufficient to cover the needs of continued undisturbed operations
(including new net lending) for at least the following six months. The company
invests cash collateral received on the basis of derivative collateral
agreements mainly in short-term money market investments. These investments are
not included in calculations of the company's liquidity adequacy.
At the end of year, total liquidity was EUR 7,505 million (2015: EUR 7,732
million). Investments in securities totalled EUR 6,506 million (2015: EUR
5,897 million) and their average credit rating was AA (2015: AA). The average
maturity of the security portfolio stood at 2.3 years at year-end (2015: 2.3
years). In addition to this, the company had EUR 999 million in other
investments (2015: EUR 1,834 million), of which EUR 989 million were in central
bank deposits (2015: EUR 1,814 million) and EUR 10 million in money market
deposits in credit institutions (2015: EUR 20 million).
As of 2015, Municipality Finance has also monitored the ESG performance
(Environmental, Social and Governance) of its investments. At the end of 2016,
Municipality Finance's liquidity investments had an ESG average of 66.5 on a
scale of 1-100 (2015: 65.0). The benchmark index is 64.4.
Capital Adequacy
The Group's capital adequacy has remained strong and it clearly exceeds the
minimum capital requirements set by the law and authorities.
Municipality Finance Group's own funds totalled EUR 1,124.1 million at the end
of 2016 (2015: EUR 1,068.8 million). Common Equity Tier 1 (CET1) totalled EUR
776.6 million (2015: EUR 686.3 million). Tier 1 capital amounted to EUR
1,124.1 million (2015: EUR 1,033.8 million). The unrealised profits from assets
measured at fair value (fair value reserve) have been included in CET1 capital
(transitional provision for the period 1 January 2015-31 December 2017). The
company had no Tier 2 capital at year-end (2015: EUR 35 million).
The parent company's own funds stood at EUR 1,123.4 million (2015: EUR 1,067.9
million). Common Equity Tier capital (CET1) amounted to EUR 776.0 million
(2015: EUR 685.9 million) and Tier 1 capital (T1) to EUR 1,123.4 million (2015:
EUR 1,032.9 million).
The ratio of total own funds to risk-weighted assets was 66.89% (2015:
64.61%). At year-end, CET1 capital adequacy was 46.21% (2015: 41.49%). The
parent company's capital adequacy was 67.11% (31 Dec. 2015: 64.70%) and CET1
capital adequacy 46.35% (31 Dec. 2015: 41.56%). Municipality Finance has a
strong capital adequacy as compared to the statutory requirements and those set
by the authorities. The statutory minimum capital adequacy is 8% and that of
CET1 capital adequacy 4.5%. The fixed additional capital requirement of 2.5% and
the so-called OSII additional capital requirement of 0.5% increase the minimum
CET1 capital adequacy ratio requirement to 7.5% and the minimum capital adequacy
ratio requirement to 11%.
The leverage ratio of Municipality Finance at the end of 2016 was 3.54% (2015:
3.15%), calculated using currently valid calculation principles. The liquidity
coverage ratio (LCR) was 149% (2015: 297%). This clearly exceeds the regulatory
requirement of 70% at the time of closing the accounts.
Risk Management
There were no material changes in the company's risk position in 2016. Risks
remained within the set limits and, according to the company's assessment, risk
management was performed according to requirements.
Outlook for 2017
The global economic outlook is difficult to predict. The political uncertainty
in the United States and Europe is reflected in the economic development and the
functioning of capital markets. The outlook for economic development in Finland
is brightening up, but there are still no signs of growth leaps. These factors
affect the operations of Municipality Finance both in terms of funding and
financing.
The Finnish government is planning to implement a substantial reform related to
the Finnish social and healthcare system and regional government. Some integral
components of the reform are still under preparation and therefore it is
difficult for Municipality Finance to evaluate the reform's impact on its
operation. Potentially the reform might have an effect on Municipality Finance's
volumes, but not in year 2017. Municipality Finance is actively following the
development of the reform.
The demand for state-subsidised housing production is expected to remain stable.
The reason for this is the strong pressure to increase state-subsidised housing
production in Finland's urban growth areas.
In a changing operating environment, Municipality Finance will continue to
invest heavily in meeting the changing needs of its customers. There will be
continued focus on improving customer service, service offering and systems in
order to further enhance efficiency, as well as on digitisation of services.
Municipality Finance will also continue to develop the sustainability of its
operations in a more systematic and long-term manner.
Municipality Finance expects its profitability to remain strong in 2017.
Proposal from the Board of Directors' Concerning Profit for the Financial Year
Municipality Finance Plc has distributable funds of EUR 61,496,269.28, of which
the profit for the financial year totalled EUR 6,807,909.79. The Board proposes
to the Annual General Meeting that no dividend be paid out, and that the
distributable funds of EUR 61,496,269.28 be retained in equity.
The Board of Directors considers this to be a well-reasoned decision, as the
company needs to continue preparing for tightening own funds requirements by
increasing its Tier 1 capital through profit.
The Annual Report for 2016 can be found on the company's website
(www.munifin.fi) from 2 March 2017.
Municipality Finance Plc
Further information:
Pekka Averio, President and CEO, tel. +358 500 406 856
Esa Kallio, Executive Vice President, Deputy CEO, tel. +358 50 337 7953
Marjo Tomminen, Executive Vice President, CFO, tel. +358 50 386 1764
Measured by the group's balance sheet, Municipality Finance Plc (MuniFin) is
Finland's second largest credit institution. The company is owned by Finnish
municipalities, the public sector pension fund Keva and the Republic of Finland.
MuniFin is an integral part of the Finnish public economy.
MuniFin's balance sheet totals approximately EUR 34 billion. Funding for the
company is primarily obtained through the international capital markets.
MuniFin's funding is guaranteed by the Municipal Guarantee Board.
MuniFin's mission is to ensure competitive funding for local government
investments and state-subsidised social housing production in all market
conditions. The company's customers are Finnish municipalities, municipal
federations, municipally controlled companies and non-profit housing
corporations. The customers use financing solutions provided by MuniFin to
finance social and non-profit targets such as day care centres, schools,
housing, hospitals and other municipal investments.
The Municipality Finance Group also includes the subsidiary company, Financial
Advisory Services Inspira Ltd.
Read more: www.munifin.fi
[]
© 2024 Nasdaq, Inc. All Rights Reserved |
| Evästeet |