MUNICIPALITY FINANCE PLC
Interim report, press release
For publication on 27 August 2010
Municipality Finance Plc Proceeds Strongly and Is Ready for Challenges
Municipality Finance Plc has managed to continue its successful operations even
in the rapidly changing business environment. The company has continued to grow
well and in a managed way. The net operating profit for the first half of 2010
will rise to EUR 31 million, where as in 2009 the net operating profit for the
entire year was EUR 34 million.
The market share in lending still substantial
Investments by municipalities and the resulting need for financing in the local
government sector has remained at the same level as in the corresponding period
last year. In the first half of 2010, demand for lending from Municipality
Finance has also remained active. Municipality Finance's long-term loan
portfolio at the end of June amounted to EUR 10,815 million (31 December 2009:
EUR 9,741 million). The loan portfolio increased by 11.0% from the end of 2009
and 23.3 % from the end of June 2009. In municipal lending the competitive
situation has not returned to the level preceding the financial crisis, and
Municipality Finance's market share is still high.
Demand for lending from companies owned by municipalities have decreased in
comparison to the first half of last year. In addition, lending requests from
government subsidised housing production have decreased from the record-high
levels of 2009 but are still above the long-time average.
Competitive global funding
Thanks to the outstanding credit rating of the state of Finland and the Finnish
municipalities, Municipality Finance's funding operations have remained
successful, and the company has managed to keep its funding costs at a
competitive level.
In January-June, the company acquired EUR 3,155 million (1 January - 30 June
2009: EUR 3,937 million) in long-term funding. The parent company's total
funding at the end of June amounted to EUR 16,438 million (31 December 2009: EUR
13,136 million), of which 20% was denominated in euros and 80% in other
currencies.
Financial leasing added to the service palette
In order to broaden its service
palette, Municipality Finance started offering financial leasing services early
this year. The aim is to further increase transparency and service offering in
the Finnish leasing market. This new financing product has been well received by
the customers of Municipality Finance. The company is perceived as a new
trustworthy partner, bringing more competition in the market.
Despite successful operations, considerable challenges are ahead
Municipality Finance's CEO Pekka Averio is concerned about the availability of
affordable financing for municipalities in future. “If the changes to the
capital requirements directive prepared by the European Commission come into
force in the outlined form, they will also have implications to the customers
and owning parties of Municipality Finance. The changes proposed by the Basel
Committee on Banking Supervision and the European Commission would pose severe
challenges for specialised credit institutions like Municipality Finance in
adjusting operations if capital requirements were tightened both qualitatively
and quantitatively. Municipality Finance would probably be forced to limit its
operational volume, which would result in higher lending costs for our
customers.
In its outlined form, the European Union's capital requirements directive does
not take into account the situation faced by low risk profile credit
institutions, such as Municipality Finance. Regulation will be needed in future,
too, but the suggested tightening of capital requirements would limit the
operational preconditions of the soundest players in the financial world. If we
want to secure affordable lending for municipalities, the decision makers should
understand the consequences of their decisions in advance and not only after the
decisions have been made.”
Municipality Finance Plc
Further information:
Pekka Averio, CEO, tel. +358 (0)500 406 856
Esa Kallio, Executive Vice President, tel. +358 (0)50 337 7953
Municipality Finance Plc is a credit institution owned by Finnish
municipalities, the Local Government Pensions Institution and the Government,
specialising in financing municipality and government subsidised housing
production, and is the parent company of the Municipality Finance Group. The
company's mission is to ensure affordable financial services for its clients, to
be efficient and to grow profitably. The Group's balance sheet totalled EUR 19.4
billion on 30 June 2010.
Municipality Finance Plc offers market-based funding
to municipalities and municipal federations, to municipality-controlled entities
and non-profit housing corporations. The company's funding, which is guaranteed
by the Municipal Guarantee Board, is obtained from international capital markets
and domestic investors. Funding provided by the company goes into social and
non-profit service projects, such as schools, housing and hospitals. The Group
includes Financial Advisory Services Inspira Ltd, which offers financial
advisory services for investments, financial and asset arrangements, asset
management and various analysis services.