MuniFin enables investments that have significant effect for the whole society and aim at improving the wellbeing of everyone living in Finland.

Customer finance

From a financial perspective, 2017 was a positive year for the Finnish municipal sector. In general, financial activity increased, and municipalities received more than expected tax income while managing to control their expenses. As a result, the financial situation of municipalities was better than anticipated and the ­demand for loans grew moderately from the year before. MuniFin issued in total EUR 2.4 billion in new loans in 2017 (2016: EUR 2.9 billion).

Competition tightened in the financial markets in 2017. Also the international financial institutions are ­interested in financing Finnish customers like ­hospital districts and the largest cities. Despite tighter ­competition, MuniFin remains by far the most ­important financier in its customer segments.

The health, social services and regional government reform significantly affects the operating environment of MuniFin’s customers. The reform’s final model, details, and how these are to be interpreted are yet to be resolved. This makes it difficult for MuniFin to anticipate its own operations, and even more so the operations of its customers. MuniFin closely monitors the progress of the reform and its potential effects on MuniFin’s operations.

As a financier specialising in municipalities, the entire Municipality Finance Group has been able to assist its customers in the evaluation of the impact of the health, social services and regional government reform on their financing as a whole. To some extent, customers may be postponing investing because they are waiting for the reform to be realised. The reform has caused increased interest in the assignments of MuniFin’s subsidiary, Financial Advisory Services Inspira, as municipalities map their alternatives and prepare for the reform’s impact.

Given the positive economic situation, the demand for financing government-subsidised housing production continued to be strong, and in particular, the production of rental housing picked up. The new, short-term interest subsidy model introduced to the markets has raised some interest but has not yet become a significant part of MuniFin’s housing finance.

Better financing solutions

In 2017, Municipality Finance revamped its organisation to be able to develop more flexible, diverse and comprehensive financing solutions to meet customer needs. Other measures towards this goal include close cooperation between the parent company and its subsidiary, Financial Advisory Services Inspira, as well as putting major effort into the development of its own operations.

MuniFin offers its customers financing solutions that meet a wide range of needs. The customer base has an ever-increasing demand for solutions other than loans. Leasing-based financing solutions have increased their popularity and the use of leasing has diversified in recent years. Leasing has become more commonly used, for example, in real estate financing and particularly for schools and day care centres. In 2017, the lease financing portfolio of MuniFin totalled EUR 432 million. This means a growth of 51 percent from the previous year.

In 2017, MuniFin renewed the online service for managing lease financing agreements, and this development work will continue in the near future.

The demand for green finance – a concept first launched in 2016 – was also a positive surprise in 2017. The green finance project portfolio – investments earmarked for environmental projects – reached a milestone by exceeding one billion euros. The effectiveness of a green project is especially evaluated through energy-efficiency and reduced carbon dioxide emissions, but indirect effects are also evaluated. A more detailed evaluation of the effects of green financing is available in a separate report.

The primary targets for green finance are public transport and sustainable construction. The largest individual green projects include the West Metro and Tampere Tramway, while the most typical projects receiving green financing are school buildings. Residential buildings were introduced to the green finance project portfolio for the first time in 2017. Housing construction offers immense growth potential for green finance. Among others, MuniFin collaborates with the Ministry of the Environment and the Housing Finance and Development Centre of Finland (ARA) to advance low-carbon and energy-efficient construction. The objective of MuniFin is to further encourage the Finnish municipal sector to take environmental aspects more comprehensively into account when making investment decisions.

Responsible lending

At the end of 2017, Municipality Finance developed its loan granting process. The changes will make MuniFin’s own risk management more effective and improve the quality of customer services.

In the renewed process, the customer’s financial ­situation and the profitability of the planned investment are now evaluated more thoroughly than before: data is collected and processed automatically from multiple sources and analysed systematically. The data is utilised in the internal analyses of market trends and discussions with customers. As a result of this more effective process, both MuniFin and its ­customers have a better understanding of the ­customers’ overall financial situation.

While the key part of the renewal was to develop the sources of customer data, analytics and data management, the final evaluation of the customer’s situation is carried out in cooperation with the customer. Discussions and mappings relating to financing provide valuable insights to both parties.

MuniFin offers its customers financing solutions that meet a wide range of needs.The customer base has an ever-increasing demand for solutions other than loans.

Tools for economic modelling and the evaluation of financing options

In 2017, Municipality Finance continued to develop and expand the functionalities that the Apollo service offered to its customers. In addition to total portfolio management and the simulation of financing options, it now also covers the management of guarantee liabilities and investments. Apollo’s customer base is growing rapidly and covers all major cities in Finland. At the end of 2017, Apollo had 490 individual users.

Apollo is a good example of a service whose development was launched at the customers’ initiative and whose further development phases will be prioritised with the customers.

With the Apollo service, MuniFin’s customers have access to a highly versatile financial planning tool. According to the feedback received, MuniFin has built a digital services roadmap that contains advanced tools for economic modelling.

Precise solutions to problems from Inspira

The assignments of Municipality Finance’s subsidiary, Financial Advisory Services Inspira, included in 2017 the preparation for health and social services and regional government reform, solving the indoor air quality problems of buildings through life cycle construction, and the increasingly popular public-private partnership models.

Inspira’s turnover developed favourably to EUR 2.7 million (2016: EUR 2.2 million). The amount of ­assignments was roughly the same as the year before. In future, the amount of customer projects ­executed jointly with MuniFin is also expected to grow.

Lending portfolio 2013–2017

Lending portfolio 2013–2017

Lending portfolio by rate type

Lending portfolio by rate type

Lending portfolio by customer type

Lending portfolio by customer type

Vuosi 2017 CASE


Apollo is an easy to use and secure cloud service for use by MuniFin’s customers in the group-level, overall management of their financing agreements and guarantee liabilities. The service provides an easy way of analysing a financing portfolio as a whole and simulating the effects of alternative financing solutions on it. The service includes real-time marketing information and reporting models developed on the basis of customer needs.


From the funding perspective, 2017 was an excellent year for Municipality Finance. The situation within MuniFin’s funding markets was favourable, and the margins on acquired funds reduced during the year simultaneously with successfully timed public benchmark bond transactions.

The total funding acquired by MuniFin in 2017 was EUR 9.6 billion (2016: EUR 6.7 billion).

MuniFin acquires funding from international capital markets. The prerequisite for highly competitive funding is that the Finnish municipal sector, and subsequently MuniFin, have a strong credit rating, and that their credit rating is the same as the Sovereign’s credit rating. The work that MuniFin itself does also plays a key role in the success of funding. MuniFin is known in the capital markets as a flexible and fast-reacting partner.

Funding by currency in 2017

Funding by currency in 2017

Funding by investor type in 2017

Funding by investor type in 2017

Funding by region in 2017

Funding by region in 2017

Total number of funding transactions 2013–2017

Total number of funding transactions 2013–2017

Prospera, a Swedish market research company specialising in the financial sector, conducts an annual survey on international investors and banks that provide broker services to get their opinions about Northern European so-called SSA issuers (­Sovereigns, Supranationals and Agencies), i.e., organisations with a non-profit status. Those included in the survey alongside MuniFin included its counterparts from other Nordic countries, as well as the German KfW ­Development Bank, the European Investment Bank (EIB) and the Nordic Investment Bank (NIB). All the organisations included in the survey were rated highly for their competence and attractiveness as investment targets. In the survey, MuniFin was ranked first or second of all the included institutions in the ­evaluation of staff competence, the quality of the information and the credible selling story.

One success after another

In Municipality Finance’s funding operations, the year 2017 was marked by successful public bond issues.

For MuniFin, benchmark bonds are strategically significant transactions used to strengthen its position in key markets. In 2017, MuniFin issued three benchmark bonds in total: two US dollar-denominated benchmark bonds of 1 billion each, and one EUR 1 billion benchmark bond. The timing of the benchmark bonds was excellent and they were all oversubscribed. According to GlobalCapital BondMarker, the benchmark bond issued in July was the second most successful US dollar-denominated bond issue in Q3 of 2017. In December, the Capital Market Daily portal selected Municipality Finance as the best of the year among issuers of structured notes for the third year in a row.

The second-ever green bond in the history of MuniFin, set at EUR 500 million and issued in September, was oversubscribed six times within the first hour. The issue was the most sought after loan in the history of MuniFin, and was very tightly priced. The loan also continues to be in demand in the secondary markets, and it has had a positive effect on the valuation level of all MuniFin’s euro-denominated benchmark bonds.

In addition to public financing arrangements, MuniFin also succeeded well in tailored funding arrangements. 2017 saw the issue of MuniFin’s first ever tailored green bond. The subscriber of the AUD-denominated private placement was the Japanese life insurance company Fukoku Life.

The guiding principle is diversification

One of the guiding principles of Municipality Finance’s funding is effective diversification. MuniFin has diversified its funding across markets, currencies, maturities, and different types of investors. Derivatives are used to hedge against currency and interest rate risks.

In 2017, MuniFin expanded its funding to new markets by issuing the first ever Formosa bond in its history. The bond was listed on the Taipei Exchange in Taiwan.

Vuosi 2017 CASE

Fukoku life

2017 saw the issue of MuniFin’s first ever tailored green bond. The subscriber of the ten-year AUD-denominated private placement was the Japanese life insurance company Fukoku Life. With this investment, Fukoku Life aims to do its part to promote the mitigation of greenhouse gas emissions and generate a positive social impact.

Liquidity management and treasury

From the viewpoint of Municipality Finance’s liquidity investments, the year 2017 was marked by a stable but exceptional market situation. Interest rates and the credit risk premiums of issuers remained at a historically low level, making the relationship between the expected yield and risk less appealing. This was mainly caused by the asset purchase programmes of the ECB and other central banks, which overall have been pushing the ROI levels down. The ECB has announced that it will be gradually reducing its monthly bond purchases in 2018, which may lead to increased interest rates and yields in late 2018.

MuniFin’s total liquid assets at the end of 2017 were EUR 9.3 billion (2016: EUR 7.5 billion). Investments in securities totalled EUR 5.8 at the end of 2017 (2016: EUR 6.5 billion) with an average credit rating of AA (2016: AA). The average maturity of the securities portfolio was 2.5 years at the end of the year (2016: 2.3).

Total liquid assets at the end of 2017

Total liquid assets at the end of 2017

Liquidity coverage ratio

Liquidity coverage ratio

Optimised liquidity management

MuniFin’s treasury ensures the optimised use of total liquidity. The minimum amount of liquidity, measured by the liquidity coverage ratio (LCR), must meet the statutory requirement on a daily basis. On the other hand, the maximum amount is adjusted in line with the balance sheet total to prevent it from growing too big in relation to its own funds. In 2017, the minimum liquidity requirement for MuniFin indicated as LCR was 80 percent. At the end of 2017, MuniFin’s LCR was 173% (2016: 149%).

Furthermore, in line with MuniFin’s risk appetite framework, the total liquidity amount must be enough to cover uninterrupted business for at least six months. The 2017 year-end total amount of liquidity was enough to cover uninterrupted business for 12 months.

MuniFin regularly evaluates the liquidity of its investments and the eligibility of its assets as collateral on the repo markets. At the end of 2017, 88 percent of all long-term investments met the eligibility requirements of ECB.

Effective market risk management

The treasury department of Municipality Finance is responsible for the management of market risk at MuniFin in accordance with its risk policies. As a rule, the balance sheet interest rate risk position in 2017 was kept at its previous low level by applying interest rate hedging to fixed-rate debts and receivables. Short-term interest rate risk was steered by using a netting set of Euribor fixing, covering both debts and receivables.

MuniFin hedges currency risk with derivatives. The main principle is that all foreign currency ­denominated liabilities and assets are hedged on a trading day. Furthermore MuniFin is obligated to submit foreign currency cash collateral to the ­central clearing counterparty for use in foreign currency ­interest rate swaps. This, however does not have ­significant profit and loss effects.

In 2017, Municipality Finance made the decision to allocate some of its investments to socially responsible investment (SRI) targets. At the end of the year the total amount of MuniFin’s responsible investments in 2017 was EUR 43 million.

In 2017, MuniFin has been putting major effort into developing balance sheet management and transfer pricing. A dedicated ALM (asset liability management) function was established in conjunction with the treasury department. The systems and operating model of the ALM function will be deployed in 2018. The objective is to have more dynamic balance sheet analysis and steering, as well as internal transfer pricing.

Management of liquidity investments

The credit and market risks as well as the expected yield of MuniFin’s long-term liquidity are diversified into asset classes and different countries. In addition to the above, the spread sensitivity of investments is controlled by changing their maturity.

In 2017, no major changes were made to the allocation of investments among the asset classes. However, outstanding long-term investments were allocated more to short-term investments due to poor expected returns. As a result, the average maturity of all investments decreased year-on-year. On the national level, MuniFin reduced the amount of investments with Canadian and Swedish issuers, among others.

Responsible investing

In 2017, Municipality Finance made the decision to allocate some of its investments to socially responsible investment (SRI) targets. At the end of the year the total amount of MuniFin’s responsible investments in 2017 was EUR 43 million. The target amount for SRI was determined on the basis of a percentage share of MuniFin’s funding base for green bonds.

In its liquidity management MuniFin applies the guidelines of the company’s Responsibility Policy approved by the Board of Directors. The ESG criteria is used to measure the environmental and social responsibility and governance practices of the issuers in the liquidity portfolio.

The average ESG score of all investments is compared to a benchmark index using an asset class breakdown corresponding to the company’s liquidity investments. The ESG analysis of issuers is carried out by the German asset manager Union Investment. At the end of 2017, MuniFin’s liquidity investments had an ESG average of 49.1, which is just under the benchmark index (49.2).

The method of calculating the ESG score used by Union Investment was changed in 2017. This prevents comparison between the ESG scores published in previous years and the ESG score for 2017. According to the calculation method used in 2017, the ESG score for 2016 was 49.9.